Shephard v Cartwright [1955] AC 431

Facts

• Mr. Cartwright transferred shares to his children via a trust deed that did not explicitly clarify whether the shares were intended as outright gifts or were to be held in trust.
• After Mr. Cartwright’s death, his executors argued the shares were held in trust for his estate, while his children contended they were outright gifts.
• The executors attempted to introduce extrinsic evidence, including oral statements and later conduct, to support their claim regarding Mr. Cartwright's intention.
• The House of Lords rejected this extrinsic evidence, holding that the donor’s intention must be discerned solely from the trust instrument and contemporaneous documents.
• The decision favored the children, finding that the shares constituted outright gifts.

Issues

1. Whether the intention of a donor in creating a trust may be established using evidence beyond the trust instrument and contemporaneous documents.
2. Whether oral statements and subsequent conduct can be admitted as evidence to determine or contradict the nature of the trust or gift.
3. Whether exceptions allowing extrinsic evidence should be made in cases not involving fraud or mistake.

Decision

• The House of Lords ruled that a donor’s intention must be determined exclusively from the trust instrument and contemporaneous documents.
• Evidence extrinsic to the trust documents, such as oral testimony or subsequent conduct, is inadmissible to supplement or contradict the instrument, except where fraud or mistake is alleged.
• The executors’ attempt to introduce extrinsic evidence was rejected.
• The shares were found to be outright gifts to the children, not assets held in trust for the estate.

Legal Principles

• The admissibility of evidence regarding donor intention is strictly limited to the trust instrument and contemporaneous documents.
• The objective interpretation of a trust’s terms is required; subjective or post-hoc assertions are irrelevant.
• Extrinsic evidence is inadmissible to alter, contradict, or supplement trust terms, save for allegations of fraud or mistake.
• The restriction on extrinsic evidence upholds legal certainty in trust arrangements.
• The exception for fraud or mistake permits extrinsic evidence only to the extent necessary to correct misconduct or a genuine error.
• These principles emphasize the importance of precise and clear drafting in trust creation to accurately reflect donor intentions.

Conclusion

Shephard v Cartwright [1955] AC 431 is a leading authority confirming that, in determining donor intent for trusts, courts are confined to the terms of the trust instrument and contemporaneous documents, broadly excluding extrinsic evidence except in cases of fraud or mistake. This approach ensures legal certainty and enforces the integrity of trust arrangements, necessitating careful and clear documentation at the time of the trust's creation.