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Chapter 3: Express Trusts: The 3 certainties (Part 2)

A. Certainty of intention to create a trust


1. The language needed to reveal intent to create a trust
Richards v Delbridge (1874), Jessel M.R A settlor who intends to declare himself trustee need not use the words I declare myself trustee, but he must do something which is equivalent to it, and use expressions which have that meaning. However, he added that the court is not at liberty to construe the words otherwise than according to their proper meaning, and held that where a property-owner clearly intends to make a gift of legal title, but fails to carry out his intention, for example, because he fails to comply with relevant formalities, then the court will not perfect his imperfect gift of legal title by reinterpreting his words as a declaration of trust. Reasons is that the court does not generally assist volunteers by perfecting imperfect gifts; Another reasons is trusteeship is an onerous fiduciary office and that a person who means to get rid of all his rights to property might very well not intend to retain his rights but to come under an onerous fiduciary obligation. Paul v Constance (1977), Scarman LJ What was the plaintiff claiming? The plaintiff, Mrs Paul, who had lived with Mr Constance in the last years of his life, claimed against Mr Constances widow, who was administering Mr Constances estate on his death, that Mr Constance had declared that he held a bank account in his name on trust for himself and Mrs Paul in equal shares, the declaration taking the form of his telling Mrs Paul on several occasions that the money in the bank was as much yours as mine. What arguments did the defendant use to attempt to defeat that claim? The defendant argued that the proper interpretation of the facts indicated that though Mr Constance might have attempted to make a gift of a share of the money to Mrs Paul, he had failed to do so properly, as in Jones v Lock; the court had no power to treat this failed intention to make a gift as a declaration of trust; further, from this principle, the defendant argued that there needed to be a clear intent by the purported settlor to confer
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 1

rights on a purported beneficiary to count as a declaration of express trust, and here there was none. How were those arguments dealt with by the Court of Appeal? The Court of Appeal held (1), that there was no question of a direct gift in this case which had failed, as in Jones v Lock, and that, given the unsophisticated nature of the parties, Mr Constances expression that the money was as much the plaintiffs as his own on numerous occasions was sufficient as a declaration of trust. An express trust was therefore found to have been created. It may be questioned whether the court in Paul v Constance, was fully alive to the dangers of discovering an intention to declare a trust where a gift of legal title is a more plausible interpretation of the words used by the settlor. Re Goldcorp Exchange Ltd (1995) An intention to create a trust of property normally requires indications that the alleged trustee must keep the specific trust property separate from his own. R v Clowes (No.2) [1994] After all if a recipient of money: is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it a she pleases, when called upon to hand over an equivalent sum of money, then he is not a trustee of the money but merely a debtor. Recent cases: Azam v Iqbal (2008) The defendant operated a hawala, or money transfer facility, taking sterling payments from customers in the UK, and crediting their relatives in Pakistan with rupees at an agreed exchange rate. The claimant paid him 12,000 had been held on trust for him, but this was rejected, the judge holding that the defendant had never been required to segregate the money from his other funds, and that the parties relationship, like that between a banker and customer, had simply been that of debtor and creditor. Palmer v Simmonds (1854) Originally, the court was only too ready to treat such precatory words as creating a trust. As James LJ said in Lamb v Eames (1871): the officious kindness of 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 instead. Since 1870s, however, the courts have not allowed precatory words to create a trust unless on consideration of the will as a whole it was clearly the testators intention to create a trust. Administration of Justice Act 1982, s.21; s. 22. Please refer to statute book.

Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 2

2. Shams Trusts
Sham trusts, in the context of our interest in the certainty of intention, are equitable property transactions the written terms of which purport to divest the settlor of his interest in the trust property, but in reality do not, because he had no intention to create a trust of the kind that the written terms represent.

3. Trust distinguished from other relationships


Bailment A bailment will be created if an owner delivers possession (as opposed to ownership) of his goods to another on the condition that they will be delivered to the owner or according to the owners direction when the purpose of delivering goods has been carried out (e.g. goods delivered for cleaning or for use for a year or for safe custody or as security of loan). Bailment is common law relationship were the bailee receives a special property in the goods, the general property in which remains in the bailor. There can be sufficient fiduciary relationship between bailor and bailee to give bailor the equitable right to trace the bailed goods and their product: Aluminium Industries Vaasen v Romalpa (1976), but this has been much restricted as a special case: Clough Mill Ltd v Martin (1985). Agency If an owner transfers ownership or possession of property to another to enable him to do things on his behalf then an agency relationship will arise. The principle can direct agent and can terminate the agency (except in certain limited circumstances). The agent (unlike trustee vis--vis the settlor or beneficiaries) has power to subject his principal liability in contract and in tort. The agency normally arises as a result of contract between principal and agent. Thus, an agency normally creates a debtor-creditor relationship. However, if a principle sells his cars via an agent obliged to pay the proceeds of each sale into designated account and to remit to the principal by separate cheques the proceeds of such sale into a designated account and to remit to the principal by separate cheques the proceeds of each sale less commission and costs within five days then a trusts arises (Royal Brunei Airlines v Tan (1995). This is crucial where the agent goes into liquidation. Loans Spence v Browne (1988) A single arrangement cannot usually be both a loan and a trust since the concepts are mutually exclusive.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 3

Twinsectra Ltd v Yardley (2002) However, it is possible for money to be lent for a particular purpose, on the basis that the money will be held on trust for the lender from the outset, subject to a power vested in the borrower to apply the money to the purpose, the exercise of which power will terminate the trust and turn the parties relationship into one of creditor and debtor. Equitable charges and reservation of the title clauses Clough Mill Ltd v Martin (1984) o Under which legal title to the materials remains with A until (1) they are sold by B after they are incorporated in to his manufactured products, whereupon the title to them passes to the buyer of the products, or (2) B has paid off all outstanding debts to A, whereupon the title passes to B himself. If B becomes insolvent, A can reclaim all of the materials B has on hand. There is no trust here; the legal title to the goods simply remains with A until either (1) or (2) occurs. o However, if A only had an equitable charge then this would be void against Bs liquidator unless it were registered in accordance with the Companies Act 2006, s.874. o Because A is legal and beneficial owner, he cannot obtain separate equitable interest until full ownership is vested in another party: Westdeutsche Landesbank Girozentrale v Islington LBC (1996) Prepayments Re Kayford Ltd (1975) A mail order company unilaterally decided to place all of the money it received as prepayments for goods in a special account, only drawing upon the account when it filled in order. It was held that, upon the companys liquidation, the money in the account was held in trust for the customers even though they were unaware of the arrangement. Neste Oy v Lloyds Bank plc (1983); extreme case. o An agent for ship owners received money from them to pay various liabilities they incurred, for example, to ports where their ships were berthed. One final payment by a ship owner was received by the agent later it had ceased trading. o It was held that this last payment was held on constructive trust (in others words, the court imposed a trust despite the actual intentions of the both parties, on the basis that any honest recipient of the payment in these circumstances would have understood that the sum ought to be repaid immediately. o It seems wrong; however, simply to find a kind of Kayford-type prepayment trust rather than the ordinary debtor-creditor relationship when neither party makes the slightest gesture to declare a trust, simply because someone is unlucky given the timing of someones insolvent.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 4

Japan Leasing (Europe) plc (2000); follow Neste Oy case. o A purchase payment was received by one co-vendor, who under the contract with the other co-vendor specifically did not hold any payments received on trust for them. At the time of the receipt of the payment, the recipient co-vendor had gone into administration and, following Neste Oy, the court held that the payment was held by the recipient vendor on constructive trust for all the co-vendors. Possibilities of construction for testamentary gifts (If a testator by will leaves property to B and requires B to make some payment for C or perform some obligation in favour of C, there are five possible constructions open to a court.) Re Brace (1954) o Merely indicating his motive, so that B takes an absolute beneficial interest. o To my wife, B, so that she may support herself and children according to their needs or to my daughter, B, on condition she provides a home for my handicapped daughter, C. Re Oliver (1890) o Creating a charge on property given to B, so that B takes the property beneficially subject to the charge for securing payment of money to C. o my office block, Demeter House, to my son, B, subject to paying thereout 10, 000 p.a to my widow, C. Irvine v Sullivan (1869) o Creating a trust in favour of C. o my office block, Demeter House, to B absolutely but so that he must pay an amount equal to the income therefrom to my widow C for the rest of her life. Re Lester (1942) o Creating a personal obligation binding B to C so that if B accepts the property he must perform the obligation in Cs favour. o my leasehold cottage currently subleased to X I hereby devise to B absolutely on condition that he agrees to pay my widow C 15,000 p.a (per annum) for the rest of her life. Re Oliver (1890) o Creating a condition subsequent that affects the property in Bs hands making B liable to forfeit the property if the condition is broken. o my 500, 000 1 shares ICI Plc to B charity Co on condition that it pays my widow, C, an annuity of 10, 000 for her life and properly maintains my family burial vault, and upon any failure to observe this condition the RSPCA shall become entitled to the shares.

Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 5

4. Trusts and powers


Several rules of construction may determine whether a trust or a power of appointment is intended: Re Sprague (1880) If there is a gift over in default of appointment, the power is a mere power, even where the gift over is void for some reason. Re Brierley (1894) A residuary gift in favour of the donee of the power is not a gift over for this purpose. Re Llewellyns Settlement (1921) To cause a power to be treated as a mere power only, the gift over must be in default of appointment, and not for any other event. Thus, in the absence of gift in default of appointment, a gift over on the failure of the appointees or any of them to reach a specified age will not necessarily prevent the power from being treated as a discretionary trust or prevent the implication of a trust for the objects equalty in default of appointment. Re Weekess Settlement (1897) Where there is no gift over in default of appointment, the power may be only a mere power, or a power coupled with an implied trust in default of appointment, or a trust power or discretionary trust, according to the true intention of the settlor. See Burrough v Philcox (1840); McPhail v Doulton (1971)

B. Certainty of subject matter of the trust


1. The whatever is left trust
Sprange v Barnard (1789) A testatrix left 300 in securities to her husband for his sole use; and at his death, the remaining part of what is left, that he does not want for his own wants and use, was to be divided equally amongst three others. The court held that the husband was entitled absolutely, for a trust of what property remained after the husbands use would be impossible to be executed. See Lambe v Eames (1871) Ottaway v Norman (1972) The Australian (Birmingham v Renfrew (1936)) floating or suspended trust analysis was applied. The son and daughter-in-law of the deceased claimed that he had left his house, its contents, and his money to his housekeeper to her for her use so long as she lived, but on trust to leave the property to them on her death.

Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 6

Brightman J opined that there was a valid trust of the house and contents (the latter being subject to normal wastage and wear and tear), which he was content to assume was in suspense during housekeepers lifetime, attaching the property only upon her death.

2. The identification of specific property out of a larger amount.


Boyce v Boyce (1849) A testator left 3 houses to his widow, instructing her to give to his daughter Maria whichever one Maria chose and to give the other two houses to his daughter Charlotte. Maria died before choosing any house, and the court held that the gift to Charlotte failed for uncertainty, reasoning the gift to Charlotte was of the other houses that remained following Marias choice. Since she made none, the ascertainment of such other houses became impossible, and so the gift failed. While in Boyce, the failure turned Marias failure to select property, in the commercial cases the failure generally turns on the failure of a seller of goods to choose particular goods to satisfy the buyers contract; once identified, but only them, may those goods serve as the subject matter of a trust of one intended by the parties. Re London Wine Co (Shippers) Ltd (1986) A company that dealt in wines went into receivership. Its customers had purchased wine but left it in the companys possession for storage, and naturally assumed that they could retrieve their wine and that it was not part of the insolvent companys assets. Unfortunately, the customers did not become legal owners of any wine. Although the company represented to them storage fees, in reality the company did not allocate any particular cases of wine to any particular customers and, in general, did not ensure that it had on hand sufficient quantities to meet all the customers purchases should they all have demanded actual delivery of their purchases all at once. Wines were only allocated to any individual customer when he actually took delivery. Under the sale of goods law, legal title to goods does not pass under a contract of sale until such time as the seller actually appropriates specific property to the contract. In a thorough review of the case law, Oliver J decided that, for essentially the same reason, the company did not hold any of the wine on trust for the customers: it could not be said with any certainty which wines were the subject matter of a trust for any particular customer. Re Goldcorp Exchange Ltd (1995) Re London Wine was approved by the Privy Council in this case. While sympathizing with the customers, Lord Mustill affirmed that a right in property, whether legal or equitable, cannot exist in the air, hovering over an undifferentiated mass of property, it can only exist in relation to property which is specifically ascertained, i.e. identified.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 7

Hunter v Moss (1994) Unfortunately, before the decision in Re Goldcorp was given, court of appeal delivered its decision in Hunter v Moss (1994), which throws this area of law into some turmoil. Mr. Moss was the owner of 950 shares of a private company. In order to place his finance director, Mr. Hunter, on the same footing as his managing director in respect of their interests in the company, he purported to declare a trust of 50 of those shares. He later sold the 950 shares when the company was taken over by a larger concern, keeping all the proceeds for himself. Hunter claimed a proportionate share of the proceeds of sale, i.e. the proportion that would be his in equity if the declaration of trust was valid. There was a problem, however, in that Moss had never done anything to segregate or identify any particular lot of 50 shares out of the whole 950 he was to hold on trust for Hunter. Dillon LJ in the court of appeal distinguished London Wine on the ground that shares were intangible whereas bottles of wine were not. He held that trust was valid because, as each share carried identical rights, it did not matter which 50 were held on trust. 3. Trust of residue Id certum est quod potest reddi certum, which translate into:That is certain which can readily be made certain

C. Certainty of beneficiaries (Objects)


1. Fixed trusts
Complete list test: The trustee must be able to determine the identity of all members of the class. The obvious reason for this is that unless the identity of all members can be known, the trustee cannot distribute a single penny, if the amount each is to receive depends upon first making a complete list of every member of the class. Whether or not the complete list test was applicable to mere powers of appointment fell to be decided in Re Gestetner Settlement (1953).

2. Discretionary trusts
Is or Is not test (any given postulant test): Since the power holder has no duty to distribute the property, all that matters is misfeasance. For example: if he appoints property at all, he must be sure to appoint only to those within the class of objects and not those outside it; all he need know with certainty is whether any particular person is within the class or not; in particular he does not need a complete list of all objects who are eligible to receive.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 8

3. Conceptual certainty, evidential certainty, ascertainability and administrative workability.


Conceptual certainty This refers to the precision of language used by the settlor to define classes of person whom he intends to benefit. Evidential certainty This refers to the extent to which the evidence available in a particular case enables specific persons to be identified as members of those classes- and so as beneficiaries or potential beneficiaries. Ascertainability This refers to the extent to which the whereabouts or continued existence of persons identified as beneficiaries or potential beneficiaries can be ascertained. Administrative workability This refers to the extent to which it is practicable for trustees to discharge the duties laid upon them by the settlor towards beneficiaries or potential beneficiaries.

4. Re Badens Deed Trusts (No 2) [1972]


How do the approaches of Megaw LJ and Sachs LJ differ on the question of certainty of objects? Try to formulate a set of objects which would be valid under one but void under the other. After reading and noting the Court of Appeals decision, the difference in approach taken by Megaw LJ and Sachs LJ towards certainty of objects should become clear. Sachs LJ makes a clear distinction between conceptual uncertainty and evidential uncertainty; the is or is not test applies only to the former, and the court is never defeated by evidential uncertainty. Therefore it is a question of fact whether any individual postulant has on inquiry been proved to be within (the class); if he is not so proved then he is not in it. However, Megaw LJ introduces a factor of substantial numbers into the is or is not test. If it could be said with certainty that a substantial number of beneficiaries fell within a class, the class is certain and therefore the trust is valid. However, it gives no guidance to the trustee as to the extent of any survey he must make of the class before distributing (i.e. the extent of the consideration he must give to distributing to those not within the substantial numbers yet who may fall within the class intended by the settlor). What is not clear, given that there was conceptual certainty on the facts, is whether Megaw LJ would require this too. A trust to distribute monies to adherents of the Anglican church might serve as an example of a trust which would fail Sachs LJs test but possibly pass Megaw LJs it is not clear that it could be said with certainty of every person whether or not they were within the class (e.g. those who only attend services sporadically) and this is a matter of conceptual, not evidential uncertainty. However, it is clear that on any definition of
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 9

adherent, substantial numbers would fall within the class (e.g. all those who are members of the clergy, regular atttenders, etc.) and so this trust may pass Megaw LJs test. We should note again, however, that Megaw LJs comments were made in the context of a conceptually certain trust. Explain the difference between conceptual uncertainty and evidential uncertainty. Conceptual uncertainty arises from the settlors use of imprecise or vague language in expressing his intensions. Vagueness can be understood as the problem of the uncertain boundaries which arise when we try to apply words to things in the world. For example, the word tall appears to have very uncertain boundaries; tall is not a synonym for 5'10" and over; it is not that precise. As a consequence, the use of the word tall in a trust would result in the declaration of trust being void for conceptual uncertainty. Evidential uncertainty arises when there is insufficient evidence to conclude that an object is within the specified class of objects. The terms of a trust may be conceptually clear, but actually providing evidence to meet them may be impossible What is the effect of evidential uncertainty on (a) a fixed trust, (b) a discretionary trust, and (c) a power of appointment? Evidential uncertainty defeats a fixed trust entirely. The reason is straightforward: if the settlor expresses his gift in such a way that evidence must be adduced to identify the rights or person and that evidence is not available, the trust cannot be executed according to its terms. Evidential uncertainty as regards any particular object will not invalidate a discretionary trust, nor a power of appointment. As long as there are objects who can provide sufficient evidence to prove that they are within the class, there will be valid objects under the trust, and it will not fail. If, however, there is no possibility of adducing evidence to prove that anyone falls within the class, then the trust will fail just as in the case of a fixed trust, even if perfectly conceptually certain. Examples of this sort of trust are likely to be fanciful (e.g. a trust for all those persons who had male ancestors in the sixteenth century with an extra Y chromosome).

5. Re Hays Settlement Trusts [1981]


Within powers of appointment, why does it matter whether the power is held by a fiduciary? When a power is held by a fiduciary, typically the trustee(s) of the trust, the fiduciary cannot release it. Moreover, he will have duties in relationship to it, to consider exercising it from time to time, and so to survey the class and determine whether an appointment should be made, and to respond to requests by particular objects that they be considered; they must exercise the power in a responsible manner for the purposes for which it was given, and in particular must not act capriciously in determining whether and how to exercise it.
Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 10

On what basis does Megarry J suggest that intermediate trusts are administratively unworkable? While Megarry J held that intermediate powers are valid when held by fiduciaries, not being subject to the administrative workability test, which he held applied only to discretionary trusts, nor being capricious, he said that he would probably hold an intermediate trust invalid, on the basis that the duties of a discretionary trustee are more stringent than a fiduciary power holder and that the beneficiaries of a discretionary trust have more rights of enforcement than objects of fiduciary powers. It is not clear how these differences lead to the invalidity of intermediate trusts, for the enhanced duties of the discretionary trustee are clearly a matter of degree, following McPhail v Doulton, and the objects rights of enforcement do not seem to have anything to do with whether a trustee or donee of a power can carry out a sensible survey of objects and distribute rights responsibly.

Sources: Hayton & Mitchell: Commentary and Cases on the Law of Trusts and Equitable Remedies, 13th edition; The law of trusts, J E PENNER, 8th edition; UOL Subject Guide 2014 Page 11

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