Three Certainties

Question 1

Requirements for creation of a trust

Answer 1

• Capacity to create a trust
• Three certainties
• Formalities
• Completely constituted or supported by valuable consideration
• Perpetuity, inalienability and accumulation
• Not intended to defraud creditors or otherwise be contrary to public policy

Question 2

Certainty of intention

• what must be certain?
• how must it be expressed?
• use of the word ‘trust’?
• 2 authorities

Answer 2

There must be certainty that S intended to impose binding obligations on his chosen trustees and split the title (trustee has legal and beneficiary has beneficial), though no particular form must be used nor is the form decisive:

o Use of the word “trust” is neither necessary nor sufficient (Re Kayford, Megarry J)

o The “mere fact that S used the words “in trust” is not in itself inconsistent with an intention that his wife should be the absolute beneficial owner” (Harrison v Gibson, Hart J), though on the facts it was held that the words were in fact incompatible with an absolute gift.

Question 3

Is the test for intention subjective or objective?

Answer 3

Twinsectra v Yardley (Lord Millett): a settlor must possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements that have the effect of creating a trust, then it is sufficient that he intends to enter into them, it is not necessary that he should appreciate that they create a trust.

Paul v Constance [1977]
Facts: Deceased was separated from his wife and began a relationship with P until his death. Deceased deposited money in a bank account in his name, from which P could withdraw money. Some of P’s money also deposited in account. Deceased said to P many times that “the money is as much yours as it is mine.” P claimed the money was held on trust for her.
CA (Scarman LJ): there was a trust in favour of P. Conduct through repeated assertions that the money was both of theirs was enough to create an express trust. This is an objective test of whether the conduct is enough to show that a trust was intended. “There must be a clear declaration of trust and that means there must be clear evidence from what is said or done of an intention to create a trust”.

Question 4

How has the requirement for expression of intention changed?

• traditional approach
• modern approach
  (i) Re Hamilton
  (ii) Lambe v Eames
  (iii) Re Adams and Kensington Vestry

Answer 4

Traditionally expressions of desire, wish or hope were enough to split ownership, but subsequent cases changed it so that imperative wording is required:

o Traditional approach:

♣ Until Executors Act 1830, an executor was permitted to take any part of the deceased’s estate that had not been disposed of by his will (unsatisfactory), so Court of Chancery endeavoured to find some reason for intervening to make an executor into a trustee of any such property, seizing on any words of desire or hope to negative this statutory presumption.
♣ This wasn’t necessary for inter vivos cases but the Court did so anyway.

o Modern approach:

♣ The Executors Act 1830 provided for executors to hold any such property to next-of-kin unless an intention was shown that he should take beneficially, so such an approach was no longer necessary.
• Re Hamilton (1895): precedent is to be given little weight and a true construction of the will should be read for intention to create trust
• Lambe v Eames: testator gave estate to widow “to be at her disposal in any way she may think best for the benefit of herself and her family” held to be an absolute gift to the widow (words “in any way she may think best” insufficient to create trust)
• Re Adams and Kensington Vestry: estate to his wife “in full confidence that she will do what is right as to the disposal thereof between my children” held to be an absolute gift (“in full confidence” insufficient for trust in favour of children). Some previous cases had gone very far and unjustifiably given words a meaning beyond that which they could bear if looked at in isolation.

Question 5

What is the modern test for certainty of intention?

• Re Hamilton, LindleyLJ
• Comiskey v Bowring-Hanbury (Re Adams)
• extrinsic evidence
• rectification
• charitable purpose trust

Answer 5

o The modern test = the necessary intention must appear from the words of the instrument, to be established by construction of the instrument as a whole:

♣ “Take the will and see what it means, and if you come to the conclusion that no trust was intended you say so, although previous judges have said the contrary on some wills more or less similar to the one you have to construe” (Re Hamilton, Lindley LJ)

♣ The words cannot be taken in isolation and must be construed in light of the entire instrument as a whole:
• Thus in Comiskey v Bowring-Hanbury (1905), on facts very similar to Re Adams, held that “in full confidence” properly construed created a trust, because there was another clause in mandatory terms (“in default of any disposition by her … I hereby direct that all my estate … shall at her death be equally divided among my nieces”) in the will.

♣ If necessary using the aid of extrinsic evidence (including that of S’s intention) which can be admitted if (Administration of Justice Act, s21):
• If any part of the will is meaningless
• If the language used is ambiguous on the face of it
• If evidence (other than evidence of S’s intention) shows that the language used is ambiguous in the light of the surrounding circumstances.

♣ Courts also have jurisdiction to rectify the will if satisfied that it fails to carry out the testator’s intention in consequence of a clerical error or failure to understand his instructions (s20)

o Except charitable purpose trusts, where any ambiguity should receive a “benignant” construction if at all possible (IRC v McMullen, HL)

Question 6

Lambe v Eames [1871]

Answer 6

testator gave his estate to his widow “to be at her disposal in any way she may think best, for the benefit of herself and her family.” The widow gave part of the estate to an illegitimate son. CA (Mellish LJ): there estate was a gift to the widow and not a trust, therefore her disposition to the son was valid.

Question 7

Re Adams and the Kensington Vestry [1884]:

Answer 7

Testator provided in his will that he left his estate“to the absolute use of my wife… in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease.” Was it a gift or trust? CA (Cotton LJ): no trust —he intended to leave the property to his wife absolutely. Previous case law had gone too far in accepting precatory language as sufficient evidence of intention to create a trust.”
o Must look at true effect of words: “we must not rely upon the mere use of any particular words, but, considering all the words which are used, we have to see what is their true effect, and what was the intention of the testator as expressed in his will.”

Question 8

Re Schebsman [1944]:

Answer 8

Although a contractual promise can form the subject matter of a trust, the mere fact that a third party is the beneficiary of such a promise does not mean that the promise is held on trust for them:

• S was dismissed by employer and agreed to terms of compensation with employer —sums totalling £5,500 would be paid on an annual basis. Contract stated that, if S died before all sums were paid, his wife would be paid remaining sums. S died bankrupt. Did contract create a trust in favour of the wife, or did remaining money vest in trustee in bankruptcy. CA: contract did not create a trust in favour of the widow. No express intent to create a trust. “[Express] trusts can arise only from the intention to create a trust expressed by … person to be considered its founder …. There must be an intention duly carried into effect.” Although, note, that the money did not form part of S’s estate —company was bound to pay money to Mrs. S.

Question 9

How did Scarman describe Paul v Constance?

Answer 9

“it might, however, be thought that this was a borderline case

Virgo: suggests that this case is probably the limit of how far the courts will go to find a sufficiently certain intention to create a trust.

Gardener: this case illustrates the importance of context —in family circumstances, where there is no legal advice, courts may be more ready to find necessary intention.

Question 10

What if there is no certainty of intention?

Answer 10

either (i) the donee will take the property beneficially or (ii) it creates a (mere) power of appointment:

Question 11

Trusts vs powers:

• re obligation
• re executable by court?
• hierarchy of trusts & powers?
• 3 categories?
• power coupled with a trust?
  Burrough v Philcox?
• mere powers

Answer 11

♣ Trusts impose obligations whereas powers are discretionary

♣ Trusts executable by court and powers are not (eg. if trustee dies without making an appointment of trust property to beneficiaries the court can do so, but a power lapses on trustee’s death)

♣ Hierarchy of trusts and powers:
• Fixed trust: duties to distribute trust property to beneficiaries must be discharged; if not, court will ensure it
• Discretionary trust (or ‘trust power’): Seems like a power because trustee can choose beneficiary, but still a trust because the power must be exercised
• Fiduciary powers: Trustee not obliged to exercise the power, but fiduciary nature means trustee must consider whether it should be
exercised.

Three categories:
o General power – trustee appoints property to whomever
o Special power – trustee appoints to a person from selected group
o Intermediate power – trustee appoints to anyone except certain group

• Power coupled with a trust: power to make an appointment but if one is not made a trust arises
o Eg. Burrough v Philcox – testator gave life interests to his children with remainder to their children, but if his children were to die without children then survivor had power to distribute amongst nephews and nieces in whatever proportion he sees fit. In such a case if the survivor doesn’t exercise the power then a trust benefitting each nephew and niece in equal proportion is created.

• Mere powers: donee of power not obliged to consider its exercise

Question 12

Trust or power?

• how to tell which one was intended?
• mandatory language?
• discretionary language?
• McPhail v Doulton?
• Breadner v Granville-Grossman

Answer 12

♣ Depends on testator’s intent deduced from construction of trust instrument
♣ Mandatory language (“to be distributed”) indicates trust obligation
♣ Discretionary language (“may appoint”) indicates fiduciary power
• McPhail v Doulton – trust where trustees should apply (no obligation to exhaust) income from a fund as they see fit. Held that ‘shall distribute’ meant that instrument was a trust power and not fiduciary power. Wilberforce – difference between trust and power is narrow and artificial, and depends on ‘delicate shading’
• Breadner v Granville-Grossman – per Park J an instrument to distribute income is a trust power if trustee must distribute it but can choose whom to, and a fiduciary power if trustee can also choose whether or not to distribute at all

Question 13

For gifts inter vivos

Answer 13

(lifetime gifts) courts are more willing to look also at conduct of parties in determining intention

o Paul v Constance: T lived extramaritally with C and had a bank account in his own name (after being dissuaded from creating a joint account because they are not married) and put their bingo winnings in it, saying the money is “as much yours as mine”. Held that there was a trust because the words “as much yours as mine” were sufficient but looked at other evidence (eg. bank manager and conduct of parties) – unlikely that without further evidence the words alone would have been sufficient for trust

Question 14

Self-declaration of trust: not necessary to use particular words, S must merely do something equivalent to using the words “I declare myself a trustee”, and use expressions that have that meaning (Richards v Delbridge, Jessel MR). Can even be implied by conduct (Paul v Constance)

Answer 14

o Jones v Lock – father writes cheque payable to himself and says that it is a gift to his baby, locks the cheque in a safe and dies days later. Declared that it wasn’t a gift, but remained part of T’s estate

o Paul v Constance – deceased married to D but lived with C, had money in his account to avoid embarrassment of having a joint account with C. On his death sought declaration that money was held on trust for C using oral evidence that he described the money as ‘ours’: accepted.

Rowe v Prance – D had an affair with C and told C he would divorce his wife, sell the house and buy a yacht that would be their home. He didn’t divorce but bought a yacht, describing it as ‘ours’. When they separated C successfully claimed that the yacht had been held on trust for her

Question 15

The weight attached to particular language may depend on the circumstances:

Answer 15

o A rigorous standard was applied to the Law Society because it would be “surprising if a society of lawyers, who above all might be expected to make their intention clear … should have failed to express the existence of a trust, if that was what they intended” (Swain v Law Society, Lord Brightman)

In commercial contexts, the court took into account what the parties “as a matter of business common sense must have intended to achieve”, over agreements that, “though apparently professionally prepared are by common consent badly drafted and replete with obscurities and inconsistencies” (Don King v Warren)

Question 16

Sham trusts:

Answer 16

At the other end of the spectrum from precatory words, are arrangements where the words used appear to create a trust but where it becomes evident that the “settlor” had no real intention to create a trust.

o Midland Bank v Wyatt (1995): S made a formally valid declaration of trust in his family home for his children, and then pledged the property to the bank as security for a loan, without informing it of the trust deed. When he defaulted, the court fund that there was no intention on the part of S when executing the trust deed of endowing his children with his interest in the house, so the trust failed.

Question 17

Summary of some requirements for certainty of intention

Answer 17

No special words are required to create a trust, but one needs to prove an intention to use property for the benefit of others or to impose a duty on the recipient to do so.

As a general rule, “precatory words” will not suffice to create a trust (see Lambe v Eames (1871) 6 Ch App 597; Mussoorie Bank Ltd v Raynor (1882) 7 App Cas 321; Re Adams and The Kensington Vestry [1884] 27 Ch D 394; Comiskey v Bowring-Hanbury [1905] AC 84),

although there may be an intention to confer a power of appointment on the donee. A failed trust will not, however, be saved by construing it as a valid power: see IRC v Broadway Cottages Trust [1955] Ch 20.

Question 18

NOTE Heydon and Loulan (1997) on Paul v Constance

Answer 18

Is this case really distinguishable from Jones v Lock, which would equally have failed if Jones had said “This cheque is as much baby’s as mine” instead of “I give this to baby” – why was there no suggestion that it was a gift by transfer?

Question 19

The term ‘trust’ though is not conclusive, the parties will look to the substance of the agreement and not only to a label—compare with Street v Mountford.
An arrangement described as a ‘trust’ which is in substance a charge will be treated like a charge:
Singha v Heer [2016] EWCA Civ 424

Answer 19

Facts: A provided B a loan to buy a house, and B gave A an interest over the house to secure repayment of the loan. In correspondence between A and B, B had referred to himself as holding the house ‘on trust’ for A.
Held: A had a charge, not a beneficial interest under a trust.

Question 20

where the settlor of a ‘trust’ is to retain too much control over it the trust property

Answer 20

the court will conclude that the settlor did not intend to part with free use of the assets, and so did not intend to declare a trust:

JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch)
Facts: A set up a trust, transferring property to B to hold on discretionary trusts for listed potential beneficiaries. These included A. The ‘trust deed’ provided that A was also a ‘protector’ with power to:
o Veto trustee decisions
o Sell the trust property
o Add or remove trustees
o Appoint his own successor
o With the trustees’ consent remove other potential beneficiaries and change the trust’s terms.
Held: No intention to declare a trust. B held on trust for A only.
“The fundamental reason for why I reach this conclusion is having regard to the extensive nature of [A’s] powers combined with the fact that [A] is the settlor of all the trust assets and is also one of the named Discretionary Beneficiaries.”
at [268] per Birss J

Question 21

Segregation of trust property

Answer 21

If a settlor pays the alleged trust property into a separate bank account, that can evidence intention to self declare a trust:
Re Kayford ibid
“Payment into a separate bank account is a useful (though by no means conclusive) indication of an intention to create a trust”.

Question 22

In earlier judgments, courts were wary of finding a trust had been declared in informal conversations:
Jones v Lock (1865) 1 Ch App 25

Answer 22

Facts: A father came back from a trip to Birmingham and was asked by his wife why he had not bought a gift for their baby son. The father said “I will give him a handsome present”; handed the baby a £900 cheque; said to his wife “Look you here, I give this to baby”; said that the cheque was “his own, let him do what he likes with it”; and told the baby’s nurse he was going to put away the cheque for his son, and put it into a safe. Before taking further action to provide for his son, the father died. Did the father declare a trust of the cheque?
Held: No trust.
“I think it would be of very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declarations of trust”
(at 29, per Lord Cranworth LC)

cf with Paul v Constance

Question 23

Rowe v Prance [1999] 2 FLR 787

Answer 23

Facts: A and B were in a relationship. A asked B to live on his yacht with him and referred to it as ‘ours’ on a few occasions.
Held: A “had effectively constituted himself an express trustee of the boat”.

Question 24

‘Maintenance and education’

Re Osoba [1979] 1 W.L.R. 247 (CA)

Answer 24

Likewise, directions that property be used for maintenance and education will not (without more) be treated as creating a trust

Facts: A testator, in paragraph 3 of his will, left rents from certain properties for the “maintenance” of his wife “and for the training of [his] daughter up to university grade and for the maintenance of [his] aged mother provided [his] wife is resident in Nigeria”. In a separate paragraph he provided that the residue of his estate was settled on his wife “upon trust to be used as in paragraph 3 above”.

Held: No trust.

Question 25

Where intention is to grant a gift

Answer 25

A gift is a transfer of rights. The transferor retains no interest in the thing gifted.
A self declaration of trust is the creation of a new rights.

Question 26

Equity will not perfect a gift

Milroy v Lord (1862)

Answer 26

If A intends to make a gift to B, but does not fulfil the necessary formalities to transfer his rights to B, A’s intention to make a gift will not be construed as intention to declare a trust in B’s favour.

Milroy v Lord (1862) De GF & J 264 at 274-75; 45 ER 1185, 118-90 (CA, per Turner LJ)
“The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred [ie gift or declaration of trust], the Court will not give effect to it by applying another of those modes. If it is intended to take effect by transfer [i.e. a gift], the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.

Question 27

There is an exception to the rule that equity will not perfect a gift

Answer 27

There is an exception in cases where a settlor intends to make a gift to a body of trustees of whom he is one:

T Choithram International SA v Pagarani [2001] 1 WLR 1 (PC)
Facts: A set up a charitable trust and was to be one of the trustees. He made an oral “gift” to the foundation, stating “I give to the foundation” company shares and deposit balances, the title to which was vested in him alone. At the time of his death, the title was not vested in all the trustees.
Held: A held the property on trust. A was one of the trustees of the intended transferee, and so it would have been unconscionable for him not to complete the transfer. For that reason, A was treated as having intended an express declaration of trust rather than a gift.

Question 28

What if the intention is to contract to confer a benefit on a 3rd party?

Answer 28

of rights under the contract for that third party.
Re Schebsman [1944] Ch 83
Facts: A entered into a contract with B, which provided that B should pay C.
Issue: Did A hold its contractual rights on trust for C?
Held: No trust.
“It is not legitimate to import into the contract the idea of a trust when the parties have given no indication that such was their intention. To interpret this contract as creating a trust would, in my judgment, be to disregard the dividing line between the case of a trust and the simple case of a contract made between two persons for the benefit of a third. That dividing line exists, although it maynot always be easy to determine where it is to be drawn. In the present case I find no difficulty.”
at 89-90, per Lord Greene MR

Question 29

Consequences of absence of intention to declare a trust
Where there is no intention to declare a trust and:

• A has allegedly declared himself a trustee:

Answer 29

o If it is found A did not intend to come under any legal obligation with respect of the property, the purported declaration will be of no effect.

o If A intended to give B an interest in property to secure performance of an obligation, B might acquire a charge (if the appropriate formalities are complied with).

Question 30

Where there is no intention to declare a trust and:

• A transfers rights to B,

Answer 30

o If A intended B to acquire free use of those rights, B will acquire A’s rights for B’s own benefit.

o If B had been transferred the rights to secure the performance of an obligation by A, B will hold the rights as a mortgagee. A will have a right to call for a re-transfer upon performance of the obligation.

Question 31

Re Hamilton

Answer 31

‘Wish’ was held to be sufficient to create a trust, however this was changed by Lambe v Eames (mere precatory words are insufficient)

Question 32

Certainty of Subject-Matter –

Answer 32

There are two elements to the certainty of subject matter: (i) it must be clear what property is held on trust; (ii) the beneficial interest must be clear.

If trust fails for lack of certainty of subject matter, the transaction is null —no property is transferred.

Question 33

Two areas of difficulty for certainty of subject matter

Answer 33

• Vague or general descriptions of the trust property: settlor must make clear what property is held on trust, or the trust will be void as it will not be possible to determine what is held on trust.
• Trusts of part of bulk property: where there is an attempt to create trust over part of a bulk of tangible property (e.g. wine). The trust property will only be certain if separated from the rest.

Question 34

Vague general descriptions

Answer 34

Issue here is that subject matter must be identifiable on an objective construction of the language used

• Palmer v Simmonds [1854]: in her will testatrix said she would leave the “bulk of her residuary estate” to named persons: trust failed. What was the meaning of ‘bulk’
• Re Golay’s Will Trusts [1965]: testator left B “reasonable income from my other properties”: valid trust: court could use ‘reasonable income’ as yardstick to quantify amount B was to receive.

People could have different valid views about the ‘bulk’ of something, but ‘reasonableness’ is a concept with which lawyers and courts are familiar and can be ascertained to a higher degree.

Nature of subject matter: Property is defined broadly and is not limited to tangible goods. E.g. shares in Hunter v Moss.

Question 35

Property in a larger bulk

Tangible property

Answer 35

must be segregated from the bulk in order to be sufficiently certain:
• Re London Wine Co (Shippers) Ltd [1986]: LWC, owner of a large stock of wine, declared it would hold parts of the stock on trust for various buyers, but no steps were taken to set apart trust wine from the bulk of the stock. Oliver J: the trust was invalid — a failure to segregate the wine rendered the subject matter uncertain. When LWC became insolvent, buyers had no priority over its creditors (i.e. only a personal claim against LWC). Subject matter must be specific in that it is segregated / appropriated from the mass.
• Re Goldcorp Exchange [1995]: dealer in gold went into liquidation and customer sought delivery of gold he had recently purchased (i.e. claimed it was on trust so would get priority over creditors). PC: there was no trust. Subject matter was uncertain as the bullion had not been set aside / allocated. No subject matter to which trust could attached. C only had a contract claim against D.

NB: cases would be different today — s.20A Sale of Goods Act 1979 (added in 1995), provides that the purchaser of part of a bulk of goods becomes an owner in common of a share of the bulk.

Question 36

Property in a larger bulk

Intangible property

• Hunter v Moss
• Re London Wine
• Re Harvard Securities
• what is the correct analysis where intangible property is not segregated?

Answer 36

(e.g. shares) does not need to be segregated to be sufficiently certain:

• Hunter v Moss [1994]: M owned 950 shares in a company and declared himself a trustee of 50 shares for H, without specifying which shares. CA (Dillon LJ): trust was valid, despite shares not being segregated, as the shares were intangible assets of identical value.
o Distinguished Re London Wine: principle in applies only to tangible property as wine (and other chattels) is not completely identical —i.e. part of the wine could be damaged, so identification of specific shares is necessary.
o Rejects idea that distinction should be between homogenous and non-homogenous mass: “Even tangible assets which are regarded as forming part of a homogeneous mass are physically separate, and so distinguishable, from other assets comprised within the same mass.”

• Re Harvard Securities [1998] Facts: Stockbroker went bankrupt —question was whether the purchasers of shares have beneficial interests. Practice was to buy blocks of shares and sell them in parcels, though not registering them in the names of clients. Neuberger J: Clients had a beneficial interest under the trust, despite the shares not being segregated. As long as the total and proportions were clear, that was enough. Distinction between London Wine and Hunter approved.

Where intangible property is not segregated, the correct analysis is that the trustee and beneficiary hold all the property as equitable tenants in common in the relevant proportions e.g. 1/20 in Hunter v Moss; it is not the case that 50 specific shares are the trust property and the other 950 shares belong to the trustee absolutely.

Question 37

Pearson v Lehman Brothers [2010]

Answer 37

• Briggs J commented on the application of Hunter: Notes that the courts have not been unanimous as to how a Hunter v Moss trust works: “the analysis which I have found the most persuasive is that such a trust works by creating a beneficial co-ownership share in the identified fund, rather than in the conceptually much more difficult notion of seeking to identify a particular part of that fund which the beneficiary owns outright.”
o Distinction should be drawn between fungible / non-fungible assets: “a trust of part of a fungible mass without the appropriation of any specific part of it for the beneficiary does not fail for uncertainty of subject matter, provided that the mass itself is sufficiently identified and provided also that the beneficiary’s proportionate share of it is not itself uncertain.”

Question 38

Analysis of Hunter and London Wine.

Several ways of distinguishing the cases:

Answer 38

• Neuberger in Re Harvard Securities: shares etc. are identical, whereas chattels are not
• Parkinson: London Wine and Goldcorp involved a fluctuating mass, so the court could not identify the assets beneficially owned by each customer by reference to a proportion of the whole bulk —i.e. could not say that each customer in London Wine owned 5% of the wine company’s total stock of wine because the total stock was constantly fluctuating—therefore, the customer’s beneficial interest in the wine stock, at any time, might not be the same as her contractual entitlement to wine, whereas property in Hunter could be identified as a proportion of the bulk of shares (e.g. 1/20 — the Lehman Bros. approach).

Question 39

Commentary on Hunter v Moss:

Hayton:

Answer 39

• argues Hunter is flawed. If the trustee sells 50 shares and reinvests the profits, did he sell his shares, or the beneficiary’s shares? He rejects a Lehman Bros tenants in common analysis because this involves substituting the employer’s intention to give the employee 50 shares for a different intention to create a tenancy in common.

o My thoughts: This substitution of intention is better than the law rejecting the trust altogether and completely defeating employer’s intention.

Question 40

Commentary on Hunter v Moss:

Ockleton:

Answer 40

The decision implies some very unorthodox views about the nature of trusts:

o The function of the law of trusts is to govern proprietary interests and dealings with the trust property, for the protection of the beneficiaries, during the continuance of the trust. The basic function of the rules of succession is to ensure a proper and efficient distribution of property rather than to regulate its retention. Vagueness as to the specification of the subject of a legacy may well not prevent an executor making a proper distribution, but it does not follow that a similar vagueness about property which is to be subject to a trust is of no account.
o Beneficiaries of a trust have proprietary interests, amounting to ownership in equity, good (subject to statute) against anybody except a bona fide purchaser of the legal estate for value without notice of those interests. This cannot be true of Hunter v Moss because if Moss were to execute simultaneous legal gifts of all 950 shares to two bona fide transferees, Hunter’s interest is supposed to survive because they weren’t purchasers. However, his claim will fail because he can’t prove which shares are his and tracing rules applying to mixed funds don’t apply because shares, unlike money, is earmarked. H’s proprietary interest is illusory.

• If employer gave away all 950 shares to different people it would be impossible to say which donee held employee’s shares. Rules for tracing in a mixed fund cannot apply because shares, unlike money, have an earmark, individual identity. Employee could not claim against donees to recover his 50 shares so his proprietary interest in those shares is illusory.

Question 41

Commentary on Hunter v Moss:

Martin:

Answer 41

• Even in cases where tracing doesn’t work, inability to trace does not always mean there is no valid trust. Hunter is fair, sensible and workable, did not involve an insolvent debtor unlike London Wine and Goldcorp so does not involve courts rewriting insolvency rules. It is a welcome extension of “court’s policy of preventing a clearly intended trust from failing for uncertainty”.

Question 42

Commentary on Hunter v Moss:

Worthington’s solution

Answer 42

Both chattels and intangible property held in bulk can be validly held on express trust, certainty of subject matter can be resolved as follows:
• If A holds 1000 shares and declares she holds 200 on trust for B, this will be a valid trust if we assume A holds the whole parcel of 1000 shares on trust, 200 for B and the other 800 for herself.
• Problem of A selling/reinvesting some shares can be resolved through presumption of innocence: if A sells fewer than 800 shares we can presume that she sells her own shares rather than B’s shares, she still holds B’s shares. If she sells more than 800 shares then she is in breach of trust.
♣ Ockleton’s problem of what happens if A gives away all the shares still applies here, but it is better for tracing rules to be adapted to deal with this in order to allow law to give effect to A’s clearly expressed intention which B may have relied on.

Question 43

Property left as outright gift with a trust for whatever is left to go to another person

♣ Sprange v Bernard:

rule in Hancock v Watson

Answer 43

will fail because impossible to know how much will be left:

♣ Sprange v Bernard: property given to husband as outright gift and “remaining part of what is left to be divided between…” = void because impossible to determine how much would be left so husband took the whole gift

Pursuant to the rule in Hancock v Watson where, if there is an absolute gift at the first instance and the necessary intention subsequently to impose trusts on that property, then if the trust fails for any reason, the property is not held on resulting trust for S but will vest absolutely in the person to whom the property was first given absolutely.

Question 44

How can a trust that might otherwise fail because left as gift and held whatever is should go to another person be saved?

1. …

(i) Re Last
(ii) Re Thompson’s Estate

2. …

(i) Re Golay
(ii) held Thomas J

Answer 44

(1) this can be saved by interpreting the “gift” as conferring only a limited interest on the initial beneficiary:

♣ Re Last: S left all her property to her brother, providing that “at his death anything that is left” was to pass to certain other people. The limitation was construed as conferring merely a life interest on the brother so the trust was not invalid for uncertainty of subject matter.

♣ Re Thomson’s Estate: S left property to widow “to be disposed of as she may think proper for her own use and benefit” but “should there by anything remaining” on death, it should be held on certain specified trusts.

Held (Hall VC) that the widow had a life interest plus power to dispose of her property during her lifetime, but no testamentary powers, so any property not disposed of during her lifetime were held on trust.

(2) Uncertainty can also be saved by the court finding some way of ascertaining what the subject matter is:

Re Golay: S directed trustees to permit a beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties”.

held (Thomas J) that the trust was valid because the yardstick of “reasonable income” was not what some person subjectively considered to be reasonable but what was objectively identified as reasonable, so the court could quantify it.

Question 45

Where a certain but unidentified part of a bulk of property is involved, the part itself must be certain

Answer 45

In relation to tangible property (Important because trust gives beneficiary priority over creditors):

♣ Re London Wine: held that no trust arose so that the purchasers had no proprietary rights in the wine as against holders of a floating charge which the seller had granted over its entire assets.
♣ Re Goldcorp Exchange: held that the bullion was not segregated and identified, so there was no identifiable property over which the trust could operate and so purchasers couldn’t claim property under trust.

Question 46

However seems to be different concerning part of a bulk of intangible property (shares/money)

• First instance
• COA - How was London wine distinguished?
• Why is Hunter v Moss criticised? (i.e. difference between interest of legatee vs beneficiary?
• What do Thompson and Hudson reply to this?

Answer 46

♣ Hunter v Moss: Donor declared a trust of 50 of his 950 shares – trust upheld because any identification of the particular 50 shares was unnecessary and irrelevant.

• First instance: The point in Re London Wine is that in relation to tangible property, “ostensibly similar or identical assets may in fact have characteristics which distinguish them from other assets in the class” as some of the bottles may have deteriorated etc. A trust of £1000 in a bank account with a current balance superior to £1000 would also be valid.
o But this was surprising because it had hitherto been thought that trusts of such choses in action could only be (i) entire interest or (ii) a percentage/fixed proportion of it.

• CoA: simply said that Re London Wine was “a long way from the present” case, making an analogy that just as you can give by will a certain specified number of shares, so equally he can declare himself trustee of the same shares.
o But this is criticized because the effect of a will is to vest the whole estate in executors to be administered, so the legatee acquires only an equitable chose in action until the administration has been completed (and he receives whatever shares the executor allocates to him), whereas a beneficiary under a trust obtains an immediate proprietary interest in the shares, so there is a need for immediate means to determine which shares are subject to the trust.
o On the other hand, Thomson and Hudson argue that the criticism is based on a misunderstanding on what is required to have “certainty” – they suggest that the law does not require absolute or mathematical certainty, but merely “workability” (satisfied in Hunter v Moss)

Question 47

Where subject matter of the trust is certain but unclear what property is intended to be held on trust for which beneficiary

• Boyce v Boyce

Answer 47

the trust will fail:

Boyce v Boyce: S devised two houses to trustees on trust to convey to B1 “whichever house she may think proper to choose or select” and to convey the other house to B2. B1 died in S’s lifetime so was unable to make the choice.

Held that no trust because impossible to establish which house was held on trust for B2. Thus, the houses were on resulting trust for S’s residuary estate. However, if B1 had survived so could make the choice, it would have been valid, as illustrated by Re Knapton: S devised one house to each of her nephews and nieces, who were named, without specifying anything as to power of selection. Held that, in order of priority, one house should be chosen to go to each as they should agree and in default of agreement, then selection by the named beneficiaries in the order in which they were named in the will.

Question 48

Where trustees have discretion to determine the quantum of beneficial interests or where S’s words are sufficient indication of his intention:

• Re Golay

Answer 48

No uncertainty - Re Golay: certain enough was the direction to let B enjoy one of my flats during her lifetime and receive a reasonable income.

Question 49

Effect of uncertainty of subject matter:

Hancock v Watson?

Otherwise?

Answer 49

o If Hancock v Watson applies, then the donee of the gift (trustee of the failed trust) takes absolutely.
o Otherwise, resulting trust to S (or residuary beneficiary)

Question 50

|Re Goldcorp Exchange Ltd [1995] 1 AC 74

Restitutionary right

what does Birks argue?

Answer 50

Customers tried to establish a proprietary claim by (inter alia) o Remedial restitutionary right because fairness requires it even if there was reliance on the company to deliver the bullion and establish a separate stock, the bank also relied on the protection afforded by the floating charge, and the disparity between the parties’ positions was not so great that equity would intervene to grant customers priority over the bank’s charge. The fact that the claimants are private citizens whereas their opponent is a commercial bank could not justify the court in simply disapplying the bank’s valid security.

Birks notes that while Lord Mustill declined on the facts to raise a restitutionary proprietary interest on a more flexible and innovative basis, he didn’t say that it cannot ever be done. Birks suggests that we can read between the lines and conclude that “it ought never to be done” or at least “almost never”, but MI I don’t think the passage is open to that interpretation. At 104C Lord Mustill says that though the doctrine of remedial restitutionary right has not been sufficiently developed, he said that one approach would have been to “strike directly at the heart of the problem and conclude that there was such an imbalance between the positions of the parties that if orthodox methods fail a new equity should intervene to put the matter right without recours to further rationalization”. Though he “firmly rejected” this approach, it was clearly a rejection on the facts, because he said that there was no such a significant imbalance between the parties, and to find a significant balance on the facts would be to “do no service to the nascent doctrine by stretching it past breaking point”. This implies that Lord Mustill sees room for this doctrine to grow. Thus, I argue that Lord Mustill is actually too generous in his dicta, and didn’t infuse his judgment with as much certainty and principle as he could have, and failed to remove all temptation to resort back to the broad equitable jurisdiction.

Question 51

Was there a fiduciary relationship between C and D in Re Goldcorp Exchange Ltd [1995] 1 AC 74?

Answer 51

• There was nothing to support the finding of a fiduciary relationship: the parties’ rights and duties were purely contractual.
• There was no nexus between the moneys paid by the customers and the bullion in the vaults—an essential feature of any tracing claim.
• There was no evidence that the parties intended the purchase-money to be kept separate from Goldcorp’s general funds.
• The money was paid into an account which was at all material times overdrawn, which barred any attempt to trace.

Question 52

What differentiated the successful claimants at first instance and those that failed?

• Thorpe J: they could either (2 things)
• why might second claim succeed be deemed ‘indulgent?
• did they succeed re equitable lien?
• what does McKendrick argue?
• what 2 things might it show?
• re policy vs principle/justice vs certainty

Answer 52

Thorp J at first instance - they could either

(i) point to some act amounting to an appropriation of particular gold to their contract or
(ii) dealt with a different company, which had segregated their gold, before that company transferred with Goldcorp Exchange which put the gold back in the mass.

Allowing the second claim to succeed could already be described as “indulgent” (Sealy). However, these customers could not recover the full value of their claims, so they appealed arguing for an equitable lien over the company’s assets, but this was rejected by the Privy Council.

McKendrick noted that it sufficed to say that it was fair that this group of customers not be treated differently to the others because they also only got certificates of ownership.

This could show one of two things: (i) the actual decision in Re Goldcorp is not as one-sided as it seems, in that some customers’ claims succeeded though they, as a matter of policy, don’t seem any more deserving than the others, and (ii) the decision is based on mere technicalities unsupported by policy.

However, it does show that the case was not dictated by policy but by principle, and in particular, the principle that ownership in ascertained goods simply cannot pass. If we don’t want this outcome, then we must favour the broad equitable jurisdiction in cases like Reid at the expense of certainty, undermining the certainty (and therefore value) of secured charges. If we accept this outcome because we value certainty, principle and security of proprietary interests, then we should not complain if in a given case it reaches an unfair result.

Question 53

McKendrick (1994) 110 LQR 509

Answer 53

• The distinction between personal and proprietary claims is not clear enough in English law, but Re Goldcorp signals a change towards a more rigorous, principled approach, but doesn’t answer when the court will apply the principled approach and not the broad discretionary jurisdiction.
• Goldcorp doesn’t fit easily with the more flexible discretionary approach in cases like AG for Hong Kong v Reid (in that in Goldcorp they don’t use “silly maxims” like equity treats as done that which ought to be done” to turn a breach of contract into a claim to ownership). Though neither case is binding, IAO courts should follow Goldcorp.
• It might be said that the outcome ofGoldcorpis unsatisfactory because the bank is better able to bear the loss.
  o But the bank doesn’t bear the loss itself; it passes on the loss to its clients, some of whom are ordinary people on the street, and it is not clear that “policy” dictates that ordinary people should bear the loss incurred by those who have money to invest in bullion.
  o Also, those who invest in high stakes know the risks and accept it; when they lose they shouldn’t expect courts to give them priority over equally innocent creditors who have taken the precaution of taking a valid security interest.
  If we do feel pity towards unsecured creditors, then maybe English law should do more to alleviate their position but only after a full consideration of the issues, not by confusing ownership and obligation by turning a simple breach of contract into an ownership claim.

Question 54

Sealy [1994] CLJ 443

Re Stapylton Fletcher Ltd [1994]

Answer 54

• Re Stapylton Fletcher Ltd. [1994] 1 W.L.R. 1181
  o The facts were very similar to London Wine, and many of the customers’ claims failed (including an argument that there was a resulting trust of the purchase-money, where the company held none of the wine in question).
  o However, where wine to answer particular customers’ purchases had been physically segregated from the sellers’ common stock, it was held that there had been an appropriation sufficient to pass title, even in cases where what was set aside represented the aggregate of a particular wine bought by several customers in separate transactions, and was not allocated to them individually. It was held that these buyers became tenants in common of the whole.
  o This decision, which is similar to that in favour of the Walker & Hall customers in Goldcorp, no doubt achieved a just result, but it is hard to reconcile with the many leading commercial cases where a purely subjective “appropriation” has been held not to render goods “ascertained”.

Question 55

Birks [1995] RLR 83

• Proprietary base:

Answer 55

o If you want a proprietary claim, you need an undestroyed proprietary base (i.e. at the beginning of the tracing exercise, you have to have a proprietary interest in the asset, and the transfer to the defendant of that asset must not have destroyed this base). In this case, the “justice is beyond forensic argument” – in matters of property, the highest justice must be certainty and no judge should be asked to weigh the abstract justice of C’s claim against that general interest. The bank’s case rested on the assumed certainties of the law of property, and it had to win because only the legislature and not the judge can open the question on the moral plane and strike a new balance.
o If this is right, then apparently conflicting cases that used more flexible approaches must be the exception and not a model for future judicial action. Thus, AG v Reid may crucially have turned on the fact that C did have an equitable proprietary base by application of Walsh v Lonsdale. In general, the courts cannot make up new proprietary interests reflecting their opinion of the justice of the case.

Question 56

Birks [1995] RLR 83

• Persisting property rights:

Answer 56

o If the customers had been able to establish that their property persisted in the money paid at the point when it went into the company’s hands, then would that have succeeded because they needed not only a proprietary claim, but one that took priority over the bank’s! Indeed, Birks has argued that if your claim is contingent on successful tracing, then you only have a power, which requires to be exercised in order to yield a vested interest in any particular asset.
o IAO a claim that the customers had persisting property rights could/should have succeeded on the basis of a defect in the transfer due to total failure of consideration. Indeed property doesn’t persist in payment under a valid contract that subsequently is terminated, but if the payment was conditional, then Lord Wright in Fairbairn v Fibrosa said that “the payment was originally conditional, and the condition of retaining the money is eventual performance, so when that condition fails, the right to retain the money must simultaneously fail”. Thus, if the payment by the customers was conditional on Goldcorp performing its end of the bargain, then the intent that property should pass would likewise have been conditional, so Goldcorp only had a conditional interest and therefore, an interest persisted in the customers throughout.
o Contrary arguments are possible: the conditionality can be said to relate to value but not property, or as a matter of positive law it can be said that creditors who pay in advance and get nothing are never threated as secured creditors with proprietary interests. But it doesn’t explain cases very close to Re Goldcorp that came to the opposite conclusion: Quistclose cases, for example, where the condition was that the money be applied only to a particular purpose, and another category of cases where payment was conditional on the coming about of a state of affairs other than counter-performance (ex. a marriage).
o But these categories of cases can still be separated out – two extra cases pose real difficulties because they recognized proprietary interests but don’t seem to fit into the two above groups in that both were payments made for a promised counter-performance:

♣ Sinclair v Brougham: PC said that that case was different because consideration failed ab initio, whereas here a customer could not on the day after sale claimed to recover the price for a total failure of consideration, which negatives any claim of residuary proprietary interest. However, IAO timing itself cannot resolve the issue, because if there is no property, coming quickly won’t help, and if there is, then the passing of time would be immaterial. The only solution would be to try to explain Sinclair as one of the two above categories.

♣ Neste Oy v Lloyds Bank Plc (C employed agents and made them six payments when the agents stopped trading, which turned out to be without corresponding performance): held (Bingham J) that the shipowners had not paid the money to be applied directly to particular purposes (so were not payments on trust), but the sixth payment was nevertheless held on trust because when it arrived, the agents had already decided to cease trading and knew they would not perform. IAO the result may be explicable by saying that the condition for retaining the money does indeed bear on the property in the money as well as the value inherent in the money but that it does so subject to the further implied condition that the recipient shall be free to use the money as his own if he honestly and reasonably intends to make the stipulated counter-performance.

o Conclusion on the point: It is clear enough that a distinction is taken between money received for a counter-performance, where there is no proprietary claim unless in the case in which the recipient knows that the counter-performance will not be forthcoming, and money received to be applied to a specified object or on the basis that a given state of affairs shall subsist, where a proprietary claim is possible, subject only to a successful tracing exercise. Sinclair v Brougham remains difficult. If the proprietary interest can be supported, the case must be fitted into one of the two latter categories.

Question 57

Hayton on the difference between testamentary trusts and inter vivos

Answer 57

♣ There is a crucial difference between such a testamentary bequest (testator has effectively divested himself of his legal and beneficial ownership) and aninter vivosdeclaration of oneself as trustee for another (the disputed question is whether or not the settlor has effectively divested himself of this beneficial ownership in specific property)
♣ A bequest is a perfect gift that is completed by the testator’s death, where the whole estate passes to the executor who has full ownership, subject to fiduciary obligations to administer it. Thus the only inter vivossituation analogous to the testamentary situation is where the settlor makes a perfect gift of specific property to a trustee so as to divest himself of legal and beneficial ownership thereof,e.g.by transferring 950 shares to a trustee and imposing equitable obligations to distribute 50 to X and 900 to Y.

Question 58

Stevens, ‘Floating Trusts’ in Davies and Penner, Equity,Trusts and Commerce (2017) (comment on Lehman Brothers)

• what is his theory?
• applied to Hunter v Moss (Goode)
• same reasoning applied to debts
• how does Lehman Bros go further than Hunter?
• what is the difficulty in Lehman?

Answer 58

Here Stevens applies his theory of trusts as rights to other rights to the case of intermediated securities: the holder of the underlying right (depository) may come under a duty to Intermediary 1 to hold that right for its benefit. Intermediary 1 may deal with this right by transferring it, or retain it but give Intermediary 2 a right to that right. This then creates a chain of trusts which can be of any length.

The result in Hunter v Moss was explained by:

• Goode: a requirement of segregation may be justified in relation to (ex.) sheep, but is irrelevant when considering shares or other securities because separating an individual share makes no sense, in that a share is simply a proportionate right against the company and other shareholders. If you have 100 shares in a company with 200 shares, you don’t hold 100 separate rights, but a half share in the company. Just like if A declares a trust of his freehold under which B has a 50% beneficial interest, it won’t fail because A failed to segregated a specific half of his land, so too if A declares he holds 50 of 100 shares on trust for B, there is no difficulty in finding that B has a right to half of A’s shares. The subject matter of B’s right is therefore A’s entire holding of shares, not any right to any 50 individual shares (because A has no separate right to these shares).

The same reasoning can be applied to debts; if C owes A £1000, A has one right against C (and not 1000 claims for £1, or 100,000 claims for 1p), and any trust A declares in B’s favour must have as its subject matter the entire debt. Thus, just because B’s claim is not the full £1000, it shouldn’t fail for uncertainty because the subject matter is and can only be the entire debt.

However, Lehman Brothers goes further than Hunter because LBIE remained free to deal with all the assets it acquired as it saw fit (so at any given time may have had no relevant securities but only a right to call for equivalent from third parties). Briggs J said that it was fine because a trust doesn’t fail for want of certainty merely because its subject matter is at present uncertain, if the terms are sufficient to identify its subject matter in the future (citing Tailby v Official Receiver). Here, the subject matter included LBIE’s right to recover equivalent securities from street lending counterparties, and its rights as against affiliates to make good short positions.

But the difficulty is that in this case you couldn’t identify any specific rights (except perhaps LBIE’s entire corpus of assets) that it was required to hold for individual affiliates, and no future event ever cured this uncertainty (≠ Tailby).

Question 59

what can you declare a trust over?

Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd[1926] AC 108at 124, per Lord Shaw

Answer 59

Lord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd[1926] AC 108at 124, per Lord Shaw
“The scope of the trusts recognised in equity is unlimited. There can be a trust of a chattel or of a chose in action, or of a right or obligation under an ordinary legal contract, just as much as a trust of land.”

Question 60

qualifications to being able to make a trust over anything

1

Answer 60

1) You cannot declare a trust over property you do not yet have:
Re Ellenborough [1903] 1 Ch 697
Facts: A purported to declare a trust over any property she might receive under B’s will. Later, B died, and left property to A.
Issue: By virtue of the declaration, did A hold the property on trust?
Held: No trust.
Note that you can declare at trust over property which it exists and its substitutes, such as over the assets of a trading business, Wilkinson v North [2018] EWCA Civ 161 at [11] to [25].

Question 61

qualifications to being able to make a trust over anything

(2)

• Fortex?

Answer 61

2) You can only declare a trust over a right which is an asset, not over a duty or liability:
“For an express trust there must, among other things, be certainty of intention to establish the trust and certainty of subject-matter. When the … moneys were effectively retained in, or paid into an overdrawn bank account, they either never had, or ceased to have, any separate identity. They simply served to reduce the debt owing by Fortex to its bank. Thus the supposed express trust never had any identifiable subject-matter.”
Fortex Group v. Macintosh [1998] 3 N.Z.L.R. 171, 174 (CA) (Gault, Keith and Tipping JJ)

Question 62

White v Shortall [2006] NSWSC 1379

Answer 62

Facts: The settlor owned a parcel of 1.5 million shares, of which he declared himself trustee of 222,000 for the plaintiff. The 222,000 shares were never separated from the larger number of relevantly identical shares.
Held: There was certain subject-matter.
Summary
For a trust to have sufficiently certain subject-matter:
• Physical assets held on trust have to be specifically identified.

• Intangible assets need to be individually specified OR specified by number or proportion in a bulk of identical assets.

Seems to support Goode’s distinction between fungible/infungibles

Question 63

Michael Briggs, Has English law coped with the Lehman collapse? [2013] BJIBFL 131, 132

Answer 63

[The Lehman] cases demonstrate the continuing vigour and above all flexibility of the common law of trusts in the face of unprecedented challenges, in a very unfamiliar international business environment. The outcome produced both justice and the practical vindication of the parties’ apparent intentions, as discernible from the relevant documents and their habitual behaviour towards each other.

Question 64

Summary of Stevens’ criticism of Lehman:

Answer 64

No certain subject-matter
• A did not need to hold securities at any given time, and so it’s not clear how it could ever have breached its duty to account.

• There was no appropriation whatsoever of any rights to the trust.

No certain intention to declare a trust
• A was free to use the securities freely, so long as it retransferred B equivalent securities later.

• How could A be a trustee if entitled to free use of the assets?

Question 65

A purported to declare himself a trustee in respect of uncertain property

Answer 65

A would remain legally and beneficially entitled to that property as if no-declaration had been made.

Question 66

If A purported to transfer legal title to uncertain property to B to hold on trust

Answer 66

then the disposition of legal title to B would fail, and A would remain legal and beneficial owner.

Question 67

If A transferred certain property to B, but B was to hold an uncertain portion of it on trust for C

Answer 67

presumably B would hold all the property on trust for A. The court would not be able to establish that A intended to make an absolute gift of any certain property to B. The whole would be held on resulting trust.

Question 68

Jacobs J Swift Dairywise Farms Ltd

Answer 68

used the definition of property in the Insolvency act 1986 to determine what could form the subject matter of a trust.

Includes money, land, goods etc.

Question 69

Certainty of objects

Answer 69

Certainty of objects relates to identifying the beneficiaries of a trust. Every trust (except charitable trusts) must satisfy this requirement. If the trust fails for lack of certainty of objects, then there is a resulting trust for the settlor.

Crucial that the objects of a trust be defined with sufficient certainty that the trustees / the court, know to whom the trust property can / cannot be appointed.

Only private trusts must comply (failure = same as certainty of subject matter); charitable purpose trusts are subject to cy-près doctrine.

Question 70

Summary of certainty of objects

Answer 70

1. Conceptual uncertainty the precision of language used by the settlor to define the classes of persons whom he intends to benefit.
2. Evidential uncertainty extent to which the evidence available enables specific persons to be identified as members of those classes — and so as beneficiaries or potential beneficiaries.
3. ‘Ascertainability’ the extent to which ‘the whereabouts or continued existence’ of persons identified as beneficiaries or potential beneficiaries can be ascertained.
4. ‘Administrative Workability’ the extent to which it is practicable for trustees to discharge the duties laid upon them by the settlor towards beneficiaries or potential beneficiaries. If the class is too wide (impracticable for trustee to discharge his duties) then trust will fail.
   o Capriciousness: part of this element. If the intentions of the settlor are nonsensical.

Question 71

Certainty of Object in FIXED TRUSTS

Answer 71

Under a fixed trust, the trustees have no discretion regarding how the trust property should be distributed. In order to satisfy the certainty of objects requirement, a full list of beneficiaries must be able to be created. Both conceptual and evidential certainty need to be established.

• Re Gulbenkian’s Settlements [1970] Lord UpJohn: the term ‘my old friends’ was not sufficient. If someone appeared before the court claiming to be in that class “they can show no title to [the trust property] unless they prove they are the only members of the class, which of course they cannot do, and so, too, by parity of reasoning they cannot claim any defined part of the fund.”

‘Old friends’ is both conceptually uncertain —language is capable of bearing several meanings —and evidentially uncertain — very difficult to prove you are an old friend (subjective measure).

Question 72

Ascertainability for fixed trusts

Answer 72

Ascertainability is not necessary. No reason why all beneficiaries must be ascertained; if one of the beneficiaries cannot be found, then his share could simply be paid into the court.

• Re Gulbenkinan: “if the class is sufficiently defined by the donor the fact that it may be difficult to ascertain the whereabouts or continued existence of some of its members at the relevant time matters not. The trustees can apply to the court for directions or pay a share into court.”

Question 73

Will a fixed trust be afflicted by administrative unworkability?

Answer 73

Nor should a fixed trust be afflicted by administrative unworkability: if a complete list can be drawn up, then it should always be practicable for the trustees to give effect to the settlor’s intention.

Question 74

Fixed trusts subject to a condition precedent

Answer 74

Is it valid if the settlor makes a series of individual gifts subject to a condition precedent (i.e. if person does X they will get Y)?
• Valid here the trustees are not required to divide the trust property between beneficiaries (so that the quantum of the gift to any individual is not affected by how many beneficiaries there are) the condition precedent will satisfy the certainty of objects requirement as long as it can be said with certainty that at least one person definitely satisfies it. E.g. “£1000 to my eldest son if he is a practising Catholic”, “practicing Catholic” only needs to satisfy the Re Barlow test.

Question 75

Certainty of objects

Re Barlow’s Trusts [1979]

Answer 75

• Facts: testatrix provided a number of her paintings could be sold at a reduced price to “any members of my family and any friends of mine.” Gift was difference in price between market value / reduced price. Issue: whether condition precedent rendered gift void for uncertainty.
• Browne-Wilkonson J: there was sufficient certainty for the trust to take effect, despite the use of the term ‘friends’.
o The Re Gulbenkian rule applies where “it is necessary to establish all the members of a class” because “you cannot hold the gift good in part, since the quantum of each friend’s share depends on how many friends there are. So all persons intended to benefit … must be ascertained if any effect is to be given to the gift.”
This doesn’t apply “where there is a condition or description attached to one or more individual gifts” because uncertainty to as to other persons doesn’t “affect the quantum of the gift to persons who undoubtedly possess the qualification.”

Question 76

Certainty of Objects

DISCRETIONARY TRUSTS

Answer 76

Under a discretionary trust, trustees enjoy a discretion as to which objects should receive the trust property, and how much each object should receive. Potential objects must be defined with sufficient certainty to enable the trustees / the court, to exercise their discretion appropriately.

Question 77

traditional test for discretionary trusts

Answer 77

Originally courts held that the complete list test applied:

IRC v Broadway Cottages [1955]: Settlor directed £80,000 to be held on trust, with the income to be applied for the benefit of all or any members of a wide class of beneficiaries including Broadway Cottages (a charity). CA: trust is void for uncertainty. The same rule applied to fixed and discretionary trusts —all possible beneficiaries must be identified. Reasoned that, if trustees did not make selection, the court would have to step in. If so, the method of distribution would be an equal division of shares (only possible if the court knows all the parties).

Question 78

What is the test for discretionary tests now?

Answer 78

The HL abandoned the complete list approach and adopted the given postulant test: Only need a complete list where the trust property is to be divided equally (total is needed to work out quantum).

Question 79

McPhail v Doulton [1971] (aka Re Baden’s Trusts (No. 1))

Answer 79

• Facts: settlor set up a fund for the benefit of employees and relatives at the ‘absolute discretion’ of trustees. Questions: (i) whether this was a trust or power; (ii) the appropriate test for certainty of objects requirement.
• HL (Lord Wilberforce): All agreed it was a trust, split 3:2 on the test for uncertainty. Test for certainty of objects in discretionary trusts is the same as the test for fiduciary powers: whether it could be said with certainty that any given individual is / is not a member of the class.
o Lord Wilberforce: “the rule recently fastened upon the courts by IRC v Broadway Cottages Trust ought to be discarded, and the test for the validity of trust powers ought to be similar to that accepted by this House in Re Gulbenkian’s Settlements for powers, namely that the trust is valid if it can be said with certainty that any given individual is or is not a member of the class.”

Wilberforce: ‘given postulant’ test includes conceptual/evidential certainty and administrative workability. Trust will fail where “the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’.” Case was remitted the court of first instance to apply the test, made it to CA

Question 80

Re Baden’s Deed Trusts (No. 2) [1973]

Answer 80

•	Issue on appeal was whether the groups ‘relatives and ‘dependents’ satisfied the new test — could it be said with certainty that any given individual was a member of the class. 
•	CA: held the terms satisfied the test, but were uneven in their application of the McPhail test. All agree that the language used must be conceptually certain, but differed as to the level of evidential certainty required.
o	Sachs LJ (liberal approach): the trust was valid because the court could always determine who was a dependant / relative. For him the McPhail test required only conceptual clarity: “The court is never defeated by evidential uncertainty... once the class of persons to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it: if it is not so proved, then he is not in it.” 
o	Stamp LJ (restrictive approach): evidential as well as conceptual certainty is required: McPhail test means the court must be able to tell with certainty whether a given person is / is not an object of the trust. He reached his decision, in this case, by defining relatives as ‘next of kin’ (cf. Sach’s definition: ‘descended from a common ancestor’). 
o	Megaw LJ (middle ground): would find the test satisfied if, “as regards at least a substantial number of objects, it can be said with certainty that they fall within the trust.”

Applying the tests: 
•	Sachs LJ: evidential certainty is satisfied through a presumption that if any particular C cannot prove with certainty that he is within the class of beneficiaries, then he is outside it. 
•	Megaw LJ: evidential uncertainty is satisfied if it can be said with certainty that a substantial number of individuals are within the class, even if the position of some Cs is uncertain. 
•	Stamp LJ: evidential uncertainty is not satisfied unless it can be said with certainty whether any / every particular C is / is not a member of the class. If there is anybody about whom it is unclear whether he is or is not an object, the trust fails for uncertainty of objects. 

Best approach? Stamp’s rigid need to prove any (therefore every) given postulant in / out will mean many trusts will fail due to uncertainty. This is unsatisfactory Virgo: Sachs’ is best: burden on postulants and makes it hard for trusts to fail on evidential certainty (protects intentions of the settlor), but inconsistent with Wilberforce’s insistence on both conceptual and evidential certainty in McPhail.

In practice: not much difficulty: (i) careful drafting can easily avoid these issues; (ii) settlor can create a trust in favour of a very narrow class and then give the trustee power to add beneficiaries to the class. See Re Manisty below

Question 81

Curing uncertainty through delegation

Answer 81

If criteria for identifying the beneficiaries are uncertain, this can be resolved by settlor stating that it is for the trustees or a third party to determine who falls within the class of beneficiaries. 
•	This can be used to cure evidential uncertainty (does particular person fall within class, Re Coxen)
•	Less clear whether it can cure conceptual uncertainty (if the criteria a given person has to fulfil is uncertain) —Denning thought it could in Re Tuck, Eveleigh LJ didn’t. 

Tension in these cases between: (i) courts need to exercise its jurisdiction to distribute a trust (and therefore be able to determine if objects are certain); (ii) respecting settlor’s intentions.

Question 82

Clause will not stand if it attempts to oust the court’s jurisdiction to decide questions of law (including conceptual uncertainty):

Answer 82

• Re Wynn [1952] Was the following clause in a will valid? “I authorize and empower my trustees to determine all questions and matters of doubt arising in the execution of the trusts of this my will.” Dankwerts J although convenient, “a clause of this kind has no effect if it is attempted to use it so as to prevent the beneficiaries requiring the matter to be decided by the court … any beneficiary is entitled to go to the court to have his rights considered and, if necessary, upheld.”

Question 83

Clauses resolving evidentiary uncertainty

Answer 83

are valid: evidential certainty (unlike conceptual uncertainty) is a question of fact not law—court is not concerned to have exclusive jurisdiction over questions of fact. Test is whether the state of affairs to be determined is sufficiently identified:

• Re Coxen [1948]: Testator left a house to trustees for his wife to live in. He declared: “if in the opinion of my trustees she shall have ceased permanently to reside therein” the house was to fall into residue. Jenkins J: the condition was not void for uncertainty: the decision of the trustees would be sufficient to determine the widow’s interest. “If the testator had insufficiently defined the state of affairs on which the trustees were to form their opinion” However, in this case, the state of affairs to be determined was “sufficiently defined to make it perfectly possible for the trustees (as judges of fact for this purpose) to decide whether it has happened or not.”
• Dundee Hospitals Board v Walker [1952] A will provided trustees in their ‘sole and absolute’ discretion could determine whether a hospital had been taken over by the state —testator only wanted his legacy to go to hospital if it was private. HL (Lord Reid): clause was valid. Further, such a clause does not “exclude recourse” to the courts: If “the trustees considered the wrong question” or “did not really apply their minds to it or perversely shut their eyes to the facts” or “did not act honestly or in good faith,” then the courts will intervene. NB: Scottish case.

Question 84

Re Tuck’s Settlement Trusts [1978]:

Answer 84

A trust was established to benefit future baronets on the conditions that they were of the Jewish faith and married to a wife of ‘Jewish blood’, as determined by the Chief Rabbi. CA: condition was sufficiently certain —any conceptual uncertainty regarding the condition was cured by the power given to the chief Rabbi.

• Denning: “I see no reason why a testator or settlor should not provide that any dispute or doubt should be resolved by his executors or trustees.” This does not oust the jurisdiction of the court because the court can ensure the trustee “does not misconduct himself or come to a decision that is wholly unreasonable.” Notes this approach fulfills “the intention of the testator or settlor.”
• Eveleigh LJ decided the case on the narrower ground that there was no conceptual uncertainty because the settlor was “in effect saying that his definition of ‘Jewish faith’ is the same as the Chief Rabbi’s definition.” For him, conceptual uncertainty is a matter of law which can only be resolved by the court

Unclear whether: (i) same approach would be used for a discretionary trust with conceptually uncertain objects (Tuck was a fixed trust subject to a condition precedent); and (ii) whether the courts would adopt the broad approach of Denning, or Eveleigh’s more restrictive approach.

NB: the court can intervene to correct the trustees’/third party’s decision but only if it is “wholly unreasonable”: Tuck, Dundee Hospital.

Should conceptual uncertainty be determined by trustees? Denning’s analysis allows the court to give effect to seriously intended trusts in more circumstances, but it is contrary to a previous line of authority (Re Coxen) and seems to be based on a misunderstanding of Dundee Hospitals —that case only supports evidentiary uncertainty being resolved, not conceptual uncertainty.

Question 85

Administrative unworkability

Answer 85

In McPhail, Lord Wilberforce hinted that a class may be so ‘hopelessly wide’ as to be administratively unworkable —he gave the example of ‘all the residents of greater London’

Question 86

R v District Auditor, ex p W. Yorkshire Metropolitan County Council [1986]:

Answer 86

• local authority created a trust, under which trustees were “to apply and expend the Trust fund for the benefit of any or all or some of the inhabitants of the County of West Yorkshire.” NB: this wasn’t a charitable trust. CA: since there might be as many as 2.5m beneficiaries, the trust would not take effect as an express private trust because it would be unworkable: “definition of the beneficiaries of the trust is ‘so hopelessly wide’ as to be incapable of forming ‘anything like a class’.”

Question 87

Virgo on administrative unworkability

Answer 87

administrative unworkability should be an irrelevant consideration. As long as the trust property is appointed to object who falls within the scope of the class, the size of the class should not matter. This would give greater respect to the settlor’s intentions. However, following West Yorkshire, trustees should create a trust in favour of a small, certain class of persons, but give trustees the power to add beneficiaries to that class.

NB: there was only £500,000 in the trust in West Yorks, if there was £50m, it might be the trust would have been administratively workable —could be some element of proportionality here?

Question 88

Will administrative unworkability affect the validity of a mere power?

Answer 88

Administrative unworkability will not affect the validity of a mere power (Re Hay’s Settlement Trusts [1982]) ‘A wider and more comprehensive range of inquiry is called for in the case of trust powers than in the case of powers’.

Question 89

Re Manisty’s ST

Answer 89

holds that if a trust is capricious, meaning it would negative any sensible intention of the settlor, then it is invalid. Emery suggests this is the same as administrative unworkability, since something is capricious wherever it is unworkable.

However, capriciousness applies to both discretionary trusts and powers (In West Yorkshire, held void for administrative unworkability but held not to be capricious since the County Council had every reason for wishing to benefit the inhabitants of West Yorkshire; thus the two concepts are distinct but nothing has yet been set aside for capriciousness.

Question 90

Question as to whether administrative workability applies to fixed trusts:

Answer 90

• Emery: administrative unworkability cannot apply to a fixed trust because a fixed list will mean is always practicable for trustees to give effect to settlor’s intentions.
• Hardcastle even a fixed trust can be administratively unworkable, e.g. a fixed trust requiring distribution of £1000 among a clearly defined and certain class of 100,000 people.
• Purpose of the requirement: If the purpose is to control the size of the class of beneficiaries in order to make it practical for the trustees to execute the trust, administrative unworkability is unlikely to apply to fixed trusts because if a fixed list can be drawn up it should be possible to execute the trust no matter how big the class is. But if the purpose is to ensure that the trust can be practically executed in light of the proportion between the size of the fund and the number of beneficiaries, administrative unworkability should apply to fixed trusts.

Question 91

Fiduciary Powers

Trusts and powers:

Answer 91

fundamentally different: trusts impose obligations that must be exercised. Powers are discretionary, so they may be exercised. Further, trusts can be executed by the court, but powers cannot. E.g. if a trustee dies without making an appointment of trust property to beneficiaries, the court will make the appointment if it was a trust obligation, but not if it was a mere power (will lapse on trustee’s death). NB: trusts and powers do not invariably operate in isolation: single trust instrument might both impose trust obligations and create discretionary powers.

The fact that the holders of powers need to consider their exercise means that it must be possible for them to make a reasonable survey of potential objects in order to make a sensible decision whether or not to appoint any of the property to potential objects. As a result, powers must be certain.

Question 92

Test of certainty for fiduciary powers:

Answer 92

• Re Gulbenkian’s Settlements [1970]: G made a settlement stating trustees could ‘in their absolute discretion’ give trust property to his son, son’s wife and children, and ‘any person in whose house his son may be employed / residing’.HL: power was held to be valid under the following test: “the trustees or the court must be able to say with certainty who is within and who is without the power.” Given postulant test.

Question 93

Re Manisty’s Settlement [1974

Answer 93

Fiduciary powers were recognized as valid where the trustee holders of the power could exercise the power in favour of anybody at all, with the exception of a limited class.

• M made a settlement giving trustees discretion to appoint the trust funds for the benefit of any of the beneficiaries (small class of settlor’s near relations). He also gave them a power to declare that “any persons, corporations, or charities should be included in the class of beneficiaries.” Templeman J: power was valid. A power can’t be invalid just because it’s wide in ambit. However, a ‘special’ power in favour of a class ‘that negatives any sensible intention on the part of the settlor’ would be void as being ‘capricious’ (e.g. ‘the residents of Greater London’)

Question 94

Re Hay’s Settlement Trusts [1981]:

Answer 94

• a power allowing a trustee to appoint trust property to ‘anyone in the world’ except a specified class of persons was valid, despite the width of the power and the number of persons who were the objects of the power. This was because in excising that power of appointment, the trustee was bound to: (i) ensure that any appointment was within the power; (ii) consider periodically whether to exercise the power; (iii) consider the range of objects of the power; (iv) to consider the appropriateness of individual appointments.

Question 95

Moffat on Re Hay:

Answer 95

“Re Hay’s Settlement Trusts does then lend tentative support to two propositions: (1) a criterion of administrative unworkability applies to discretionary trusts but not to mere powers; (2) there may be a criterion of ‘capriciousness’ that will invalidate ‘special fiduciary powers’ (ie. special powers vested in trustees) but not ‘intermediate fiduciary powers’”.

Question 96

Important differences between discretionary trusts and powers:

Answer 96

• Discretionary trusts: trustees have a duty to: (i) survey the field to identify the width of the class; and, (ii) to distribute the income from the trust.
• Fiduciary powers: donee is not under a duty to distribute the property. However, under Re Hay’s ST (1982), also have the following duties: (i) to consider periodically whether to exercise the power; (ii) to consider the range of objects; and (iii) to consider the appropriateness of appointments made – i.e. cannot pick without reason.

Question 97

The rights of members of the class in discretionary trust vs fiduciary powers

Answer 97

• Discretionary trusts:
o Not beneficiaries until appointed to the trust – before this, merely a hope of benefiting.
o Thus, cannot claim they are entitled to be appointed, as this is at the absolute discretion of the trustees.
o Decisions may be challenged on the basis the trustees have:
♣ Appointed outside the class;
♣ Failed to consider their reasons for appointment; or
♣ Acted in bad faith in making an appointment.
o Note: if all the beneficiaries are in hope of benefiting, they may act together to wind up the trust under Saunders v Vautier (1841), since they represent the entire beneficial interest.
• Fiduciary powers:
o As with discretionary trusts, members of a class cannot claim to be entitled to appointment. However, challenges can be made on the basis that the fiduciaries have:
♣ Appointed outside the class;
♣ Failed to carry out their fiduciary obligations.

Question 98

Can an unborn beneficiary be sufficiently certain?

Answer 98

If A declared “Henceforth, I hold all my property on trust for B to life, remainder in equal shares to such children as B might hereafter have”, the trust would have certain objects.

Question 99

When can the class ‘old friend’ be sufficiently certain?

Answer 99

When there are options to purchase.

An option to purchase can be given to a class which would otherwise by uncertain.

Re Barlow’s Will Trusts [1979] 1 W.L.R. 278.
Facts: a testator provided that each of her “old friends” was to have the option to purchase a painting from her estate.

Held: “Old friends” was sufficiently certain for the option to take effect.

“[E]ach person coming forward to exercise the option has to prove that he is a friend; it is not legally necessary, in my judgment, to discover who all the friends are. In order to decide whether an individual is entitled to purchase, all that is required is that the executors should be able to say of that individual whether he has proved that he is a friend. The word ‘friend’, therefore, is a description or qualification of the option holder.”
Re Barlow’s Will Trusts [1979] 1 W.L.R. 278, 282 per Browne Wilkinson J

Question 100

What happens to the shares of a beneficiary who can be identified but whose whereabouts cannot be ascertained?

Answer 100

should be paid into court: Re Benjamin [1902] 1 Ch. 723.

Question 101

Examples of a mere power

Answer 101

: “I transfer £500 to A on trust, who is to have the power in his absolute discretion to divide it between my children.”
• A has authority to distribute the £500 amongst my children, but no duty to do so.

• The power itself does not evidence intention to declare a trust. If the disposition omitted the words “on trust”, and A was not already a fiduciary, it would be construed as an absolute gift to A with an expression of motive.

The use of the word ‘trust’ means the trustee owes fiduciary duties

Question 102

What duties do a trustee owe under a mere power?

Answer 102

Apart from the obvious duty of obeying the trust instrument, and in particular of making no appointment that is not authorised by it, the trustee must, first, consider periodically whether or not he should exercise the power; second, consider the range of objects of the power; and third, consider the appropriateness of individual appointments. I do not assert that this list is exhaustive; but as the authorities stand it seems to me to include the essentials, so far as relevant to the case before me.”

Question 103

Can the duties of exercising a mere power be enforced?

Answer 103

Harris, ‘Trust, Power, and Duty’ (1971) 87 LQR 31.
• A duty to consider cannot be legally enforced. Nobody can claim performance of the duty or prove breach, especially as trustees do not have to give reasons.

• Criticises Lord Wilberforce’s argument that a discretionary trustee’s ‘duty of inquiry’ is more extensive than the ‘duty to survey and consider’ of a trustee holding a mere power.
• Both duties apply when the trustee is exercising the power. Why then should the scope of the duty depend on whether the power has to be exercised or not, so long as the trustee did in fact exercise it?

• Both are unenforceable for the same reasons.
Because a trustee has no duty to exercise a mere power, the court will not compel its exercise:
“As to [mere] powers, I agree with my noble and learned friend Lord Upjohn in In re Gulbenkian’s Settlements that although the trustees may, and normally will, be under a fiduciary duty to consider whether or in what way they should exercise their power, the court will not normally compel its exercise”
McPhail v Doulton [1971] AC 424, 456 (Lord Wilberforce)

Question 104

When can the court compel exercise of a mere power?

Answer 104

The only exception is that the court will sometimes compel the exercise of mere powers which are ‘fully fiduciary’:
Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 (Ch D)
Facts: A was a manufacturer. Its employees’ pension fund was held on trust by B. The pension fund had more than enough money to pay its liabilities (i.e. the agreed pensions), and so had a surplus. A term of the trust provided that B had a mere power to appoint any surplus in favour of the pensioners, otherwise the surplus would go to A.
A became insolvent. Its liquidators argued that B could not be made to exercise the power, so the surplus from the pension fund would be paid to A’s creditors. If the mere power were exercised, it would instead go to the pensioners.
Held: The court compelled the exercise of the mere power, which Warner J described as “fiduciary in the full sense”. In the context of A’s dissolution at least, the power imposed an duty.
Warner J’s reasons:
i. The power would have been meaningless if the court could not compel its exercise. A as beneficial owner of the surplus by default could have paid it over to the pensioners, it had to impose a duty to have any effect.

ii. The pensioners were seen as having given value (i.e. their pensions contributions) not only for the benefits they contracted for under the pension scheme, but for a share of the surplus.

Question 105

Does administrative unworkability apply to mere powers?

Answer 105

• Re Hay’s ST: held (Megarry VC) that a mere power could not be administratively unworkable on the ground of mere numbers, because this should not inhibit the trustees in its exercise and would not prevent the courts from controlling them.
• Re Beatty: a mere power in favour of “such person or persons as [trustees] think fit” was valid, without even mentioning administrative unworkability.

Question 106

SUMMARY OF FIXED TRUSTS

1. test
2. conceptual certainty
3. evidential certainty
4. ascertaining location
5. administrative unworkability
6. capriciousness

Answer 106

• Essential test of certainty = Complete list test: all beneficiaries must be identifiable at the time when trust property is to be distributed (not necessarily at time when trust is created)
• Conceptual certainty = Will fail if definition of object is unclear: trust for settlor’s “friends” will fail
• Evidential certainty = If impossible to prove who the objects are, even if it were certain, trust is void: trust for all members of his football team in his year is certain, but if school no longer has records, then trust will fail
• Ascertaining location = Trust will be valid even if impossible to ascertain location of certain beneficiaries: ascertainable beneficiaries receive property and rest is paid into court
• Administrative unworkability = Irrelevant for fixed trusts – complete list test circumvents problem with discretionary trusts of a class being too large and administratively unworkable.
• Capriciousness = Irrelevant – even if settlor chooses objects by reference to a description that is not sensible (eg. members of cricket club who have ginger hair) it will be valid

Question 107

SUMMARY OF TRUSTS SUBJECT TO CONDITIONS

Answer 107

• Condition subsequent (prima facie eligible for gift but not if condition is satisfied) will only be valid if it can be known with certainty from the start the event that will defeat the beneficiary’s interest
  o Clayton v Ramsden: condition subsequent of marrying a “person not of Jewish faith” failed for uncertainty (impossible to define faith)
  o Re Jones: condition subsequent of having a social or other relationship with X failed (impossible to define relationship)
  o However Re Tepper’s WT: condition subsequent of “marrying outside of the Jewish faith” stood because while Scott J recognized Clayton he had regard to extrinsic evidence to resolve uncertainty
  o And Blathwayt v Lord Cawley: condition subsequent of becoming a Roman Catholic stood (indicates that courts are now more concerned with respecting settlor’s wishes by more readily upholding conditions)
  Conditions precedent (condition must be satisfied before being entitled to gift) is valid if just one person satisfies the condition (Re Barlow’s WT: family and friends entitled to lower price – “friends” was sufficiently certain because one person would undoubtedly have fit the description)
• Re Tuck’s Settlement Trust: conceptual uncertainty will not void a condition precedent, but will void a condition subsequent (unsure why)
• Will not invalidate a trust, simply means object cannot prove that he satisfies condition
• Will not invalidate trust (since object must prove he satisfies condition) but if no object can be ascertained condition will lapse and property passed to those entitled
• Will not invalidate trust for administrative unworkability
• No authority, but presumably YES.

Question 108

SUMMARY OF DISCRETIONARY TRUSTS

1. test
2. conceptual certainty
3. evidential certainty
4. ascertaining location
5. administrative unworkability
6. capriciousness

Answer 108

1. Traditionally complete list test was used but this was unsatisfactory because discretionary trusts often had larger lists than fixed trusts (eg. inhabitants of a town would fail complete list test) so in McPhail v Doulton HL rejected the test because if trustee doesn’t exercise his power the court should not have to resort to maxim that ‘ equity is equality’ and distribute property equally (because it would rarely accord with settlor’s intentions, and would spread settlement so thin that nobody benefits). Now this test is only used if there is evidence that settlor’s intent is that if trustee doesn’t appoint then property is to be distributed among all (not necessarily equally). Test used now: “given postulant test” – it must be ascertainable whether any given individual is or is not a member, and not necessary to ascertain everyone in that class.
2. Description of class must be sufficiently certain:
   a. Re Baden (II): “relatives” and “dependants” are conceptually certain but different judges gave different definitions (Sachs and Megaw sais relatives were descendants from common ancestor but Stamp said it was next of kin or nearest blood relations)
   b. Re Barlow’s WT: “friend” (outside context of condition precedent) means long-standing relationship of social character and parties met frequently when they had an opportunity to do so
3. Judges disagreed, but Stamp’s test is most consistent with Wilberforce’s essential test:
   a. Sachs: discretionary trust can never be defeated by evidential uncertainty – if impossible to prove that a person fell within a class, that person would fall out of it and trust would still be valid
   b. Megaw: Enough if it can be shown of a substantial number of objects that they are in the class
   c. Stamp: test of evidential certainty requires it to be shown of any given person that he is or is not in the class (trust would fail if it is uncertain about any one person whether or not they are in the class)
4. Irrelevant – simply means that whoever’s location is unascertainable won’t get a distribution from the trust
5. If a class is so wide that it cannot be considered anything like a class, it will be void for administrative unworkability (eg. ‘all the residents of Greater London’, per Lord Wilberforce in McPhail v Doulton)
   a. Ex Parte West Yorkshire MCC: discretionary trust for inhabitants of West Yorkshire void for too large a class (2.5 million)
   b. Re Baden: class of hundreds of thousands is not inherently unworkable, but 2.5 million is too big
   c. Re Hay’s ST: discretionary trust for anyone other than a few specified people will be administratively unworkable
   d. Why is a trust void for too wide a class?
   i. Trustee can’t perform duty to ascertain range of objects
   ii. Court will not be able to execute a trust with large class
   iii. No criterion for exercise of discretion where class is large, so impossible to ascertain settlor’s intention
   iv. Excessive delegation to trustees
6. Can void a trust if settlor had no sensible intent in establishing it; regards to nature of the class and if it is arbitrary, it will likely be void. However no discretionary trust has been held void for capriciousness.

Question 109

SUMMARY OF FIDUCIARY POWER

1. test
2. conceptual certainty
3. evidential certainty
4. ascertaining location
5. administrative unworkability
6. capriciousness

Answer 109

1. Per Re Gulbenkian’s Settlements: test is met if it can be determined that any individual is or is not a member of the class (rejected CoA’s approach that test is satisfied if one person can be said to fit into the class because while court cannot compel trustees to exercise a fiduciary power, people entitled to the fund in default of its exercise can restrain the trustees from exercising power in favour of people not in the class)
   a. Re Gulbenkian was followed in McPhail v Doulton
   b. But later case of Re Baden (no. 2) confused things by holding that the power may be valid even though there may be a substantial number of persons of whom it is impossible to say whether they are in or out, provided (according to Megaw LJ) that as regards at least a substantial number of objects, it can be said with certainty that they are in. Sachs LJ said conceptual certainty is enough and the power won’t be defeated by evidential uncertainty. However, Stamp LJ (dissenting) said that this would just bring back the test rejected in Re Gulbenkian – the right test is it must be possible to say of every person whether he is in or out.
2. Necessary.
3. Same test as discretionary trusts
4. Same as discretionary trusts
5. Unknown. Probably not because trustee doesn’t need to exercise power of appointment, so duty can be complete even with a very broad class.
6. Can void a fiduciary power if the power has no discernible link with the settlor but not because of the size of the class (Re Manisty)

Question 110

Emery, ‘The Most Hallowed Principle: Certainty of Beneficiaries of Trusts and Powers of Appointment’ (1982) 98 LQR 551

Answer 110

Argues that the cardinal principle for certainty requirement is that any duties imposed by a S upon trustees must be capable of being executed by them, and in default, by the court. In this sense, the requirements as to conceptual certainty are uniform – they are the same for all trusts and powers. However, evidential certainty is different between (i) fixed and Burrough discretionary trusts (complete list test), and (ii) Baden discretionary trusts and powers of appointment (individual postulant test).

1º CONCEPTUAL CERTAINTY = same for all fixed or discretionary trusts and powers of appointment. However, Re Barlow (Browne-Wilkinson LJ) suggests that Re Allen is authority for the principle that a condition precedent gift is valid on the “any given postulant” test. However, IAO Re Allen is not authority for this proposition because it does not apply to all gifts:

• it would apply to gift to an ascertained individual on a condition precedent,
• but NOT a gift to an individual whose identity is to be ascertained only after it has been decided whether the coniditon is satisfied because here the difficulty is conceptual (caused by the uncertain scope of adherence to doctrine of Church of England) and thus incurable
• it might apply to gifts to “such sons of A as shall be adherents to Church of England” depending on how many sons it can be said satisfy the condition – if none, the gift fails. IAO it will succeed iff it is possible to establish the maximum number of members of the class (ex. if 3 sons definitely satisfy, and 1 impossible to say whether he satisfies, the solution would be to divide the fund into 4 equal parts).
• It will NOT apply to “such friends of A as shall be adherents to Church of England” because impossible to establish the maximum number of members.

1. 5º RE BARLOW =
   - Should not have been construed as a series of gifts to individuals, but a power to sell to any member of the class who wished to buy.
   - BW J distinguished the trust from a “gift of £10 to each of my friends”, but IAO such a gift would have been valid and would take effect in favour of each person who could show that (on any view) he was a friend. A series of individual gifts is different from a class gift of a fixed sum divided among “my friends” (which would fail).
   - BW J took it as a series of individual gifts and not a class gift, so it was not open to him to hold that class gifts subject to a condition precedent will also be valid if they satisfied the any given postulant test (which IAO is governed by the principles above)

2º EVIDENTIAL UNCERTAINTY = is different from conceptual uncertainty because in the latter, it cannot ever be said with certainty that anyone is or is not a member of a class because nobody can know who was intended to benefit. In evidential uncertainty, it is perfectly clear that persons of a particular and clearly defined type were intended to benefit; it can be said with certainty whether someone is or is not a member of the class.

Question 111

Hardcastle, ‘Administrative Unworkability—A Reassessment of an Abiding Problem’ [1990] Conv 24

Answer 111

Argues that administrative unworkability should best be treated as a logical extension of evidential uncertainty; while courts won’t normally permit difficulties of ascertainability to frustrate execution, there must be a point where performance becomes a futile exercise, i.e. where a potentially innumerable class of beneficiaries is coupled with a total lack of provable definitional criteria. 
Therefore, the criterion is not an unwarranted threat to freedom of alienation, but a useful means of curbing its more extreme manifestations and preventing funds to be diverted to social-welfare functions.

1º TELL-TALE SIGNS =

• Width of the class
• Extent of trustee’s duties: a discretionary trustee has more stringent duties than donee of a power because of wider survey, so more likely to be unworkable (Re Hay)

2º UNWORKABLE FOR WHO =
- Trustee (so key is suitable “appointment criteria”) but it can be said that there is a “sliding scale” of duties so that the larger/more disjunctive the class, the less onerous the trustee’s obligations.
- Court (so key is “pointers or guides” that allow the court to substitute its own discretion for trustees’)
o Insufficient guidance on S’s intentions? but trustee can take into account a wide variety of considerations, and a fortiori the court with greater judicial weaponry
o Impossibility of monitoring performance (judging whether breach committed)? But this doesn’t apply to powers
Thus it will be extremely rare that the trustee or court won’t be able to administer the trust, so if the criterion is (and it should be) limited to such cases it will apply very rarely.

3º PERIPHERAL ISSUES

• Does it apply to fixed trusts? Emery thinks not, because no question of selection arises. But IAO this is wrong because the administrability of a fixed trust = capacity to distribute to every member of the class, so it will be unworkable if it is so vast as to be impossible.
• Does it apply to mere powers? Numbers per se cannot strike down a mere power, Megarry VC said that if it poses “real problems of administration or execution” it might be struck down (Re Hay). But unclear what these situations might be. Dicta in Blausten v IRC (Buckley J) says that the mere power in that case could only be upheld because the trustee’s power to include anyone in the world was subject to S’s consent, which had the effect of placing “metes and bounds” around what would otherwise be a limited class. Though Megarry VC doubted this because S’s consent couldn’t possibly narrow the class, IAO this is erroneous because the key is not size but the plausibility of actually conferring the benefit in a way that fulfills S’s intentions.
• Is it the same as capriciousness? IAO the two are alternative vitiating factors – S can earmark whomsoever he pleases to be the objects of his benefaction, but as a matter of policy, the court will not aid S in all his eccentricities. If the disposition is devoid of any sensible purpose, then will be void as capricious. If it is too big so makes an otherwise sensible intention into implausible to fulfill in practice, it will fail as unworkable.

Question 112

Definition of a power

Answer 112

• Definition = right to exercise, in respect of property belonging to another, one or more of the rights that are the normal incidents of ownership.
  o A trust must be equitable whereas a power doesn’t have to be (ex. mortgagee has a legal power to sell)
  o A trust is imperative whereas a power is not.
• Powers in the trust context often involve:
  o Overriding powers of appointment (powers to permit existing trusts to be revoked and for new trusts to be declared in favour of the same (or sometimes slightly different) beneficiaries, or to permit the trust property to be transferred to the trustees of other settlements for the same (or sometimes slightly different) beneficiaries) often present in discretionary trusts.
  o Powers to alter the class of beneficiaries (permitted – Re Manisty)
  ♣ Re Manisty: power conferred on trustees to add persons to the existing class of beneficiaries of a discretionary trust was valid (Templeman J)