Property II notes week 12

Certainty
The three certainties
1) Intention on the part of the settler to create a trust Looks to whether a reason exists for recognizing a trust 2) Subject matter: The property to be held on trust 3) Objects: People or purposes for whose benefit the trustees are to hold that property Ensures that the trustees have sufficient information to give effect to the trust intended by the settlor - To what extent the courts should be prepared to accommodate and to work around a lack of certainty in the trust the settler has declared, to avoid defeating his intentions entirely

Intention
No problem in proving intention when using technical legal language A strong presumption that the settler intended to create a trust It is entirely possible to create a trust without mentioning the word trust, and without mentioning any motion of the trust as a legal concept What matters is the substance of the intention of the settlors intention and not the language expressed Difficult questions arose where it is clear that the settler intended to benefit another party, but it is unclear whether he intended this benefit to be conferred by means of a trust Starting point: the law provides more than one way to confer a benefit on another party 1) Trust 2) Outright transfer Problem arise where it seems clear that the property owner intended to make an outright gift, but the gift is ineffective Can a declaration of trust be made out of an unsuccessful attempted gift? No, the court will hold that the settler has created a trust only if that is what he specifically intended Jones v. Lock o It seems clear that the father intended to make an outright transfer of the cheque to his son o The question was whether the father should be regarded as having declared a trust of the cheque, since this required nothing more than a statement to that effect CoA: No, the fathers intention was to make an outright transfer The court refused to perfect an imperfect gift by treating a failed outright transfer as a successful declaration of trust However, there are cases which seem to display a more indulgent attitude Paul v. Constance 1

Property II notes week 12 o o Though Mr Constance never used the word trust, the circumstances and the nature of the parties intended a trust to be created Mr Constances words and conduct demonstrated an intention that the bank account money should be held on trust for himself and Ms Paul This money is as much yours as mine The putting of the bingo winnings into the account The withdrawal for the benefit of both of them

Subjective and objective intentions

Objective approach to determine whether the settler intended to create a trust The reasonable person would have inferred that this was his intention from his words and conduct Criticisms: 1) There is no good reason for disregarding or overriding the settlors true subjective intentions in this way There is no body in an equivalent position to the other party to contract who needs the protection afforded by an objective approach 2) There is an area of trusts law which shows that, where the subjective an objective approaches give different answers to the question of whether a trust was intended, the courts will take a subjective line Used in sham which misleads the outside world as to the settlors true intentions If the creditors or authorities could prove that the trust is in reality a bare trust for the settler and not the named beneficiaries, they establish that the settler wons the trust property beneficially and may have recourse to it to pay their debts

Precatory words
The question is whether a settler really intended to place a legal, as opposed to a purely moral, obligation on the recipient to comply with his wishes, and hence whether the recipient holds the property on trust Mussorie Bank Ltd v. Raynor The teststor left property to his wife, feeling confident that she will act justly to our children in dividing the same when no longer required by her It is unclear as to what it intended by the settler: The testator left the property to his wife absolutely, imposing only a moral obligation on his wife to provide for the children after her death The onerous obligations of trusteeship should not be imposed in domestic situations where permissive or ambiguous language is used Re Adams and the Kensington Vestry The testator gave his personal estate to the absolute use of his wife, in full confidence that she will do what is right as to the disposal thereof between his children Words such as settler, trust, trustee and beneficiaries indicates a trust 2

Property II notes week 12 Look at the whole document to construe the meaning Comiskey v. Bowring-Hanbury In full confidence that she would devise it on her death to such of the testators nieces as his wife saw fit Precatory words All my estate and property acquired by my wife under this my will shall at her death be equally divided among the surviving said nieces Trust

Segregation of trust property

Trustees are commonly required to keep the trust property separate from their own assets Trustees are commonly required to keep the trust property separate from their own assets R v. Clowes It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, then he is the trustee of that money and must hand it over to the person who is his cestui que trust However, the fact that a transaction contemplates the mingling of funds is not necessarily fatal to a trust Where no segregation requirement is imposed, this will be a fatal point against the trust But could be rebutted Re Kayford

Subject matter and objects: the need for certainty

Uncertainty in the definition of the subject matter and/or objects may reflect a lack of any genuine intention to create a trust The imprecision nay be a sign that the purported settler did not intend his directions to have legal effect, or that he had not fully made up his mind The trustees and the court cannot effectively do their jobs unless they know what is required of them The point of the certainty of objects and subjects is that to ensure that the trustees and the court have the information they need to be able to perform their respective roles in the running of the trust The trustees needs to distribute the trust property They need to know what property they are holding on trust and for whom they are holding it who gets what Certainty is needed for the court to give directions on the proper administration of the trust when called on to do so by the trustees

Forms of uncertainty
Conceptual uncertainty 3

Property II notes week 12 Uncertainty where the definition of the objects or subject matter provided by the settler is, at least in part, imprecise or ambiguous, e.g. friends The line between friends and those who are simply acquaintances, colleagues or the like is blurry Different people will draw that line in different places Unless the settler has offered further guidance as to who his friends are, we simply cannot be sure who precisely falls within the class of objects Evidential uncertainty No factual information at hand to determine what people or property match the definitions the settler has given Ignorance of certain key facts leaves us unable to say whether a given thing or person falls either within the settlors definitions or outside it E.g. a trust is declared who students who studied law Depends on whether the university has kept full records of all those who studied law there Enumerability Necessary to know from the outset how many things or people match the settlors definitions Relevant where the trust requires equal division of the trust property between the objects Ascertainability We do not know where to find the property or people who match the definition of objects or subject matter The courts have responded differently to different forms of uncertainty Some certainty elements have greater relevance in relation to certain types of trusts than others

Degrees of uncertainty
A lesser degree of uncertainty may be remediable Failure of the trust would defeat the settlors intentions To give effect to settlors intentions, supports the courts lending a helping hand Is it legitimate for a court to remedy a trust? The settlors intentions are no guide as the uncertainty stems from us being unclear as to what it is that the settler wants, and so any choice the court makes runs the risk of appearing arbitrary Courts are reluctant to engage in arbitrary decision-making, especially where the decision affects the allocation of property rights that is, who gets what The court have to decide to which they should get priority, and to find a compromise between them

Subject matter
Problem arise where the settler has not made clear what he wants the trust property to be Palmer v. Simmonds A trust of the bulk of his residuary estate What part of the residue was to be held on trust? 4

Property II notes week 12 Conceptual uncertainty: the settler has not adequately defined what the trust property is to be Contrasted with Re Golays Will Trusts The trust required a reasonable income to be provided to the beneficiary Sufficiently certain o The yardstick is not what the testator subjectively considers a reasonable income but what he identifies objectively as reasonable income o The court could and would apply in quantifying the amount so that the direction in the will is not in my view defeated by uncertainty Problem: different people and different judges give different answers to the question as to the amount of an objectively reasonable income Though a reasonable income was uncertain, the trustees and the court could remedy this by applying their own notions of what was reasonable in the circumstances Failed to identify which of the specific assets from that source are to be the trust property Re London Wine Co. (Shippers) Ltd The company had not earmarked any particular bottles of wines for particular customers No certainty of subject matter Oliver J: to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach

Intangible and fungible property

No houses and wines of the same type is the same, if the settler has failed to identify the specific items to be held on trust, the court has no basis upon which to select which of these are to fall within the trust Any such choice would be arbitrary However, where all the individual assets from the designated source are identical (fungible) No problem would arise The court or trustee can pick out the relevant number from the source However, Oliver J in Re London Wine Co.: The same rule apply even where the subject matter is part of a homogenous mass so that specific identity os of as little importance as it is Hunter v. Moss Whether identification of specific assets was required depend on what sort of property was involved Problem: what happens if, before such selection and segregation, the settler sells some of his shares? How do we know whether the shares he has sold are his own or the beneficiarys? Tracing The scope: the collection of assets from which the trust property is to come must be homogenous limited to trusts of intangible property

Property II notes week 12 identification of specific property is still required where the trust is of tangible property, even where the trust property is to come from a collection of identical assets Re Goldcorp Exchange Ltd

Floating trusts
The settler transfers money to the trustee on terms that the trustee may use as much of it as he likes during his lifetime but must on his death leave what is left of it on trust for beneficiary Sprange v. Barnard The testrix left 300 pounds of annuities to her husband for his sole use and at his death, the remaining part of what is left, to be divided between the named beneficiaries The court did not uphold the trust The subject matter being uncertain is a sufficient reason to invalidate the trust? The beneficiaries have no entitlement to any of the property until the trustee dies, and at that time we will, be able to determine what is left and so what the beneficiaries are to receive An analogy can be draw with trusts income from specified property We will be able to work out how much income will be generated and hence what the beneficiary will receive The true objection to floating trusts is not uncertainty of subject matter but the perception that it is incompatible with the existence of a trust that the trustee should be free to use and dispose of the property howsoever he wishes However, trustees may take a benefit it the settler so provides Ottaway v. Norman upheld the floating trust the settlors failure to identify which assets are to go to a particular beneficiary will not be fatal to the validity of the trust if he has left this to the trustees to decide Re Golays Will Trusts The settler may leave such decisions to the beneficiary Boyce v. Boyce Assumption: had maria lived and so been able to make the choice, the trust would have been upheld Re Barlows Will Trusts The testatrix left a collection of pictures to be held on trust, with a direction to her trustees to allow any of her friends of family to purchase them The trust was upheld: it is enough that it was clear which paintings were to be held on trust, and it was then up to the beneficiaries to determine who got what

Fixed trusts
Two ways: 1) Each beneficiarys entitlement may be defined so as to be independent of and distinct from those of the other beneficiaries] E.g. 100 pounds to each of my friends

Property II notes week 12 Once a beneficiary has established himself to be within the class, he can claim his 100 pounds, it does not matter whether there is any uncertainty as to who or where the others in the class are 2) The beneficial interests may be defined referentially, so that any individuals entitlement cannot ascertained or quantified without identifying and quantifying the others E.g. 100 pounds to be divided equally between my friends It is not enough for a beneficiary to make out his own claim to a share of the property because the quantum of his share depends on the trustees being able to make out the claims of the other beneficiaries Stricter test of certainty: The trustees must be able to compile a complete list of all the members of the class defined by the settler in order for the trust to be valid o List certainty The two types of test have different test for certainty of objects