L4 Certainty of Intention

Question 1

• Knight v Knight –

Answer 1

• The case embodies the ‘three certainties principle’. This is the rule that on the creation of express trusts to be valid, the trust instrument must show certainty of intention, subject matter and object.

Question 2

• Lambe v Eames –

Answer 2

To be at her disposal in any way she may think best, for the benefit of herself and her family’. = merely a moral obligation.

Question 3

• Re Adams and the Kenssington Vestry –

Answer 3

• Held: there was no trust created by the testator who gave all his property to his wife ‘in full confidence that she would do what is right…’ = Cotton LJ – The statement may make a trust, ‘but what we have to look at is the whole of the will which we have to construe’.
• A merely moral obligation.

Question 4

• Cf. Comiskey v Bowring-Hanbury –

Answer 4

• ‘In full confidence that…she will devise it to one or more of my nieces as she may think fit…’
• The words ‘in full confidence’ could create a trust as long as this was the intention.

Question 5

• Re Hamilton –

Answer 5

• ‘Take the will you have to construe and see what it means, and if you come to the conclusion that no trust was intended you say so’ per Lindley LJ.

Question 6

• **Paul v Constance –

Answer 6

• Case where the court was generous in finding the trust.
• The case sets out what will be sufficient to establish that someone has intended to create a trust, the first of the ‘three certainties’. It is necessary for the settlor to ‘…show clear intention to dispose of property…so that someone else acquires a beneficial interest’.
• Facts: Mr Constance was married to D, his wife. He left his wife and met the C, and moved in with her. Later on, he divorced his first wife. Mr Constance received some money and decided to open a bank account. Mr Constance was opened in his own name and C could draw money on the account if she had a signed note from him.
• Mr Constance had told C that the money ‘was as much hers as it was his.’
• Mr Constance died without making a will and his wife, the administratrix of his state closed the account and claimed the sums contained in the account.
• The C argued that the sums contained in the account were held on trust for the benefit of her and Mr Constance jointly.
• Held: There was an express declaration of trust and the C was entitled to the money in the account.
• The CA held that the conduct demonstrated that he wished for the money to be held on trust for Mr Constance and Ms Paul jointly.
• Lord Justice Scarman – the statement ‘this money is as much yours as mine,’ creates a trust.

Question 7

• **Re Kayford –

Answer 7

• Megarry J: ‘‘It is well settled that a trust can be created without using the word ‘trust’ or ‘confidence’ or the like: the question is whether in substance a sufficient intention to create a trust has been manifested.’’
• It is nevertheless important that the settlor uses ‘imperative’ words.
• Facts:
• The director of Kayfords Ltd, a mail order business, were concerned about insolvency. They were receiving pre-payments for goods from the customers, and were concerned about this being taken by other creditors. They received advice about opening another account and deposit money from customers into that account. Suppliers of Kayford Ltd went insolvent, and soon Kayford also found that it could not survive. It went into liquidation and the creditors claimed that the money in the accounts was part of the company’s assets. It was contended that instead the money was held on trust for Kayford’s customers.
• Megarry J held that the money was subject to a trust. It fulfilled all the requirements for creation of a trust, including certainty of intention, beneficiaries and subject matter.
• Held;
• Kayford held the money in the account on trust for its clients.

Question 8

• Twinsectra Ltd v Yardley –

Answer 8

• The case is authority for rulings in the areas of ‘Quistclose’ trust and ‘dishonest assistance.’
• Twinsectra sued Yardely and two solicitors for failing to repay a loan.
• Twincsectra said that it would only give the loan if someone guaranteed Yardley’s payment. One of Yardley’s solicitors, Mr Leach refused to give a guarantee, however the Mr Sims guaranteed Yardley’s payment.
• Mr Sims had owed some money to Mr Yardley from previous dealings. Mr Yardley and Mr Sims agreed that if Mr Sims took the loan first, the prior debts would be considered repaid.
• Mr Sims promised Twinsectra Ltd that he would not released the money until all conditions were satisfied.
• However, Mr Sims then gave the money to Mr Yardley’s solicitor, Mr Leach who passed it onto Mr Yardley. Instead of using the money for the investment, Mr Yardley in breach of contract sued to pay off his debts.
• Twinsectra sued Mr Yardley to the get the money back and also both solicitors. Mr Sims was now bankrupt. It argued the money was bound by a trust, that Mr Sims was in breach of trust, and Mr Leach dishonestly assisted the breach.
• In the CA it was held that Mr Leach was dishonest because he had deliberately shut his eyes.
• Key: The solicitor’s undertaking that the money should only be used for one purpose so that the money is not at the borrower’s disposal was sufficient intent to create a trust.

Question 9

• Don King Productions v Warren

Answer 9

• Boxing promoters entered into partnership agreements relating to promotion and management of boxing.
• The issue was whether the partnership assets including all renewal and replacement agreements obtained by any partner were held to be in trust for partnership.
• Lightman J – An obligation binding the conscience of the person with legal ownership constitutes a trust.

Question 10

• Re Farepak Food and Gifts Ltd

Answer 10

• The joined administrators applied to the court for directions as to whether they could distribute funds they held to Farepak’s customers.
• The question arose as to whether the money paid to Farepak (via agents) after it had ceased to trade (the money paid to the agents was to be held for a period of time) could be said to be held on trust for the customers and therefore could be distributed to them straight away.
• Held: a trust was created.

Question 11

• *Annabel’s (Berkley Square) Ltd v Revenue and Customs Commissioners

Answer 11

• A case regarding the treatment of tips under the National Minimum Wage Act 1998. It led to the abolition of the exception of tips from the national minimum wage.
• Facts: Workers at Annabel had a ‘troncmaster’ (senior managers given the job by the employer) in charge of tips. Tips would be distributed to all the employees based on length of service under a points system. The Inland Revenue issued the NMWA 1998 s 19 enforcing that the employer was not entitled to deduct the amounts distributed through this tronc system from the workers’ wages. Furthermore, the NMWA said that money paid to customers by tip that is not paid through the payroll is not a legitimate reduction.
• Arguments:
• The employer’s argument: the troncmaster was always contractually bound to distribute the money and would therefore always go to the employer; it never became the employee’s money.
• The revenue’s argument was that when the money was handed over to the trnocmaster, there was a trust for him to pay the money to the employees. (my words… this is the action that created the trust)
• Held: There was a trust for the truncmaster to pay the employees.
• Rimer LJ: Preferred the Revenue’s arguments, holding that the tips were not part of the pay and the restaurants were in breach of the NMWA 1998.

Question 12

• *Jones v Lock

Answer 12

• The case concerns formality for creating a gift, and the possibility that if the gift were not properly completed with the required legal form, a trust could not be found. It held that equity would not ‘perfect an imperfect gift’ by creating a trust, if the proper formality for the gift had not been completed.
• Facts: A father returned from a business trip without a gift for his son. After being told off, he put a £900 cheque in the baby’s hand and said:
• ‘I give this to baby; it is for himself and I am going to put it away for him, and will give him a great deal more along with it.’
• The wife said the baby might tear it, and the father said, ‘it is his own, and he may do what he likes with it’. He locked in a safe and dies six days later. It was argued that although there was a never an outright transfer because he had not signed the cheque, there was a trust. However:
• The CA held there was no trust, because the father’s intention was not an outright transfer, due to not signing the cheque.
• The court refused to perfect an imperfect gift through a declaration of a trust.

Question 13

• Richards v Delbridge

Answer 13

• Mr Richards wished to handover the business to Edward, a family member and expressed his intention through a short memorandum. He said: ‘This deed [that is the dead of leasehold] and all thereto belonging I give to Edward from this time forth with all the stock in trade.’ However, the gift failed because it was imperfect
• Held: There was no express declaration of trust it was intended as an outright gift and not to be held on trust.
• Sir George Jessel MR – said that for a trust to exist words equivalent to a trust must be used.

Question 14

• Snook v London and West Riding Investment Ltd

Answer 14

• The court considered a claim by a hire-purchase company for the return of a vehicle.
• The person with temporary ownership said the agreement was a sham/pretence. And in fact, the court held -
• Held: The word ‘sham’ should be used to describe an act or document where the do not intend to create the legal relations and obligations.

Question 15

• Midland Bank plc v Wyatt

Answer 15

• Mr and Mrs Wyatt, executed a trust over their home. The trust was put away in their safe. Mr Wyatt later borrowed from the bank on the security of ‘his’ house. There was no disclosure of the trust to the bank. The court took the view that the trust was a sham. It had been signed, put away, ignored, not disclosed and generally not acted on.
• The court took the view that the trust was not enforceable and hence a sham.
• The court took the view that even if the transaction was entered into without fraudulent motive or on the basis of mistaken advice, it was still void and therefore an unenforceable transaction.

Question 16

• Clough Mill v Martin

Answer 16

• The appellant supplied yarn under four contracts of sale to a company to be used in the manufacture fabrics. The contracts provided that the risk in the yarn was to pass to the company on delivery but the ‘ownership’ of the yarn was to remain with the appellant until payment had been made for all the material supplied.
• Held: the appellant had ownership of the unused yarn.

Question 17

• Palmer v Simmonds

Answer 17

• Case concerning the certainty of subject matter.
• Facts: The settlor said she wanted to create a trust for various people over her property.
• Statement used to try to create a trust: ‘for his own use and benefit as I have full confidence in him, that if he should die without lawful issue he will… leave the bulk of my said residuary state unto’ certain named persons.
• Held: Sir RT Kindersley held that because the court could not be sure which parts of the residence were meant to be held on trust, the trust failed.

Question 18

• Sprange v Barnard

Answer 18

• Case concerns certainty of intention of subject matter to create a trust. It is an example of a court concluding that the word of a testament being interpreted to mean a gift was intended rather than a trust.
• The testatrix left £300 worth of annuities to her husband ‘for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want for his own wants and use to be divided between’ a number of beneficiaries.
• Held: It was held that no trust arose, and the husband took all the property beneficially. Making a gift was the dominant intention, not to bind the husband with a trust.

Question 19

• Re Golay’s will Trusts

Answer 19

• Case concerning the requirement of subject matter to be sufficiently certain.
• Facts: Adrian Golay wrote a will saying that he wanted Mrs Bridgewater to enjoy one of his flats during her lifetime and to receive a reasonable income from his other properties. The will was challenged and it was questioned whether the clause was certain enough to be enforce, because it was not clear which flat, or what income would be reasonable.
• Ungoed-Thomas J held the trust was sufficiently certain.

Question 20

• *Re London Wine Co (Shippers) Ltd

Answer 20

• The case concerned the necessity of ascertaining assets subject to a trust. It has been distinguished by Hunter v Moss and Re Harvard Securities, and may not be consistent with the general policy of insolvency law as seen in Re Lehman Brothers International (Europe).
• Facts:
• London Wine argued that they should be able to claim the bottles of wine they had paid for.
• The remaining wine stock was a valuable asset to the company.
• The bottles that the customers had bought had not yet been individually identified. The company had not even promised to provide wine from its current stocks.
• Held:
• Oliver J held that the company had said the wine was to come from current stocks, the trust would in any event have been uncertain.
• So any alleged constructive or express trust of the bottles would be uncertain, at least until the specific bottles were set aside for the customers.
• So for a trust to take place, the specific item has to be set aside. This way the trust will be formed.
• The property that is subject to the trust must be identifiable.

Question 21

• *MacJordan Construction Ltd v Brookmount Erosin Ltd

Answer 21

• A builder appealed against the rejection of his request for an order to make BE, an insolvent property developer, comply with a contractual obligation to establish a retention fund agreed before BE became insolvent.
• Appeal dismissed.
• The claim to have an equitable interest in BE’s assets was rejected because there were no identifiable assets to which M’s contractual rights applied.
• BE’s failure to appropriate and set aside the fund did not give M equitable rights in the bank’s floating charge.
• Scott LJ: ‘The contractual obligation…does not carry with it any equitable interest of a security character in the assets for the time being of the employer.’

Question 22

• **Re Goldcorp

Answer 22

• Significance: The outcome of the advice of the Board was not mirrored by the Supreme Court in In re Lehman Brothers International (Europe), which concerned customers who were held to have had a trust of assets under the Markets in Financial Instruments Directive that was designed to protect their savings.
• Facts:
• Re Goldcorp Exchange Ltd had a business of holding gold reserves in coins and ingots (golden brick) for customers wishing to invest in gold.
• Some gold was held for customers, but the levels varied from time to time.
• The company’s employees also told customers that the company would maintain a separate and sufficient stock of each type of bullion (golden bar) to meet their demands, but in fact it did not.
• The bank of New Zealand being owed money from Goldcorp petitioned for the business to be wound up (to be brought into liquidation – so to sell its assets)
• This showed that Goldcorp did not have enough money for the members of the public and lacked enough assets to satisfy the debts to the bank.
• The members of the public alleged that the gold that remained in stock was entrusted to them.
• The bank argued that because the gold stocks had never been isolated then, the gold was not entrusted to the customers. Hence, the creditors and security interest took priority.
• Held:
• The customers had not property interest in the gold, and therefore the bank could use it to satisfy its debts.
• The customers’ purchase contract did not transfer tittle, because which gold specifically was to be sold was not yet certain.
• Despite Goldcorp promising a title, a trust did not arise because there was no declaration of it.
• It was contrary to policy to imply a fiduciary duty simply because there was a breach of contract.
• It was also rejected that equity required any restitution (law of gains based recovery) of the purchase money.
• Lord Mustill –
• He gave the advice in the Privy Council – saying that customers had no property in the gold, and therefore the bank could use it to satisfy its debts. The customers’ purchases did not transfer tittle because the gold, which was to be sold, was not certain.
• ‘…for the remaining stock, having never been separated, is just another asset of the company…’.

Question 23

• ** Hunter v Moss

Answer 23

• CA case
• Significance: Dillon LJ distinguished, Re London Wine Co, allowing him to decide the case on the facts alone.
• The case:
• Case concerning certainty of subject matter necessary to form a trust.
• Moss promised Hunter 59 shares in his company as part of an employment contract but failed to provide them.
• Hunter brought a claim against Moss for them, arguing that Moss’ promise had created a trust over those 50 shares.
• The constitution of trusts normally requires that trust property be segregated from non-trust property for the trust to be valid, as in Re London Wine Co.
• On this occasion, however, Dillon, Mann and Hirst LJJ in the CA felt that, because this case dealt with intangible property, rather than tangible property, this rule did not have to be applied.
• Because all the shares were identical, it did not matter that they were not segregated, and the trust was valid.
• The decision was applied in Re Harvard Securities, creating a rule that segregation is not always necessary when the trust concerns intangible, identical property.
• The academic reaction to the case was mixed. Some call it fair and sensible. However, others such as Alastair Hudson felt that the decision was wrong because it contradicted existing property law requiring there to be ‘specific and identifiable property’ to be subject to a property right. Secondly, he suggests that it is difficult to see why there should be a dividing line between intangible and tangible property, since there are some principles, which apply to both.
• Facts:
• Moss owned 950 shares. Moss said that Hunter, the finance director, could have 50 of these share as part of his employment. He made no statement or trust involving the other 900 shares. This gift of 50 shares was never implemented because Moss changed his mind. Hunter brought a case against Moss claiming his 50 shares, which raised two issues:
  1. Whether the language used was sufficient to create a trust
  2. Whether or not the trust failed to provide the three certainties because of the lack of segregation between the shares.
• Held:
• The CA held that the trust was not void for uncertainty.
• The reasoning by the CA was criticised. Re London Wine Shippers was distinguished because the subject matter there was potentially different, while all of Moss’ shares were identical.
• Following the judgement of Dillon LJ said the trust was valid, first because it was necessary for there to be one to enforce the terms of the employment contract. Second, he distinguished Re London Wine saying, ‘that the case is a long way from the present. It concerned with the appropriation of chattels and when property in chattels passes. We are concerned with a declaration of trust.’
• Hence, Dillon LJ concluded that there was no tangible distinction between the shares, there was no reason to hold the trust void because the shares had not been segregated. As such, the trust was valid.

Question 24

• **Hayton, ‘Uncertainty of Subject Matter of Trusts’ 110 (1994)

Answer 24

• Hayton explains that, ‘if that if the trust had been for one-nineteenth, as opposed to 50 out of 950 shares, the subject matter of the trust would have been sufficiently certain. This is because the court does not have to decide which shares are held on trust, but rather can say that all shares are held on trust in [an equal proportion] of 1:18’.

Question 25

• *Re Harvard Securities

Answer 25

- Facts: - A company purchased shares on behalf of clients and retained legal tittle in the shares as a nominee for each client. The company later went into liquidation. The question for the court was whether the clients of the company had a beneficial interest in the shares even though the shares had not been allocated to them. - Held: - That with regard to the US and Australian shares sold, the question as to whether the clients had any beneficial interest in the shares would be determined in accordance with English law. And those shares sold before July 14, 1986 would be governed by Australian law. - Hunter v Moss was followed. - However, under Australian law, the clients had no equitable interest in the Australian shares, hence it was necessary to establish certainty of subject matter by identifying or allocating them. - Neuberger J: - ‘The ground upon which the CA in Hunter distinguished London Wines is substantially the same ground upon which Goldcorp can be distinguished from Hunter.’ - He was not convinced by the tangible and intangible distinction set out in Hunter. However, as he was sat at first instance, he followed the case.

Question 26

• *White v Shortall – reported in the New South Wales SC

Answer 26

- Facts: - The plaintiff argued that the defendant had executed a declaration of trust in her favour in respect of shares he held in a certain company. - The defendant resisted the claim on the ground that, as the shares could not be identified, there was no certainty as to the subject matter and hence no valid trust. - Held: There was a valid trust for the trustee to hold the shares for the plaintiff and the remainder on trust for himself. - As the trust was of the whole shareholding it was not necessary for the beneficiary to be able to show a particular share as her own. This was sufficient certainty of subject matter.

Question 27

• Sale of Goods Act 1979 s 20A

Answer 27

- s 1(a)(b) and s 2(a)(b) - This is statutory reform in a specific context of sale as opposed to gift or declaration of a trust – should not cloud the general principle of trust law: for a trust to be valid, the property in question should be certain. P77 Virgo.