Page 1 of 17

LAW OF TRUSTS AND EQUITY

LECTURE-I
What is a trust?

A trust is a device in which rights, either personal or proprietary are held by one person for the benefit
of another.
 The person creating the trust is called the SETTLOR. This person is called the ‘settlor’ because
they ‘settle’ the rights on trust, either declaring that they will henceforth hold some particular
rights on trust for specified persons (the beneficiaries), thus becoming a trustee for them, or by
transferring the rights to other persons to hold on trust for the beneficiaries.
 The person holding the rights on trust is the TRUSTEE.
 The person for whom those rights are held is the BENEFICIARY.

Why people create trusts?

1. A person could be incapable of managing rights- minor, insane etc.
2. Provides flexibility- tax management is often a reason behind the creation of trusts
3. Provides for the enjoyment of rights to be split on a plane of time
The list is not exhaustive.

 TYPES OF TRUSTS:

Trusts

Imputed Express

Resulting Constructive
Trust Trust

Automatic Presumed
Resulting Resulting
Trust Trust

Express Trusts:
An express trust is one which is deliberately created by the holder of the rights which will be held in
trust. The reason why such trusts are called express is because a declaration of trust is expressed,
(literally ‘pushed out’) in the same way that toothpaste is ‘expressed’ from the tube, by the settlor. Such
an expression of intent is known as a declaration of trust.

The essential points to grasp about express trusts are the following:
 Page 2 of 17

 NOT every declaration of trust will be effective to create a trust. For this, certain substantive
requirements must be satisfied i.e. precatory words are not sufficient to bring a trust into
existence.
 The power of a right-holder to create a trust reflects a principle of ‘freedom of trust. Settlors
can, within the limits of the law, divide up the entitlements under the trust in any way they
choose, providing different kinds of interests for different beneficiaries or different charitable
purposes.

Trusts arising by operation of law

It is also the case that not all trusts are created by settlors. Sometimes, the law imposes trusts. These are
generally known as either ‘constructive’ trusts or ‘resulting’ trusts.

Constructive trusts: The term ‘constructive’ is ambiguous, but in the context of trusts, it means a trust
which is ‘constructed’ by the court rather than by an individual right-holder through a declaration of
trust. A constructive trust is a trust that arises by reason of anything other than the settlor’s intention.

Resulting Trusts: resulting comes from the Latin resalire, meaning ‘to jump back’. A resulting trust can
arise in favour of a person who causes rights to be transferred to another to compel the recipient to
hold those rights in favour of the person who caused the transfer. When this occurs, we call it a resulting
trust. Thus, any situation in which A conveys transfers rights to B which B, for whatever reason, then
holds on trust for A is a resulting trust.
Resulting trusts are divided by Megarry J in Re Vandervell (No 2) [1974], who added the labels
‘presumed’ and ‘automatic’. In his view:

A ‘presumed’ resulting trust generally arises where A transfers a right to B gratuitously (i.e. taking no
payment of any kind in return, ‘for no consideration’ or ‘voluntarily’) and there is no evidence of why A
did so. Likewise, if A pays C to convey a right to B then, in the absence of evidence of the manifested
intentions of A and provided certain other conditions are met; B will hold the right on ‘resulting’ trust for
A.

An ‘automatic’ resulting trust arises when a transfer is made on trusts which are either wholly or
partially void. Thus, if A conveys a right to B to hold on trust for C for life, but says nothing about how B
is to hold it after C’s death, the trust ‘fails’ so far as the remainder is concerned, and B will hold the right
for C for life, remainder to A.

Intervivos Trusts: an inter vivos (‘among the living’) trust is one which is created by the settlor when
alive.

Testamentary Trusts: A testamentary disposition is a gift made in the donor’s will, which only takes
affect when the donor dies. A person who dies leaving a will is called a testator. A testamentary trust is
an express trust which is set out in a person’s will, and comes into operation when the testator dies and
the estate is administered by their executors. Typically the executors are also the first trustees of any
trust which arises under someone’s will.

Division of Rights:
A settlor may decide to divide up the interests of the beneficiaries either as discretionary or fixed trust.
 Page 3 of 17

1. FIXED TRUST: A fixed trust is one which the interests of different beneficiaries are determined at
the outset. In a fixed trust, the trustees have no choice as to how to distribute the trust rights,
but no one else has any say, and it is the trustees’ duty to ensure that the correct distribution
takes place.
e.g. “on trust for my children in equal shares”.

2. DISCRETIONARY TRUST: it is a trust in which the trustees have such a dispositive discretion (
i.e. discretion as to how to dispose of trust rights). In a discretionary trust, the trustees
themselves have the power of choice over the distribution of the trust rights .
e.g. “on trust for such of my children as my trustees shall select”.
Discretions may be shaped in various ways, but the typical case is one in which there is a class of persons
to whom the trustees may distribute the trust funds in such shares as they, in their discretion, decide.
Thus they can choose to distribute the rights evenly or in unequal shares by giving some to all or only to
one or a few of those in the class.

Bare trusts
A bare trust is one in which the terms of the trust are minimal. Under a bare trust, the trustees hold the
trust rights ‘to the order’ of the beneficiaries, which means that the trustees simply hold the rights and
do the bidding of the beneficiaries. In this respect, a bare trust is just the most minimal kind of fixed
trust, under which trustees have no discretion.
Why might someone set up a bare trust? In various circumstances, a bare trust can be very convenient.
For example, you might transfer company shares to your broker to hold on bare trust for yourself. The
broker will be able to engage in all the legal procedures to deal with the trust rights, so you do not have
to attend to that, and the broker will just follow your instructions about the various transactions, which
you might find convenient to give over the telephone, for example. For this reason, trustees under bare
trusts are sometimes called ‘nominees’, to indicate that they hold the rights in name only directly for
another (the beneficiary). Such trusts are sometimes called ‘nomineeships’.

The terminology of fixed trusts and discretionary trusts classifies trusts by a criterion of dispositive
control by the trustee. In a fixed trust, the trustees have no choice as to how to distribute the trust
rights, but no one else has any say, and it is the trustees’ duty to ensure that the correct distribution
takes place. In a discretionary trust, the trustees themselves have the power of choice over the
distribution of the trust rights.

3. POWER OF APPOINTMENT: under a trust, it allows the power holder to 'appoint', i.e. give,
property to individuals, free of the trust. It gives the trustee a right to do something but he is
under no obligation to do it.
A power of appointment is a power to distribute rights, but normally with no duty to do so. The
person to whom the power is granted is called the donee of the power, and the persons to whom
those rights may be distributed are called the objects of the power. When a power of appointment
is included in a trust, it is usually the trustees who have the power to exercise it, but powers to
appoint trust assets can also be granted to donees other than the trustees. A general power is a
power to appoint to anyone in the world, including the donee of the power himself. A special power
is a power to appoint to a specific group of objects or a specified class of objects (e.g. all of the
employees of Widgets Ltd). A hybrid power or intermediate power is a power to appoint to anyone
 Page 4 of 17

except a specific group or specified class (such as ‘a power to appoint to anyone except the settlor,
his spouse, and the trustee or employees of the trustee’).
A power to appoint individuals to a class of beneficiaries entitles the holder to add a named individual to
a group which potentially benefits by a distribution of trust rights.

CREATION OF TRUST: a trust is created when the requirements of certainty, constitution and formalities
are met.

 CREATION OF EXPRESS TRUST: there are five substantive requirements of a valid declaration of
trust.
1. the intent which is expressed must show that the settlor intended to create a trust.
2. the rights to be the subject-matter of the trust must be identified.
3. the persons to be the beneficiaries of the trust must be identified
4. the shares in which such beneficiaries are to be entitled under the trust have been identified
5. the trust is workable by the trustees.

The THREE CERTAINTIES:

 Knight v Knight:
Lord Langdale stated that an expressed private trust cannot be created unless the 3
certainties are satisfied. (1) Certainty of Intention (2) Certainty of Subject-Matter (3) Certainty of
Objects.

Certainty of Intention: what the settlor said or did amount to declaration of trust over his property.
Certainty of Subject-Matter: the property to form the trust corpus is identifiable.
Certainty of Objects: the intended beneficiaries are identifiable.

 Certainty of Intention:

The primary question must be whether the person disposing of the property – the settlor –
intended any legally binding obligation to attach to the transfer at all.
equity relies on the maxim "Equity looks at intent not form"

 Paul v Constance (1977): C and P lived together although not legally married. C opened an
account in his name with money received as compensation for injury at work. Because of their
dealings with the account-they both drew upon it to play bingo and deposited their winnings in
it- because on several occasions C declared to P ''the money is as much yours as mine''

Held: the court held that both used to keep or withdraw money so by conduct there was
certainty of intention. And hence, declared a trust of property in equal shares for C and P.

ISSUES:
(a) Precatory Words
(b) Sham Trusts
 Page 5 of 17

(a) Precatory words are words of prayer, hope, request or desire that fails to express a clear command.
A trust fails if there is use of precatory words because the intention will be unclear to the trustee and he
will not be able to carry out his obligation.
e.g. hopeful, desirous, in full confidence.
 Mussoorie Bank Ltd v Raynor (1882): the testator directed 'I give to my beloved wife....the whole of
my property....feeling confident that she will act justly to our children in deciding the same when no
longer required by her.
Held: No trust due to the use of precatory word.

 Palmer v Simmonds (1854): precatory words were held sufficient to create trust obligation. LATER
OVERRULED IN LAMBE v EAMES

 Lambe v Eames (1871): the Court of Appeal refused to find that a testator's gift of his estate to his
widow 'to be at her disposal in any way she may think best for the benefit of herself and her family'
was a trust.
James LJ- no trust as precatory word was used.

 Re Adams & Kensington Vestry (1884): the word 'in full confidence' was used.

Held: Cotton LJ- a trust cannot be imposed due the presence of a precatory word. Because it was
clear that the testator did not intend to impose any legally enforceable obligation on her. He had left
the matter to her 'conscience.'

 Comiskey v Bowring-Hanbury (1905): Testator gave to his wife “the whole of my real and personal
estate … in full confidence that....at her death (my wife) will devise it to such one or more of my
nieces.'
Held: This was taken to have establish a trust for the persuasive reason that immediately following
this direction was a statement as to the effect that in the event the wife failed to devise the
property to one or more nieces herself, the property should be divided equally amongst them.
Hence it seemed clear that the testator intended his nieces to take following her death, so the wife
really held the property on trust for herself for life, and then for the nieces, with a power to vary the
nieces' particular shares in her will.

(b) Sham Trusts: it involves an intention to deceive third parties. NOT an intention to create a trust.

 Midland Bank v Wyatt (1995): A husband and wife executed a declaration of trust in 1987 (when
the husband was contemplating a new business) whereby the family home, their only real asset, was
apparently settled on the wife and daughters. The document was kept in a safe and the couple
continued to act as absolute owners of the property, in particular by mortgaging it. The business
failed and the bank obtained a charging order against the house. The husband then revealed the
trust document.

Held: This was a sham. The inference was that the husband had “kept it up his sleeve for a rainy
day” in order to defeat future creditors and had not otherwise intended it to have any effect.
Accordingly the declaration of trust sought to be relied upon by W is void and unenforceable.

o Declaration of trust or mere indication of intention to give a future gift:

 Page 6 of 17

 Jones v Lock (1865): On returning from a business trip to Birmingham, Robert Jones was reproved
by his family for not bringing a present for his infant child. He produced a cheque for GBP 900
payable to himself, placed it in the baby’s hand and said to his wife and baby nurse: “Look you here,
I give this to baby; it is for himself, and I am going to put it away for him, and will give him a great
deal more along with it”. His wife feared that the baby might tear it up, so Jones added: “Never
mind if he does; it is his own, and he may do what he likes with it”. He then locked the cheque in a
safe. He later contacted his solicitor, expressing the intention to invest the GBP 900 and more for
the benefit of the child, as well as to alter his will in the child’s favor. Before doing so he died leaving
the benefit of all his personal rights to his family by his first marriage.

Issue: Whether the baby was entitled to the cheque? Whether a valid gift of the rights in the cheque
had been made to the baby? Whether the father had declared himself a trustee of the rights in the
cheque for the benefit of the baby?

Held: [per Lord Cranworth LC] There had been no gift to the baby; nor had there been a declaration
of trust by the father. [The cheque formed part of Jones’ estate and went to his first family].

Q: Why no gift? --- Because the gift of a non-bearer cheque requires endorsement (in the baby’s
name, in this instance). Here no endorsement took place. (Recall the father wrote the cheque in his
own name).

Q: Why no trust? --- Because the father’s actions and words indicated an intention to benefit in the
future; and not as a trustee but as a father generally. Lord Cranworth LC:

“I should have every inclination to sustain this gift, but unfortunately I am unable to do so; the case
turns on the very short question whether Jones intended to make a declaration that he held the
property in trust for the child; and I cannot come to any other conclusion that he did not. I think it
would be of very dangerous example if loose conversations of this sort, in important transaction of
this kind, should have the effect of declarations of trust.

 Certainty of Subject Matter:

It is possible to declare a trust over all kinds’ of property, e.g. an interest in land, chattels or money; it
may be a chose in action such as a covenant or debt.

Definition of Property: S. 436 Insolvency Act 1986:

“ ‘property’ includes money, goods, things in action, land and every description of property wherever
situated and also obligations and every description of interest, whether present or future or vested or
contingent, arising out of, or incidental to property.”

TEST:

Certainty of subject matter requires that the property to be held on trust must be certain at the outset
for otherwise there will be nothing to which the trust can attach. The declaration of trust will only be
valid if the subject matter of the trust can be identified with sufficient certainty or reasonable certainty.
 Page 7 of 17

 Palmer v Simmonds (1854): The testatrix by her will gave her residuary estate to Thomas Harrison
“for his own use and benefit, as I have full confidence in him, that if he should die without lawful
issue he will … leave the bulk of my said residuary estate unto” certain named persons.

The expression of confidence was sufficient, according to the practice at that time, to manifest an
intention to create a trust.

Issue: Whether the subject matter of the trust was certain?

Held: H took absolutely because no trust was created.

Reason: The testatrix had not made the subject matter certain enough – What does ‘bulk’ mean? —
[it could range from 51%-- 99%] Kindersley V.C.:

“When… the testatrix uses that term [‘bulk’] can I say she has used a term expressing a definite;
clear; certain part of her estate or the whole of her estate? I am bound to say she has not … I am
therefore of opinion that there is no trust created”.

 Boyce v Boyce (1849): The testator left four houses in trust ‘one for M, whatever she shall choose
and the other three to C’. M predeceased the testator. The effect of this was to cause the gift to her
to lapse (as it is a rule of succession that the beneficiary must, subject one or two exceptions,
survive the testator). One of the houses thus fell into residue.

Held: C’s gift failed for uncertainty as to her beneficial interest as it was impossible to decide which
of the three houses she was entitled to.

Although the residuary estate under a will cannot be quantified at the time the will is executed, it is
ascertainable when the executor comes to administer the estate and a trust of a testator’s
residuary estate will not therefore fail for uncertainty of subject-matter.

In Palmer v Simmonds the problematic bit was ‘bulk’ of my residuary estate. The whole residuary
estate would have been valid / certain enough.

Gen. Rule: settlor/testator’s job to ascertain; courts will not do it for him.

An interesting example of the courts “jumping in to help” is:

 Re Golay’s Will Trust [1965] 2 All ER 660: By his will, the testator directed his executors “to let
Tossy to enjoy one of my flats during her lifetime and to receive a reasonable income from my other
properties”.

Issue: Whether the gift of the income was void for uncertainty.

Held: The gift was valid. It was assumed that the criterion was the beneficiary’s previous standard of
living.
 Page 8 of 17

Ungoed-Thomas J: Whether the testator by the words ‘reasonable income’ has given a sufficient
indication of his intention to provide an effective determinant of what he intends so that the court
in applying that determinant can give effect to the testator’s intention.

… the yardstick indicated by the testator is not what he or some other specified person subjectively
considers to be reasonable but what he identifies objectively as ‘reasonable income’. The court is
constantly involved in making such objective assessments of what is reasonable and it is not to be
deterred from doing so because subjective influences can never be wholly excluded…”

Parker and Mellows (2002): argue that whilst the decision in Re Golay’s was inconsistent with
contemporaneous decisions on certainty, it does seem to be consistent with the modern
practice of the courts in trying to avoid holding dispositions void for uncertainty.

This issue has recently cropped up in the commercial context of Sale of Goods. In cases where a supplier
agrees to supply a number of buyers with goods from an identified stock of goods in a warehouse or on
board a ship but becomes insolvent without any particular goods being appropriated to the contract for
a particular buyer. Here the question is whether a claimant (buyer) can show that prior to the
bankruptcy he acquired title in the first instance either particular goods or to a share in the bulk.

Purchasers, who have paid for goods but have not taken delivery prior to the seller’s insolvency, may
seek to gain priority over general creditors by claiming a trust of goods in their favour. [Person who
hasn’t paid gets nothing at all in any case!!]

Where the goods had not been segregated but formed part of a bulk, these claims failed on the
ground that there cannot be a trust of unidentified goods.

 Re London Wine Co. Ltd. [1986]: LWC were dealers in wine. Over time they had acquired stocks of
wine, which were deposited in various warehouses in England. Quantities were then sold to
customers, but in many instances the wine remained at the warehouse. There was no appropriation
--- on the ground, as it were, --- from the bulk, of any wine, to answer particular contracts. But the
customer received from the company a certificate of title for the wine for which he had paid, which
described him as the sole and beneficial owner of such-and-such vintage. The customer was charged
for storage and insurance, but specific cases were not segregated or identified. LWC went into
liquidation. At the relevant times, the customers had not made any pre-payment of the price.

Issue: Whether the certificates of title conferred good title on the customers; because if they did
then there was an argument that the wine was held on trust for the customers and therefore not
susceptible to attack from the creditors.

Held: No trust, because wine ‘owned’ by each customer was not clearly identified / segregated, i.e.,
there was no identifiable property.
It could not be said that the legal title to the wine had passed to the individual customers and the
description of the wine did not adequately link it with any given consignment or warehouse. And,
furthermore, it appeared that there was a lack of comparison at the time the certificates were
issued in that, in some cases, the certificates were issued before the wine, which had been ordered
by the company, had actually been received by the company.
 Page 9 of 17

 Re Staypylton Fletcher Ltd. [1995] 1 All ER 192: Wine had been segregated for a group of customers
even though not appropriated to each individual customer.

Held: [Because legal title had passed on to the customers there was no need to consider the trust
argument] However hypothetically speaking segregation/ ear marking of a specified portion from
the general stock is good enough for the purposes of certainty of subject matter of a trust. All the
customers in the defined group held the title to the segregated wine as tenants-in-common.

 Re Goldcorp Exchange Ltd. [1994] 2 All ER 806 (PC): Purchasers of bullion, who had paid but had
not taken delivery, asserted proprietary rights on the insolvency of the company. Save for a group of
customers whose bullion had been segregated, these claims were rejected by the Privy Council.

Held: (Legal title had not passed), nor was there any trust as there was no identifiable property to
which any trust could attach. Thus the customers were unsecured creditors.

 Hunter v Moss [1994] 3 All ER 215 (CA): The defendant was the registered owner of 950 shares in a
company (MEL), with an issued share capital of 1,000 shares. He made an oral declaration of trust in
favour of the plaintiff in respect of 5% of the company’s issued share capital (i.e. 50 shares).
Held: The trust was not void for uncertainty.

At first instance, the principle enunciated in Re London Wine was confined to tangible property since
‘ostensibly similar or identical assets may in fact have characteristics which distinguish them from other
assets in the class – as the judge [Colin Rimer Q.C.] said, some of the wine might have become corked or
might have deteriorated in some other way.

The settlor appealed to the CA where Dillon L.J. simply held that Re London Wine was “a long way from
the present” case and concluded that “[j]ust as a person can give, by will, a specified number of his
shares of a certain class in a certain company, so equally, in my judgement, he can declare himself
trustee of 50 of his ordinary shares in MEL or whatever the company may be and that is effective to give
a beneficial proprietary interest to the beneficiary under the trust”.

Reasons:
 Re London Wine Co. was distinguished as involving chattels. Provided that the shares were of the same
class in the same company there was no need to segregate before declaring a trust.

Dillon L.J.: “All these shares were identical in one class: 5% was 50 shares and the defendant held
personally more than 50 shares… Again, it would not be good enough for a settlor to say ‘I declare that I
hold 50 of my shares on trust for B’, w/o indicating the company he had in mind, of the various
companies in which he held shares. There would be no sufficient certainty as to the subject matter of
the trust. But here the discussion is solely about the shares of one class in the one company”.
What happens when Moss deals with the 950 shares? Say he sells 100 shares (properly transferring the
title) to X. Whose shares are these? H’s or M’s? if they are H’s then M has just committed a breach of
trust; if they are not H’s then M has not breached the trust. One does want to know whether a breach of
trust has occurred or not, because otherwise no proceedings could be initiated against trustees in
breach.

Jill Martin (2001): suggests that this worry is insubstantial, since the rules of tracing may be
notionally employed; thus we proceed as if M did segregate 50 shares out of the 950, but then
 Page 10 of 17

immediately mixed them again with the other 900, so we have a mixture of 950 shares; just like
the case where a trustee mixes GBP 50 of the trust’s money in his bank account, raising the
balance to GBP 950. Under the rules of tracing, H will be able to trace his value into particular
shares in the 950, which particular shares he traces depending upon the circumstances.

J. E. Penner (2002: This approach is however not very sound to explain H v M situation, that is
by assuming that in the very act of declaring a trust a person also makes himself a trustee-in-
breach!!

The better view is that M has not properly created a trust at all.

D. J. Hayton (1997): Court should impose an equitable charge on M’s shares in favour of H to
the value of the 50 shares.

An alternative approach would be the imposition of a Constructive Trust on M over the whole 950
shares, to hold them in beneficial portions of 1/19th for H and 18/19th for himself, thus creating an
equitable co-ownership of the shares.

In Hunter v Moss this co-ownership approach was rejected.

Penner regards Hayton’s constructive trust approach to be in accord with the Sale of Goods
(Amendment) Act 1995, and to be a better view than Jill Martin’s “tracing” approach.

Jill Martin (2001): Approval of MacJordan in Re Goldcorp by the Privy Council shows by
inference that Hunter v Moss is incorrect. However this would only be if Hunter and MacJordan
were indistinguishable. But it can be seen that Hunter is different because the larger asset from
which the trust was carved out was identified [the 950 shares]. Hunter is fair and sensible on its
facts. Hunter is an example of the courts’ policy of not letting clearly intended trusts to fail.

The academic criticism of Hunter found some sympathy in the High Court in the insolvency matter of;

Re Harvard Securities Ltd. (in liquidation) [1997]: A company purchased shares on behalf of clients and
retained legal title in the shares as nominee for each client. The company went into liquidation.

Question: Whether the clients of the company had a beneficial interest in the shares even though the
shares had not been allocated to them?

Neuberger J. held that he was bound by the authority of Hunter and consequently it was possible to
create a trust of some shares from a class of shares. [He] distinguished Hunter from other cases, which
had held that trusts of unascertained goods would not be recognized, on the ground that Hunter was
concerned with shares as opposed to chattels.

was Paul Todd & Gary Watt (2003): Neither Goldcorp Exchange nor Hunter v Moss mentions the
other case, possibly because they were decided virtually at the same time, and there are quite
differences between the two cases. In Goldcorp, there was no declaration of trusteeship by the
vendor, so there is a certainty of intention problem; the trust property not constant, since the
vendor’s gold stocks were being traded all the time; there is also much authority, for example in
Re Wait [1927] followed in Re London Wine Co. and The Aliakmon for the reluctance of the
 Page 11 of 17

courts to import notions of equitable property into commercial sales of goods, primarily for
reasons connected with certainty. Any of these would have been a potential basis for
distinguishing between Hunter and Goldcorp, even on the assumption that both are correct.

 MacJordan Construction Ltd. v Brookmount Erostin Ltd. [1992] CA: MCL were sub-contractors for
BEL as main contractors. Their conduct provided that Brookmount would retain 3% of the contract
price as a trustee for MCL (pending confirmation that the work was satisfactory). The retention fund
was never separately set up. On BEL’s insolvency MCL claimed entitlement to the retention money
in priority to a bank which had a floating charge over all the assets.

Held: MCL was not entitled to the payment in priority to the secured creditors.

Reason: No identifiable assets of BEL had been impressed with a trust for the benefit of MCL. There
was merely a contractual right, which did not “carry with it any equitable interest of a security
character in the assets for the time being of the employer”.

(The Privy Council in Re Goldcorp approved MacJordan)

 Certainty Of Objects:

‘Objects’ are the beneficiaries under a trust. It is clear law that a trust must be for “ascertainable
beneficiaries” --- Lord Denning in Re Vandervell’s Trusts No.2.

 Morice v Bishop of Durham: There must be somebody in whose favour the court can decree
performance.

In order to ascertain the beneficiaries we need to apply certain ‘tests’, which may very/differ depending
on which type of trust we are dealing with.

Modifying Emery’s classification, we divide up the common sources of uncertainty of objects into
three main categories:
 Conceptual uncertainty
 Evidential uncertainty
 Whereabouts uncertainty

(add from book further)

Resolution of Uncertainty by outside opinion:

Should a settlor be able to express his directions as precisely as he can, but provided that if there is
dispute over their meaning or application, recourse may be had to a living individual, who shall settle the
matter?

Re Coxen (1948): the settlor made a gift of a residence to his widow, which was however to end ‘if in the
opinion of my trustees she shall have ceased permanently to reside therein.” Jenkins J held:
 Page 12 of 17

If the testator had insufficiently defined the state of affairs on which the trustees were to form their
opinion, he would not I think have saved the condition from invalidity on the ground of uncertainty
merely by making their opinion the criterion…in my view the testator by making the trustees’ opinion
the criterion has removed the difficulties may necessarily be a matter of inference involving nice
questions of fact and degree.”

Re Coxen thus stands for the proposition that an opinion clause cannot cure conceptual uncertainty, but
may allow an individual to determine matters of fact as to whether the concept applies in any particular
case.
Hayton said that opinion clauses may cure evidential, but not conceptual uncertainty.

Re Leek (1969): the objects of the trust were ‘such other persons as the company (Acting as trustee)
may consider to have a moral claim upon the settlor. Harman LJ said:

“it was argued that…the trust was too vague…if the trust were for such persons as have moral claims, I
would agree with this view, but this is not the trust. The trustees are made the arbiters and the objects
are such persons as they may consider to have a moral claim; I do not see why they should not be able
to this footing to make up their minds and arrive at a decision.”

Re Wright’s Will Trusts (1982): CA. a trust for ‘such people and institutions as (my trustees) think have
helped me or my late husband.’ Failed for uncertainty. Blackett-Ord VC at first instance observing that
helping the testatrix ‘could mean anything from helping the testatrix across the road to saving her from
death, dishonor or bankruptcy.’

Re Tuck’s Settlement Trusts (1978): the CA considered a condition on the inheritance of a baronetcy,
that the wife or any heir must be of Jewish blood and worship according to the Jewish faith; in the case
of doubt the decision of the chief Rabbi in London was to be conclusive.
Lord Denning MR stated:
“I see no reason why a testator or settlor should not provide that any dispute or doubt should be
resolved by his executors or trustees, or even a third person…if there is any conceptual uncertainty in
the provision of this settlement, it is cured by the Chief Rabbi clause.

SUMMARY:
Consequences of Consequence of Consequence of Consequence of
Uncertainty Trust / Conceptual Evidential Uncertainty ‘Whereabouts’
Power Uncertainty Uncertainty
Fixed Trust Fails Fails Does not fail
Discretionary Trust Fails Does not fail Does not fail
Power Fails Does not fail Does not fail

TESTS FOR CERTAINTY OF OBJECTS

Background
The historical test for certainty of objects for trusts, whether fixed or discretionary, was that for a trust
to be valid, one had to be able to draw up a complete list of all the objects or potential objects. This was
known as the ‘Complete List Test’.
 Page 13 of 17

Whether or not the Complete List Test was applicable to mere powers of appointment fell to be
decided in Re Gestetner’s Settlement (1953). It was held that the power was valid even though a
complete list of the possible objects of the power could not be drawn up at any one time. Harman J
stated that, for a power to be valid, it would be sufficient if it could be said of any particular person
“easily enough whether he is or is not eligible to receive the settlor’s bounty”. Thus was born the ‘Is
or Is Not Test’ for powers.

Fixed Trusts:

 IRC V Broadway Cottages [1955]

 Postulated the “[Complete] List Test”.

 A trust was void unless it was possible to make, at the time when the trust came into
operation, a list of all the beneficiaries.

 The requirement is that a list will be able to be drawn, which is on the balance of
probabilities complete, as to the maximum number of shares, at the time of
distribution.

What is required of a fixed trust is that the description of the beneficiaries should involve neither
conceptual nor evidential uncertainty.

Powers:

 Re Gulbenkian’s Settlement Trusts [1970] CA

 Followed Re Gestetner’s Settlement.

 Lord Upjohn:

“The power is valid if it can be said with certainty whether any given individual is or is
not a member of the class, and does not fail because it is impossible to ascertain every
member of the class”.

 Lord Wilberforce used the same words in McPhail v Doulton.

Discretionary Trusts

It was generally thought that the “Complete List” test for fixed trusts also applied to discretionary trusts.
It was accepted that if the trustees refused to exercise their trust the court would intervene as a last
resort and distribute equally. It followed that in order to distribute equally the court had to draw a
complete list of all beneficiaries.

 McPhail V Doulton [1970] 2 All ER 228, HL

A deed executed on July 17, 1941, by the settlor, Mr. Bertram Baden, provided that a fund was to be
held upon certain trusts in favor of the staff of Matthew Hall & Co. Ltd. and their relatives & dependents.
 Page 14 of 17

Clause 9(a) of the deed provided that the trustees should apply the net income in making grants at their
absolute discretion “to or for the benefit of any of the officers and employees or ex-officers or ex-
employees of the company or to any relatives and dependents of any such persons in such amounts at
such times and on such conditions (if any) as they think fit…”

Issues: Two main questions arose:

Q1: Whether the deed created a power or a trust?

Q2: [If it was a trust] then was it void for uncertainty of objects?

Held: House of Lords decided that the Baden Deed had created a discretionary trust and not a mere
power. For trusts the test so far had been the “Complete List” test. On the facts of McPhail it was not
possible to make a complete list of the members of the class of beneficiaries. So the trust could have
failed due to uncertainty of objects. But the Lords (Lord Wilberforce) got around this problem by saying
that the “Complete List” test was no longer applicable to ascertain the objects of discretionary trusts.
Instead the “is or is not” test used for powers would be applied to discretionary trust.

 Re Baden’s Deed Trusts (No. 2) [1972] 2 All ER 1304 CA

Background: Recall that the House of Lords had introduced a new test for discretionary trusts and then
remitted the case back to the High Court for applying this new test on the facts of the case to decide
whether there was certainty of objects or not. Brightman J. in the High Court found that there was
certainty of objects. The matter was appealed to the Court of Appeal.
Court of Appeal found that the test was satisfied. The wide differences in the opinions expressed by the
three judges however demonstrates how difficult it may prove to be in practice.

Facts: The trust was for, inter alia, “employees and their dependents and relatives”.
Issues:
“Employees” did not cause any problems.
“Dependents” was not regarded as uncertain at all
“Relatives” however led to a difference of opinion

Sachs LJ:

He made a clear distinction between conceptual and evidential uncertainty; the ‘is or is not’ test applies
to the former, and the ‘court is never defeated by evidential uncertainty.’ 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.” Thus it is perfectly right that ‘relative’ means a descendant from a common ancestor.
Someone offering sufficient proof of that ‘is’ within the class; someone unable to do so ‘is not.’

Megaw LJ:

He introduced 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 the class, the class was certain.

What is a ‘substantial number’ may well be a question of common sense and of degree in relation to the
particular trust”

Stamp LJ:
 Page 15 of 17

He refused to allow evidential uncertainty to intrude upon or patch up the problems caused by a
conceptually certain term: if ‘relatives’ means descendants of a common ancestor, one either glosses
the word or the trust is void for uncertainty; the ‘is or is not’ test is a test of a class defined by the
concepts the settlors used. It cannot be watered down to a test that depends upon a burden of proof,
because that make the test one of evidential uncertainty, not conceptual uncertainty, and raises the
problem that only one or a few possible objects bring forward the suitable proof:

“it is not enough that trustees should do nothing but distribute the fund among those objects of the trust
who happen to be at hand or present themselves.”

Rather, the trustees must survey the class of objects and so the test must indicate the scope of this duty,
not merely to the validity of making a payment to a particular individual who presents himself.

He emphasizes the trustees’ ‘duty to survey the class’ and from this perspective he is surely right that no
sensible survey could made of the employees and all those who have descended from a common
ancestor for that would be like surveying the whole of UK.
However, Stamp LJ found authority for interpreting ‘relatives’ to mean next of kin and on that basis
found the trust valid.

Almost certainly the trustees would think of ‘relatives’ when ‘surveying the field’ as the employees’
close/near relatives.

For Stamp LJ the whole class of objects really do have the right to be considered and therefore the
trustees must have a sensible picture of them as a whole.

Together Sachs and Megaw LJJ found that ‘relative’ meaning ‘descendants from a common ancestor’
was not an invalidating term on the ‘is or is not’ test, although it remains so on the ‘complete list’ test.
Thus a trust for one’s relatives n equal shares fails unless ‘relatives’ is read as next of kin.

Summary of Re Baden’s No. 2 Judge View(s)

Sachs LJ Test is successfully applied if it is proved for any
one given individual that he is within the class as
defined.
Megaw LJ Test is successfully applied only if after looking at a
substantial number of potential beneficiaries it can
be said about them that they are or are not with
the class as defined.
Stamp LJ Test is successfully applied only if the survey covers
more than substantial numbers of the potential
beneficiaries but does not have to reach a
complete list status.

SUMMARY OF TESTS:

Trust / Power Pre - McPhail Test Post - McPhail Test

 Page 16 of 17

Fixed Trust Complete List Complete List

Discretionary Trust Complete List Is or Is Not
Power Is or Is Not Is or Is Not

 Gifts subject to condition precedent:

One may make gifts subject to conditions precedent in equity.

Re Barlow’s Will Trusts: the testatrix directed her executor to allow any of her friends to buy
paintings from her collection at below market value.
Thus the condition precedent – friendship – defined a class of potential donees, and so the standard
of certainty required here makes a useful point of comparison with that for certainty of objects of a
trust.
Browne-Wilkinson J held that the executor was not required to determine the class of donees
defined by the term ‘friends’, but rather that the direction should be construed as a series of
individual gifts to such persons who could satisfy the criteria for friendship, on which he gave
guidance.

As a result the decision in Re Barlow’s Will Trusts appears to establish that, in the case of gifts with
a condition precedent that defines a class first, an ‘is or is not’ rather than a ‘complete list’ test is
appropriate and, secondly, that the court will be liberal in determining criteria for vague terms.

 Administrative unworkability and capriciousness

Lord Wilberforce in McPhail said:

“there may be a…case where the meaning of the words used is clear but the definition of
beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is
administratively unworkable or in Lord Eldon LC’s words one that cannot be executed…I hesitate to
give examples for they may prejudice future cases, but perhaps ‘all residents of Greater London’ will
serve.

The only reported case in which a trust has failed for administrative unworkability is R v District
Auditor, ex p West Yorkshire Metropolitan County Council (1986): The council was about to be
abolished, and it proposed to transfer its remaining funds, £400,000 on trust for ‘any or all or some of
the inhabitants of the County of West Yorkshire’ in order to benefit them in various ways, which
included informing all interested and influential persons of the consequences of its abolition.

Llyod LJ decided:

“a trust with as many as two and a half million potential beneficiaries is, in my judgment, quite
simply unworkable. The class is far too large…It seems to me that the present trust comes within
the…case to which Lord Wilberforce refers. I hope I am not guilty of being prejudiced by the
example which he gave. But it could hardly be more apt, or fit the facts of the present case more
precisely.
 Page 17 of 17

Yet significantly, he stated:

“What we have here, in a nutshell, is a non-charitable purpose trust.”

Such trusts are normally invalid, because a trust for a purpose has no beneficiaries, and thus no one
to enforce it. Therefore, administrative unworkability may mean that the class of beneficiaries is
‘hopelessly wide’ because the trust is not really for a class of individuals at all; it is really a trust to
carry out a purpose that is masquerading as a valid trust by the inclusion of a bogus class of
beneficiaries.

McKay (1974) considers five possible interpretations of ‘administrative unworkability:’ (1) the
beneficiaries of a valid class have no common attributes (2) the class is too large (3) the trustees will
be unable to perform their administrative duties (4) the court will be unable to execute the settlor’s
directions and (5) the trust is capricious.

Lord Reid in Re Gulbenkian stated: “I could understand it being held that if the classes of potential
beneficiaries were so numerous that it would cost quite disproportionate enquiries and expense to
find them all and discover their needs or deserts, then the provision would fail.”