Three certainties
For a valid express private trust, the three certainties of intention, subject matter and objects must be satisfied: Knight v Knight
> These need to be present so that a trust can be practicable, enforceable and capable of supervision by the court
CERTAINTY OF INTENTION
> It is necessary for settlor to create a trust (as opposed to gift or power)
> Trusts can be expressly declared or inferred from conduct of parties or surrounding circumstances
> No general requirement for a trust to be created or evidenced in writing, the exception being express trusts of land which need to be evidenced in writing and signed on behalf of the settlor > Test: is there a clear intention that property is to be held on trust for the benefit of a third party from construction of words used and/or behaviour of the parties
> Intention must be to separate legal and equitable ownership and to impose obligations of trusteeship on the holder of the title: Wright v Atkyns
> Paul v Constance – possible to create a trust w/o you knowing what a trust is - court can infer that you intended to create a trust
- fact that the money is held by one person but more than one person is intended to be the beneficial owner – this makes it look like a trust
> Re Kayford – mail order business in difficulties and accountant decided customers pay in advance for goods
- company did go into insolvency and customers wanted their money back
- held that intention that accountants had demonstrated was an intention to segregate money so that it could be attributed to the customers
§ Problem of precatory words
> There can be no trust based on precatory words alone: Mussoorie Bank Ltd v Raynor > A mere expression of desire to make a gift or to confer a benefit is insufficient > A mere obligation or mere request is not enough: Sweeny v Coghill
> Where there is doubt, the burden lies on the CL to establish the necessary intention on a balance of probabilities: Re Snowden
> Re Adams + Kensington Vestry: – testator’s estate was devised by will to the absolute use of his widow “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”
- this is merely a moral obligation and did not impose a legal obligation on the widow
- it was an absolute gift, she was entitled to use the property other than benefiting the children > Lambe v Eames: - testator left his estate to his widow “to be at her disposal in any way she may think best, for the benefit of her and her family”
- held this was an precatory expression and did not connote the necessary intention to create a trust
> Mussorie Bank v Raynor: - where a husband left land to his widow, “feeling confident that she will act justly to our children in dividing the same when no longer required by her”
- widow mortgaged the land and eventually the bank sough to sell it to recoup the loan - she argues that as she was a trustee, the mortgage was invalid
- HL held no trust existed because the husband had used precatory words
- she was legal and beneficial owner of the property and the mortgagee could sell the property > Comiskey v Bowring-Hanbury: - legacy was left to a widow “in full confidence” that she would leave the property on her death to one or more of the testator’s nieces
- the precatory words were in themselves ineffective to create a trust
- this will, however, went on to declare that “in default of any disposition by here thereof by her will, I hereby direct that all my estate and property acquired by her under my will shall at her death by equally divided among the surviving said nieces”
- HL held in looking for certainty of intention, it was necessary to consider trust document as a whole
- imperative wording of the gift over imposed the mandatory obligation upon the widow
> More liberal approach: James LJ: I could not help feeling that the officious kindness of the Court of Chancery in interposing trusts where in many cases the father of the family never meant to create trusts must have been a very cruel kindness indeed
> (Sham) Midland Bank v Wyatt – a husband and wife declared a trust in respect of the matrimonial home
- beneficial interest was to be shared equally between the wife and their daughters
- property was mortgaged to the Midland Bank and the husband continued to borrow on the security of the family home
- he did not inform the bank of the trust and bank eventually sought to sell the property in order to recover the husband’s outstanding debt
- HC held that husband had never had the intention to truly divest himself of his interest in the property
- had had declared the trust merely as a means of shielding the family home from claims of the Bank
- there was no real intention to create trust, the declaration was a mere pretence and the trust was void
- sham trust will fail and title to the property remains with the settlor § Law or construction?
> Re Steele’s Will Trust – involved a solicitor drafting a trust deed for a client, but unfortunately utilising an outmoded precedent that featured precatory words: “I request my said son to do in all his power”
- in the more contemporary setting, there should have been no trust because of lack of certainty - nevertheless, judge concluded that the deliberate use of the precedent demonstrated the necessary intention to declare a trust of a diamond necklace
- Langan: describes this as a rouge decision and thoroughly unsafe
- disregards the actual wording of the deed, imputes an artificial intention to the settlor and departs from the general rule that extrinsic evidence is inadmissible in the construction of a trust deed
§ Quistclose Trust
> Intention may be inferred where the property is transferred and segregated from other funds on the shared understanding (of both the payer and the recipient) that is to be held on trust: Barclays Bank v Quistclose Investments Ltd – Rolls Razor borrowed 209,000 from Quistclose investments under and arrangement whereby the loan was to be paid only for the purposes of providing a dividend for shareholders that the company had already announced
- money was deposited in a specially created bank account at Barclays, to whom Rolls was already heavily indebted
- before payment of dividends, Rolls went into voluntary liquidation
- Quistclose claimed the money in the special account on the ground that the parties had created a trust and that, as its purpose had failed, the funds were to result back to itself
- HL held that the shared intention (of payer and recipient) had been that the money was to be held on trust unless it was employed for the specified purpose
- as specific purpose had failed, money would be held for benefit of Quistclose
> Intention may be inferred from a unilateral act (pre payment): Re Kayford – the unilateral act of the company paying the payments into a trust account demonstrated its intention to create a trust (Meggary J)
- not Quistclose trust due to absence of bilateral understanding between the parties - but is Quistclose due to segregation of funds
> Intention may arise where both payer and recipient have expressly attached restrictions to the recipient’s use of funds: Carreras Rothmans v Freemans Matthews Treasure Ltd – Carreras
(manufacturer of cigs) employed advertising firm (Freeman) to place ads in media
- firm incurred substantial expenses and invoiced Carreras for liabilities it incurred on their behalf - firm experienced financial difficulties and Carreras insisted they open a special bank account into which payments were made, firm agreed
- firm became insolvent
- HC held a trust arose as soon as money was paid into special account
- key factor was that Carreras intended the firm be subject to an enforceable obligation to apply the money for specified purpose
§ Consequences for lack of certainty: alternative options as to what will become of the property
given or banqueted to a 3rd party, it will be viewed as an absolute gift to that person –
legal and beneficial title will be transferred without recipient being subject to any legal obligations to do anything with property
settlor retained legal title to the property, it will simply remain in settlor’s estate Re TXU Europe Group Plc
CERTAINTY OF SUBJECT MATTER > All trust property must be identifiable
> Settlor must provide means by which the interests of beneficiaries can be ascertained § With regard to trust property
> Words employed by settlor must be such that they identify with clarity the property to be held on trust or at least provide machinery through which such property can be ascertained
> Palmer v Simmonds – testatrix (by will) left residue of her estate to her friend subject to proviso that, if he died childless, “he will… leave the bulk of my said residuary estate unto” four named persons
- reference to ‘bulk’ was ineffective to create a trust - no clear meaning and thoroughly uncertain
- she had failed to identify ‘a definite, clear, certain part of her estate’
> Re Golay – testator set up trust under which Tossy was to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties”
- difficulty concerned calculation of “reasonable income” - held that “reasonable” offered an objective determinant
- court could look at Tossy’s age, her present income and current outgoings and conjure up a figure that was reasonable for her
> Re Jones – a trust of “such parts of my… estates as she shall not have sold” failed for uncertainty of subject matter
- viewed as being an absolute gift to the legatee
> Sprange v Bernard – “remaining part of what is left” – no certainty of subject matter because it would be uncertain what would be left on the husband’s death
> In the Estate of Last - “anything that is left” – court took a different approach to Sprange because brother was given merely a life interest in property
- trust created on death of testatrix, and trust property was sufficiently certain at that date > Degree of certainty for intangible assets (shares, money in bank accounts, debts) is different for that required of tangible assets
- Hayton: describes this as an old fashioned, but surely spacious, distinction
- Hunter v Moss – H was entitled, under his contract of employment with M, to claim 50 shares out of 950 shares in a particular company held by M
- although this showed intention to increate trust, M did not specify which shares were subject to this arrangement
- M later sold 950 shares and kept proceeds for himself - H claimed a proportion of those proceeds
- in orthodox approach, it would be impossible to identify precisely which 50 shares were to be subject matter
- CA held there was a valid trust – since shares were identical and indistinguishable, any 50 were capable of forming subject matter
- commentators criticise approach of CA and see no logical distinction to justify divergent treatment of tangibles and intangibles (eg 50 identical books)
- Hayton: suggest court was blinded by merits of donee, who had done awful lot for ungrateful doner.
> After-acquired property cannot be the subject matter of a trust (property that may vest in the future, but as regards which there is no certainty)
§ With regard to beneficial interest
> Curtis v Rippon: each beneficiary’s share under the trust must be allocated in some way when the trust is established
> Boyce v Boyce – property consisted of two houses, out of which one of the beneficiaries was going to chose which one she wanted.
- however, she pre-deceased testator and died without making a selection – entire trust had to fail for uncertainty of beneficial shares
- testator had prescribed a method of allocation that had subsequently become impossible
> Re Knapton – no machinery provided through which the properties were to be divided between beneficiaries
- HC held beneficiaries had a right to chose which house they wanted –order of choice was according to order their names appeared on will and others were worked out by the drawing of lots
> Fixed trust – ‘equity is equality’ can be applied where it does not declare the beneficial interest to be taken by each beneficiary: Burrough v Philcox – trust set up to benefit settlors son and daughter, beneficial shares remained unspecified
- court was able to uphold trust by invoking ‘equity is equality’, each child deemed to have an equal share
- maxim can only be invoked where there is no contrary intention demonstrated: Marguiles > Discretionary trusts – can only apply if trustees fail to exercise discretion
§ Consequences for lack of certainty: alternative possibilities
no certainty of trust property whatsoever – there can be no trust and property will remain with settlor/settlor’s estate (susceptible to claims of creditor)
lack of certainty as to beneficial share – trust will fail and (if property has left the settlor) trustee will hold property on resulting trust for settlor/settlor’s estate
CERTAINTY OF OBJECTS (BENEFICIARIES)
> There have to be beneficiaries who are certain in order for the trust to be effective – must be someone who can enforce the trust or someone in whose favour the court can enforce the trust: Re Astor
> There must be human beneficiaries (except for charitable trusts)
> Beneficiaries must be individually identified or identified as a member of a clearly defined class: Re TXU Europe Group
> This test varies between fixed trusts (beneficiaries and their shares have been identified) and discretionary trusts (trustee selects who exactly is to benefit from a wider class specified by the settlor)
> No need establish this for charitable trusts because the AG and the Charity Commission have the legal authority to enforce charitable trusts
§ Fixed trusts
> Conceptual and evidential certainty – fixed trust is to confer fixed benefits upon fixed beneficiaries - you need to know who are all of the beneficiaries
> The finite lists test – a fixed trust is void unless all beneficiaries are ascertainable
> IRC v Broadway Cottages Trust – you must be able to compile a complete list of benefices in advance for there to be certainty
- a trust in favour of customers was upheld because beneficiaries could be identified in context of the payments made to them, but trust in favour of suppliers failed because of lack of certainty of objects – not possible to draw up a complete list of “urgent” suppliers
§ Discretionary trusts and powers of appointment
> there is no division of equal shares, trustees have a discretion – so do not necessarily need a complete list of the beneficiaries
> Re Gulbenkian – where there are fiduciary powers (powers of appointment) - the is or is not test
- Lord Reed – thought is or is not test would be enough – slightly less strict than complete list test - Lord Hodson – wanted complete list test to apply
- Lord Upjhon – also appreaed to be in favour of complete list test but suggests we should use is or is not test – not clear which test he is in favour of
> McPhail v Doulton HL – MUST APPLY these tests first - applies the is or is not test to discretionary trusts
- it must be possible to say with certainty whether someone is or isn’t a member of the class of beneficiaries
- if there is anyone about whom they are unsure, then the trust fails - Lord Wilberforce – thought Lord Upjohn was in favour of is or is not
- Lord Hodson – thought what Lord Upjohn wanted complete list - majority agreed with this APPLY THE TEST – eg can we say with certainty that X in within the class of “friends”
Exceptions/other approaches to the is or is not test:
> Re Badens Deed Trust No 2 CA – definition of beneficiaries as “relatives” and “dependants” - CA found these expressions to be conceptually certain
- relatives proved more problematic than dependants § Postulant/individual ascertainability test
- Stamp LJ – term is synonymous to next of kin and nearest blood relations,
- if the answer to whether a person is part of the class is “I don’t know”, then the discretionary trust is void for uncertainty
- Sachs LJ – said is or is not test should be applied – in deciding this, if we reverse burden of proof and place onus on the CL, if they fail to prove they fall in class, then we will deem that they do not (but still important to recognise some terms will be so vague that they will be uncertain). - takes a more lenient approach and thinks the McPhail test applies only to conceptual certainty and not evidential certainty – as long as it is theoretically possible for people to prove that they are objects, then that is fine
- a pragmatic and sensible approach
- thought it didn’t matter if it was I don’t know as long as there was at least one beneficiary of whom it could definitely be said yes (Denning also said this in relation to a test for powers, but this was overruled)
- Megaw LJ – a different approach is taken, all we should need to demonstrate is that there is a substantial number of people of whom we are certain
- also thought it didn’t matter if the answer was I don’t know, but said there should be a substantial number of beneficiaries in the “yes” category
- trying to make the test more flexible, does not still well with McPhail or Gulbenkian – retreat from is or is not test
> you still have to apply HL test, but structure answer to say there are alternative approaches and how Sachs and Megaw may lead to different approaches.
§ Re Barlow’s WT – paintings can be distrusted to any “old friends”, such expressions would render a trust conceptually uncertain
- terms old and friends have so many shades of meaning, impossible to say who was intended to benefit
- Browne Wilkinson LJ – 1 says he can validate the testamentary dispositions it because he thinks the testator intended to make a series of gift, if you can call it a gift then none of the trust rules apply (unsatisfactory – people involved are executives under a will trust and difficult to claim they don’t have any fiduciary duties that need to be satisfied, saying that we are going to make gifts but what if we run out of paintings and more people claim to be friends – surely we need to know who are friends in advance), 2 – saying that trustees suggest the people who are
beneficiaries on the basis that they have worked out who are the people are intended ie who the friends are (suggests in particular circumstances, if you can be sure of the intended
beneficiaries, then there is certainty)
- however, if we have circumstances where it is not so clear who are the old friends/mere acquaintances, then there is no certainty
§ Re Tuck’s ST - where property to be left as long as she marries someone of the Jewish faith - what is meant by the Jewish faith or whether someone is a member of the Jewish faith? - Denning – thought it would be possible to appoint an expert (the chief Rabbi) who would be able to determine any issues of fact
- particular factual circumstances where thought an expert could be used to decide whether someone was part of the class
- ON THE FACTS – is it possible to have such an expert? § Administrative unworkability and capriciousness
> Even if the class is sufficiently certain, it may still fail due to administrative unworkability - Sachs LJ is clear to tell us that if concept involved is too uncertain, then nothing will validate it > R v District Auditor ex p WY Met CC – “any or all or some of the inhabitants of the County of West Yorkshire”
- class was too large to be unworkable
> has rarely been applied to invalidate a trust
- Hardcastle: it is unclear whether it was meant to refer to practical problems of surveying a wide class, administrative futility where a fund is deemed small in relation to the size of the class or undesirability of granting large numbers of people locus standi to enforce the trust
> Re Hay’s ST – a trust to benefit anyone in the world would be ineffective
- trustees duties are imperative and more stringent than those called upon to exercise a power (so similar terms may be valid in eg a power of appointment)
> Re Endacott – “ for the purpose of providing some suitable monument to myself” - unclear what the term suitable encompassed
> Consequences for lack of certainty:
if third party appointed as trustee – property is to be held on automatic resulting trust for the settlor/settlor’s estate
CONSTITUTION OF TRUSTS
> even where 3 certainties are present, express private trust is only enforceable when it is completely constituted
> it is then enforceable by beneficiaries, settlor drops out of picture (unless expressly reserved himself powers)
§ How is a trust completely constituted?
> Milroy v Lord: - there must be either 1 a transfer or property to the trustees or 2 a declaration of self as trustee (in both cases, this must be accompanied by intention to create a trust)
- if you intended to make a gift, and failed to make it properly, you cannot simply call it a trust instead: cannot perfect an imperfect gift
§ Declaration of self as trustee
> Jones v Lock – “look you here, I give this to the baby” - writes a cheque to himself
- wife argued that husband had intended to create a trust in favour of child
- court argues there was no trust, no intention to transfer money to child or hold it in trust - they were having an argument and he wrote the cheque in the peak of the argument
- declaration but no intention
> Richards v Delbridge – failure to effect transfer of the lease - tenant sought to transfer business premises to son
- he did not execute conveyance necessary to effect a transfer of legal land
- grandson argued that court should discern an intention to create a trust – court rejected reasoning as they cannot regard failed transfer as amounting to a gift
> Paul v Constance – an intention to create a trust, one trustee but intended to benefit two beneficiaries
§ Transfer to trustee
> must be in the appropriate form to the particular type of trust property > Richards v Delbridge
- he did not execute conveyance necessary to effect a transfer of legal land FORMALITIES
> even when the above are present, there may still be formalities that need to be observed § Trusts created by will
> governed by s9 Wills Act 1837 (as amended by Administration of Justice Act 1982) > must be in writing, signed by testator and witnessed by at least 2 people
> trust contained in will is bound to fail if will is void § Inter vivos trusts
> Trusts of personality require no formalities > Trusts of Land
- s35(1)(b) LPA 1925
- a declaration of trust must be in writing and must be signed by a person able to create that trust
- sanction = trust is void (applies to express trusts only)
- equity will not permit statute to be used as an instrument of fraud: Rochefoucauld v Bousted - > Non express trusts
- s35(2) – the section does not effect the creation or operation of resulting, implied or constructive trusts
§ Dispositions of existing equitable interests > s53(1)(c)
- must be in writing and signed by the person disposing of the equitable interest TERMINATION OF TRUSTS
§ Revocation – pursuant to retention by settlor of an express power to revoke § Rule in Saunders v Vautier
> collectively the beneficiaries can call for legal title and put an end to the trust - beneficiary must be of full age (18) and sound mind
Re Rose – Mr R intended to make transfer of property (Shares) to wife. Filled in form and posed to comp – he had don’t everything required by him to make the transfer of shares. At that time, board of directors had to give agreement.
CA held, at appropriate time, the shares had not been transferred and gift not completed. Time imp because if transfer had taken effect when he submitted form, no tax payable.
CA held equity should treat the equitable interest as having passed, once Mr R had done everything he was supposed to do. Pennington v Waine – court prepared to stretch Re Rose principle (as long as you have done everything necessary for you to do to transfer the property, we can deem that property to have been transfer.)
Wanted to transfer shares to nephew. She completed share transfer form and sent to accountant. He failed to forward form on to the company. She signed form consenting to nephew becoming director but failed to transfer sufficient shares for him to be controlling director.
CA Held equitable interest in shares should be treated as passing to nephew because it would have been unconscionable for her to refuse transfer of shares – form of equitable assignment. Unconscionable for her to go back on what she had promised.
Unlike Re Rose – she hadn’t done everything necessary for her to do. Problem – equitable interest has passed w/o board of directors agreeing that she should become a shareholder. Unsatisfactory principal in which trust law is subverting a rule of company law.
