Certainties Trusts Vs. Powers Notes

Law Notes > Trusts and Equity Notes

This is an extract of our Certainties Trusts Vs. Powers document, which we sell as part of our Trusts and Equity Notes collection written by the top tier of Oxford students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Trusts and Equity Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Table of Contents
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

TRUSTS: THREE CERTAINTIES

Page 1 TRUSTS: THREE CERTAINTIES

Page 2 --

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"
o 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:
o Certainty of intention (donor must intend to create a trust)
o Certainty of subject matter (identifiable trust property)
o 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

Pa r t I - C er ta inty of I ntention - Tr ustee m ust be under a n identifi ed duty
A - The test of certainty of intention-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:
o Use of the word "trust" is neither necessary nor sufficient (Re Kayford, Megarry J)
o 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:
o 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:
o 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.
o 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

TRUSTS: THREE CERTAINTIES

Page 3 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)o

o

B - Consequences of absence of certainty of intention1

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:
o 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:
o General power - trustee appoints property to whomever

Special power - trustee appoints to a person from selected group

Testator gave property to wife "absolutely in full confidence that she will make such use of it as I
would have made myself and at her death devise it to such of my nieces as she may think fit".
TRUSTS: THREE CERTAINTIES
Page 4 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 powers: donee of power not obliged to consider its exercise or power?
Depends on testator's intent deduced from construction of trust instrument
Mandatory language ("to be distributed") indicates trust obligation
Discretionary language ("may appoint") indicates fiduciary power
-McPhail v Doulton - trust where trustees should apply (no obligation to exhaust) income from a fund as they see fit. Held that 'shall distribute'
meant that instrument was a trust power and not fiduciary power.
Wilberforce - difference between trust and power is narrow and artificial,
and depends on 'delicate shading'
-Breadner v Granville-Grossman - per Park J an instrument to distribute income is a trust power if trustee must distribute it but can choose whom to, and a fiduciary power if trustee can also choose whether or not to distribute at all o

o

Trust?C - Certainty of intention in particular contexts-For gifts inter vivos (lifetime gifts) courts are more willing to look also at conduct of parties in determining intention

Paul v Constance: T lived extramaritally with C and had a bank account in his own name
(after being dissuaded from creating a joint account because they are not married) and put their bingo winnings in it, saying the money is "as much yours as mine". Held that there was a trust because the words "as much yours as mine" were sufficient but looked at other evidence (eg. bank manager and conduct of parties) - unlikely that without further evidence the words alone would have been sufficient for trust
Self-declaration of trust: not necessary to use particular words, S must merely do something equivalent to using the words "I declare myself a trustee", and use expressions that have that meaning (Richards v Delbridge, Jessel MR). Can even be implied by conduct (Paul v
Constance)
o Jones v Lock - father writes cheque payable to himself and says that it is a gift to his baby, locks the cheque in a safe and dies days later. Declared that it wasn't a gift, but remained part of T's estate

Paul v Constance - deceased married to D but lived with C, had money in his account to avoid embarrassment of having a joint account with C. On his death sought declaration that money was held on trust for C using oral evidence that he described the money as
'ours': accepted.
o Rowe v Prance - D had an affair with C and told C he would divorce his wife, sell the house and buy a yacht that would be their home. He didn't divorce but bought a yacht,
describing it as 'ours'. When they separated C successfully claimed that the yacht had been held on trust for her
The weight attached to particular language may depend on the circumstances:
o A rigorous standard was applied to the Law Society because it would be "surprising if a society of lawyers, who above all might be expected to make their intention clear ...
should have failed to express the existence of a trust, if that was what they intended"
(Swain v Law Society, Lord Brightman)

TRUSTS: THREE CERTAINTIES

Page 5 In commercial contexts, the court took into account what the parties "as a matter of business common sense must have intended to achieve", over agreements that, "though apparently professionally prepared are by common consent badly drafted and replete with obscurities and inconsistencies" (Don King v Warren)
Sham trusts: At the other end of the spectrum from precatory words, are arrangements where the words used appear to create a trust but where it becomes evident that the "settlor" had no real intention to create a trust.
o Midland Bank v Wyatt (1995): S made a formally valid declaration of trust in his family home for his children, and then pledged the property to the bank as security for a loan,
without informing it of the trust deed. When he defaulted, the court fund that there was no intention on the part of S when executing the trust deed of endowing his children with his interest in the house, so the trust failed.
In secret trusts, the question is about S's intended sanction: the authority of a Court of Justice,
or the conscience of the devisee? (McCormick v Grogan)
o-

No special words are required to create a trust, but one needs to prove an intention to use property for the benefit of others or to impose a duty on the recipient to do so. As a general rule, "precatory words" will not suffice to create a trust (see Lambe v Eames (1871) 6 Ch App 597; Mussoorie
Bank Ltd v Raynor (1882) 7 App Cas 321; Re Adams and The Kensington Vestry [1884] 27 Ch D 394;
Comiskey v Bowring-Hanbury [1905] AC 84), although there may be an intention to confer a power of appointment on the donee. A failed trust will not, however, be saved by construing it as a valid power: see IRC v Broadway Cottages Trust [1955] Ch 20.
Besides the construction of the words used, what other factors might be relevant to ascertaining the settlor's intention? See Gardner, An Introduction to the Law of Trusts (3rd ed, OUP, 2011) at ch 3.
Consider, for example, Re Kayford Ltd [1975] 1 WLR 279; Paul v Constance [1977] 1 WLR 527.
On "sham" intention, see Midland Bank v Wyatt [1995] 1 FLR 697. See also McFarlane & Simpson,
"Tackling Avoidance", in Getzler (ed), Rationalizing Property, Equity and Trusts (OUP, 2003) at 139-
143; Conaglen, "Sham Trusts" [2008] CLJ 176.
|Paul v Constance [1977] 1 WLR 527-

Facts: The testator lived extramaritally with C, and opened a bank account in his name (after being dissuaded by the bank manager from opening a joint account because they were not married), telling her that "the money is as much yours as mine".
Issue: whether the words created a trust for the benefit of the testator and C, so that C would be entitled to half of the money in the account (YES).
Scarman LJ: This might be a "borderline case" because hard to pinpoint a specific moment of declaration, but certainty of intention satisfied because from the time S received his damages right up to his death he was saying, on occasions, that the money was as much C's as his.
Given the unsophisticated character of S's relationship with C, the judge was entitled to conclude that the words convey clearly a present declaration of trust. There were also other features: interviews with the bank manager when opening the account, putting "bingo"
winnings into the account, the withdrawal for the benefit of both of them.

In this case there was other evidence (conduct of the parties, the bank manager's advice...) - unclear whether the words alone would have sufficed.
|NOTE Heydon and Loulan (1997)Is this case really distinguishable from Jones v Lock, which would equally have failed if Jones had said "This cheque is as much baby's as mine" instead of "I give this to baby" - why was there no suggestion that it was a gift by transfer?

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

Facts: Will to "give, devise and bequeath all my real and personal estate and effects whatsoever and wheresoever to the absolute use of my wife, in full confidence that she will do what is right as to the disposal thereof between my children".
Issue: whether this was an absolute gift or a trust (gift)
Cotton LJ:

TRUSTS: THREE CERTAINTIES

Page 6 o

o

In principle:
-If the rest of the context shows that a trust is intended, confidence may make a trust.
-However, confidence that the purported trustee will do what is right as regards the disposal of the property is not a trust.
-We shouldn't rely on the use of any particular words, but consider the true effects of the words actually used, and the intention of the testator.
In this case:
-The testator expressed an intention to leave the property to her absolutely,
rather than impose a trust on her.

T Choithram International SA v Pagarani [2001] 1 WLR 1
Pa r t II - C er ta inty of S ubject- Ma tter - tr ustee' s duty m ust r ela te to a n identifi ed r ight-

2 Trust property must be certain (i.e. it must be possible to ascertain exactly what property is subject to the trust) at the time the trust comes into operation, which means that:
o Property left as outright gift with a trust for whatever is left to go to another person,
will fail because impossible to know how much will be left:
-Sprange v Bernard: property given to husband as outright gift and "remaining part of what is left to be divided between..." = void because impossible to determine how much would be left so husband took the whole gift2

However, this can be saved by interpreting the "gift" as conferring only a limited interest on the initial beneficiary:
-Re Last3: the limitation was construed as conferring merely a life interest on the brother so the trust was not invalid for uncertainty of subject matter.
-Re Thomson's Estate4: held (Hall VC) that the widow had a life interest plus power to dispose of her property during her lifetime, but no testamentary powers, so any property not disposed of during her lifetime were held on trust.
o Uncertainty can also be saved by the court finding some way of ascertaining what the subject matter is:
-Re Golay5: held (Thomas J) that the trust was valid because the yardstick of
"reasonable income" was not what some person subjectively considered to be reasonable but what was objectively identified as reasonable, so the court could quantify it.
Where a certain but unidentified part of a bulk of property is involved, the part itself must be certain6:
o In relation to tangible property:
-Re London Wine7: held that no trust arose so that the purchasers had no proprietary rights in the wine as against holders of a floating charge which the seller had granted over its entire assets8.

Pursuant to the rule in Hancock v Watson where, if there is an absolute gift at the first instance and the necessary intention subsequently to impose trusts on that property, then if the trust fails for any reason, the property is not held on resulting trust for S but will vest absolutely in the person to whom the property was first given absolutely.

3 S left all her property to her brother, providing that "at his death anything that is left" was to pass to certain other people.

4 S left property to widow "to be disposed of as she may think proper for her own use and benefit" but
"should there by anything remaining" on death, it should be held on certain specified trusts.

5 S directed trustees to permit a beneficiary to "enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties".

6 Important because trust gives beneficiary priority over creditors.

7 Wine company sent letters to purchasers confirming that they were the sole beneficial owners of the wine that they bought, but took no steps to segregate the wine from the general mass of stock.

8 Though this is still true of gifts, in relation to sales the Sale of Goods (Amendment) Act 1995 makes the purchasers tenants in common of the general mass of stock.
TRUSTS: THREE CERTAINTIES
Page 7

Buy the full version of these notes or essay plans and more in our Trusts and Equity Notes.

More Trusts And Equity Samples