QUESTION
Discuss how the courts have approached the various tests for certainty of objects for express trusts.
CERTAINTY OF OBJECTS ANSWER
This paper will first introduce the concept of certainty. The paper will then discuss the test of certainty for objects. It will critically look at the test that has been developed for fixed trust, a discretionary trust (or trust power), and a mere power. This paper will examine the development that has been made in respect of the test for objects in discretionary trusts. In particular it will examine the cases of Mcphail v Doulton[1] and Re Baden (No 2). [2]
Certainty is a condition of validity for a trust. When a trust is created if it is to be valid it must satisfy the certainty tests. There are said to be three certainties which a trust has to meet, certainty of intention, subject matter and objects. [3] The standard authority is Knight v. Knight[4] in which Lord Langdale MR stated:
“First, if the words are so used, that upon the whole, they ought to be construed as imperative; Secondly, if the subject of the recommendation or wish be certain; and, Thirdly, if the objects or persons intended to have the benefit of the recommendation or wish be also certain.”
Objects are a generic term, but here the term certainty of objects is used to describe or define the beneficiaries, more precisely who the objects are, what they are to receive and when they will receive it. The concern is the beneficiaries have to be certain and identifiable.[5] Lord Willberforce has indicated the object of a trust does not have to be absolutely certain, just “sufficient” certain with “practical certainty”, moreover, the “administrative assistance” suggests wherecertain types of cases will go to court on a constructive summons and the court will provide constructive meaning of a trust instrument.[6]
The certainty test varies according to the nature of the trust, for a fixed trust there is need for a greater degree of certainty, because the trustees are mechanically implementing the trust. Contrast to a discretionary trust, the trustees are exercising discretion anyway, thus it is not so important if the beneficiaries are not so well defined. Contrasted to powers, there is even less need for a sufficient practical certainty needed than with discretionary trusts.[7]
The concern for the court is that the object of the trust must be certain arid identifiable. This is not an easy task, for example consider the bequest “my house Whiteacre and £50,000 on trust for my brother Tom”. This bequest would cause no problems if I had only one brother Tom. However, if I had two brothers named Tom then complications will arise in ascertaining who the trust was intended. Thus the law of trusts creates special rules to determine objects which vary according to the type of the trust arrangement. The rules differ according to whether there is a fixed trust; a discretionary trust (or trust power); or a mere power.[8] Once the test of that particular category is fulfilled the court will hold there to be certainty of objects. Failing this test will mean the power or trust fails.
Fixed are such that the trustees have no discretion in the carrying out of their duties. It follows from this that the test for objects in a fixed trust is the complete list test. This means that a complete list of all the objects needs to be able to be drawn up for it to be certain. For example “£150,000 to be divided equally between, my sons”, this means all my sons will be identifiable through a list and then they can be said to be in that class of objects, as observed by Jenkins LJ in IRC v Broadway Cottages.[9] If the complete list cannot be drawn up the trust fails.[10]
A mere power or trust power is where the trustee has absolute discretion whether to nominate a beneficiary and ultimately make a gift or not. The obligation is not imperative. Thus because the powers are completely discretionary, there is no need to have a complete list. The test that is used with powers is the is or is not test.[11] If the trustees can make a list of objects and non-objects then the power will not fail for uncertainty. This test was laid down in the case of in Re Gulbenkian’s Settlements.[12]This case concerned a trust where the trustees had a power to apply income from the trust fund to maintain, “any person in whose house or in whose company or in whose care Gulbenkian may from time to time be residing”. The House of Lords held to determine if a power was valid the “is or is not test” was the correct test for powers.
A discretionary trust is where the trustees are asked to use discretion when exercising their functions. This is the type of trust where the trustees can appoint one or all of the potential beneficiaries. Prior to 1971 were no appointment was made, the court had the power to carry into effect the trust and would usually make an equal division between members.[13] Therefore the test was that a complete list needed to be drawn up of all objects and same as fixed trusts, failing this the trust would fail. The authority for this was IRC v Broadway Cottages Trust Ltd.[14] This case created significant problems because, during the last century there was a development of large discretionary trusts, with many hundreds of thousands of beneficiaries, mainly in connection with pension funds or trusts for employees set-up by companies.[15] They were often drawn up a discretionary trusts rather than powers of appointments and the problem with IRC v Broadway Cottages Trust was that it happened to invalidated lots of pension trust instruments, because it was inherently its nature, to be for large groups, whose beneficiaries could not be drawn up onto a complete list.[16]
After 1971 the test for certainty of objects in respect of discretionary trusts was changed in Mcphail v Doulton.[17] The House of Lords considered the clause: “the trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees and ex-employees of the company or to any relatives or dependants of any such persons in such amounts....” the court held the correct test to be applied to determine certainty of objects was the list test. The House of Lords held the difference in tests between the discretionary trust (complete list) and mere powers (is or is not) was arbitrary, illogical and embarrassing. They therefore overruled the complete list requirement and brought the test for discretionary trusts in line with powers. The House of Lords held that the appropriate test for discretionary trusts was the Gulbenkian test, i.e. that a trust will be valid if it could be said with certainty that “any given individual is or is not a member of the class”.[18]
There were two dissenting judges that argued discretionary trusts should be subject to a complete list test because first to execute a discretionary trust (Lord Hodson) you must know every possible beneficiary, because you have to consider each possible beneficiary, this cannot be done without a complete list. Second if the trustees fail to carry out a trust, the act must be able to act on their default, because of the traditional rulings of equity is equality, the court has to divide the trust equally and if there is no complete list test the court is unable to perform this task. Lord Willberforce who stated in a discretionary trust you do not have to consider every possible beneficiary represented the majority; it is enough if you survey the field. To survey the field you do not need to use a complete list the is or is not test is sufficient. Secondly, referring to Lord Hodnson second point, if there is a default the court does not need a complete list either, because it is silly to dived the trust equally in that type of case, in a discretionary trust for hundreds and thousands of people, he suggested an alternative method of distribution, such as appointing new trustees, a new scheme of distribution, to be checked by the court.
In the case of Mcphail v Doulton once the court had made that decision the trustee’s tried to implement the trust, but there was further litigation over what was actually meant, by the is or is not test. They remitted the case back to the Chancery Division where the case became accepted as Re Baden (No 2).[19] Each judge had a different opinion of what was meant by the is or is not test. The trust was upheld although each judge provided a distinct stance as to the is or is not test.
Lord J Sachs emphasised that the court was concerned with conceptual certainty test and not evidential certainty. Sachs LJ was able to validate the trust only by adopting very wide definitions of both “relatives” and “dependants”, enabling a clear line to be drawn between those who were within and without the class. Sachs LJ opined that relatives were defined as any persons who are linked by a “common ancestor”. The meaning of people with a common ancestor is clear although, it is clear there may also be evidential problems, Sachs LJ believed evidential certainty was not an issue here. He observed that “dependants” had already been defined by the courts, for example in relation to the Workmen’s Compensation Act 1897, but he was also able to adopt a bright line definition by taking the view “that any one wholly or partly dependent on the means of another is a “depend-ant”.”
Lord J Stamp emphasised that the is or is not test was not only about conceptual certainty, a class can be conceptually certain, but it can still fail the is or is not test because of evidential uncertainty. The trustees are to make a comprehensive survey of the range of objects, but Sachs LJ did not believe the trust would necessarily fail if at the end of the survey, it was unfeasible to draw up a list of each beneficiary. Stamp LJ opined that relatives defined as any persons who are linked by a common ancestor, was evidentially uncertain. Stamp LJ would have taken the view that the trust failed, had it not been for the fact that he felt compelled to follow an early House of Lords authority, which held a discretionary trust for “relations” was valid, “relations” being defined in a narrow way for distribution purposes as “next of kin”.
It would seem Sachs LJ would uphold a trust that cannot be carried out, it is very well saying all you need is conceptual certainty, but if you do not have any evidential certainty the trust will not be viable. Stamp LJ recognises the realities; you should not validate a trust, which cannot be carried out. One objection is that the way Stamp LJ interpreted the is or is not test, seems to resurrect the complete list test for discretionary trusts which was rejected by the House of Lords as the incorrect test. Stamps view that you have to be able to establish evidential certainty and who is in the class and who is not, this makes it unnecessarily strict on the class, which more or less amounts to resurrecting the complete list test.
Lord Megaw took a different route. He required a substantial number of people being able to be shown with certainty that they fall within the class. This is a rather unclear type of test because clearly it is not enough to be able to show that one person is certainly within the class, as this test was rejected in Gulbenkian. Presumably, the test requires evidential, as well as conceptual certainty. For example relatives defined as any persons who are linked by a common ancestor, Megaw LJ took the middle line and believed within that class if you could always show a substantial number of people, then they are relatives.
FINAL REMARKS
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[1] [1971] AC 424 [2] [1973] Ch 9 [3] Speirs, A., Escape from the Tangled Web, [2002] 3 Web JCLI at http://webjcli.ncl.ac.uk/2002/issue3/speirs3.html [4] (1840) 3 Beav 148 [5] Klinck, D. R. McPhail v. Doulton and Certainty of Objects: A'Semantic'Criticism"(1988). Ottawa L. Rev., 20, 377. [6] [1971] A.C. 424, at 450 [7] Hayton, D. J., Marshall, O. R., & Nathan, J. A. (1986). Cases and Commentary on the Law of Trusts. Stevens. [8] Penner, J. (2014). The law of trusts. Oxford University Press. [9] [1955] Ch 20 [10] Harris, J. W. (1970). Discretionary Trusts. An End and a Beginning?. The Modern Law Review, 686-691. [11] Hopkins, J. (1971). Certain Uncertainties of Trusts and Powers. The Cambridge Law Journal, 29(01), 68-102. [12] [1970] AC 508 [13] Moffat, G. (2005). Trusts law: text and materials. Cambridge University Press. [14] [1955] Ch 20 [15] Moffat, G. (1992). Trusts law: a song without end?. The Modern Law Review, 55(1), 123-139. [16] Harris, J. W. (1970). Discretionary Trusts. An End and a Beginning?. The Modern Law Review, 686-691. [17] [1971] AC 424 [18] Per Lord Wilberforce [19] [1973] Ch 9
EQUITY AND TRUST LAW Q&As
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