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Taking Professional Advice Is the First Step to Creating a Valid Trust

Investors who claimed a right to share in almost $18 million yielded by an inventor’s brainchild have been left disappointed following a Court of Appeal ruling – simply because of their failure to insist that he took legal advice.

The investors had ploughed significant sums of money into enabling the inventor to develop and exploit a specialist drilling device. His design was adopted by a US company other than by agreement with him and, after he launched proceedings, he achieved a settlement of his damages claim worth $17,774,135.

The investors claimed that they had supported the inventor’s work on the basis that their money would in due course be returned to them and they would also receive percentage shares in his business. They argued that, prior to his death, the inventor had created a binding trust in their favour and that his promises to them should be honoured from the damages, or assets that they had subsequently been used to acquire.

Those arguments succeeded before the High Court on the basis that, although the various documents and letters which had recorded the inventor’s promises had been prepared by him without any legal advice, they had succeeded in creating a valid trust, of which the investors were beneficiaries.

In upholding an appeal against that ruling brought by the inventor’s sons, however, the Court of Appeal found that no valid trust had ever been brought into existence. Although the class of potential beneficiaries and the property concerned were sufficiently certain, the inventor’s intention to create a trust was not.

A formal declaration of trust was nowhere to be found in any of the documents or letters and their wording was simply not apposite to create a trust. Although the investors might have been able to pursue breach of contract claims against the inventor personally, his alleged failure to keep his promises did not by itself create a trust in their favour.

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