Equity & Trusts

NATURE OF A TRUST

• Trust arise when the legal and equitable interest in property are divided
• Trusts are either express or implied
• Trust creates obligations and rights
• A variety of different interests can exist in trust property

Introduction

In the simplest terms a trust relationship can be identified when legal title is owned by one person (trustee) and the beneficial interest is held by another (beneficiary). A key skill to understand trust law is to visualise the ownership of all property as being potentially divided. A trust for a legal owner to be able to deal with property for the benefit of those who cannot or do not want to deal with it themselves. 

1. Categories of trusts

Trust can be broadly categorised as falling into 2 types- express and implied. 

a. Express Trust

An express trust can be either private and public. 

Private trusts are created for the benefit of private individuals or classes of individuals. 

Public trusts are which will benefit members of the public and will be looked at when we consider charitable trusts .

Express trusts are trusts which are made expressly by a settlor, the person making a trust).

Express trusts can be inter vivos (made during life time of the settlor) or testamentary (made through the settlor's will take effect upon their death). After death the settlor is referred as the testator.

i. Fixed or discretionary express trusts

In a fixed trust, the beneficiaries and their interests under the trust are clearly specified.

For example, to my 2 children Luke and Katie, I create a trusts of $20,000 in equal parts. They have $10,000 each held on trust.

A discretionary trust, the property is held on trust by the trustee who has some discretion (choice) over who, within the specified class, is to benefit, what their share of the trust property will be, or both. 

For example, 'a trust of $20,000 to my 2 children, Luke and Katie, as the trustee shall decide', would be a discretionary trust in which there is a discretion as to the share of the property. Under this trust, neither Luke nor Katie has anything more than an expectation in the trust; only when the trustee exercises that discretion will they have a clear interest. However, as this is a trust, the children can require the trues tee to exercise that discretion.

An example of a trust in which there is a discretion to choose who is to be benefit would be, '$20,000 to be held on trust for such of my nieces and nephews whom my trustee selects'. The beneficiaries are identified as being part of a class who may benefit.

ii. Bare trusts and protective trusts

Bare trusts are when property is left on trust and the trustee has no discretion or contingencies. The trustee's only duty is to hold the property for the beneficiary. The beneficiary of a bare trust will be a sole beneficiary who is sui juries: adult and of mental capacity. A simple example is a stockbroker who holds the shares on the behalf of another.

Protective trusts are trusts aimed at preventing an irresponsible beneficiary from wasting trust property. Section 33 TA 1925 simplifies the method by the which the beneficiary is given a  which is determinable (can be forfeited) on given events, for example bankruptcy or sale. At this point the protective trust ends and the property is then held on a discretionary trust for the beneficiary, their spouse, and children, or those who would inherit had the beneficiary died.

b. Classifications of interest under a trust

An important point to understand is that trusts can contain different types of interests. Interests can be either vested or contingent. 

*Understanding what type of interest a person has under the trust is important when considering the powers trustees have in relation to mantanance and advancement which are explored in chapter 11. Make sure that you understand the difference between a vested interest and a contingent interest. 

An interest under a trust is said to vest the beneficiary when the beneficiary has a present right over the trust property. However, this vested interest can be either to a persons right to a present interest, or a present right to a future interest. It is important as a vested interest is owned by the beneficiary. This means that if the intended beneficiary dies this interest will pass with their estate. 

Example 1- Present interest

I leave my home Health Farm to my husband Dell for life then to my son Luke. Dell's interest is a present right to a present interest; it is said to be vested in possession. He has the property for his lifetime. This is particularly important when we look at trustee powers. Luke's interest is a present right to a future interest; it is said to be vested as a remainder. Luke has the home when Dell dies, but at this time he has the right to expect the trustee to ensure he has a home to take possession of. 

Example 2- Contingent interest, the one with conditional.

I leave my hime Health fem to Dell for life and then to Sumita should she reached 25. Dell's interest is the same as in example 1 but Sumita's is contingent. She has no interest until she reaches 25.

c. Implied Trusts

Implied trusts are those which are not expressly created. There are 3 broad trypes of implied trusts: resulting, constructive and statutory.

i. Statutory trusts

In certain circumstances, statutory provision impose a trust. For example, a trust for land is created under the Trust of Land and Appointment of Trustees Act 1996 (ToLATA 1996), where joint owners hold the legal title on trust for themselves.

Another area of statutory implied trusts is dealing with intestate estate, when a person dies without leaving a valid will/ The Administration of Estates Act 1925 provides for settlement of the estate to family members on the assumed intention of the deceased. The deceased person's personal representative will be appointed by the courts, they are called administrators not executors.

ii. Resulting trusts

Resulting trust arise either when:

There has been a failure to validity create a trust. This means that the beneficial interest existing in a vacuum. Equity, like nature, abhors痛恨 a vacuum and the vacuum is filled by creating a resulting trust; Vandervell v IRC. This situation has been called an automatic resulting trust because it happens regardless of the intention of the settlor. Indeed, in Vandervell v IRC, a resulting trust arose contrary to the express intention of the settlor to give away property. 

Property is voluntarily transferred to another or purchased (either wholly or partly) in the name of another; Tinsley v Milligan. This category is based on the presumed intention of the resulting beneficiary. Lord Browne-Wilkinson said in Westdeutshe Landesbank v Islington LBC that resulting trusts were based on the intention of the parties. 

iii. Constructive trusts

Constructive trusts are based on the presumed intention of the parties. This intention is found by the courts in a variety of situations, increasingly where they feel that it would be unconscionable for a person to deny that another has an interest in the property. The table below provides some examples of when constructive trusts have been found by the courts. 

Breach of a fiduciary duty

Keech v Sandford - the special relationship as trustee between the claimant and respondent meant that any benefit was held for the claimant. 

Unauthorised profit

AG for Hong Kong v Reid- where the receipt of bribes which arose from a position of responsibility was found to be held on constructive trust for the state.

Receipt of property belonging to another

El Ajou v Dollar Land Holdings- when property is transferred to another without consideration then it was held that the recipient holds the property on constructive trust for the real owner. 

Immoral receipt

Re Sigsworth- receipt by killing

Family home

Grant v Edwards- where home held in the name of one party where the other contributes to the home on the express/implied understanding that they have an interest in home.

2. Distinguishing Trust, Fiduciary and Mere Powers

A trust creates a legally enforceable right for the beneficiary and a legally enforceable obligation for the trustee. However, a power provides for the donee of the property to have the power to use property in a certain way but this power is not legally enforceable. 

* Identifying the difference between these categories of interests will be clearer once you understood the 3 certainties.

a. Trust powers

A trustee has powers within the trust, such as the power to invest, s3 Trustee Act 2000, or to appoint agents. There are also powers appoint (give), meaning that the trustee can give (appoint) property to beneficiaries from the trust property.

Example

Luke is the trustee (T) of a discretionary trust. He holds $10,000 on trust for such of the settlor's grandchildren that need financial help. In this situation Luke has the power to invest the money to generate a greater income for the beneficiaries. It is important that the trust fund works for the trust. He could appoint an agent to look after the money, perhaps a stockbroker or accountant. These are powers under the Trustee Act 2000. He also has the power to appoint (give) money to any of the grandchildren bethinks needs the money. As the trust is for the grandchildren, the power must be exercise for the beneficiary in that class. Each potential beneficiary can enforce the exercise of the power of appointment but may not receive anything once exercised. This is a power of appointment. 

b. Fiduciary powers

Fiduciary powers are the powers in a different sense. There are not part of a trust but a 'pure' power, i.e. something that can be done but does not need to be done, valid but unenforceable. The person who may benefit from the power cannot make fiduciary exercise the power but they can make sure that they considering exercising the power. Fiduciary power is a power that is held by a person who is in fiduciary relationship with the potential recipient of the benefit of the power. 

Example

Casper makes the following bequest:

To Winston, my family solicitor, I give my shares in Bestbits plc in the hope that he uses the income to help my nieces, Sofia and Lauren.

There is no clear intention to create a trust but there is a wish (power) that Winston use it in a certain way. Sofia and Lauren cannot make him gee hem any benefit. What they can do is ask him to prove that he has considered making the appointment. However, he can consider and decide not to.

c. Mere power

This is a power of appointment given to a person who has no fiduciary obligation. If, in the example above, Winston only been Casper's friend then the power is entirely without an obligation, unless it is a moral one. In that case it will be a matter for Winston's conscience but not for the law. 

* The distinction between trusts and powers may be blurred by the decision in Mettoy Pensions Trustees v Evans, where the court held that an unexercised power could be executed by the court. Warner J saw no reason why the fiduciary power could not be enforced in the same way as discretionary trust. 

THE THREE CERTAINTIES

• All trusts must satisfy the 3 certainties (but charitable trusts do not need to satisfy the certainty of objects requirements)
• Certainty of intention is a question of fact that the courts will consider the whole context of the case
• Certainty of subject matter requires certainty as to what property is held on trust and the beneficial interests involved
• Complicated issues arise concerning trusts of part of a bulk of unascertained goods- the approach taken by the courts depends on whether the property is tangible or intangible. 
• A fixed trust will be certain as to its subjects if a complete list of beneficiaries can be compiled
• A discretionary trust will be certain as to its objects if it can be said with certainty that any given individual is or not a member of the class

1. Introduction

Every trust (except charitable trusts) must satisfy the three certainties of intention, subject matter, and objects; Kinght v Knight

Certainty of intention--------------------- Is a trust intended?

Certainty of subject matter-------------- What property is to subject to the trust and what are the beneficial interests?

Certainty of objects------------------------ Who are the beneficiaries of the trust?

It is important that a trust satisfies the 3 certainties for 2 reasons:

a. Trustees must know what their obligations are under the trusts. Remember that the trustees will be liable for breach of trust if they fail to carry out their obligations correctly. The three certainties therefore provide a trustee with a degree of protection by ensuring that their obligations are clear.

b. Satisfying the three certainties ensures that, if necessary, the court itself will be able to administer the trust.

*Trusts can be declared orally or in writing. While the three certainties apply to all but charitable trusts, you should remember that every trust will also have to satisfy the formality requirements in respect of the type of property involved. So, for example, a trust of land may satisfy the three certainties. However, if the trust does not comply with s53(1)(b) Law of Property Act 1925 by being written or evidenced in writing, it will still be enforceable. 

2. Certainty of intention

Intention is established by considering all the circumstances of the case- equity looks to intent rather than form. In working out what was intended, there are a number of indicators of intention that should look for:

a. Imperative or precatory language?

Since the case of Lamb v Eames, the courts have generally made a distinction between the use of precatory and imperative words.

Precatory words express a hope, a wish, or a moral obligation. The use f precatory words typically indicates that a gift is intended.

Imperative words express a command, a duty to do something. The use of imperative words indicates that a trust (or power) is intended.

Precatory wording

Lamb v Eames

'To be at her disposal in any way she may think best, for the benefit of herself and her family'

Re Adams and Kensington Vestry

'In full confidence that she would do what is right'

Re Diggles

'It is my desire that my daughter allows Anne an annuity of $25 during her life'

While the courts will be guided by the language used, you should remember that just as there is no magic in the use of the word 'trust'. In  Kinloch v Secretary of State for India, the presence of pre catory words will not necessarily prevent the court from finding that a trust exists, as long as it is satisfied that this was the intention of the donor.

Comisket v Bowrin-Hanbury

The testator left his wife the whole of his estate 'in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to such one or more of my nieces as she may think fit…' These words sounds precatory and would suggest as a gift. However, the will continued '… in default of any disposition by her thereof by her will or testament I hereby direct that all my estate… shall at her death be equally divided among the surviving said nieces.' When read as a whole, the court concluded that the testator had intented as a trust, under which the wife held a life interest.

The court may also take into account surrounding evidence which sheds lights on the intentions of the parties. In Staden v Jones, the CA looked at a solicitor's covering letter to conclude that a divorcing couple's arrangement that the wife transferred her share in the family home to her husband on the basis that their daughter should ultimately be entitled to her share amounted to a constructive trust. 

b. Conduct

An intention to create a trust can also be inferred from the conduct of the donor.

In Paul v Constance

When Mr Constance died, a dispute arose regarding whether his wife (from whom he was separated but not divorced) or his new partner, Mrs Paul, was entitled to the money held in a bank account in his sole name. During the relationship, Mr Constance had made arrangements for Mrs Paul to be able to withdraw money with his write permission. Only Mr Constance withdrew money once, which was split evenly between them and he often told Mrs Paul that the money was 'as much yours as mine'. In addition, they had also paid some joint winnings from bingo into the account. It was held that these actions were sufficiently to infer that Mr Constance had made declaration of trust of the money in the bank account and Mrs Constance was entitled to have half of the account. 

A similar approach has been taken in some commercial contexts. For example, in Re Kayford Ltd (in liquidation), the separation of customers' money in a different bank account was deemed sufficient to demonstrate an intention to create a trust.

Howver, not al conduct can lead to the inference to create trust, such as Jones v Lock.

If there is no intention to create a trust (or power), the donee will take the property absolutely as a gift. Lassence v Tierney

3. Certainty of subject matter

There are 2 elements to certainty of subject matter:

It must be clear what the property is held on trust and the beneficial interest must be clear.

a. The property held on trust must be certain

i. Vague or general descriptions of the trust property

The donor must make it clear what property is to be held on trust or the trust will be void as the trustees, beneficiaries and ultimately the court will be unable to know what is held on trust.

ii. Trusts of part of property

Such situation arises where there is an attempt to create a trust over part of a bulk of a tangible property, e.g. furniture in a house or warehouse filled with desktop computers. Where there is a trust of part of a bulk of tangible property, the trust property will be only certain if it has been separated from the rest.

Palmer v Simmonds- 'the bulk of the testatrix's estate'

Peck v Halsey- 'some of my best linen'

Jubber v Jubber- 'a handsome gratuity'

Re Kolb's WT- An instruction to purchase 'blue chip' investments

Re London Wine Co

LWC stocked cases of wine in various warehouses. When wine was purchased by customers, they received a certificate of title which indicated that the wine would be held on trust for them until dispatched. When LWC went into liquidation, the question arose whether the wine was held on trust for customers or was to be considered part of LWC's general assets available to creditors. It was held that there was no trust as the wine ordered by customers had not been separated from the general stock and therefore the subject matter of each trust could not be identified. 

Note s.20A Sales of Goods Act 1979 now offers protection to purchasers of an unsegregated part of a lager bulk of property. As soon as they have paid, they will be considered tenants in common of the whole property. This has the effect of protecting their purchases from creditors in the event of liquidation or receivership. 

However, where there is a trust of part of some intangible property, such as shares, there is no need to identify the specific shares to  be held on trusts:

Hunter v Moss

Moss owned 950 shares in a company and was found to have declared himself trustee of 50 of those shares for Hunter. However, Moss sold all his shares and kept the proceeds for himself. When Hunter sought a share of the proceeds, Moss argued that the trust was void because he had not separated or identified the specific shares to be held on trust for Hunter.

Dillon LJ distinguished Re London Wine Co on the basis that, unlike cases of wine of other tangible property, these shares were indistinguishable form one another. Therefore, no segregation was required as holding ant 50 of the 950 shares on trust would achieve the same thing.

*Remember that this case applies on trusts of a part of a homogeneous larger whole. When approaching PQ, oat close attention to the facts. If Q relates to a portion of shares where the shares are of different types or relate to shares in different companies, the rule in Hunter v Moss will not apply and the trust will be void if there is no further identification if the relevant property Re Harvard Securities LTD (in liquidation).

Despite the fact that Hunter v Moss has been followed in Re Harvard Securities Ltd (in liquidation), there have been many criticisms of the law in this area. Hayton in 1994 raises a number of significant criticisms of which should be aware:

(a) Is Dillon LJ's argument that there is no difference between a testator giving 50 shares to a legatee in his will and a settlor declaring himself trustee of 50 of his shares correct?

(b) Hayton also argues that difficult questions may arise in the event that the trustee sells part of his holding- e.g. has he sold his own shares or the beneficiary's or, if the transaction is taxable, who is liable, the seller or the beneficiary? Consider this argument in light of Worthington's argument in 'Sorting out ownership interests in a bulk: gifts, sales and trusts', that such issues could be resolved through the rules of tracing.

© Is the broad distinction in the cases between trusts of parts of unascertained bulks of tangible and intangible property convincing?

b. The beneficial interests under the trust must be certain

The beneficial interests under the trust must also be clear. 2 cases can help to illustrate the problems that may arise in this context:

Boyce v Boyce

A testator established a trust of 4 houses for his daughters, Maria and Charlotte. Maria, was to choose which house she wanted and the other houses would be held on trust for Charlotte. However, Maria died before making her choice. The trust failed as it was no longer the possible to say which houses would be held on trust for Charlotte.

The property had been clearly identified but the beneficial interest and not. The trust would have succeeded if the trustees had been given the power to choose the house, but in the absence of this power, neither the trustees nor the court could determine the beneficial interest.

In the following case, the question was whether the instructions given to the trustees were certain enough to allow them to carry out the terms of the trust:

Re Golay's WT

A trust was set up whereby the beneficiary was to 'receive a reasonable income' from the testator's properties. The court held that this was a valid trust as the phrase 'reasonable income' allowed the trustees (and the court, if need be) to make an objective assessment of what that might be, based on the beneficiary's circumstances. Therefore, the trust was sufficiently certainly as the income the beneficiary would receive would be based on her circumstances- while this might vary over the years, the trustees would always have an objective yardstick by which to act. On the other hand, the trust would have failed if the properties were to be sold in order to provide a reasonable one-off sum of money for the beneficiary. This is because the trustees would have no way of determining what a 'reasonable' payment would amount to: arguable, the wording of the trust suggests that the beneficiary would not receive all the money, but then what portion of the proceeds would be reasonable?

Note the legal issues surrounding the certainty of beneficial interests will not apply in respect of discretionary trusts. This is because the class to benefit merely hold a spes (hope) of benefiting- the extent to which they can benefit, if at all, is at the absolute discretion of the trustees.

c. A link between certainty of intention and certainty of subject matter

If there is a lack of certainty as to the subject matter of the trust, this will cast doubt on whether the settlor truly intended to create a trust Mussoorie Bank Ltd v Raynor

d. The effect of lack of certainty of subject matter, the trust fails and the property will return to the settlor or estate on resulting trust.

4. Certainty of objects (beneficiaries)

Certainty of objects relates to the question of who are the beneficiaries of a trust. Every trust- with the exception of charitable trusts may satisfy the certainty of objects requirement. The certainty of objects test is different for fixed trusts and discretionary trusts.

Fixed trusts- the beneficial interests are fixed, e.g. a trust to benefit Razia and Shahana in equal shares.

Discretionary trusts- this is a type of trust in which the trustees are given the power to appoint people as beneficiaries of the trust. Members of the class of potential beneficiaries do not hold any beneficial interest until trustees exercise their discretion to appoint in their favour. The amount they receive is at the discretion of the trustees.

a. Fixed trusts

In order to satisfy the certainty of objects requirement, a full list of the beneficiaries must be able to be created (IRC v Broadway Cottage Trust, i.e. all the beneficiaries must be able to identified.

b. Discretionary trusts

A different approach was taken in respect of discretionary trusts in the key decision of McPhail v Doulton:

McPhail v Doulton (Re Baden's Trusts No1)

The settlor set up a fund for the benefit of employees of Matthew Hall & Co Ltd and their relatives and dependants at the 'absolute discretion' of the trustees. The House of Lords had to decide (a) whether this was a trust or a power and (b) the appropriate test for the certainty of objects requirement. While all the judges agreed that this was a discretionary trust rather than a power, they were split regarding the appropriate test. On 3:2 majority, Lord Wilberforce, who delivered the leading judgement of the majority, held:

(i) The complete list approach adopted in IRC v Broadway Cottages was overruled in respect of discretionary trusts.

(ii) The test for certainty of objects in discretionary trusts is the same as the test for fiduciary powers in Re Gulbenkian's Settlement, namely whether it could be said with certainty than any given individual is or is not a member of the class.

c. Applying the test in McPhail v Doulton: Re Baden's Trusts (No2)

Having decided on the test for certainty of objects for discretionary trusts, the case was returned to the court of first instance for the test to be applied. Despite the court deciding that it satisfied the new test, the executors of Baden's will relentlessly continued to contest its validity, and the case come before the CA for the second time:

Re Badens Trusts (No2)

The trust set up by Baden was to benefit 'employees of Mathew Hall & Co Ltd and their relatives and dependants'. The issue in this appeal was whether the groups 'relatives' and 'dependants' satisfied the new test set out in McPhail v Doulton- i.e. could itbe said with certainty that any given individual is or is not a member of these classes? 

The CA held that only if a class of beneficiaries is conceptually certain will be possible to satisfy the test of whether it can be said with certainty that any given individual is or is not a member of the class.

i. What is conceptually certainty?

Conceptually certainty has been described as 'linguistic or semantic certainty'- in other words, a class of beneficiaries will be conceptually certain when the description enables you to define the group clearly. Consider the following examples:

Example

1. A discretionary trust of $100,000 for numbers of the British Army who served in the Gulf War.

2. A discretionary trust of $ 50,000 for morally upstanding residents of Gloucester.

The first trust can be said to be conceptually certain as the group of benefit can be clearly understood. However, it is unlikely that the second trust would be valid as it is extremely difficult to define what exactly would be meant by 'morally upstanding'. For example, X may attend church regularly but may also cheat at poker.Y might give regularly to charity but cheat on her husband. If Z is in favour of same sex marriage, does this mean he is morally upstanding or not? Where exactly can be the line drawn?

Gift subject to a condition precedent?

Gift subject to a condition precedent do not require the same degree of conceptual certainty as discretionary trusts. A gift made subject to a condition precedent is one to which the donee will not be entitled unless they satisfy the condition, e.g. $10,000 to each of my children who graduate from university.

Re Barlow's WT

A testatrix provided that a number of her paintings could be sold at a reduced price to 'any members of my family and any friends of mine'. The gift in question here was the difference in the price between their market value and the reduced price. The central issue here was whether the condition precedent- i.e. that they be family members or friends- rendered the gift void for uncertainty. The court upheld the gift void for uncertainty. The court upheld the gift. Whereas the objects of a discretionary trust must be conceptually certain, a condition precedent will be valid if at least one person can be said to satisfy the condition. 

In the gift to a class, as the objects are only entitled to a share of the property, it is vital to be able to say whether any given individual is or is not a member of the class. However, in the case, the 'family and friends' were each given an individual opportunity to purchase the paintings. Therefore, a greater degree of uncertainty as to who satisfied this condition did not affect the opportunity they received.

* While a gift to friends' may be valid as a gift subject to a condition precedent, a discretionary trust for 'friends' will be void for uncertainty, as it is impossible to define friends so that it could be said that any individual is or is not within the class.

ii. Distinguishing conceptual uncertainty from evidential uncertainty

It is important to distinguish 'conceptual uncertainty' from 'evidential uncertainty'. Conceptual certainty relates to the certainty of the class; evidential certainty relates to the issue of whether an individual can be found or proven to be a member of the class or not. If a class is conceptually uncertain, the trust will be void, but evidential uncertainty will not defeat a trust.

Having discussed the meaning of conceptual certainty in general terms, it is important to return to the case of Re Baden's Trusts (No2). The CA was asked if the groups 'dependants' and 'relatives' were conceptually certain. All the judges agreed that 'dependants' was conceptually certain, the 3 judges reached this conclusion by different reasoning.

Sachs LJ: the liberal approach

Sachs LJ started by defining 'relatives' to mean 'descendants of a common ancestor'. He argued that this was conceptually certain as its menaing was clearly understandable. He then started that trustees have a fiduciary obligation to survey the range of possible beneficiaries. This involves the trustees gaining a sense of the general width of the class- it does not require exhaustive list. Beyond that survey, anyone who can prove that they are the member of the class can be included. Sachs LJ approach clearly separates the question of evidential uncertainty by stressing that an exhaustive list is not required. Moreover, in response to the problem that a potentially limitless number of people could be included within the definition of 'descendants of a common ancestor', he makes three points:

(1) The trustees should exercise their discretion in a sensible way, thus making it more likely that they would choose close relatives in the general course of events.

(2) Proof of one's relationship to another soon becomes very difficult, providing a natural limit on who could establish their membership of the class.

(3) Most importantly, these issues are evidential and the fact that it will not always be possible to prove that any given individual is not a member of the class will not render the trust void. 

This approach is arguably the purest interpretation of conceptual certainty. The only drawback is that Sachs LJ reasoning provides no simple way for the trustees to work out whether the class to benefit under the trust is conceptually certain. Simple common sense can be a dangerous path for trustees who could be liable if they distribute the money wrongly.

Megaw LJ: the middle ground

Megaw LJ also defined 'relatives' as 'descendants of a common ancestor'. However, he argued that a class would be conceptually certain if it could be said with certainty that a substantial number of objects fell within the class, even if there were a substantial number of others of whom it could not definitely be said that they were within or without the class.

(1) Megaw LJ's approach offers trustees more guidance in that the conceptual certainty of the group can be tested by seeking a substantial number of individuals who definitely come within the class.

(2) However, what exactly is meant by 'substantial number'? Megaw LJ suggested that this is a question of common sense but wary trustees will still find themselves questioning whether they have done enough, especially should the situation arise where there are definitely a substantial number about whom they cannot say with clarity that they are within the class.

(3) Despite it being said that evidential certainty will not defeat a discretionary trust, Megaw LJ's approach rests on being able to provide evidence that a sufficient number come within the class. 

Stamp LJ: the strict approach

Stamp LJ takes a literal approach to the test set out in McPhail v Doulton that to be conceptually certain it must be possible to say of any given individual that they are or are not within the class. On this basis, Stamp LJ rejected the idea of 'descendants of a common ancestor' could be conceptually certain and argued that the discretionary trust could only be valid if 'relatives; was defined as 'next-of kin'.

(1) Stamp LJ's reasoning seems determined to undermine the liberal implications of the decision McPhail v Doulton. Applying this approach, there would be no real difference between the new test adopted in McPhail v Doulton and the previous complete list approach of IRC v Broadway Cottages Trust as every individual's membership of the class would have to capable of being established. 

(2) It is questionable that whether this approach would be followed in the future, particularly as Lord Wilberforce's full expression of the test states that a trust 'does not fail simply because it is impossible to ascertain every member of the class.'

* The issue of certainty of objects for discretionary trust is complex. In order to do well, there is no substitute for reading McPhail v Doulton and Re Baden's Trusts (No2) and taking your own detailed notes. You should particularly focus on how well the CA in Re badmen's Trusts (No2) use 'conceptual certainty' in the judgements. 

d. Can conceptual uncertainty be cured?

There is some debate over whether conceptual uncertainty can be cured by reference to the decision or opinion of the trustees or a third party.

Re Tuck's ST

A trust was established to benefit future baronets on the condition that they were of the Jewish faith and married to a wife of 'Jewish blood', as determined by the Chief Rabbi. The court upheld the trust: any conceptual uncertainty regarding the condition was cured by the power given to the Chief Rabbi.

While Denning LJ simple argues that reference to the trustees' or a their party's opinion may cure conceptual uncertainty, Eveleigh LJ's reasoning rests on the narrower ground that there was no conceptual uncertainty because the settlor was 'in effect saying that the definition of 'jewish faith' is the same as the Chief Rabbi's definition (a conceptually certain class). 

Note Re Tuck's ST addresses the validity of conditions precedents. It remains unclear whether:

(1) the same approach would be adopted in respect of a discretionary trust with conceptually uncertain objects; and 

(2) whether the courts would adopt the broad approach of Denning LJ or the more restrictive approach of Eveleigh LJ.

Both approaches remain problematic. Whereas, Lord Denning LJ's approach would ensure the validity of many more discretionary trusts, it would also seem to empower individuals named by the settlor to cure conceptual uncertainty in the circumstances where the court would otherwise declare the trust void. On the other hand, Eveleigh LJ's approach maintains the need for conceptual certainty but rests on a very fine factual distinction that many settlers will not appreciate. Compare the following examples:

Example 1

Bradley leaves $10,000 in his will to be held on discretionary trust for the men and women who have given e pleasure over my long and happy life.' He adds, ' in the event of any doubt, my wife can choose who qualifies.'

Example 2

Bradley leaves $10,000 in his will to be held on a discretionary trust for 'those men and women whom my wife considers have given me pleasure over my long and happy life.'

In the first version, the group to benefit lacks conceptual certainty. Giving someone ability to decide who comes within the class will not cure this uncertainty as there is no objective way to determine what Bradley meant. However, in the second version there is no conceptual uncertainty as the class in question is not 'those who have given me pleasure' but 'those whom my wife considers have given me pleasure'. As membership is to be decided by Bradley's wife, there is no difficulty in understanding how the class is to be determined.

e. Administrative unworkability

A trust may be void if the class to benefit is so wide that the trust would be administratively unworkable, e.g. Lord Wilberforce's example of a trust for all the residents of Greater London in McPhail v Doulton. The classic example of this problem can be seen in R v District Auditor, ex part West Yorkshire Metropolitan County Council where a trust 'for the benefit of any or all or some of the inhabitants of the County of West Yorkshire' (some 2.5m potential beneficiaries) was held to be void for administrative unworkability. Note: administrative unworkability will also render a fiduciary power void because the fiduciary obligations of the holder require that the power is capable of being exercised in a reasonable manner and that the selection of one person over another can be meaningfully justified. However, administrative unworkability will not affect the validity of a mere power (i.e. a power given to a non fiduciary) Re Hay's Settlement Trusts.

f. The effect of lack of certainty of objects

A trust which lacks certainty of objects will be void and return on resulting trust to the settlor or his estate.

g. Comparing discretionary trusts and fiduciary powers

Following McPhail v Doulton, the test for certainty of objects for discretionary trusts and fiduciary powers is now the same. However, it is important to remember that there are still some differences.

i. The duties under discretionary trust/fiduciary power

Discretionary trusts- McPhail v Doulton established that trustees have the following duties:

• to survey the field to identify the width of the class and 
• to distribute the income from the trust

For non-exhaustive discretionary trusts which expressly allow the trustees to accumulate the income. In such trusts, the trustee may delay the distributing for some time but still ultimately distribute at the same point.

Fiduciary powers- The donee of a fiduciary power is not under a duty to distribute the property. However, in Re Hay's Settlement Trusts, fiduciaries have the following duties:

• consider periodically whether to exercise the power
• to consider the range of possible objects (beneficiaries) and
• to consider the appropriateness of appointments made. Ie they cannot pick at random or without reason.

* If an arrangement refers to a gift over in default of appointment' or a direction that remaining money is to return to the settlor's estate, this will be a fiduciary power as the wording demonstrating that there is not a duty to distribute.

Example- Discretionary trusts

'I have $10,000 to my wife to be held on trust at her absolute and unfettered discretion for the employees of Brillington Engineering Co Ltd'

Example- Fiduciary power

'To my trustees I leave $50,000 to share amongst those of my relatives who are most in need. In the event that all the money is not used up, any remainder will pass to may gardener, Ted.'

As there is a duty to distribute in a discretionary trust, there are no directions about what should be done with any remaining money. Compare this with the fiduciary power, where the beneficiaries in default of appointment is indicated.

ii. The rights of members of the class

Discretionary trusts- Members of the class are not beneficiaries until they are appointed to the trust- until the time they merely hold a spies (hope) of benefiting. This means that members of the class may challenge the decisions of the trustees but they cannot claim that they are entitled to be appointed, as this is at the absolute discretion of the trustees. Decisions may be challenged on the basis that the trustees have:

(a) appointed outside the class

(b) failed to consider their reasons for appointment or

© acted in bad faith in making an appointment (e.g. appointing only to close friends within the class)

Note: if all the beneficiaries are sui juries, they may act together to wind up the trust under the rule in Saunders v Vautier.

Fiduciary powers- as with discretionary trusts, members of a class under a fiduciary power cannot claim to be entitled to be appointed. However, decisions may be challenged on the basis that the fiduciaries have:

(a) appointed outside the class

(b) failed to carry out their fiduciary obligations under Re Hay's ST.

Unlike discretionary trysts, the court will not intervene to compel the fiduciary to exercise their power.