Sem 1 - Certainties 2 Flashcards
Re Gulbenkian Settlement Trusts (No.1) [1970] AC 508
📌 Principle: A power of appointment is valid if it is possible to say with certainty whether a given individual is or is not within the class of beneficiaries.
💡 Key Point: This introduced the “is or is not” test—as long as it is clear whether a person belongs to the class, the power is valid.
🔑 Memory Aid: “The Gulbenkian Guest List” – Imagine a bouncer at an exclusive party. If he can clearly say whether someone is or is not on the guest list, the power is valid.
📝 Facts: A settlement allowed trustees to distribute funds to a wide class of potential beneficiaries. The court held that powers of appointment are valid as long as individual members of the class can be definitively identified.
McPhail v Doulton [1971] AC 424 (Lord Wilberforce’s Judgment)
📌 Principle: Discretionary trusts are valid if they pass the “is or is not” test—this replaced the stricter “complete list” test from IRC v Broadway Cottages.
💡 Key Point: A discretionary trust only needs to show that any given individual is or is not a potential beneficiary—not that a complete list of all beneficiaries can be drawn up.
🔑 Memory Aid: “McPhail’s Party Problem” – Imagine a wedding invitation list. The bride and groom don’t need to list everyone invited—as long as they can say whether a specific person is on the list or not, it’s valid.
📝 Facts: A trust for the employees of a company was challenged for uncertainty. The House of Lords ruled that discretionary trusts should follow the “is or is not” test from Re Gulbenkian rather than requiring a complete list of beneficiaries.
Charles Emery, “The most hallowed principle” 98 LQR (1982) 551
📌 Main Argument:
Emery criticises the move from strict certainty to flexibility in McPhail and Re Baden.
He argues that clarity in trust law is crucial to avoid administrative chaos.
The “is or is not” test is too vague—it creates uncertainty instead of solving it.
🔑 Key Quote: “Trusts demand certainty. The erosion of precision invites confusion, litigation, and ultimately the failure of settlor intent.”
👀 Why It’s Important: Challenges the modern, flexible approach and warns that unclear trust terms can lead to enforcement issues
Re Baden (No 2) [1973] Ch 9
📌 Principle: The “is or is not” test from McPhail v Doulton is workable—but judges disagreed on how to interpret uncertain terms like “relatives”.
💡 Key Point: This case tested whether the McPhail test was practical and showed that judges interpret beneficiary classes differently.
🔑 Memory Aid: “The Baden Family Reunion” – Three judges argued over who counts as “family”:
Stamp LJ (strict dad): Only next of kin.
Megaw LJ (flexible uncle): Most reasonable interpretations are fine.
Sachs LJ (chill cousin): If someone can prove they are a relative, that’s enough.
📝 Facts: A trust was created for the “relatives” of employees. The Court of Appeal ruled that as long as it was possible to determine if someone was or wasn’t a relative, the trust was valid—but they disagreed on how strictly to interpret “relatives”.
What is the fundamental conceptual difference between a trust and a power of appointment?
📌 Answer:
A trust creates a binding obligation—trustees must distribute assets to beneficiaries.
A power of appointment is discretionary—trustees may choose to distribute, but are not required to.
🔑 Key Case: McPhail v Doulton – The court treated discretionary trusts more like powers, making them easier to uphold.
What reasoning did Lord Wilberforce give for applying the ‘is or is not’ test to discretionary trusts? Are you persuaded?
📌 Answer:
Lord Wilberforce argued that:
Practicality – The “complete list” test (from IRC v Broadway Cottages) made discretionary trusts too rigid.
Flexibility – Trustees only need to identify beneficiaries when distributing—not list all in advance.
Alignment with Powers – Since powers already used the “is or is not” test (Re Gulbenkian), discretionary trusts should too.
🔑 Am I Persuaded?
Yes: Makes discretionary trusts more workable and prevents unnecessary failure.
No: Creates uncertainty—trustees might struggle with vague beneficiary definitions.
🔑 Key Case: McPhail v Doulton – Allowed greater flexibility in discretionary trusts.
Why did Stamp LJ make a narrow interpretation of ‘relatives’ in Re Baden (No. 2)? Did the other judges agree?
📌 Answer:
Stamp LJ = Strict – Defined “relatives” as only next of kin.
Sachs LJ = Flexible – If a person can prove a family connection, they qualify.
Megaw LJ = Middle ground – As long as some people clearly qualify, the trust is valid.
🔑 Did They Agree?
No—the judges disagreed on how broad the term should be.
Stamp LJ’s approach was narrower, but Sachs and Megaw LJJ favoured broader interpretations.
🔑 Key Case: Re Baden (No. 2) – Judges interpreted “relatives” differently, affecting trust certainty.
What is the danger in the generous interpretative approaches of Sachs and Megaw LJJ in Re Baden (No. 2)?
📌 Answer:
Risk of Uncertainty – If the definition of “relatives” is too broad, trustees might struggle to determine who qualifies.
Practical Enforcement Issues – If courts allow vague terms, it makes administration difficult and invites litigation.
Undermines the “is or is not” test – A test designed for clarity becomes unclear if beneficiary definitions remain uncertain.
🔑 Key Case: Re Baden (No. 2) – Showed how judges disagreed on certainty of objects.
