TRUST LAW Week 1
Certainty of Intention
No specific language
No technical expressions are needed to create a trust, provided that some
imperative formula is used to indicate that the person owning the relevant
property is intended to be subject to a legally binding obligation to hold and
manage the property for others.
Milroy v Lord 1862
Held, that as it was not the intention of the settlor to constitute himself a trustee of the
shares, but to vest the trust in S. L., there was no valid trust of the shares created in the
settlor.
Held, further, that no valid trust of the shares was created in S. L., for although he held a
power of attorney under which he might have vested the shares in himself, he did not do
so, and was not bound to do so without directions from the settlor, since he held the
power only as agent for the settlor. Held, therefore, reversing the decree appealed from,
that the disposition of the shares failed, as being an imperfect voluntary gift.
Jones v Lock 1865
- Father put cheque in baby’s hand saying ‘I give this to baby for himself’,
expressing intention to give it to his son
- He died shortly afterwards – this was held to not be a gift or a valid
declaration of trust
o Although it was clear that he intended to make the provision for the
baby, it was not clear that he intended to deprive himself of the
property in the cheque and to declare himself trustee for the child. It
would be dangerous if ‘loose conversations’ could lead to declarations
of trust being found.
Lamb v Eames 1871
- Marks ‘turings of the tide’ wrt construction
- T gave estate to widow ‘to be at her disposal in any way she may think best,
for the benefit of herself and her family.’ But in her will she gave away part of
her estate outside the family. Held that she was absolutely entitled to the
property and the gift was valid.
Re Adams and the Kensington Vestry 1884
- Testator gave all his real and personal estate to the absolute use of his wife,
her heirs, executors and administrators: ‘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’.
- CA held that she took absolutely
o T had morally instructed his wife what to do with the money, but he
had not created a trust which bound her to do this. The older
authorities went too far in finding a trust. Here, there was an absolute
gift.
Richards v Delbridge 1874
- Grandfather who was entitle to leasehold premises endorsed on the lease a
memorandum: ‘This deed and all thereto belonging I give to my grandson
from this time forth, with all the stick-in-trade’. Delivered doc, died.
- Held that no interest passed; not al law, because the endorsement was
ineffective to assign a lease; and not in equity – words inappropriate for a
declaration of a trust.
Paul v Constance 1977
- Conduct of parties sufficient to establish an intention to declare a trust.
- C separated from wife and lived with P. C received as damages fir injury at
work a cheque of £950, he and P decided to pit it into deposit account Lloyd’s
bank. The account was opened in C’s name but C indicated on many occasions
that the money was as much P’s as his.
- On his death, widow claimed the money as part if her husband’s estate. The
question was whether the account was owned beneficially by C, or whether on
the particular facts, he had shown an intention to hold the property as a
trustee for P, or as trustee for the two of them in equal shares.
- CA found that the evidence was sufficient to support an intention in C to
declare himself a trustee; although not easy to pinpoint specific moment of
declaration. P thus able to recover half
- The words must be so used so that on the whole they ought to be constructed
as imperative. No particular form of expression is necessary for the creation of
a trust, if on the whole it can be gathered that a trust was intended. A trust
may be created, although there may be an absence of any expression in terms
imposing confidence. A trust may well be created without using the word
‘trust’ for what the courts regards is the substance and effect of the words
used.
Shams
If language is used that would clearly suffice to create a trust for beneficiaries, it
will be strongly presumed to create a proper trust. However, if the rights and
obligations created by the trust instrument were always intended to disguise the
fact that beneficial ownership actually remained vested in the settlor, then the
court can treat the supposed “trust” as a nullity on the ground that the
arrangements made are a sham.
Trusts distinguished from other relationships
A person can create a trust without knowing it, but he cannot succeed in creating
a trust, no matter how clear his intention to do so, if the essence of the obligation
he has created is that of a debt or a charge, rather than that of a trust.
Certainty of Subject-Matter
To create a valid trust, the settlor must make it certain exactly what property is
to be held on trust for otherwise there will be nothing specific to which the trust
can attach. The beneficial interest to be taken by the beneficiaries must also be
certain.
Palmer v Simmonds 1854
- Testamentary gift of ‘the bulk of my estate’ failed.
- Beneficiary took under the will absolutely
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Result of lack of certain subject matter:
o No trust created
o If purported trust has been attached to an absolute gift then the
absolute gift takes effect
o If the property is certain but the beneficiary shares are not, unless
the trustees have discretion to determine the amounts then the
trust will fail, and the property will be held on a resulting trust for
the settler.
o There cannot be a trust of unidentified chattels. In the commercial
context of sale of goods certainty of subject matter has recently
been an issue.
Re Ellenborough 1903
Deed purporting to convey future property upon trust is ineffective. But if the
property found its way into the hands of the trustees it would presumably be
held upon the trust declared in the relevant document.
Future property is assignable for value, but where the assurance is not value, the
court of equity will not assist a volunteer.
The Problem of Divided Property – where part of the property is subject to the
trust.
Difficulties arise where there is an attempt to declare a trust of a certain, but
unidentified, part of a larger holding.
In the context of tangible property:
Re London Wine Co 1986
- Buyers of wine stored in a warehouse not segregated from the general stock
of similar wine could not establish a trust.
- Wine dealers sent letters to purchasers of wine confirming that they were the
sole beneficial owners of the whole of the wine which they had bought and
paid for. However, it remained in a warehouse not separated from the
general mass of stock.
- Held there was not trust created – it was not certain what property it was
attached to. The purchasers had no proprietary rights in the wine as against
holders of a floating charge.
- The creditors would only be able to assert their proprietary claims if they
could demonstrate that particular, identifiable bottles had been separated
from the main stock and held separately.
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Also, under the sale of goods law no title passed. Would be decided
differently due to the sale of goods (Amendment) Act 1995.
Re Goldcorp Exchange 1995
- Purchasers of a bullion, who had paid but not yet taken delivery, asserted
proprietary rights on the insolvency of the company. In breach of contract,
the bullion company only purchased as much bullion as was required for
their day to day functioning. The various classes of purchasers sought to have
a trust declared, that they would be secured creditors in the insolvency.
- Held: Save for a group of customers whose bullion had been segregated,
these claims were rejected by the privy council.
- Held: save for a group of customers whose bullion had been segregated,
these claims were rejected by the Privy Council. Legal title had not passed,
not was there any trust, as there was no identifiable property to which any
trust could attach. Thus the customers were unsecured creditors in the
company’s insolvency.
- Interestingly, a third type of customer had ordered a rare type of bullion that
was held in the vault. It had not been segregated from the main bullion, but
he could demonstrate that the company would not have bought it for anyone
else. The court held that it was not sufficient that it was possible to
indemnify the property, but it must have actually been physically
segregated, therefore there was not trust
- Sale of Goods (Amendment) Act 1995 provides that purchasers who have
paid for unascertained goods forming part of an identified bulk (goods
interchangeable) acquire property rights as tenants in common of the bulk,
subject to any contrary agreement.
In the Context of intangible property:
Hunter v Moss 1994
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Settler owned 950 shares in M co, which had an issued share capital of 1,000.
He orally declared a trust of 5% of the share capital – 50 shares. The
employer did not transfer any shares to the employee, nor was any attempt
made to ascertain which shares should be given to the employee.
CA upheld the trust: provided the shares were of the same class and the same
company, there was no need to segregate the 50 shares before declaring the
trust. Re London Wine Co distinguished as involving chattels. Dillion LJ
stated that if there was a bequeath for a specified number of a class of share
in a particular company, this would be valid. He sees no reason for why the
same should not be true where a person declares himself a trustee.
Case criticised – difficulties which could arise on subsequent dealings.
Intangible property but seemingly no reason to depart from above rule.
Nevertheless the case was followed in the High Court by Re Harvard
Securities
Just as a person can give by will a specified number of his shares in a certain
company, so equally he can declare himself a trustee of 50 of his shares in [a
private company] and that is effective to give a beneficial propriety interest
to the beneficiary under the trust.
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^Overlooks crucial difference between life and death. You have necessarily
forgone all claims by dying, but not while you are alive.
Giving yourself or someone else your shares in a company of which you are
not the legal owner but the equitable owner satisfies certainty of subject
matter.
Normally, we would think that there is no trust being declared. Strangely, the
judges concluded that there was sufficient certainty of subject matter. In terms
of reasoning, judge distanced himself from London wine and Goldcorp by saying
that they were dealing with tangible property. Further held that tangible
property might be different/not identical (one bottle might be cracked, another
exposed to heat). Shares are all identical (but aren’t gold ingots also identical).
Before hunter and moss, ascertainability and segregation was the difference
between trust and no trust.
In HandM, he changes the goal post by saying the crucial question is whether
the court can execute an order separating the trust property from the general
mass  much easier test.
Re harbour Securities
- Liquidation of stock companies.
- Documentation indicated intention that some of the clients of HS had to
acquire certain number of shares. Do they acquire trust over shares?
- Justice Neuberger: Hunter and Moss hesitantly applied.
Pearson v Lehman Bros 2011
- Percentage of trusts matters. E.g 10/100 = 10%
- Percentage of shares lehman bros finance had acquired from lehman bros
international. Hard to say which of the shares from the bulk were actually
held by LB finance. CA held that they will follow H&M and hold that trust
exists. Novel that they reach conclusion by saying that there is a proportional
declaration of trust and both parties are joint tenants-in-common
(completely reclassifying H&M)
CERTAINTY OF OBJECTS
Equal division trust
T’s duty is to divide the money equally between the beneficiaries. Trust only
valid of number of beneficiaries known – ‘complete list’
Discretionary Trust
T’s duties: make some distribution, consider loyally and responsibly whether,
what distributions to make, not to distribute outside the class – is or is not test
applies
Comprehensive list test
There must be no linguistic or semantic uncertainty (conceptual uncertainty) in
the description of trust beneficiaries. Nor can the class of beneficiaries be
described in such a way that the trust is administratively unworkable. A
comprehensive list should be capable of being drawn up.
“Is or is not” Test
Test to determine whether the objects of the power have been defined with
sufficient certainty: Can the trustee say of anyone that he is or is not within the
scope of the power? (Re Gulbenkian’s ST)
“Is or is not test” and problems with it
Re Gestetner Settlement 1953
Power in question was the power to appoint property to a large and fluctuating
group of objects including the settlor’s former emplyees and their remaining
spouses. Held that the power was valid even though a complete list of possible
objects of the power could not be drawn up at any time.
Birth of “is or is not” test. Doesn’t need to know the complete list, just if any
person is or is not in it.
IRC c Broadway Cottages trust 1955
Whether the “is or is not” test should apply to a discretionary trust for a similarly
large and fluctuating class. Held that it doesn’t apply, and that the complete list
test should apply to discretionary trusts. The rationale was that in such cases, the
court must be able to execute the trust in the event that the trustees fail to do so.
The court must do so by dividing the trust property equally among the
beneficiaries (equality is equity) and this can only be done if there is a complete
list of such beneficiaries. Overruled by McPhail v Doulton
Re Gulbenkian’s ST 1970
-‘Is or is not’ test applicable to powers of appointment.
-HL held that in the case of powers (fiduciary powers of appointment), it is
necessary for the court to be able to determine whether any given individual is
or is not within the class of objects of that power. This is because in the case of
an alleged misfeasance of a power, the court must be able to ascertain whether a
given recipient is properly within the class of objects.
-Lord Upjohn disagreed with the view of Lord Denning (CA) that in the case of
powers, if it could be said that any one particular person is within the category of
objects, then the whole power is good although it may be difficult to say in other
cases whether a person is or is not in such a category.
-Lord Upjohn: In
respect of mere powers, while the court cannot compel the trustees to exercise
their powers, those entitled to the fund in default must clearly be entitled to
restrain the trustees from exercising it save among those within the power. So
the trustees, or the court, must be able to say with certainty who is within and
who is without the power. It was for this reason that the broader position of the
CA (above) was rejected.
McPhail v Doulton 1971
-HL held that the test of certainty of objects as applied to powers of appointment
(Re Gulbenkian) is equally applicable to discretionary trusts. IRC v Broadway
Cottages overruled.
-Lord Wilberforce: In a sense the distinction, as in the instant case, between
‘trust powers’ (duties under a discretionary trust) and ‘powers’ (fiduciary
powers of appointment) is narrow and artificial. It does not seem satisfactory
that the entire validity of a disposition should depend on such delicate shading.
-Lord Wilberforce: Duties of a trustee in a discretionary trust may be compared
to those of a trustee with powers of appointment – Both have a fiduciary duty
and a responsibility to act according to its purpose. Any trustee (with power)
would surely make it his duty to know what is the permissible area of selection
and then consider responsibly, in individual cases, whether a contemplated
beneficiary was within the power and whether, in relation to other possible
claimants, a particular grant was appropriate. Correspondingly a trustee with a
duty to distribute, particularly among a potentially very large class, would surely
never require the preparation of a complete list of names. He would examine the
field, by class and category, making enquiries and then selecting individuals
according to their needs or qualifications. If he acts in this manner, he should be
taken to be carrying out the terms of the trust (the ‘is or is not’ test should thus
equally apply to discretionary trusts).
-Lord Wilberforce: There are differences between trusts (trust powers) and
powers, but the difference is not so great as to require practically complete
ascertainment in one but not the other. The difference lies in the extent of the
survey the trustee is required to carry out. Eg. if he has a trust power (duty) to
distribute the whole of a fund’s income, he must make a wider and more
systematic survey than if he had a power to make grants.
-Equal distribution is not the only solution that a court may take when executing
a trust in which the trustees have failed to exercise their discretion. The court
may appoint new trustees, ask representatives of beneficiaries to prepare a
scheme of distribution, or even, should the proper basis of distribution appear,
by itself ordering the trustees so to distribute.
Conceptual Uncertainty and Evidential Difficulties
Re Baden’s Deed Trusts (No.2) 1972
- Issue: Whether the trust in the case was valid or void for uncertainty.
- In applying the test, ‘it is essential to bear in mind the difference between
conceptual uncertainty and evidential difficulties’ (test concerned the
former)
- Once the class is determined as being conceptually certain the question of
inclusion is a question of fact
- The trust was for employees and their ‘dependants’ and ‘relatives’
- ‘Dependants’ was not uncertain at all – the term was used in many other
deeds by Parliament to describe individuals financially dependant upon
others for their support.
- ‘Relatives’ = descendants of a common ancestor – which is an infinite number
of people. This is not conceptual uncertainty but there is evidential
uncertainty.
Sachs LJ
- Clear distinction between evidential and conceptual uncertainty. The court
is never defeated by evidential, and the ‘is or is not’ test applies to
conceptual.
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Wouldn’t allow evidential uncertainty to defeat the trust but Sachs does rely
on the existence of evidence to define the boundaries of the class.
Megaw LJ
- Introduces factors into the ‘is or is not’ test – substantial numbers – if it
could be said with certainty that a substantial number of beneficiaries fell
within the class, the class was certain.
Stamp LJ
- Refused to allow evidential uncertainty to intrude upon conceptually certain
terms.
- The test of ‘is or is not’ is for the class defined by the testator – it cannot be
watered down to a test depending on burden of proof. This makes it a test for
evidential certainty, not conceptual – problem if only a few possible objects
bring forward suitable proof.
- It is ‘not enough that trustees should do nothing but distribute property
amongst those objects of the trust who happen to be at hand or present
themselves.’
- Rather, trustees must survey the class of objects so the test must indicate
the scope of this duty, not merely the validity of making a payment to
particular individuals who present themselves. So, if a relative is defined as
‘descendants of a common ancestor’, trust wouldn’t be valid: the survey
would be incomplete.
- But Stamp LJ found authority for interpreting ‘relative’ as next of kin and
found a valid trust on that basis.
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NB difference between Sachs and Stamp = character of trustee’s duties
o Sachs: concerned that trustee’s are able to distribute only to valid
recipeients – ‘is or is not’ focused on any given postulant
o Stamp: emphasises duty to survey the class, different way of seeing
large discretionary trust. Whole class has right to be considered,
turstee’s must have valid picture of them as a whole. Traditional
rights/duty view of relationship with class of beneficiaries and
trustees.
 Sachs sees objects more like applicants to a fund to which they
may qualify for distribution.
Re Tuck 1978
-CA considered a condition on the inheritance of a baronetcy, that the wife of any
heir must be of ‘Jewish blood’ and worship ‘according to the Jewish faith’; in the
case of doubt the decision of the Chief Rabbi in London was to be conclusive.
-Lord Denning: ‘I see no reason why a testator or settler should not provide that
any dispute or doubt should be resolved by his executors or trustees, or even by
a third person... if there is any conceptual uncertainty in the provision of the
settlement, it is cured by the Chief Rabbi clause’. Lord Denning’s view does not,
however, represent the law, because although all of the judges upheld the
settlement, Lord Russel and Eveleigh LJ did so on a different basis.
-Lord Russel did not consider the Chief Rabbi clause because he did not find the
condition to be uncertain. Eveleigh LJ said that the settler ‘is in effect saying that
his definition of Jewish faith is the same as the Chief Rabbi’s definition’. In
Eveleigh LJ’s view the Chief Rabbi’s opinion is regarded not as determining the
meaning of the settlor’s words by providing a workable criteria for them; the
Chief Rabbi’s opinion is merely evidence of the settlor’s opinion.