3 Certainties of Trust

CHAPTER 3: THREE CERTAINTIES

LLS4203: EQUITY & TRUST IISEMESTER II, 2013/2014

Private express trust

• Meaning: an express declaration by the person who wants to create trust during his lifetime– By way of

•Trust deed•Will•Other form

• Condition of a valid private express trust– Three certainties!

Three certaintie

s

Three certaintie

s

Valid

trust

intention Subject matter

object

Knight v Knight (1840) 3 Beav 148

“As a general rule, it has been laid down that when property is given absolutely to command, recommended or entreated or wished, to dispose of that property in favour of another, the recommendation entreaty, or wish shall be held to create a trust

First, if the words so used, that upon the whole they ought to be construed as imperative.

• Secondly, if the subject of the recommendation or wish be certain.

• Thirdly, if the objects or persons intended to have the benefit of the recommendations or wish be also certain”

A. CERTAINTY OF INTENTION

a. Certainty of Intention

• Certainty of intention on part of the settlor/testator to create a trust

• Words used?– No particular words – no technical words

required– Imperative words– Trust may be created without using the

word ‘trust’– Depends on the construction of the

language used

Equity looks at the substance rather than form

What are imperative words?

• Clear commanding or authoritative language – one party’s interest (the beneficiary) is safeguarded as much as possible

• Words must be imperative in nature in order to construe the essentials to create trust

• E.g: I direct my trustee…/I instruct my trustee…/I have full confidence that…./fully trusting that…./in firm expectation that

The question is:

Whether, on the proper construction of the words used, the settlor or testator has shown an intention to create a trust

Re Hamilton (1895) 2 Ch 270

• Lindley LJ“You must take the will which you

have construe and see what it means and if you come to the conclusion that no trust was intended, you say so, although previous judge have said to the contrary on some wills more or less similar to the one you have construe”

Lambes v Eames (1871) LR 6 Ch 597

The settlor 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.”

By will, the widow gave part of the estate to outsider.

Held: She had been absolutely entitled to the property and the gift was valid.

No trust was created.

Re Adams and The Kensington Vestry (1884) 27

CHD 395**• The testator gave his real and personal estate to his wife

‘unto and to the absolute use of my dear wife, Harriet…in full confidence that she will what is right as to the disposal thereof between my children, either in her lifetime or by will after her death’.

• Held: No trust was created.• The words absolutely indicated that the

property was left to the wife alone.

Precatory words are not sufficient to show clear

intention• An expression of hope or desire is

not sufficient• Eg: “It is my sincere wish that…/it is

my hope that…• There is a need to examine and

construe the trust as a whole in order to show intention on part of the settlor/testator

Comiskey v Bowring Hanbury (1905) AC 84

• A testator gave to his wife “the whole of my real and personal estate…in full confidence that…at her death she will devise it to such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will…I hereby direct that all my estate and property acquired by her under this my will shall at her death be equally divided among the surviving said nieces”

House of Lords

• The testator intended to make a gift to his wife, with a gift over of the whole property at her death to such of her nieces as should survive her, shared according to the wife’s will and otherwise equally.

• Trust was created.

No document to construe?

Whether the acts or words of the parties indicate an intention to create

a trust

Paul v Constance (1977) 1 WLR 527

Mr Paul, who parted with his wife, lived with Mrs Constance, practically as husband and wife. They set up a house together. Mr P & Mrs C opened up an account together but was under Mr P’s name since they were not married and allowed and told Mrs Paul that “The money is as much as your as mine” in a number of situations. Mr P died intestate and Mrs Paul (the wife) claimed for the money.

• The question, therefore, is whether, in all the circumstances, the use of those words on numerous occasions as between the deceased and the plaintiff constituted an express declaration of trust

• We are concerned only with the first of the three certainties and it is this: "The words" -- that is the words of the declaration relied on -- "must be so used that on the whole they ought to be construed 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 well be created, although there may be an absence of any expression of terms imposing confidence.' A trust may thus be created without using the word 'trust,' for what the court regards is the substance and effect of the words used."

Intention to create a trust be genuine - not a sham•Where the settlor did not intend the trust to be acted upon, but entered into it for some ulterior motive

Midland Bank plc v Wyatt [1995] 1 FLR 696

• A declaration of trust was executed by a husband and wife in 1987 (when the husband was contemplating a new business) whereby the family home, their only asset, was apparently settled on the wife and daughters. He kept the trust document in a safe. The couple continued to act as real owners by mortgaging it. The husband’s business failed and the bank obtained a charging order against the house. The husband then revealed the trust document.

Held

• The trust was a sham.• The husband had ‘kept it up his

sleeve for a rainy day’ in order to defeat future creditors and had not otherwise intended it to have any effect.

B. CERTAINTY OF SUBJECT MATTER

Subject matter

• Interest in land• Chattels• Money• Chose in action

• General rule: the property subject to the trust must either be clearly defined or be capable of ascertainment.

Re Golay’s Will Trust (1965) 1 WLR 969

• The settlor made a gift directing the executors to allow a beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties”

• Issue: ‘one of my flats’‘reasonable income’

Held: ‘one of my flats’ is determinable.

• ‘reasonable income’ – the words ‘reasonable income were not intended to allow the trustees to make a subjective decision, but they provided a sufficient objective determinant to enable the court, if necessary, to quantify the amount.

• The question is that no objective determination of words such as reasonable can be made unless the context is known.

• Criterion taken into consideration to determine reasonable : the beneficiary’s previous standard of living.

Where property in bulk and unappropriated

• The question whether property in bulk must be ascertainable

• 2 views• The older view : the property to be settled out of a

bulk must be clearly identified.• The recent view : The question of certainty

depends not on the application of any immutable principle based on the requirements of a need for segregation or appropriation, but rather on whether, immediately after the purported declaration of trust, the court could, if asked, make an order for the execution of the purported trust.

Palmer v Simmonds (1854) 2 DREW 221

• A testatrix by her will gave her residuary to Thomas Harrison “for his own use and benefit as I have full confidence in him, that if he should die without lawful issue he will leave the bulk of my said residuary estate to A, B, C, D (certain named persons)

• Issue: Whether ‘the bulk of my residuary estate’ constitute certainty of subject matter.

Kindersley V.C

“What is the meaning of the bulk? The appropriate meaning according to its derivation is something which bulges out. It is a popular meaning. When a person is said to have given the bulk of his property, what is meant is not the whole but the greater part and that is in fact consistent with its classical meaning..”

• The bulk is not determinable.• Testamentary gift was not valid.

Hunter v Moss [1994] 3 All ER 215

• The defendant was the absolute beneficial owner of 950 shares in a company which had issued share capital of 1,000 ordinary shares. The plaintiff claimed that as a condition of his employment by the company the defendant had agreed to give him a 5% shareholding (ie 50 shares) in the company. The defendant refused to transfer the shares and the plaintiff issued a writ claiming to be beneficially entitled to 5% of the issued share capital of the company.

• issue : whether the defendant had made an oral declaration of trust declaring himself a trustee for the plaintiff of 5% of the shares (ie 50 shares).

• Evidence: in the course of a conversation between the parties, the defendant had declared himself to be a trustee for the plaintiff of a 5% holding in the company, and that therefore the defendant held 50 shares out of the total of 1,000 issued shares on an express oral trust for the plaintiff.

• The defendant applied to have the judgment set aside on the ground, that the purported trust failed for want of certainty as to its subject matter since there had been no identification of the 50 shares out of the 1,000 issued shares in the company.

Court of Appeal• It was well established that for the creation of a trust

there had to be certainty of subject matter. However, since all the shares were of one class in one company and were of such a nature as to be indistinguishable from one another they were all equally capable of satisfying the trust. The owner of shares in a company could declare himself trustee of a specified number of shares in the company, which would be effective to give a beneficial proprietary interest to the beneficiary under the trust and no question of a blended fund would thereafter arise.

• Held: Trust not void for lack of identified subject matter.

Subject matter uncertain

Trust is not created

Effect: the property will be held on a resulting trust for

the settlor

Unless : the

trustees have a

discretion to

determine the

amounts

Subject Matter Is Not Identified Or Identifiable

MacJordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC

350• A building contract provided that the

employer would retain 3% of the contract price as trustee for the builder (pending confirmation of the work was satisfactory). The retention fund was never set up. The employer went for insolvency. The builder claimed entitlement to the retention money.

• Held: no trust created as there was no identifiable assets that had been impressed with a trust for the builder.

Beneficial interests must be certain

Trust for class of beneficiaries

• Fixed trust : the quantum each beneficiary is to take must be known or be ascertainable.

• Discretionary trust: although the exact amount a beneficiary is entitled to may not be known, it is ascertainable precisely upon the trustees' exercise of the discretion.

• E.g: ‘residue of my estate/income’ – not necessarily invalid– May be ascertainable with certainty.

C. CERTAINTY OF OBJECT

Re Vandervell’s Trust (No.2) (1974)

Per Lord Denning“It is clear law that a trust (other than

charitable trust) must be for ascertainable beneficiaries”

Object of the trust

• Human– Wife/girlfriend– Children/father-mother/brother-

sister– Best friend– Nephews and nieces

The rules

• Trust must be for human beneficiaries• Ascertainable beneficiaries is a must

for a trust other than charitable trust• Lack of certainty of object : trust will

be void• The beneficiaries must be identifiable:

they can be given their appropriate shares for their beneficial interest

Re Endacott (1960) Ch 232

Evershed MR“No principle has greater sanction or

authority behind it than the general proposition that a trust by English law, not being charitable trust, must be ascertained or ascertainable beneficiaries”

The Test

• Depends on the nature of trust– Fixed trust or discretionary trust

(a) Fixed trust

• A fixed trust is one in which the share or interest of the beneficiaries is specified in the instrument

• The beneficiary is the owner of the equitable interest allocated to him

• E.g: the testator creates a trust for A and B in respect of 2 lots of lands, Lot 123 and Lot 345 respectively

A gift for a class of beneficiaries

• It is necessary to lay down what share each beneficiary is to take

• If the trust property is to be divided among a class of beneficiaries in equal, the trust cannot, in the nature of things, be administered unless the number and identity of the beneficiaries are known.

• Test : the list principle – Identity of the beneficiaries is known– Number of beneficiaries is known– Their whereabout or continued

existence is discoverable– for example: 'old friends', 'business

associates', 'customers of my company', 'members of my family‘ – void for uncertainty

(b) Discretionary trust

• Where the trustees hold the trust property on trust for such member or members of a class of beneficiaries as they shall in their discretion determine

• No beneficiary owns any part of the trust fund unless and until the trustees have exercised their discretion in his favour

Trustee & the test

• Need to determine the object with certainty

• Failure : breach of trust• Two tests

– Criterion certainty test– In and out test

• whether a person is or is not within the class of the beneficiaries intended in the trust instrument

A gift for a class of beneficiaries

• The trustee is to exercise a discretion in the selection of a beneficiary

• Where a trust property is to be divided into specific shares, it is necessary for the trustees to know exactly how many beneficiaries there are.

• The trustee will determine whether a person is or is not within the class of the beneficiaries intended in the trust instrument

McPhail v Doulton [1971] A.C. 424

• A deed recited that a settlor would transfer to trustees shares in a company to form the nucleus of a fund for the benefit of the staff of the company, their relatives and dependents. Clause 9 provided:

• "(a) The trustees shall apply the net income of the fund in making at their absolute discretion grants … in such amounts at such times and on such conditions (if any) as they think fit …”

• (b) The trustees shall not be bound to exhaust the income of any year or other period in making such grants … and any income not so applied shall be … [placed in a bank or invested].

• Clause 10 provided that all benefits being at the discretion of the trustees, no person had any interest in the fund otherwise than pursuant to the exercise of such discretion.

• the appellants, the settlor's executors, alleged that the deed was wholly void and claimed payment of the fund to his estate.

House of Lords

(i) If the class of beneficiaries of a discretionary trust is so defined that it is possible to ascertain whether any given person is a member of the class, it matters not for purposes of its validity that a complete list of beneficiaries cannot be made.

(ii) A discretionary trust is valid if at its inception the class of beneficiaries is ascertainable with sufficient certainty for the trust to be carried out according to the expressed intention of the settlor.

RE GULBENKIAN'S SETTLEMENT [1970] A.C.

508The settlor made a trust instrument stated

that:"all or any one or more to the exclusion of the

other or others of the following persons, namely, [G.] and any wife and his children or remoter issue for the time being in existence whether minors or adults and any person or persons in whose house or apartments or in whose company or under whose care or control or by or with whom [G.] may from time to time be employed or residing …”

House of Lords

• there was a valid gift over in default of appointment a mere or bare power of appointment among a class was valid if it could be said with certainty whether any given individual was or was not a member of the class, and that it did not fail simply because it was impossible to ascertain every member of the class.

Three kinds of uncertainty

i. Conceptual uncertaintyii. Evidential uncertaintyiii. Administrative uncertainty

i. Conceptual uncertainty

• Meaning: problem in the vagueness of the language used by the testator to express his intention

• E.g: /my shorter employee/my old friends and business associates/my fans/for my friends who are good citizen

Effect• Express trust fails• It will be held on resulting trust

Curable• the uncertainty can be cured by

conferring a residual power upon the trustees to determine conclusively any doubts as to who are members of the beneficial class– The settlor leaves the definition of a

term to the third party (trustee)

Halsbury’s Law of Malaysia

• If a trust accords trustees a discretion to elect among a class of beneficiaries, it no longer fails if a list of every member of the class cannot be drawn up; it suffices if it is possible to predicate of any proposed beneficiary that he is or is not a member of the class. If there remains a number of persons who cannot be proved to be inside or outside the class, for example old friends of the testator, then the trust fails.

Re Barlow's Will Trusts [1979] 1 All ER 296

The testatrix directed the sale of some paintings subject to the provision that 'any members of my family and any friends of mine who may wish to do so' be allowed to purchase any painting at a price well below its value.

Held that the direction was valid as it was possible in the circumstances to say that at least one or more than one of the claimants qualified.

• if a trust is construed as conferring individual gifts to persons qualifying under some condition precedent, then it is valid if one or more persons undoubtedly qualify, even though the conceptual uncertainty makes it impossible to determine whether other persons qualify

ii. Evidential uncertainty (difficulties)

• Meaning: the language used in precise but the trustee will have to find evidence to carry out the settlor’s intention

• It must be possible to show either that any person is within the class or that he is not within it

• The court is never defeated by evidential uncertainty

• It does not invalidate a discretionary trust

• No need to proof that every person is or is not within the class - the old rule of making a list

• Does not require the ascertainment of the whole class

Re Baden's Deed Trusts (No 2) [1973] Ch 9, [1972] 2 All

ER 1304, CA (Eng)

• The tests• Stamp LJ (strict literal view-preferred)

: require the trustee to be in a position to say affirmatively whether any given person is within or outside the class

• Megaw LJ : if as regards a substantial number of objects it could be said with certainty that they fell within the trust, even though as regards a substantial number of other people the answer would have to be not that they were outside the trust, but that it was not proved whether they were in it or not. – ‘substantial number’ test

• Stamp LJ : ‘relatives’ means ‘next of kin’ or ‘nearest blood relations’

• Megaw and Sachs LJJ : 'relatives' meant dependants from a common ancestor.– The trustee ought not to pay an

individual who failed to prove that he is a relative

iii. Administrative uncertainty

• If a conceptually uncertain class of beneficiaries is specified in a trust instrument: the trust is administratively unworkable

• if the class is certain enough but the definition of beneficiaries is so hopelessly wide as not to form anything like a class : the trust is administratively unworkable or which cannot be executed

• E.g: “…trust for all residents in Greater London…”

Why?

• trust must be justiciable • court must act judicially according to

sensible criteria expressly or impliedly provided by the trust instrument so that it may control or execute the trust.

R v District Auditor, ex p West Yorkshire Metropolitan County Council

(1986) 26 R VR 24• A local authority, purporting to act under

statutory powers, resolved to set up a trust “for the benefit of any or all or some of the inhabitants of the Country of Wesy Yorkshire”. There were 2,5000,000 potential beneficiaries.

• Held: the ‘inhabitant’ was sufficiently certain but it was administratively unworkable as the class was far too large

Re Chin Sem Lin's Settlement, Yong Tet Foong v Chin Thin Lee

[1971] 2 MLJ 152 at 155 • Chang Min Tat JWhere the settlor directed payment to

an ancestral graveyard in China the trust failed by reason of the existing political situation and the fact that no members of the settlor's family were resident in that country