Critically evaluate the doctrine of certainty in the creation of a trust. To what extent would you agree that the courts have been faithful to this doctrine in their development of the trust?"
EQUITY AND THE LAW OF TRUSTS COURSEWORK
WORD COUNT – 1805
“Critically evaluate the doctrine of certainty in the creation of a trust. To what extent would you agree that the courts have been faithful to this doctrine in their development of the trust?”
A trust is an obligation binding an individual called a ‘trustee’ to deal with property in a particular way, for the benefit of one or more ‘beneficiaries’.
A declaration of trust must be ‘certain’ which means that a settlor must declare the terms of the trust with sufficient ‘certainty’ or precision for the trustees to know what they must do, or the intended trust fails.
The classification of certainty usually cited is that of Lord Langdale in the case of ‘Knight v Knight (1840)’.
The classification has been criticised, nevertheless it is the one that has been adopted by the Courts.
Lord Langdale laid down the principle that ‘three certainties’ are required for the creation of a trust which are:
- The certainty of words ( Intention )
- The certainty of subject matter
- The certainty of objects
If any of the certainties is absent then no valid express trust will be created. However the exact consequences will depend upon the circumstances.
We will now look at each of the three certainties one by one and consider whether or not the Courts approach towards them has been consistent.
Certainty of words (intention)
The test is purely subjective, in that the focus of attention involves the settlor’s genuine intention as construed by the courts. The maxim, ‘Equity looks to intent, not form’ fully applies to declarations of trust. No particular formula is necessary, not even the use of the word ‘trust’. Neither is it necessary for the settlor to know that, technically, that is what he is doing.
The attitude of the courts to the requirement for Certainty of Intention has changed over time. Before the middle of the 19th Century, the Courts tended to take the view that any expression of desire or hope or the like on the part of the testator was imperative and created a ‘binding trust’.
The ‘Executors Act 1830’ provided for executors to hold any property which had not been disposed of for the next of kin unless the testator had shown an intention that the executor should take beneficially.
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Since this act was passed the courts have felt able to tighten up their attitude. Consequently, when expressions such as, “desire”, “wish”, and “full confidence” received fresh consideration later in the 19th Century there was a change of approach.
If the words are indicative of some other kind of intention, such as an intention to make a gift, then this will not be construed as a trust.
This can be shown in the case of, ‘Jones v Lock (1865)’
In the case, the Court held that no valid gift of the funds was made in favour of the child, for the funds were not paid over to him therefore no trust had been declared in favour of the child, for Robert Jones had not made himself a trustee for his child.
A further difficulty arises when the settlor uses ‘precatory words’, which are words of hope or desire that the donee of the property will use in a certain way.
To rely on words alone as binding precedent would be dangerous, as the attitude of the courts has changed considerably over the last 150 years or so especially in relation to ‘precatory words.’
In the case of, ‘Re Adams and the Kensington Vestry’ (1884), the testator gave all his real and personal estate to his wife, “In full confidence that she would do what was right as to the disposal thereof between my children”.
The Court of Appeal held that, by virtue of these words, the widow took an absolute interest in the property unfettered by any trust in favour of the children.
It was established that beneficiaries were no longer to be made trustees unless this was the testator’s clear intention.
A similar conclusion was reached in the case of, ‘Lambe v Eames (1871)’.
The testator gave his estate to his widow ”to be at her disposal in any way she thinks best for the benefit of herself and her family” It was held that this was an absolute gift and therefore no trust.
In contrast, in the case of, ‘Comiskey v Bowring-Hanbury (1905)’ the court concluded that, on the facts of the case, a trust was intended by the testator.
Until the latter part of the 19th Century the chancellors tended to regard a gift accompanied by precatory words as being indicative of an intention to impose a trust on the donee.’
This was shown in the case of, ‘Hart v Tribe (1854)’.
“For her own and childrens benefit as her judgement and conscience saw fit” This case would not have been decided this way today as the courts in the Victorian times were much more liberal.
Precatory words are words of guidance and knowledge but they do not constitute a trust.
Certainty of subject matter
The certainty of subject matter has two aspects.
- ‘The certainty of the property that is subject to the obligation that it be held in trust and
- Certainty of the amount, or share of the trust property that each beneficiary is each to receive.’
The courts have traditionally held that unless there is certainty of subject-matter, no trust relationship would subsist.
For example in the case of, ‘Palmer v Simmonds (1854)’ it was held that the phrase “the bulk of my residuary estate” did not allow the subject matter to be identified, even though there was a clear intention to create a trust.
However, in the case of, ‘Re-Golay’s will trusts (1965)’ the testator directed his trustees to permit a beneficiary to “Enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.”
Ungoed Thomas J upheld the gift, holding that the yardstick of “reasonable income” indicated by the testator was not what he or some other person subjectively considered to be reasonable but what he identified objectively as “reasonable income” something which the court could therefore quantify and was enough certain to constitute a trust.
The conclusion was undoubtedly inconsistent with other contemporaneous decisions on certainty but does seem to be consistent with the more recent practice of the courts in trying to avoid, if at all possible, holding dispositions to be void for uncertainty, particularly, in respect of expressions such as “reasonable” or “satisfactory”.
There is the problem of whether the subject-matter can be distinguished from other assets which are not subject to the trusts.
The Courts have dealt with this according to the nature of the subject-matter involved.
For example, in the case of, ‘Re Goldcorp Exchange Ltd (1995), the Court held since the bullion subject to trust was not separated from the other, then there was no trust relationship.
Alternatively, in the case of, ‘Hunter v Moss’(1994), the Court held that when the assets subject to trust are shares then the fact that they are not separate does not hinder the constitution of a valid trust.
The Courts would declare the trust invalid if the corporeal subject-matter is not divided from other assets, which if the subject-matter is incorporeal, it would declare the trust valid even if it is not separate.
Certainty of Objects
The test for certainty of objects varies with the type of trust created. There is a narrow test for certainty of objects for ‘fixed trusts’ and a broader test for ‘discretionary trusts’.
In a ‘Fixed trust’, the trustees have no discretion how to distribute the benefits to and between the beneficiaries.
Historically, the position has always been that, for the trust to be valid, it must be possible to make a complete list of all the beneficiaries of the trust.
The test is sometimes also referred to as the ‘class ascertainability’ test. If the beneficiaries are not referred to by name they are required to be identified as a class, such as the ‘children’ or ‘relatives’ of the settlor. This was shown in the case of, ‘IRC v Broadway Cottages Trust (1955)’
“The modern test for certainty of objects in respect of discretionary trusts is known as the ‘Individual ascertainability’ test, or the ‘is or is not’ test, or the ‘any given postulant’ test”.
This test was laid down in the case of, ‘McPhail v Doulton (1971)’ which has undoubtedly changed the law with respect to discretionary trusts.
In this case it was established that in relation to a ‘discretionary trust’, there is certainty of object if you determine whether any given person is a beneficiary or not. The words used were, “my relatives and dependants of staff.”
The court held that there was conceptual certainty.
On the other hand in the case of, ‘Brown v Gould (1972) the words used were “my old friends”.
The Court stated that such a phrase lacked precise definition and therefore said that there was no ‘certainty of objects’.
It is still debatable whether the conceptual certainty test as illustrated in the case of, ‘McPhail v Doulton (1971)’ applies only to discretionary trust or whether it could also be made applicable to fixed trusts.
There is a great deal of uncertainty in this area, and the principles vary somewhat according to the type of trust under consideration.
However, what is clear is that ‘certainty of objects’, unlike the ‘certainty of intention’ is a question of law, and therefore the usual rules of precedent apply.
In conclusion, as illustrated above it has been proven that this area of law remains unclear.
The concept of certainty has evolved and the courts have not been consistent when considering the doctrine of certainty in the development of a trust.
An important case in English trust law is the case of, ‘Paul v Constance’ (1977),
In this case, Mr Constance held a bank account in his name but said to Mrs Paul, “This money is as much yours as it is mine”.
These words convey clearly a present declaration that the existing fund was as much the plaintiff’s as his own.
The Judge accepted that conclusion and found that the words constituted an express declaration of trust.
He did not subjectively 'intend to create a trust' but nevertheless he had created an express trust.
“This case blows all the doctrines out of the water”, and shows the Courts acting at their most liberal.
It is an extremely important case but in Equity, it is more important to get a result.
Courts are frequently called upon to exercise their equitable discretion, and rescue a gift that has failed for some reason or other.
The courts are reluctant to do this and the motto is: “equity will not perfect an imperfect gift”.
Knight v Knight 1840
Pg 164, J.E Penner, The Law of Trusts 5th edition
The Executors Act 1830
Jones v Lock 1865 LR 1 Ch App 25
Re Adams & the Kensington Vestry (1884) 27 ch D 394
Lambe v Eames (1871)
Comiskey v Bowring-Hanbury (1905) AC 84
Pg 13 essential trusts by Andrew Iwobi
Hart v Tribe 1854 18 Beav 215
Pg 81 The law of trusts by Jeffrey Bruce Berryman, Gillen, Woodman, Berryman, Farquhar, Girard, MacPherson, McDorman et al., Mark R Gillen, Faye Woodman
Palmer v Simmonds (1854) 2 Drew 221
Re Goldcorp Exchange Ltd (1995) 1AC 74
Hunter v Moss (1994) 1 WLR 452
Pg 41 unlocking trusts 2nd edition, Jacqueline Martin & Chris Turner 2008, London Hodder education
IRC v Broadway Cottages Trust (1955) Ch 20
Pg 43 ibid
McPhail v Doulton (1971) AC 424
Brown v Gould (1972) Ch 53
McPhail v Doulton (1971) AC 424
Paul v Constance 1977 WLR