The three certainties

Question 1

Mcphail v Doulton

HL

Answer 1

HL recognised that the two categories: trusts and powers, are not wholly distinct and possible to combine the two

Question 2

What are the three certainties?

Answer 2

1) Binding obligation on the trustees holding property
2) Trust can only exist in relation to a specific property
3) Trustees must owe the obligations to legal persons who are entitled to enforce them

Question 3

When will an express trust arise?

Answer 3

if it can be shown that the recipient of property was intended to be subject it to a trust obligation.

Re Kayford

Question 4

Re Kayford

Answer 4

Megarry said “the question is whether in substance a sufficient intention to create a trust has been manifested”.

A trust can be created without using the word “trust” = Re Kayford.

No requirement for a particular formular or phase ot be use, so the court look for an intention to create a trust, this must be deduced from the use of the language that makes it clear that the recipient does not hold property for his own benefit, but holds it for others.

Question 5

McPhail v Doulton

Answer 5

mandatory language meant it was a trust not a mere power. The word “shall” held power and demonstrated that the recipients were under a mandatory duty.

Question 6

Re Snowden

Answer 6

a lady left her property to her brother telling him that he would “know what to do”. Held: not intended to impose a mandatory obligation on him to hold the property on trust for her nephews, but merely expressed a moral obligation to distribute the property among her family.

Question 7

Shah v Shah

Answer 7

intentions are important, the court will look at the words he has used in the context of the relevant facts

Question 8

Don King Productions v Warren (No 1)

Answer 8

Even if language used in an agreement is inadequate in itself to create a trust, a trust may be held to have been created if this would fulfil the settlor’s overriding intention. Held: an intention could be deduced as a “matter of business common sense”.

Question 9

Do precatory words create a trust?

Answer 9

In older authorities, certain words would create a trust, like “hope, desire, wish” but this at most implies only a moral obligation.

But

Re Adams and Kensington Vestry – CA held: precatory words alone were insufficient to give rise to a trust. Therefore, now such words are just part of the evidence used to discover an intention to create a trust.

Question 10

Re Adams and Kensington Vestry

CA

Answer 10

CA held: That “the older authorities went to far in holding that some particular words appearing in a will were sufficient to create a trust”. precatory words alone were insufficient to give rise to a trust. Therefore, now such words are just part of the evidence used to discover an intention to create a trust.

Question 11

Tito v Waddel

Answer 11

The word “trust” will not of itself indicate the existence of an intention to create a trust, since the word may not have been used as a technical legal term

Question 12

What must the words show?

Answer 12

Must demonstrate an intention to impose a binding legal obligation on the recipient of property as opposed to a purely moral obligation.

Question 13

Re Steele’s Will Trusts

Answer 13

This is a very unusual case and might not be followed.

A testatrix left a diamond necklace to her son by will. He will contained a clause that had words like “all in his power by will or otherwise” to give effect to my request. This form of words had been copied exactly from the iwll of an earlier case where it had been held to crreate a trust. The judge held: although subsequent cases had held that mere precatory words were not sufficient to create a trust, the fact the words of an earlier case were used afforded the strongest indication that the testatrix intended to create a trust.

The rationale for this decision was not the use of the precatory words per se, but the intention evidence by folklowing an estavblished precent.

Question 14

Will a sham intnetion mean no trust is validly created?

Answer 14

Courts MAY refuse to find a trust was validly created if such an apparent intention to create a trust was a “sham” because at the time it was made, the owner had no real intention to subject his property to a trust and the purpose of the purported trust declaration was to give a false impression to third parties or the court

Question 15

Midland Bank v Wyatt

Answer 15

Mr and Mrs Wyatt were joint legal owners of their hour. They executed a declaration of trust in favour of Mrs Wyatt and their daughters. The declaration of trust was not acted upon. Subsequently, Mr Wyatt took loans to finance his business, secured by itnerest in the house. The declaration was only produced after the business had gone under and creditors wanted the house.

Held: circumstances declaring trust in favour of wife and children was a sham and was ineffective.

Question 16

Is it always a trust?

Answer 16

NO!

Words used can fail to create a trust, but the testator might have intended instead to make an absolute gift. but imposing a moral obligation.

Question 17

The three certainties

Answer 17

1) Intention

2) Certainty of subject-matter

Question 18

Requirments in certaainty of subject matter

Answer 18

1) trust can only exist in relation to specific property

Question 19

Westdeutsche Landesbank Girozentrale v Islington LBC

Answer 19

Lord Browne Wilkinson stated that - “in order to establish a trust there must be identifable trust property”.

An imprecise definition of the itnended trust property will render the trust invalid for uncertainty of subject matter

Question 20

Boyce v Boyce

Answer 20

a failure to identify any specific property as the trust property will prevent the creation of a valid trust.

Even where the source of trust property has been identified in general terms, it must be possible to separate out the specific property which is to be held on trust.

Question 21

Re London Wine

Answer 21

A wine merchant held large stocks of wine in various warehouses. When a customer ordered a consignment, it was intended that the bottles ordered should become the property of the customer, and that from that moment on , they would be held on trust for customer. Howevever, there was no segregation of the bottles ordered from the general stocks until actual delivery to customer. No beneficary could identify which bottle was his/hers.

Held: indended express trust failed for lack of certainty of subject matter because wine had not been appropriated from the general stock.

Question 22

Re Goldcorp Exchange

PC

Answer 22

PC confirmed and applied Re London Wine.

Here: a company dealing with gold used investor’s money to acquire bullion. The company had not segregated any specific parcel of bullion to individual purchasers, but held it on bulk. The PC held: it was not held on trust for investors. Therefore, the customers were limtied to a contractual claim against the company for the return of their investment

Question 23

MacJordan Construction v Brookmount Erostin

Answer 23

builder’s employer was entitled by contact to retain 3% of the contract price as trustee for a builder, to ensure that the word done was satisfactory. Employer became insolvent, but had failed to put aside a separate retention fund of specific money due under the contract.

Held: trust failed because it was impossible to identify any specific money as subject to the trust obligation.

Question 24

Hunter v Moss

CA

Answer 24

Shares do not need to be segregated.

CA Held: oral declaration of trust by Mr moss was not void for want of certainty of subject matter merely because the shares were not segregated.
Reason for this was not clear, it might be because:

1) the requirement of appropriation of the trust property from a common stock only applies in the case of tangible property but has no application to intanible property, provided there is an identifiable bulk from which the property allegedly subject to the trust can be drawn. But this is inconsistant with MacJordan Construction case.
2) declaration of trust was to be treated as if a fractional share of Mr Moss’s holding. While the shares could have been seperated, there could be technical problems with seperating it into two seperate holdings, for example Mr Moss’s holding was represented by a single share certificate. This is supported by land law.

Hunter v Moss was argued and decided before the decision had been given in Re Goldcorp Exchange, and has been subject to critisism on the grounds that it is inconsistent with the endorsement by the PC in Re London Wine.

Question 25

Re Harvard Securities

Answer 25

Neuberger held that he was required to follow the decision in Hunter v Moss, and that it could be distinguished from earlier cases on the grounds that it concerned shares and not chattels.

This is not a strong ground for making the distinction and the better basis is that property is sufficiently identified if a trust is declared of a defined fractional share of clearly identified whole.

Question 26

Impact of the Sales of Goods Act 1995 in relation to apportionment

Answer 26

purchasers of unascertained goods held in bulk became tenants of title if the goods are interchangeable. Although this does not generate a trust, it ensures that the purchaser enjoys a proprietary interest in the goods purchased, with the consequence that they will enjoy priority over other general creditors if the seller subsequently becomes insolvent before the goods are segregated from the bulk.

Question 27

Palmer v Simmons

Answer 27

testatrix attempte to create a trust of “the bulk of my said residuary estate”.
Kindersley held: this did not create a trust because the term “bulk” did not identify a definity, clear and certain part of her estate

Question 28

Re Jones

Answer 28

Held: that a gift by a testator of parts of the residuary estate which were not spent or disposed of by his wife did not create a trust.

Question 29

Re Golay’s Will Trusts

Answer 29

A testator provided in his will that a legatee was to receive a “reasonable income” from his properties. Ungoed -Thomas held: this was not uncertain because the term “reasonable income” was sufficently objective to be capable of quantification, noting that the court is reguarly required to make objective assessmenets of what is reasonable.

Question 30

Can a settlor create a trust of future property?

Answer 30

No - future property means property which a person does not presently own, but which he hopes or expects will come into his ownership sometime in the future.

Question 31

Re Ellenborough

Answer 31

there was a settlement which granted trustees any property to which she might become entitled on the death of her brother. When her brother died, she ddecided not to transfer the property to the trustees. Held: no trust has been created, it amounted to a promise to create a trust. The trustees could not compel her to transfer the property to the trustees because no consideration had been given for the promise

Question 32

What is a residuary interest?

Answer 32

where a person has an immediate right to property, subject only to the expiry of another right.

Question 33

why is it important to have the three certainties?

Answer 33

So that trusts are legally enforeable obligations.

For an oblgiation to be enforcable, it needs to be sufficiently clear and defined to allow the courts both to detemrine whether the obligation has been broken, and to guide them as to the orderfor enforcement they should make.

Question 34

What is conceptual certianty ?

Answer 34

Refers to the semantic clarity of the description of beneficiaries.

If there is any ambiguity in the words used to define a class of objects or if the definition is not objective, so the court cannot determine wihtout a doubt whethera person is within the class or not, it will be conceptually uncertain.

For example “tall people” is conceptually uncertain because there is no way of telling who is tall as well as “old ladies”/ “good friends” or “regulars” in a local pub.

Requirment is about precision of language used to define the class of persons the settlor intends to beneit

Question 35

Re Barlow’s Will Trusts

Answer 35

Browne -Wilkinson expressed the problem with regard to the word “friends”.
1) exact meaning varies from person to person

Question 36

Fixed trusts

Answer 36

the shares of the beneficiaries are defined by the trust instrument.

Question 37

OT Computers v First National Tricity Finance

Answer 37

In a fixed trust, it is important to identify each memeber of the class of beneficairies. .

Significantly, the judge cited McPhail v Doulton as authority for this statement of the law, demonstrating the “complete list” test has survived that decision.

Question 38

Re Sayer

Answer 38

A trust in favour of the employees and ex-employees of Sayer was held to be void for uncertainty because it was impossible to draw up a complete list nof the persons employed. The company had found it imposible to keep accurate records of its employees.

Therefore there was no evidental certainty.

Question 39

What is a power of appointment?

Answer 39

They do not require the donee of the power to distribute the property. They authorise the donee to dominate the beneficiary. The power can only be exercised within the limits of the authority conferred by the instrument - normally the trust - creating it.

Question 40

Re Gulbenkian’s Settlement (No.1)

Answer 40

test for certainty for powers of appointment laid down by HL.

This is describe as the “is or is not” test, or more formally, as the “individual ascertainability” test.

Lord Upjohn stated the relevanant test of certainty:

“if you can with certainty say whether any give individual is or is not a member of the class: you do not have to be able to ascertain every member of the class”

This has been approved by CA in IRC v Broadway Cottages Trust.

Question 41

Re Gresham

Answer 41

Trial court held a power with simialr terms to that in Re Gulbenkian was void for uncertainty, but the CA and HL overturned this decision. Mere difficulty in determining whether an individual is within or without the class is not sufficient to invalidate the powe,and the court can rule on borderline cases. Only insuperable difficult will render the power void for uncertainty.

Question 42

Gulbenkian test

Answer 42

Requires that the court must be able to determine with absolute certainty whether any given individdualis or is not a member of the class of potential objects.

Question 43

Mcphail v Doulton

HL

Answer 43

Trustees of a fund were to apply the income “to or for thebenefit of any of the officers and employees or ex-officers or ex-employee of the company or to any releatives or dependants of any such persons as they think fit”. CA thought if this was a trust, it would be invalid because it would not have been possible to draw up a complete list of beneficaries, but held it was valid because it was a power and it satosfoed the “is or is not” test

HL took a different view, taken as a whole the words of the instrument were manddatory: they imposed an oblgiation and, therefore, created a trust. However, the CA had been wrong to consider that all trusts needed a complete list of beneficiaries. The question was whether the court could control the trust: i.e. the court would be in a positition ot make a valid judgment if it is allekged that the trustees have performed their duty worngly, and capable of intervening.
Intervention by the court where trustees failed to act did not require equal division, other interventions could be appointing new trustees.

Therefore, it is unnecessary for there to be a complete list of all the beneficiaries and the test for certainty of beneficiaries in discretionary trusts should be “similar” to that used for certainty of objects in powers: namely, that it must be possible to say of any given individual that he is , or is not, within the class.

Question 44

Difference in trusts and powers with regards to certainty

Answer 44

powers- is or is not test

fixed trusts - complete list of beneficiaries.

Question 45

Problems with individual ascertainability test - is or is not test

Answer 45

Lord Wilberforce stated in Mcphail v Doulton that the test for discretionary trusts should be “similar” to that for powers of appointment.

In Re Baden’s Deed Trusts (No.2), the CA were not of a single mind as to how the individual ascertainity test should be applied.

Stamp held: it must be possible to categorise ANY individual as being either inside the class or outside it.

But the majority of the CA held that the Gulbenkian test did not require that it could be proved that any given indiviual is not within the class. Both Sachs and Megaw did not believe that the test required evidential certainty as Sachs said:
“the court is never defeated by evidential uncertainty”.
Both Sachs and Megaw took the view that since the words “relatives” and “dependants” were conceptually certain, the trust was valid and not void for uncertainty.

Sachs took the view that if a class was “conceptually certain”, then there was in essence no evidential difficulty because of the operation of a presumption that anypne not positively proved to be within the class is outside of it. THe burden falls on potential claimants to prove they fall within the cllass.

Megaw said - test did not require creation of a list of all the beneficiaries (rejected by HL). Nor that a single individual could prove that he satisfied the description. He said there were three groups of people - those positively proved to be within the class, those outside and those whom are not proven to be within or outside the class.

The majority of the court, concentraated on the need to prove that individuals were within the description of the class. All members of court agreed that terms “dependant” and “relative” should be interpreted in a way which was conceptually certain and made the trust valid.

Question 46

What does McPhail v Doulton make clear?

Answer 46

1) the courts will seek to facilitate the intentions of the ssettlor
2) the emphasis is on how the trustees should act and how the court shoudl cpntrol them. In order to distribute the funds, the trustees of a discretionary trust do not need to know the identify of every memebrr of the class, not the exact number of thebeneficiaries.

Question 47

Does Capriciousness apply in discretionary trusts??

Answer 47

Yes

Question 48

What is capriciousness?

Answer 48

Where there is no discernible objective to guide the trustees in making their decisions, or if the class of beneficiaries is so large as to be administratively unworkable.

Question 49

Will the problem of ascertainment matter

Answer 49

Lord Upjohn in Re Gulbenkian’s settlement said that where you cannot locate the whereables or continued existences of someone, it does not matter.

Lord Wilberforce echoed this in McPhail v Doultom

Question 50

Re Barlow’s Will Trusts

Answer 50

X died leaving a valuable collection of paintings. She gave instructions in her will that “any members of my family and any friends of mine” could buy any of the paintings at a low value. Held: this was not invalid for uncertainty. It was a series of individual gifts to persons answering the description of friend or family member.

Accordingly, anyone who could prove they were friends or family of X could buy the ticture.

Question 51

Re Tuck’s Settlement Trusts

Answer 51

Mechanisms for resolving uncertainty would be held to be valid.

Settlor said that future people will inherit so long as they continue to worship the jewish faith. The CA had doubt as to whether the condition as to the jewish faith would be in itself sufficiently clear. However, reference to the Chief Rabbi operated to make it clear.

Question 52

Test for certainty of obligations

POWER

Answer 52

It must be possible to say whether any given individual is or is not a member of the class

• Re Gulbenkian

Requires conceptual certainty

Question 53

Test for certainty of obligations

Discretionary trusts

Answer 53

It must be possible to say whether any give individual iss or is not a member of the class

• McPhail v Doulton

Requires conceptual certainty

Question 54

Test for certainty of obligations

Fixed trusts

Answer 54

Complete list of all beneficiaries

• OT Computers v First National Tricity Finance

Requires conceptual certainty and evidential certainty.

Question 55

Lord dennings opinion in Re Gulbenkian

Answer 55

An easier to satisfy conceptual certainty test.

He proposed that if the donees can say of a particular person - :” he is clearl within the category”, this is good enough

Question 56

Re Baden (NO2)

Different approaches of the judges

Answer 56

All the judges agreed that dependents was conceptually certain.
They also agreed that relatives is conceptually certain but on very different approaches. This difference of opinion is strong evidence that the test in uncertainty in its application.
o Sachs LJ approach
 Could be categorised as a liberal approach.
 Relatives means descendants of a common ancestor.
 Conceptually certain as the meaning is understandable.
 Trustees under a duty to survey the range of possible beneficiaries to gain a sense of the width of the class an exhaustive list is not required.
 In response to the argument that descendants of a common ancestor is limitless, the judge makes three points:
•
Trustees should exercise their discretion in a prudent way making it likely that they will choose close relatives.
• Proving your relationship to someone else soon becomes difficult this provides a limit to those who can establish they are part of the class.
• Furthermore, the issue above is a question of evidential certainty this will not prevent a discretionary trust from being valid.

This approach is welcome in that it is a test that looks at conceptual certainty in the traditional way.
 However, this approach does not provide a way for trustees to work out whether the class to benefit is conceptually certain. It relies on common sense which is an ineffective approach, especially where trustees can be held liable if they distribute the trust funds wrongly.

o Megaw LJ approach
 Could be described as the moderate approach
 Also defines relatives as a descendant of a common ancestor.
 However, distinguished from liberal approach in that a class would be conceptually certain where it can be said that a substantial number of beneficiaries fell within the class even where a substantial number could not definitely be said to be within or outside the class.
 This approach offers trustees more guidance the conceptual certainty of the group can be tested by finding a substantial number who do come within the class.
 One problem is that we do not know what a substantial number is. Megaw in his judgement suggests this is a common sense issue but trustees may be unsure they have found enough people.
 Megaw’s approach relies on providing evidence that a substantial number come within a class. This appears to be an issue of evidential certainty if it cannot be proven the trust is defeated. This sits uneasily with the general rule that evidential uncertainty does not defeat a discretionary trust

o Stamp LJ approach
 Could be described as a narrow approach
 It must be possible to say of any given individual that they are or are not within the class.
 On this basis, the judge rejected descendants of a common ancestors and held that the discretionary trust could only be valid if relatives meant next-of-kin.
 This approach seems to go against the liberal approach advanced in McPhail v Doulton.
 Under this approach there is little difference between this test and the previous complete list which was rejected by Lord Wilberforce in McPhail v Doulton in cases involving discretionary trusts.
 It goes against Lord Wilberforce’s statement that a trust does not fail simply because it is impossible to ascertain every member of the class.

Question 57

Re Baden (no2)
easy

Answer 57

Sachs – IS OR is not test should apply because that is what HOL told us in Mcphail v Doulton. In deciding the is or is not test (strict test and lots of trusts will be void), if we reverse the burden of proof, placing onus on claimant to prove that they fall within class of objects, if they fail to prove, we will deem that they do not. Therefore, literally is or is not test is satisfied. He flips the is or is not test around.

Megaw – all we ned to demonstrate is that there is a substantial number of people. If we are certain about most class of objects, trust is void. Do not worry about one or two people. This is not what Mcphail v Doulton is saying. Is or is not test is more certain but Megaw is trying to make test more certain. But he cannot he is only a CA judge not HL!

Relatives
Stamp – Common ancestor, anyone on the ancestry test.