Three Certainties (Summaries)

Question 1

Where A transfers rights to B, then A will intend to declare a trust where:

Answer 1

1. A does not intend B to have free use of the rights;
2. B is only to use the rights according to the terms of the transfer;
3. For the benefit of another (whether A or third parties).

Question 2

Idea at the heart of the intention doctrine

Answer 2

Depriving the holder of rights of free use of rights

Question 3

A will have declared himself a trustee where:

Answer 3

makes a statement that from that time onwards he will hold the rights according to certain terms for the benefit of another.

Question 4

Types of (potential) Inferred intention

Answer 4

1. Segregation (Yes): Re Kayford
2. Casual assurances and actions(Yes?) (Compare Jones v Lock with Paul v Constance)
3. Precatory words (No): Re Adams and the Kensington Vestry
4. “maintenance and education”(No): Re Osoba

Question 5

Why do we need certainty of subject?

Answer 5

What rights are held on trust and for what is the trustee accountable? Without knowing this we can’t define the beneficiaries rights or the trustee’s duties.

Question 6

What can you declare a trust over?

Answer 6

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

Except:

• Property you do yet have ( Re ellenborough)
• A duty or liability (Trust property must be an asset)
• An unspecified part of a person estate (i.e. ‘the bulk of the estate - Palmer v Simmonds)
• Part of a collectio of simlar items, without specifiying which particular item are to be held on trust (Re London Wine co)

Question 7

For a trust declared inter vivos to have sufficiently certain subject-matter:

Answer 7

• Any tangible assets to be held on trust have to be specifically identified.
• Intangible assets need to be specifically identified OR specified by number or proportion in a bulk of identical assets

Question 8

What is a fixed trust?

What are teh rules fo certainty of object of such a trust?

Answer 8

A fixed trust is one where the trustees have no power to determine who the beneficiaries are nor what their shares will be.

All the beneficiaries of such a trust, and their interests, must be identified—the court should be able to list them. I**RC v. Broadway Cottages Trusts [1955] Ch 20 (CA).

Qualifications:

1) Unborn beneficiaries can be sufficiently certain.
2) Options to purchase: An option to purchase can be given to a class which would otherwise be uncertain. (Re Barlow)
3) The share of any beneficiary who can be identified but whose whereabouts cannot be ascertained should be paid into court: Re Benjamin [1902] 1 Ch. 723.

Question 9

Discretionary Trust vs mere power

Answer 9

• A discretionary trust is one where the trustees have a duty to appoint beneficiaries. Failure to do so within the power’s terms will amount to a breach of trust.
• A trustee given a mere power has no duty to exercise it. Where the mere power allows the trustee to appoint beneficiaries, he has no duty to do so, and so will not incur liability for breach of trust if he fails to do so.

Question 10

A class of potential objects of a mere power or discretionary trust will only be too uncertain if:

Answer 10

1. It cannot be said whether any given individual is or is not in the class (McPhail v Doulton); AND
2. The reason for any uncertainty applying the test is conceptual rather than evidential, Re Baden (No.2).

Question 11

Administrative Unworkability (the principle)

Answer 11

A discretionary trust will fail where it has certain objects, but there are so many potential beneficiaries that administering it would be unworkable.

The idea seems to be that in such an instance neither the trustee nor the court would be able to “survey the field” in deciding which beneficiaries to appoint.

There may be a third case where the meaning of the words used is clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable

McPhail v Doulton [1971] AC 424, 457 (Lord Wilberforce)

Question 12

Administrative unworkability (limits of the principle)

Answer 12

1) The requirement of administrative workability applies only to discretionary trusts, NOT to mere powers, Re Hay’s ST [1982] 1 WLR 202, 212.
2) It does not apply to fixed trusts.
3) Courts can sometimes save dispositions to inhabitants of an area as charitable purpose trusts, rather than avoid it failing for administrative unworkability: Re Harding [2008]

Question 13

Administrative unworkability (reasons and problems)

Answer 13

McKay (1974) 38 Conv 269

1. ‘Not a class’—lack of common attributes amongst potential beneficiaries. (See lorf Wilberforce in McPhail)
   
   1. WEAK – for example a discretionary trust in favour of a list of potential beneficiaries which have nothing in common would be valid.
2. Simply too big.
   
   1. Presumably, if it impairs the trustees duty to survey the field.

However you can have mere powers with an infinitely large field.

1. Trustees cannot perform their duties.
   
   1. If teh trust is very big, how can the duty of inquiry be exercised.

• Duty of inquiry doesn’t appear to be enforceable
• Even if there is an enforceable duty, then why does administrative unworkability not apply to mere powers which also have duty to survey
• The mere width of a potential class doesn’t in fact impair the duty of inquiry, especially where the trustees have letters of wishes.

1. The court cannot execute the trust
2. Capriciousness.

• In Re Manisty Templeman suggested that in a trust for a very klarge group of object might fail simply as capricious. The suggestion is that there is apublic policy limitation on trust that the court will recognise and enforce. ut there are difficulties with this principle. There seem to be no limitations on capricious gift giving or declaring fixed trusts. Why should that be on discretionary trusts?
• Further, the principle doesn’t seem to explain administrative unworkability. in the West Yorkshire case. Lord Justice Lloyd said there was nothing capricious about the trusts declared, but nevertheless they failed for administrative unworkability.

​

In short, McCain’s criticism is that even with a large class, it’s possible to create a trust where the trustee and the court can give effect to the terms in light of the settlor’s intention. He sees administrative unworkability as an unwarranted threat to settlors wishing to confer wide discretion upon their trustees.

Although a problem in theory, in practice can be easily avoided by drafting since it doesn’t apply to fixed trusts or mere powers. Therfore it doesn’t meaningfully limit settlor autonomy.

Question 14

What is a sham?

Answer 14

A trust is a ‘sham’ where it has terms which show sufficiently certain intention, subject-matter, and object, but outside evidence shows the settlor and trustee never intended to be bound by the trust’s terms.

Key point: Sham doctrine is about showing that the purported terms of the trust were never meant to have legal effect.

Question 15

Matthew Conaglen, ‘Sham Trusts’ [2008] C.L.J. 176.

Answer 15

• The ‘sham’ doctrine is about ignoring the terms of the trust where the settlor and trustee intended to mislead third parties or the court.
• The parties’ real intentions will be construed from other actions.
• The sham doctrine is distinct from certainty of intention which is about construction of the terms of the trust.

In sham cases the court is asking whether despite the presence of what appears to be a valid trust, the parties other actions means that it is justifiable to find that no trust has arisen.

Question 16

Why would A falsely purport to declare a trust?

Answer 16

• Avoidance of family maintenance obligations
• Hiding wealth from taxation authorities
• Hiding assets from creditors

By creating only the appearance that the property is held on trust for another, A can retain control over it and put it beyond the reach of his creditors, the taxation authorities, and prima facie the court

Question 17

Ways of falsely purporting to create a trust

Answer 17

• Method 1* (less usual): A declares that he holds £100 on trust for B, but does not actually intend to hold the £100 on trust for B.
• *Method 2:* A transfers £100 to B, expressly stating that B is to hold it on trust for C. Neither A nor B intend B to hold for C’s benefit.
• Advantage of this method is that by parting with legal title to the property A distances himself from the property which he is trying to hide is control over.

Question 18

Test for the presence of a sham

Answer 18

Two elements:

1. Neither the settlor nor trustee intend that the trustee hold the assets according to the terms of the trust. [Corollary of this is that usually the settlor retain control of the assets]
2. There must be intention to deceive others as to the genuineness of the trust.

The burden of proof lies on the party alleging the sham, see Mikeover v Brady [1989] 3 All ER 618, 626.

Question 19

Consequences of the sham

The orthodoxy is that the trust is void ab initio: the settlor remains beneficially entitled to the assets settled upon trust.

That does not necessarily mean the declaration is of no effect at all:

Answer 19

1. If an instrument governs two transactions, one of which is found to be a sham, the instrument can remain effective as to the other (genuine) transaction: Hitch v Stone [2001] EWCA Civ 63 at [86]; Lewin on Trusts, 15^th ed. (2015), [4-027].
   
   • So if a deed reports declare a trust and also to create rights and duties of other types. The mere fact that trust is a sham will not prevent other clauses of the deed from taking effect.
2. A court might hold that the sham is voidable (rather than void ab initio) in an appropriate case:
   * Example:* A gives legal title to B to hold on trust for C. The trust is a sham. Before this comes to light, C sells his interest in the trust assets to D for value. D has no notice of the sham.

• If this was held void ab initio then D would have no claim ( since C would not have had any equitable interest to pass to D)
• Therfore it might be argued that in such a case C did have an interest to pass to D until the trust was declared void as a sham – thus treating the trust as voidable as opposed to void ab initio. This would protect innocent 3^rd parties.

N.b That this is up for debate since there is no existing authority on this point.

Question 20

Three main ways to constitute an express trust

Answer 20

Three main ways of constituting an express trust:

1. Transferring title to the trust assets to trustees to hold on trust
2. Declaring oneself to be a trustee
3. Directing trustees of an existing trust to hold on trust for someone else.

Question 21

Fuller’s 3 functions of formalities

Answer 21

1. Evidentiary
2. Cautionary
3. Chanelling

Question 22

The Declaration Requirement

Answer 22

For a self-declared trust to be constituted the settlor must state words by which he intends a trust to arise. Such a statement is called a ‘declaration’.

The intention has to be expressed through the declaration. The settlor must make a state ensuring that they intend immediately to part with free use of the property.

However is it right that the law allows an event as trivial as voluntary declaration to give to duties as onerous of those of an express trust?

Question 23

If a gratuitous promise to settle is unenforceable, and equity will not assist a volunteer, why does the court give effect to a gratuitous declaration of trust?

Answer 23

Potential reasons:

1) Completed act vs intention to complete an act in the future?
* But isn’t this just a conclusion rather than a reason?
2) Equitable interests as analogous to legal property rights?
* Knight Bruce LJ in Kekewich v Manning (1851) saw the distinction as rooted in the settlor’s right to dispose of his assets for no consideration.
* Just as he could do this at common law—by transferring his legal rights—he had to be able to do so in equity by declaring a trust:

Question 24

Self declaration - the declaration requirement (SUMMARY)

Answer 24

1. A self-declared trust will be constituted where the settlor has manifested his intention to declare a trust in an oral declaration—by which he intends his duties as a trustee to arise.
2. Historically this was justified by treating a declaration of trust as analogous to a transfer of legal rights.
3. In allowing a voluntary oral declaration to constitute a trust the law allows voluntary oral statements to have more extensive legal effects than in other areas.