#16178 - Certainties Trusts Vs. Powers - Trusts and Equity

Part I – Certainty of Intention – Trustee must be under an identified duty 3

A – The test of certainty of intention 3

B – Consequences of absence of certainty of intention 4

C – Certainty of intention in particular contexts 5

|Paul v Constance [1977] 1 WLR 527 5

|NOTE Heydon and Loulan (1997) 6

Re Adams and the Kensington Vestry (1884) 27 Ch D 394 6

T Choithram International SA v Pagarani [2001] 1 WLR 1 6

Part II – Certainty of Subject-Matter – trustee’s duty must relate to an identified right 6

|Re Goldcorp Exchange Ltd [1995] 1 AC 74 8

|NOTE McKendrick (1994) 110 LQR 509 9

|NOTE Sealy [1994] CLJ 443 9

|NOTE Birks [1995] RLR 83 9

Hunter v Moss [1994] 1 WLR 452 10

|NOTE Hayton (1994) 110 LQR 335 11

|NOTE Ocklton (1994) 53 CLJ 448 11

|Pearson v Lehman Brothers [2011] EWCA Civ 1544, [69]-[77] 12

|Stevens, ‘Floating Trusts’ in Davies and Penner, Equity,Trusts and Commerce (2017) (comment on Lehman Brothers) 12

Part III - Certainty of Objects – trustee’s duty must be to exercise rights for identified beneficiaries 12

I – Position before McPhail v Doulton 13

A – Complete List Test 13

B – Any given postulant test 13

C – One person test 13

II – After McPhail v Doulton 13

A – Effect of McPhail v Doulton 13

B – Outstanding questions after McPhail v Doulton 14

III - Summary 16

|NOTE Grbich, “Baden: Awakening the Conceptually Moribund Trust” (1974) 37 MLR 643 18

|NOTE McKay, ‘Re Baden and the Third Class of Uncertainty’ (1974) 38 Conv (NS) 269 19

R v District Auditor ex p West Yorks MCC [1986] RVR 24 19

|NOTE Harpum [1986] CLJ 391 19

Re Barlow’s Will Trusts [1979] 1 WLR 278 20

|NOTE McKay [1980] Conv. 263 20

|Emery, ‘The Most Hallowed Principle: Certainty of Beneficiaries of Trusts and Powers of Appointment’ (1982) 98 LQR 551 20

|Hardcastle, ‘Administrative Unworkability—A Reassessment of an Abiding Problem’ [1990] Conv 24 21

Mettoy Pension Trustees v. Evans [1990] 1 W.L.R. 1587-1589, 1613-1620; 22

|NOTE Gardner (1991) 107 L.Q.R. 214 22

Part IV – Trusts vs Powers 22

A – Discretions 22

B – Powers 23

C – Types of discretions and powers 23

D – Distinction between trust powers and mere powers 24

E – Distinction between fiduciary and non-fiduciary mere powers 24

F – When will the exercise of discretions and powers be improper? 25

G – The position of the potential beneficiaries 25

Breakspear v Ackland [2009] Ch 32 27

|NOTE Fox [2008] CLJ 252 27

|NOTE Griffiths [2008] Conv 322 27

|NOTE Martin [1991] Conv 364 28

• Fundamental principle: judges will try to uphold a trust if they can

  • McPhail v Doulton per Lord Wilberforce – “a trust should be upheld if there is sufficient practical certainty in its definition for it to be carried out”

  • Re Hay per Megarry VC: “Dispositions ought if possible to be upheld, and the court ought not to be astute to find grounds upon which a power can be invalidated”

• Per Knight v Knight a valid express trust must satisfy the three certainties:

  • Certainty of intention (donor must intend to create a trust)

  • Certainty of subject matter (identifiable trust property)

  • Certainty of object (identifiable human beneficiaries)

• Importance of certainties

  • Donee must know if they own the gift absolutely or on trust for another

  • Parties need to know what property is the subject of the trust

  • Beneficiaries need to know their rights and interests

  • Trustees need to know the beneficiaries and how to identify them

Requirements for the creation of trusts:

• Capacity to create a trust

• Three certainties

• Formalities

• Completely constituted or supported by valuable consideration

• Perpetuity, inalienability and accumulation

• Not intended to defraud creditors or otherwise be contrary to public policy

• There must be certainty that S intended to impose binding obligations on his chosen trustees and split the title (trustee has legal and beneficiary has beneficial), though no particular form must be used nor is the form decisive:

  • Use of the word “trust” is neither necessary nor sufficient (Re Kayford, Megarry J)

  • The “mere fact that S used the words “in trust” is not in itself inconsistent with an intention that his wife should be the absolute beneficial owner” (Harrison v Gibson, Hart J), though on the facts it was held that the words were in fact incompatible with an absolute gift.

• The test for intention is objective:

  • Twinsectra v Yardley (Lord Millett): a settlor must possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements that have the effect of creating a trust, then it is sufficient that he intends to enter into them, it is not necessary that he should appreciate that they create a trust.

• Traditionally expressions of desire, wish or hope were enough to split ownership, but subsequent cases changed it so that imperative wording is required:

  • Traditional approach:

    • Until Executors Act 1830, an executor was permitted to take any part of the deceased’s estate that had not been disposed of by his will (unsatisfactory), so Court of Chancery endeavoured to find some reason for intervening to make an executor into a trustee of any such property, seizing on any words of desire or hope to negative this statutory presumption.

    • This wasn’t necessary for inter vivos cases but the Court did so anyway.

  • Modern approach:

    • The Executors Act 1830 provided for executors to hold any such property to next-of-kin unless an intention was shown that he should take beneficially, so such an approach was no longer necessary.

      • Re Hamilton (1895): precedent is to be given little weight and a true construction of the will should be read for intention to create trust

      • Lambe v Eames: testator gave estate to widow “to be at her disposal in any way she may think best for the benefit of herself and her family” held to be an absolute gift to the widow (words “in any way she may think best” insufficient to create trust)

      • Re Adams and Kensington Vestry: estate to his wife “in full confidence that she will do what is right as to the disposal thereof between my children” held to be an absolute gift (“in full confidence” insufficient for trust in favour of children). Some previous cases had gone very far and unjustifiably given words a meaning beyond that which they could bear if looked at in isolation.

  • The modern test = the necessary intention must appear from the words of the instrument, to be established by construction of the instrument as a whole:

    • “Take the will and see what it means, and if you come to the conclusion that no trust was intended you say so, although previous judges have said the contrary on some wills more or less similar to the one you have to construe” (Re Hamilton, Lindley LJ)

    • The words cannot be taken in isolation and must be construed in light of the entire instrument as a whole:

      • Thus in Comiskey v Bowring-Hanbury¹ (1905), on facts very similar to Re Adams, held that “in full confidence” properly construed created a trust, because there was another clause in mandatory terms (“in default of any disposition by her … I hereby direct that all my estate … shall at her death be equally divided among my nieces”) in the will.

    • If necessary using the aid of extrinsic evidence (including that of S’s intention) which can be admitted if (Administration of Justice Act, s21):

      • If any part of the will is meaningless

      • If the language used is ambiguous on the face of it

      • If evidence (other than evidence of S’s intention) shows that the language used is ambiguous in the light of the surrounding circumstances.

    • Courts also have jurisdiction to rectify the will if satisfied that it fails to carry out the testator’s intention in consequence of a clerical error or failure to understand his instructions (s20)

  • Except charitable purpose trusts, where any ambiguity should receive a “benignant” construction if at all possible (IRC v McMullen, HL)

• If there is no certainty of intention, then either (i) the donee will take the property beneficially or (ii) it creates a (mere) power of appointment:

  • Trusts vs powers:

    • Trusts impose obligations whereas powers are discretionary

    • Trusts executable by court and powers are not (eg. if trustee dies without making an appointment of trust property to beneficiaries the court can do so, but a power lapses on trustee’s death)

    • Hierarchy of trusts and powers:

      • Fixed trust: duties to distribute trust property to beneficiaries must be discharged; if not, court will ensure it

      • Discretionary trust (or ‘trust power’): Seems like a power because trustee can choose beneficiary, but still a trust because the power must be exercised

      • Fiduciary powers: Trustee not obliged to exercise the power, but fiduciary nature means trustee must consider whether it should be exercised. Three categories:

        • General power – trustee appoints property to whomever

        • Special power – trustee appoints to a person from selected group

        • Intermediate power – trustee appoints to anyone except certain group

      • Power coupled with a trust: power to make an appointment but if one is not made a trust arises

        • Eg. Burrough v Philcox – testator gave life interests to his children with remainder to their children, but if his children were to die without children then survivor had power to distribute amongst nephews and nieces in whatever proportion he sees fit. In such a case if the survivor doesn’t exercise the power then a trust benefitting each nephew and niece in equal proportion is created.

      • Mere...