#4630 - Three Certainties - GDL Equity and Trusts

Knight v Knight

1. Intention

2. Subject matter

3. Objects

CERTAINTY OF WORDS OR INTENTION

• ‘Equity looks to the intent rather than the form’ – so word ‘trust’ need not necessarily be used for a trust to be created and equally the word trust is not conclusive

• Re Kayford: ‘the question is whether in substance a sufficient intention to create a trust has been manifested’

Precatory words - how certain is certain?

1. Distinction btw IMPERATIVE words which show intention to create legally binding obligation (will create a trust) and PRECATORY words which express a hope or wish rather than obligation (generally won’t create trust)

2. Whether words impose obligation or merely express a wish is a question of construction in each case

3. Attitude to interpreting precatory words – has changed – older cases leant towards finding a trust – more modern cases lean against

4. Turning point – Lambe v Eames

5. Importance of construction of particular words/circumstances

• Phrases such as ‘in full confidence’ may or may not impose a trust

  • Re Adams and the Kensington Vestry: testator left property to his wife absolutely ‘in full confidence that she will do what is right as to the disposal thereof between’ his children in her lifetime or by her will - it was held that she took the property free from any trust in favour of the children

  • In Comiskey Bowring-Hanbury : words ‘in full confidence’ created a trust – T left estate to his wife ‘absolutely, 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 thing fit. And in default of her disposition…I hearby direct that all my estate and property…shall at her death be divided among the surviving dead nieces’ – gift-over to the nieces , they will definitely get something – sets this case apart

6. As seen here, where words held not to impose a trust on the done, they take absolutely – court will look at all the circumstances – not just words

Old words from old cases

1. Words interpreted in their context rather than according to previous cases – words may not have the same effect

• Re Hamilton: ‘you must take the will which have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so’

2. But wording may be interpreted in the same way as in previous cases where the whole gift is identically worded:

• Re Steele’s Will Trust – suggested that earlier decision should be followed unless clearly wrong – court followed interpretation given to words in Shelley v Shelley (80 years previously)

Evidence of intention: Words and/or conduct of the parties

1. Paul v Constance: Judge found intention to create a trust where a man had told his cohabitant that the money in his bank account was as much hers as his and ordered half the money to be paid to her after his death, rather than pass to his wife. He had essentially declared himself a trustee of the moneys for himself and the cohabitant. CA upheld decision: oral declaration of trust

2. Trust cannot arise if language reveals the payer intended only a debtor-creditor relationship – payee free to mix the money with his own and deal with it as he pleases – as in Azam v Iqbal

   • But ability to mix moneys with moneys is consistent with a trust of the mixed fund – segregated mixed fund is held as a pooled investment on trust for the payees in proportionate co-owned shares (Lewis’s of Leicester) or where the amount in the mixed fund is not to fall below the amount of money paid in for a temporary period

3. Re Kayford

• Mail order company fearful of liquidation may pay customers’ money into a separate bank account to protect them from merely being debtors of the company if not receiving their goods – amounts to a trust of the moneys for the customers

• But if the cheque is paid into overdrawn account of the company then the money disappears and no trust is constituted (Moriarty v Various customers of BA Peters plc)

4. Sid v Shah – Court of Appeal construed the wording of a letter as showing an intention to declare a trust

CERTAINTY OF SUBJECT MATTER: Must be certain what property is subject to the trust

1. Property – what property?

2. Beneficial entitlements – what part/share each is entitled to (if fixed)

CASES:

1. Sprange v Barnard

• Testatrix in her will : ‘for my husband, to bewill him the sum of 300 .. for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use, to be divided between’ her brothers and sisters

  • Court ruled that there was no certainty as to property, so there was no trust

  • Trust creates rights and duties at the moment of its creation – must be certain at the moment of its creation

• Can leave residuary estate on trust for ‘A for life, remainder to B’ – this creates a valid trust, ascertainable after payment of all proper taxes, expenses, debts and legacies

• Also in In the Estate of Last - offending words of ‘anything that is left’

2. Palmer v Simmonds

• ‘the bulk of my estate’ not sufficiently certain

3. A trust of an unidentified section of chattels (tangible property) will fail – whereas a trust of an unidentified section of intangible property, such as shares, is valid

• Re London Wine Co (Shippers) Ltd

  • Buyers of wine could not establish a trust of particular bottles in their favour as the bottles hadn’t been segregated or identified : couldn’t claim property over any other creditors when company went into liquidation

• Mac-Jordan Construction Ltd v Brookmount Erostin Ltd

  • Building contract provided that part of contract price would be retained and held by the employer as trustee for the builder but there was no trust because no retention fund was set up so there were no identifiable assets

• Re Goldcorp Exchange Ltd

  • Purchasers of bullion who had paid but not taken delivery claimed rights to it on the insolvency of the company

  • Claims rejected – apart from one group whose bullion had been segregated (had serial numbers so differentiated): the rest wasn’t identifiable

• BUT – a trust of an unidentified section of intangible property is valid:

  • Hunter v Moss (Bad decision but has never been overturned)

    • Moss owned 950/1000 issued shares of a private company + orally declared himself a trustee of 5% of the issued shares (50 shares): held to be certain even though no such 50 shares had been identified

    • Dillon LJ in CA: erroneous analogy to testamentary trust if Moss had died – not the same!! – because shares mixed with his own, Moss hasn’t divested himself of identifiable beneficial interest

  • Following Hunter v Moss – distinction btw a trust of tangible and intangible property

    • CRC Credit Fund Ltd v GLG Investments plc; Shah v Shah; Pearson v Lehman Brothers Finance SA

    • Paid-up shares are issued without distinguishing numbers – intangible fungibles – share owners are co-owners of the bulk

  • The Harvard Securities Ltd (in liquidation)

    • Criticises Hunter and Moss but grudgingly confirms it (Stare decisis)

    • Neuberger J points out problems in Dillon LJ’s decision: reliance on testamentary dispositions was inappropriate and also reliance on another decision Re Rose overlooks the fact that in that case, Mr Rose had specifically identified the shares which were meant to be the subject of the gift

    • Criticism of Hunter in Hayton Law Relating to Trusts and Trustees (1995)

      • effect of decision is that shares fall to be treated in this context in the same way as a debt or fund rather than chattels

4. Boyce v Boyce

• Testator devised house to trustees on trust for his widow for life and after hear death in trust to convey to his daughter Maria one of the house whichever she should choose, and to convey ‘all my house houses’ to his daughter Charlotte

• Maria died in testator’s lifetime – so don’t know which she would have chosen

• Trust in favour of Charlotte was void as uncertain what property it referred to – ‘the gift in favour of Charlotte had failed’: Objective determinant no longer present

5. Re Golay’s Will Trusts

• Vs. Palmer v Simmonds

• The testator directed executors to allow the beneficiary ‘to enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties’ – Contentious Case – Ungoed-Thomas J

• Old lady needed help – so he decided to uphold trust

• He argued that ‘reasonable is an objective determinant’

• This is as far as the courts will go

Effect:

• Question of construction

Where a trust fails for lack of certainty of subject matter - the position is as follows:

1. If the property itself is uncertain – no trust is created

2. If a purported ‘trust’ is grafted onto a gift, the done takes the gift absolutely (Sprange v Barnard and Palmer v Simmonds)

3. If the beneficial interests are uncertain, there will be a resulting trust – as in Boyce v Boyce

There is no uncertainty of subject matter if the means for determining it are laid down, e.g.

1. Trustees are given a discretion to determine the beneficial interests; or

2. It is possible to apply the maxim ‘equality is equity’

3. Settlor

‘residue’ of an estate is ascertainable and therefore certain

CERTAINTY OF OBJECTS

Morice v Bishop of Durham: ‘There must be somebody, in whose favour the Court can decree performance’

• Trustee must know who the beneficiaries are, even if the beneficiaries need not know of the trust

• If trust fails because of uncertainty of object then there will be a resulting trust to the settlor

Test for certainty of objects: Depends on the type of trust

Powers of Appointment:

• Test in Re Gulbenkian’s Settlement Trusts – “In/out tests”, the “is/is not test”, the “given...