Three Certainties Flashcards
Three certainties (Knight v Knight)
Knight v Knight
1) Intention - Is their intention for the trust to be created?
2) Subject - The subject matter is what is held on trust for the beneficiaries – like if it is a house or a certain amount of money. We would call this property.
3) Objects - Who are the beneficiary of the trust?
Precatory words
Evidence, but not conclusive evidence that a trust has been created. That is the rule now.
London Wine Co.
A wine merchant held large stocks of wine at various warehouses. When a customer ordered a consignment it was intended that the bottles ordered would become the property of the customer, and from that moment they would be held on trust for him by the company. However, there was no segregation of the bottles ordered from the general stock until actual delivery to the customer. No beneficiary was able to identify which of the bottles were his or hers. In these circumstances Oliver J held that the intended express trust of wine in favour of customers whose orders had not yet been delivered failed for lack of certainty of subject matter because the wine had not been appropriated from the general stock.
Boyce v Boyce
A father conveyed two of his estates to the trustees, and they were to be given to the beneficiaries. One daughter, Maria, had to choose one of them. The other daughter, Charlotte, would take the remaining estate. Maria, however, died before she could make a choice. Charlotte therefore tried to claim one of the houses, but she could not.
We evaluate the trust based on uncertainties at the time that the trust was created.
Hunter v Moss
“I give 100 of my ordinary shares…”
This is a valid trust.
Blue-chip stock is insufficiently certain.
Suggests that segregation of the subject matter of a trust is not essential if the subject matter is all identical.
The rule actually is that shares of stock, even if they were somehow made bear shares, would still be considered intangible.
The rules are that you do not have to separate intangible property, because it is impossible. In particular, you don’t have to segregate shares of corporate stock. It is just a practical rule.
Palmer v Simmonds (1854)
‘Bulk’ doesn’t work
If the wording of the subject matter is too vague it cannot be held to be a trust.
Re Golay Will Trusts [1965]
A ‘residue’ can be used in a valid trust
Reasonable income okay.
HELD: A reasonable income was capable of being quantified objectively in relation to a person’s lifestyle.
Jackson v Hamilton 1846
“Reasonable” can be used in a trust.
Re Barlow’s Will Trust
A ‘gift to friends’ was upheld, but this was a series of gifts with a condition precedent. The size of the gift to each recipient did not alter according to the numbers answering the description, therefore it is not authority for certainty of the expression ‘friends’ in a class gift, whether a fixed or discretionary trust.
Carreras Rothmans
There was a company that wanted to buy advertising, so they entered into an agency agreement with an advertising company which would then go and buy newspaper and magazine advertisements. They did this because the advertising agency was able to buy the advertising at a discount.
What happened was the middleman advertising agency went kaput, or was threatening to go bankrupt.
The principal – the company that wanted to buy the advertising – sent money to the advertising company in a special account to pay for its advertising. However, the advertising company, because it was going bankrupt, had other creditors who wanted to use that money.
Then the advertising company decided not to pay for the advertising, and the newspapers then demanded payments from the principal or their advertising would not be run.
The holding of the case was that: “under the terms of the July agreement the monies paid by the plaintiff into the special account to meet the June debts owed by the defendants to the third parties who were never held by the defendant beneficially.”
“Since the monies were placed in a special account for a special purpose, equity required that the monies were used only for the purpose.”
Quistclose
It was a situation where a company was loaned some money and they were loaned the money for a particular purpose – to pay dividends. There was a relationship between the two companies, so they past with the same overall structure. The importance of paying a dividend for the company is… Often with companies it is smoke and mirrors. Does this company look like it’s going down the chute? If it does, then the danger is that shareholders will get out fast; they will sell their shares and get out before it collapses. So often, in terms of keeping a company going, it is maintaining an aura of sound financial sense, and as a company, paying dividends is a pretty good clue because you only pay dividends if you are making profits such that they cover your costs; you pay the people you are trading with and buying goods from; it indicates you are in good financial health and that your loans are under control; and that there is money left over and the shareholders get that share of it. That is a good advert for being in good health.
Now, the company was not in good shape, so they needed to borrow money to pay the dividends. Which if you are a shareholder, and you find that out, is a very good reason for getting out. They are having to borrow money to pay dividends. There is something wrong, isn’t there?
So the money is loaned for this purpose and is put into the bank account. The company goes into liquidation. The company goes broke. Then of course, if you are in a position where you cannot pay all of your debts, that is when you go into liquidation. So the problem is there is not enough money to pay everybody. If there were enough money to pay everybody we wouldn’t be in court, because everybody would get their payout. The workers would get their pay, the taxman would get their bills paid, all the creditors would be paid. The problem is there is not enough money. So then, the question arises: what about this pot of money in this account that was loaned to pay the dividends? Whose money is it? Who does it belong to?
Can the company that lent the money for that purpose say: “sorry, hold on everybody that money is mine and I’m taking that back, and you can all sort yourselves out afterwards”. Can a company do that? Or does that money go into the general money of the company which everybody then argues over? Of course, there is also a pecking order – guess who gets paid first? What is the order of payment on liquidation? The tax man. Then your workers. Then creditors. If you are a creditor with no security for your money then you are at the bottom of the pile.
Twinsectra Ltd v Yardley
If I give you some money for a particular purpose – there you are holding this money for that purpose, but instead of carrying out that purpose you give it to somebody else – Jack – then I have a problem. I can sue you but chances are you haven’t got anything to satisfy me for that. So can I pursue that property in the other person’s hands?
With Twinsectra the question was you have got to have a sufficient degree of knowledge – Jack is going to have that sufficient degree of knowledge as to what the purpose of that money is for, why it is being handled in the way that it is being handled, to acquire a level of dishonest knowledge. In the Twinsectra case, the knowledge that…it was one solicitor, actually…and the solicitor was given and holding client money…and when you train to be solicitors you will be trained about handling money for clients because otherwise you can be sent to jail for this kind of thing – you are there in a fiduciary respect. This solicitor had the money and he had it for the purpose of buying property. So this is looking like Quistclose, isn’t it? It was not used for that. He handed it to another solicitor.
Can you get it back from that other solicitor? It depends on the level of knowledge that that other solicitor has about purpose, how it’s being held, what’s being held, and so on. Even if he did know something, would it be enough to imbue him with that dishonest level? The court said ‘no’ in this particular case.
Of course this whole area of law is based on known dishonesty, is it wilful blindness – did he shut his eyes to it (Nelsonian Blindness). This is because Adm. Nelson had one eye after one of his victories. This is when you put your hand over your good eye so you can’t see. The courts have picked up that historical reference and refer to it as Nelsonian Blindness – if you deliberately turn your face away and ignore it. That is unconscionable.
Re Goldcorp Exchange
The company were selling gold bullion. You must’ve felt pretty secure entering a contract with this company because they don’t send you the gold bullion by, say, courier… Part of the deal is that they store the gold bullion for you in their safety box. So, you had your money over and you buy so much gold bullion, and you have this vision of a safety deposit box in a locked room down in a vault or basement. The deal is that you pay your money, they sell you gold bullion and they store it in secure keeping for you. That is the contractual arrangement.
So the point is that you can’t walk into a safe and say “that’s my gold bar there – that’s the one I bought”. Because you are buying unmarked gold bars in a big bulk of them. So it is not ascertained – we have not identified bar 1 to 10, for example. They are not numbered. It’s just “ten bars out of 100 bars” kind of thing; any 10 bars. So, they call these unascertained goods.
So, the company goes broke and there is all of these people out there who bought their gold bullion. So the customers want their gold bullion and they say that they paid for it, they are storing it, it’s ours. So there is a logic in that argument – I have paid for it and it is mine.
The big problematic flaw in the argument is that they cannot say which of the gold bars is theirs. That is what undoes them.
Could we say that a trust is imposed and they are beneficial owners just like money in a bank account? No, you can’t because this property is unascertained.
So when the money for the dividends in Quistclose is paid into the bank, it is paid in a bank account for the purposes of the dividends. It is not mixed with the other money. It would’ve been a problem had the money been mixed.
McPhail v Doulton
Discretionary Trust - Conceptual Certainty
McPhail v Doulton was “to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the Company or to any relatives or dependents of any such persons”. The House of Lords held that the class had been specified with appropriate certainty, despite the potential problems raised by the words “dependence” and “relatives”.
The House of Lords held that the test for certainty of beneficiaries in discretionary trust should be “similar” to that used for the certainty of objects of powers, namely, that it must be possible to say of any given individual that he is, or is not, within the class. This is known as the “individual ascertainability” test.
Midland Bank plc v Wyatt
Mr. and Mrs. Wyatt where the joint legal owners of their matrimonial home. In 1987 they executed a formally valid declaration of trust of the house in favour of Mrs. Wyatt and their daughters. The trust deed was dated to 17 June 1987 and signed by both husband-and-wife, although Mrs. Wyatt had not been aware of its effect. The declaration of trust was not acted upon in any way but was placed in a safe. Subsequently, Mr. Wyatt obtained loans to finance his business, secured by his interest in the house. The banks were unaware of the existence of the declaration. The declaration was only produced after the business had gone into receivership and the secured creditors sought a charging order against the house. D E M Young QC held that in these circumstances the purported declaration of trust in favour of the wife and children was a sham and had therefore been ineffective to divest the husband of the entire beneficial interest in the house.
Midland Bank Plc v Wyatt concerned a situation where a settler purported to declare himself a trustee.
