My Legal Consortium: Law of Trusts - The Three Certainites by Abdul Rehman Yasin

The three certainties are essential to justify the validity of an express trust. However, surrounding case law has detrimentally affected their efficacy.

The law of trust, formulated in the middle ages, provided an important instrument in the hands of property holders. A trust, effectively, gave the proprietor of property the power to transfer it to another person, namely, the trustee, on trust that he/she would either hold the property for a third party, namely, the beneficiary. The benefit of such an approach was immense, as once a trust had been established; the law would then deem the trustee liable for the trust obligation towards the settlor to the point that if the trustee does not perform, they are replaced, if possible; this is because a of an equitable maxim that ‘a trust does not fail because for a want of trustees’. However, this benefit did come with a price tag, because it often seemed difficult to prove the existence of the trust in the first place.

In, Knight vs. Knight (1890)[1] the court held that in order to create a valid express trust there must be a clear intention, an identified or identifiable subject matter and the beneficiaries must be known; giving birth to the three certainties requirement to prove the validity of a trust. Thus, in order for a settlor to establish a trust, it was necessary to prove the three certainties to justify the existence of a trust. The reason is simple, before the law imposes any duty upon the trustee, the trustee themselves need to know what obligations hurdle them and regarding which particular property and to whom are those obligations owed. Furthermore, if the courts are to impose trust obligations, the exists a need for them to have sufficient guidance as to the settlors intentions to be able to judge whether any such obligations have been performed by the trustee and if not then the court would enforce those obligations.

The requirements laid down in Knight, seems clear on the face of it but subsequent case law has proved the contrary. Certainty of intention means that it must be clear that the donor or testator wishes to create a trust; however this is not dependent on any particular language used, and as a result trust can be created without the word "trust" being used, or even the donor knowing he is creating a trust, which has often lead courts to making distinctions between cases on miniscule details. Thus, in Morice vs. Bishop of Durham(1804)[2] courts provided guidance to settlors that people should make everything clear for the courts so that there be proper decisions made; the requirement is of a legal relationship and the intention to create a trust must be there.

However, settlors use of imprecise words, phrase or precatory words have had an impact. In Re Adams & Kensington Westry (1884)[3], the testator left his wife his whole estate, in full confidence that she would righteously dispose the property amongst their children, either in her lifetime or by way of a will after her death. During her lifetime she tried to give some of the rights away outside her immediate family. Court Of Appeals held that she was entitled to do so as no trust has been imposed upon her because it was clear that the testator did not intent to impose a legal sanction on his widow to hold the rights for their children but left the matter upon her conscience.

Furthermore, in Jones vs. Lock(1865) a father handed a cheque of 900 made out to himself to his infant son saying “I give this to baby for himself”. The act was insufficient to transfer the personal at law, the right to sue on a cheque only passes by means of ‘Endorsement’ to the cheque. The father died leaving the benefit to all his personal rights to his family by the first marriage. On behalf of the infant it was argued that the father had declared himself the trustee of the right represented by the cheque, so that there was a complete gift in favor of the infant during the father’s lifetime – the argument failed. Lord Cranworth LC said “I should have every inclination to sustain this gift, but unfortunately I am unable to do so; the case turned on the question, whether the father intended to make a declaration that he held the right in trust for the child and I cannot come to any other conclusion that he did not. Word are the most appropriate for expressing the intention to create a trust; best evidence is to use the word ‘trust’.”

The certainty of intention requirement, is just the tip of the iceberg, when considering the other two requirements as the law get further more confusing. According to Penner[4], “a severe difficulty in identifying the subject matter or object may indicate that no trust was intended: Uncertainty of subject matter (Mussoorie Bank LTD vs. Raynor{1882}) or object (Lames vs. Eames{1871}) has a ‘reflex action’ which indicates an uncertainty of intention to create a trust”. Add to injury, the result of uncertainty of intention is, in Lassence vs. Tierney (1849)[5] the courts held that when the words of the trust are not certain enough then the trustee takes property without any encumbrances as a gift.

The subject matter of a trust could be anything; an interest in land, chattle, money, non-assignable interest such as copyrights or patents (Don King Productions vs. Warren{2000}[6]) or even a debt owed to the settlor; as long as it is identifiable. Thus where the subject matter of a trust is uncertain, no trust is deemed to have been created, since the property is unknown there would be nothing which would form part of a resulting trust. Though, where the subject matter is identifiable but individual share are not predetermined, the courts may apply the principle the ‘Equity is Equality’ and divide the property amongst the beneficiaries.

Nevertheless, testators use imprecise words such as ‘such part of my estate as she shall not have sold’ were held to create uncertainty and hence no trust; Re Jones (1898) & In The Estate of Last (1958). Penner, conversely argues that anything that remains could be held as a valid remainder interest. Generally, courts do try to place a construction where possible; Re Golay’s Will Trust (1965)[7].

Similarly, where the bulk of the subject matter is not separated from a mass of other property; rules tend change, as segregation could only be done in case of chattle, since two items could be similar but not identical. The rule of segregation laid down in Re London Wine Co. (1986)[8] was based on the Sales of Goods Law in contract law which implies that legal title to goods does not pass under a contract of sale until the time, the settlor actually appropriates specific property to the contract. This rule was later approved by the Privy Council in Re Goldcorp Exchange (1995)[9] and now forms part of the Sales of Goods (Amendment) Act 1995[10] which provides that purchasers who have paid for the unascertained goods forming part of an identified bulk; but where the goods are interchangeable, acquire property rights as tenants in common of the bulk.

Before the decision in Re Goldcorp was given, the COA delivered a verdict which places this area of law into confusion. Hunter vs. Moss (1994)[11], Moss was the owner of 950 shares of a private company. In order to place his finance director, Hunter, on the same footing as his managing director, in respect of their interest in the company; he purported to declare (as the court found) a trust of 50 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 the sale, i.e. the proportion which would be his in equity if the declaration of trust were valid. The problem was that Moss had never done anything to segregate or identify any particular lot of 50 shares out of the whole 950, which he was to hold on trust for Hunter. The COA distinguished Re London Wine and Re Goldcorp on a goods(tangible) vs. intangible distinction without further reasoned argument. Dilton LJ held that there was no issue of segregation as the legal title in a trust is supposed to be with the trustee, in this case Moss, thus, Hunter’s share was converted in the share value of the 50 shares when Moss sold the 950 shares.

Penner[12] offers an alternative approach, namely an imposition of a constructive trust on Moss over the whole 950 shares, to hold them in shares of 1/19 for Hunter and 18/19 for himself, thus creating an equitable co-ownership of the shares until such time as Moss segregated 50 shares for Hunter. Furthermore this approach also accords with the Sales of Goods Act 1979; as the Sales of Goods (Amendment) Act 1995 provides that purchasers of unidentified goods from an identified bulk will obtain legal title of the bulk as co-owners in shares proportionate to their purchases.

On the other hand, Martin (1997)[13] suggests that the ‘rules of tracing could be used that Hunter would be able to trace his value into particular shares in the 950, which particular shares he traces into is dependent upon the situation’. Conversely, Hayton (1994)[14] suggests that the court should impose an equitable charge on Moss’s shares in favour of Hunter to the value of the 50 shares. The effect of the failure to prove the certainty of subject matter, often, leads to the trust being ‘void abinitio’ where the subject matter was not identifiable at all but where the subject matter is identifiable, but there is uncertainty as to the beneficial interest there would most likely be a resulting trust in favour of the settlor or the testator’s estate.

Lastly, in Morice, it was held that there must be someone in whose favour the court can decree the performance of a trust, thus there is a requirement that the beneficiaries of a trust, known as the objects, be certain. In express trusts this is a predominantly problematic area, because the test used to determine certainty differs between fixed trusts, mere powers and discretionary trusts. Fixed trusts are trusts for a specific, named list of individuals and the test for fixed trusts is that the trustees must be able to give a complete list of the beneficiaries, as laid down in IRC v Broadway Cottages (1955)[15]. However, as far as discretionary trusts and power of appointment are concerned the law is less clear. The primary difference between a power and a discretionary trust is that in a discretionary trust the exercise of the discretion under the trust can be enforced by the courts against trustee but in the case of powers the courts can’t enforce or influence.

A more problematic test is found with mere powers; where a person is granted the power (the ability) to exercise a trust-like power, but without any obligation to do so. In Re Hay's Settlement[16], Megarry VC said that ‘a mere power is very different (from an ordinary trust obligation). Normally the trustee is not bound to exercise it, and the court will not compel him to do so. That, however, does not mean that he can simply fold his hands and ignore it, for normally he must from time to time consider whether or not to exercise the power, and the court may direct him to do this.’ The holder of a mere power is therefore free to do what he wants with the property which he holds; if he fails to consider his exercise of the power, the courts may force him to do so. The leading test for mere powers is the "any given postulant" or the “is or is not” test, laid down in Re Gulbenkian[17]. This states that the trustees must be able to say with certainty, when a potential beneficiary comes before them, that he either is or is not a beneficiary.

However, discretionary trusts are trusts which require that the trustees exercise their powers, in the same way as a fixed trust, but allow some discretion in how to do so, similar to mere powers in that aspect. The leading test of certainty of objects here is also the "any given postulant test", applied to discretionary trusts in McPhail v Doulton[18]. The courts attempted to mitigate this test in Re Baden (No. 2)[19]; however, all three judges of the Court of Appeal gave separate new tests and reasons. Sachs LJ took the approach that the burden of proof was on the claimants to prove they were beneficiaries, not on the trustees to prove the trust was valid. Megaw LJ, however, took the approach that a trust could be valid, even with uncertain beneficiaries, if there was a "core number" of beneficiaries who were certain. However, Stamp LJ had an approach based entirely on the facts and burden of proof; thus found the trust valid.

Apart from the difficult classification the law of trusts place upon the test for proving a trust, there are certain aspects of uncertainty which may defeat a trust outright. Emery’s (1982) classifies the common sources of uncertainty; namely, conceptual uncertainty and evidential uncertainty. Conceptual uncertainty arises from the settlors use of imprecise words or vague language to express his intentions. In some cases courts are willing to determine a boundary for a vague term, in Barlow’s Will Trust (1979) courts finally gave meaning for the term “friends” and stipulated a criteria for its application; in other cases not(Re Wright’s Will Trust {1982}). However evidential uncertainty, either of subject matter or object may defeat an outright gift, a trust for a specified person or a fixed trust. The reason is that if the settlor expresses his gift in such a way that evidence must be adduced to identify the property or the person and the evidence is not available, then the gift or trust simply cannot be executed according to its terms. Furthermore evidential certainty of objects cases particular problems in the case of discretionary trusts and powers. The final type of uncertainty is administrative unworkability, forwarded by Lord Wilberforce in Mcphail; where the trust is, by its very nature, so impractical that the trustees cannot carry out their duties because the definition of the beneficiaries is ‘so hopelessly wide’ as to not form ‘anything like a trust’. Where this prevents the trustees carrying out their duties, the trust will be declared invalid, and not applied.

However these uncertainties could be avoided; for example ‘opinion clauses’ could be used to cure evidential certainty, where the opinion could provide evidence of the settlors criteria; Re Tepper’s Will Trust (1987)[20]. Secondly, the issue of administrative unworkability; as far as discretionary trusts are concerned, the weight of authority supports the view that “administrative unworkability” can invalidate discretionary trusts but not mere powers; R vs. District Auditor ex p West Yorkshire Metropolitan County Council (1986)[21]. This is because the duties of a discretionary trustee are more stringent, and the object of the discretionary trust have a right of enforcement which objects of mere powers lack. Thus it seems that the rules regarding the three certainties do make sense, although different approaches may be per ponded, but nonetheless, the tests developed for proof of trust are far from being precise and complete.

(2562 words)

Bibliography

1. “The Law of Trusts” by J.E. Penner, 6^th Edition

2. “An Introduction to the Law of Trusts” By Simon Gardner, 3^rd Edition.

3. “Trusts Law: Text And Materials” By Graham Moffat, Gerard M. D. Bean, Gerry Bean, John Dewar; 4^th Edition.

4. Sales of Goods (Amendment) Act 1995

[1] Knight vs. Knight (1890) - http://www.numyspace.co.uk/~unn_mlif1/creation_1/Creation%20of%20express%20trusts%201.ppt

[2] Morice vs. Bishop of Durham(1804) - http://www.vanuatu.usp.ac.fj/courses/la302_equity_trusts_and_succession_1/LA302_Cases/Morice_v_The_Bishop_of_Durham.html

[3] In Re Adams & Kensington Westry (1884) - http://kenyalawresourcecenter.blogspot.com/2011/07/nature-of-beneficiarys-interest.html

[4] Pg. 169 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[5] Lassence vs. Tierney (1849) – Pg. 60 “An Introduction to the Law of Trusts” By Simon Gardner, 3^rd Edition.

[6] Don King Productions vs. Warren{2000} - http://www.stepjournal.org/journal_archive/2012/tqr_may_2012/trusts_of_non-assignable.aspx

[7] Re Golay’s Will Trust (1965) - Pg. 170 “Trusts Law: Text And Materials” By Graham Moffat, Gerard M. D. Bean, Gerry Bean, John Dewar; 4^th Edition.

[8] Pg. 188 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[9] Pg. 188 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[10] Sales of Goods (Amendment) Act 1995 - http://www.legislation.gov.uk/ukpga/1995/28/contents

[11] Pg. 189 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[12] Pg. 190 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[13] Pg. 188 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[14] Pg. 188 – “The Law of Trusts” by J.E. Penner, 6^th Edition

[15] IRC v Broadway Cottages (1955) - http://pntodd.users.netlink.co.uk/cases/cases_b/broadway.htm

[16] Re Hay's Settlement - http://en.wikipedia.org/wiki/Three_certainties

[17] Re Gulbenkian - http://en.wikipedia.org/wiki/Re_Gulbenkian%E2%80%99s_Settlements

[18] McPhail v Doulton - http://en.wikipedia.org/wiki/McPhail_v_Doulton

[19] Re Baden (No. 2) - http://en.wikipedia.org/wiki/Re_Baden%E2%80%99s_Deed_Trusts_%28no_2%29