Week 2 – Express Trusts; The 3 Certainties

Week 2 set of lectures

• Creating an express trust
• The 3 certainties
• Certainty of intention to create a trust
• Certainty of subject (the asset(s))
• Certainty of object (the beneficiaries)
• How the 3 certainties apply in the different types of trusts (and gifts or powers) that
we have identified
• Many of these rules apply to gifts too
• Perpetuity periods
• Chapter 4 of Virgo

Why is this important?

• Creation of a trust matters (as does the giving of a gift)
• We need to know if a trust has arisen and exactly when
• Beneficial interest is created providing equitable proprietary rights
• Settlor loses their interest
• Trustee now has obligations for which they are personally liable in the event
of breach
• 3rd parties may be effected such as the Inland Revenue or creditors in an
insolvency action
• Lots of cases in Equity where the issue of concern to the parties is something
else (such as payment of tax) but the court is having to determine if a trust
exists.
• The 3 certainties help us to determine if a trust has arisen
• All 3 certainties must be satisfied
• Important to understand the consequence of a failure re: the certainty = what
happens to the asset……..English law will not allow an asset to just hang in
the air…….
The Three Certainties
• Lord Langdale MR in Knight v Knight (1840) 3 Beav 148, 173:
• 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
• Courts will try to give effect to express intention
• Pearson v Lehman Brothers Finance SA [2010] EWHC 2914 (Ch), (Briggs J) at 245:
• “The law does not lightly allow […] parties' purposes and intentions to be
defeated by supposed uncertainty, and there is in my judgment no reason why
the law should do so any more readily than normal merely because the issue is
as to the validity of an intended trust. On the contrary, the law commonly
recognises the creation of a trust as a necessary consequence of an intention
that parties should share property beneficially, in circumstances where the
parties themselves have given no thought at all to the terms of the
consequential trust, if indeed they even recognised its existence. In all such
cases the law fills the consequential gaps by implication, and by importation
of generally applicable principles. 
Certainty of Intention
• The role of intention as a theme runs throughout Equity.
• Settlor’s intention
• Express intention to create a trust whether in lifetime or after the settlor’s death.
• That does not mean the settlor must use the words ‘trust’ or specifically articulate that
they are intending to create a trust.
• Settlor must have capacity to create a trust i.e. a child or incapacitated person cannot
create a trust
• [If settlor wishes to give a gift then similarly settlor must have the intention to give a
gift.]
• Q of fact depending on construction of document, will or circumstances
• KEY test: did creator want to impose a mandatory obligation on someone to
hold property for benefit of another so that they are under a duty to do so?
• Creator did not have to understand that this would be effect of what
creator said/did
• Pearson: [It arises even where] parties themselves have given
no thought at all to the terms of the consequential trust, if
indeed they even recognised its existence.
• No set form of wording more or less likely to evidence intention
• Use of word ‘trust’ not necessary to create a trust
• Trust can be created orally or in writing

Case examples concerning intention

• Paul v Constance [1977] 1 WLR 527
• Mr C separated from his wife (but not divorced) and starts new relationship with the
claimant.
• He opened up bank a/c in his sole name & deposited his personal injury money into it
(£950).
• Told the claimant ‘this money is as much yours as it is mine’
• Also deposited their joint venture bingo winnings into the a/c.
• Mr C dies intestate. His wife claims the account but claimant says Mr C self declared
a trust. Money was held on trust for them both. Court agreed.
• No words of ‘trust’ used.
Working out intention
• Look at the words used (orally or in writing)
• Objective assessment = what would a reasonable person conclude that the creator of
the trust intended?
• Precatory words
• Words which are indicative of a desire rather than imposing a mandatory
obligation
• Hope, wish, desire, knowing, fully confident….’I give my house to my brother
hoping he will use it for my children’
• Do NOT automatically create a trust. In fact very likely that it will not amount
to a trust
• Re Adams v Kensington Vestry (1884) ‘I give, devise, and bequeath all my real
and personal estate and effects….unto and to the absolute use of my dear
wife…in full confidence that she will do what is right as to the disposal
thereof between my children’
• Q – is this a gift to the Wife or does the Wife hold on trust for the children??

Precatory words
• Held: absolute gift to Wife: merely a moral obligation (not legal)
• Cotton LJ at 410: “…I think that some of the older authorities went a
deal too far in holding that some particular words appearing in a will
were sufficient to create a trust. Undoubtedly, confidence, if the rest of
the context shows that a trust is intended, may make a trust, but what
we have to look at is the whole of the will which we have to construe,
and if the confidence is that she will do what is right as regards the
disposal of the property, I cannot say that that is, on the true
construction of the will, a trust imposed upon her.”
• Later case of Comiskey v Bowring-Habury [1905] emphasis on
construction of the document as a whole and not just one clause

Context can matter with intention

• Context dependent
• Family:
• Paul v Constance: “as much yours as mine”; setting up bank account;
joint withdrawals therefore was a trust
 • Jones v. Lock (1865) 1 Ch App: “I give this [cheque] to baby”; “I am
going to put it away for him”
• Held: Loose conversations not sufficient to create trust and a
failed gift cannot be turned into a trust if no evidence of
intention to create a trust
• Commercial:
• R v Clowes (No.2) [1994] 2 ALL ER 316:
• A gives money to B: typically creditor debtor
• But possible trust if:
• recipient of money puts in designated separate
client accounts from recipient’s money
• In this case investors informed clients would be
beneficial owners of securities purchased on
their behalf
• Held: money was intended to be held on trust
rather than creditor/debtor relationship

If there is no certainty of intention to create a trust?

• There is no trust!
• What happens to the asset?
• It depends on the reason for the failure of intention:
• It may be that the trust asset returns to the settlor (or Testator’s estate) or it may be
that it is treated as absolute gift for the purported Trustee.
• For example, where precatory words used it becomes gift to purported T. Whereas if
no certainty of intention for other reasons property remains/reverts back to the settlor
or their estate.
• [If all else fails asset goes to the Crown]
Certainty of Subject Matter
The asset(s) of the trust
• What asset(s) is this trust concerned with? We need certainty regarding the asset over
which a trust is to be created.
• Q of fact
• Can I point to it and ring-fence it off?
• Can I work out what the asset is?
• A trust can declared over many different types of assets:
• Property/land
• Shares/investments
• Money in banks/cash
• Items such as paintings, cars, jewellery or anything of value
• Intangible property such as a debt
• Level of certainty can depend on the type of asset

Question of fact
• Certainty of subject is a question of fact.
• 3 cases that are all addressing the same type of asset.
• Palmer v Simmonds (1854)
• Leave the bulk of my residuary estate unto certain named persons
• Re Last (1958]
• ‘anything that is left’ of the testator’s estate
• Re Golays Wills Trust [1965]
• ‘a reasonable income’ from my…properties.
Court’s decision in each case
• Palmer v Simmonds
Kindersley V-C: “When a person
• ‘the bulk’ is said to have given the bulk of
• NOT sufficiently certain his property, what is meant is not
the whole but the greater
• Bulk is what? 55%? 65%?, 80%?, part……... When, therefore, the
95%???? testatrix uses that term, can I say
• Re Last she has used a term expressing
a definite, clear, certain part of
• ‘anything that is left’ her estate, or the whole of her
• IS sufficiently certain estate? I am bound to say that
she has not designated the
• We can work it out. It is the same as subject as to which she
saying residue or residuary estate expresses her confidence and I
am therefore of the opinion
• Re Golay’s wills trust
that there is no trust created.”
• ‘reasonable income’
• IS sufficiently certain
• Possible to determine what is objectively considered to be reasonable [court
able to identify criteria by using Bs previous standard of living]

Use of adjectives
• Be careful of descriptive words used for an asset
• Eg my favourite house….
• My best car….
• My beloved painting….
• Unless it can be clearly ascertained which asset is being described here then the trust
will fail for lack of certainty of subject.

Segregation from a bulk

• When the asset is part of a bulk then it needs to be identifiable
• For example, I have10 necklaces and I decide….’I give to my sister Rafia one of the
necklaces from my jewellery box’
• Which necklace?
• Is there sufficient info to identify the specific asset?
• Would it make it any better if I said half of the contents of my jewellery box?
 • Same rules apply here for a trust or for a gift i.e. need certainty of subject matter.

Homogenous mass
• If I attempt to give part of mass then need clarity as to specifically which bit is the
subject matter of the trust.
• If I identify specific asset then no problem.
• Assets that appear homogenous but are in fact individual
• 100 sheep – all look the same. If I attempt to create a trust and say 20 of my sheep
without specifying exactly which 20 then this will be problematic.
• Other assets are truly homogenous
• Such as money in an account or shares of the same type

Segregation from bulk cases

• Complexities have occurred when goods are ‘homogenous’ or tangible/intangible
• Re London Wine Co [1986]
• Hunter v Moss [1994]
• Re Goldcorp Exchange [1995] (decided shortly before Hunter v Moss decided)
• Re London Wine
• A Co acquires a stock of wine that is stored in various warehouses.
• Quantities of the wine are sold to different customers but the wine remains
stored in the warehouses without being allocated to particular contracts
• Co goes into liquidation
• Customers argue their wine is held in trust for them
• Q – has the wine been sufficiently identified? Do we have certainty of subject
matter?
• NO – certainty here would require wine to be segregated from the bulk

Re Goldcorp Exchange
• Customers paid for gold bullion
• Before delivery Co becomes insolvent
 • Did customers have proprietary rights to the gold bullion? Which a trust would give
them.
• A few customers = their bullion had been segregated from the bulk
• Majority of customers = their bullion had not been segregated
• No identifiable property therefore no trust.
• Even though one gold bullion is exactly the same as another gold bullion

Hunter v Moss
• Def Eer owned 950 out 1000 shares in a Co. Def declares he held 5% of the co shares
(i.e. 50 shares) on trust for the Cl Eee.
• You would think there is a lack of certainty of subject matter; did not identify which
50 shares and nor was there any segregation.
• However, court said certainty of subject matter was found.
• Virgo addresses the reasons why:
• If this was in a will it would succeed…..
• The shares were all exactly the same type, same class in same co. i.e. shares
were indistinguishable from one another
• Any 50 shares capable of satisfying the trust
• Intangible property – more benevolent approach in intangibles
• Arguably similar for money in an account
• Though money in account can be problematic at times – see case law from the
text book reading such as MacJordan Construction v Brookmont
• The consequences of Hunter v Moss are explored by Virgo
Certainty of Object
Identifying the beneficiary
• General rule = beneficiary must be human (as oppose to a purpose or
animal/plant/inanimate object etc)
• Certainty of objects depends on the type of trust created
• Level of certainty required = is T (or the court) sufficiently clear as to who are the
beneficiaries?
• Different tests of certainty developed for the different types of trusts

Matters to be considered:
• Where there is a named person(s) as the object(s) then no problem.
• The issues arise where you have a class of Bs and then it depends on the type of trust
created. You will need to differentiate which test of certainty of objects applies
(essential test of certainty).
• Conceptual certainty = is the class of Bs sufficiently clear
• Evidential certainty = can the objects prove with evidence they come within the class
of Bs?
• Ascertainability = can the Bs be located?
• Size of class/administrative unworkability = is the class too big making the trust
unworkable?
• Capriciousness = the class of objects makes no sense

Types of Trust – reminder

• Fixed Trust
• Trustee has no choice as to what T gives or to whom, eg ‘All of my houses to
be held on trust and to be divided equally between my children’
• Fixed trust that subject to a condition, eg, ‘A fund set up for any child of mine
that passes their A’levels is to receive £5k’
• Discretionary Trust
• Trustee has a choice as to who they give and in what amounts, eg ‘£50,000 to
be held on trust and distributed as my Trustees think fit to my cousins.’
• Powers = £50,000 to my Trustee who may distribute it amongst my cousins if
my T wishes to do so and anything remaining is to be given to my neighbour
Andy.
Fixed Trust
• Need conceptual and evidential certainty
• Trustee has no discretion how much and who to.
• Conceptual certainty achieved by the ‘complete list’ test
• In a fixed trust the Trustee must be able to produce a complete list of all Bs.
• Complete list at point of distribution (not necessary at point of creation)
• Objects must be able to prove that they come within the class i.e. evidential certainty
• No issues concerning ascertainability, administrative unworkability or capriciousness.
The complete list as a requirement means that these aspects are unnecessary to
consider.

Trust/Gifts with conditions

Condition precedent Condition subsequent

• Distribution subject to a condt being met • A stricter test of certainty

• Certainty of object is met if one person can applied here where the condition
satisfy the condition subsequent defeats the Bs claim.
• Re Barlow’s Wills Trust [1979] • Eg B is entitled to the share
• Testatrix had left some paintings in unless some future event occurs
her will on trust for sale but such as fail their exams.
directed that any members of her • We need certainty not just in the
family or friends could purchase object but in the condition that
them for a lower price. will defeat the claim.
• Condition precedent = must be a • Re Jones [1953] = B forfeited
family member or friend property if she had a social or
• Is friends conceptually certain? other relationship with a named
Perhaps not for a discretionary trust person.
but here if at least one person can • Condition failed for lack of
meet this condition then sufficient certainty
certainty.
• It is for the object to show they
meet the requirements of the class.

Discretionary Trusts
• T has discretion as to whom and in what amounts T distributes
• Initially we had same test of ‘complete list’ applicable – but this is very problematic
for DTs (see, IRC v Broadway Cottages Trust [1955])
 • Very important cases of McPhail v Doulton [1971] AC 424 and Re Baden’s Deed
Trusts (No 2) [1973] Ch 9
• Both cases are dealing with the same set of facts
• McPhail is the HL decision on the law and the case was then remitted back to the
lower court to apply the law to the facts of the case.
• In order to understand the decision in McPhail v Doulton need to understand the test
that is applied for powers (rather than trusts)

Certainty of objects for a Power

• No obligation to distribute to anyone
• Test for certainty settled in Re Gulbenkian’s Settlements [1970] AC 508
• Power: ‘Gulbenkian, his wife, children, remoter issue or anybody who employed him
or with whom he resided’
• Test for conceptual certainty = if it could be said of any given person whether they are
or are not a member of the class
• (is/is not test or given postulant test)
• is the class sufficiently conceptually certain that a decision could be made to say
whether a person is or is not a member of that class.

McPhail v Doulton [1971] HL

• Mr Baden creates DT for the benefit of ‘any officers, employees or ex-officers or ex-
employees or any relatives or dependants of any such persons’
• Complete discretion of the trustees so it is DT
• Lord Wilberforce at 221:
• “The conclusion which I would reach […] is that the wide distinction between the
validity test for powers and that for trust powers, is unfortunate and wrong, that the
rule recently fastened on the courts by the Broadway Cottages case ought to be
discarded, and that the test for the validity of trust powers ought to be similar to that
accepted by this house in Re Gulbenkian’s Settlements Trusts for powers namely that
the trust is valid if it can be said with certainty that any given individual is or is not a
member of the class.”

Certainty of objects for a DT following McPhail

• Conceptual certainty = the correct test is the is/is not test
• Evidential certainty = we will discuss in Re Baden Deeds (no 2)
• Ascertainability = will not invalidate the trust
 • Emery (1982) 98 LQR 551
• Administrative unworkability = Lord Wilberforce suggested a DT for the
benefit of ‘all residents of Greater London’ would be void for this reason.
• R v District Auditor exp West Yorkshire MBC [1986]
• DT for inhabitants of West Yorkshire declared void

Re Baden (no 2) CA – application of test

• Mr Baden creates DT for the benefit of ‘any officers, employees or ex-officers or ex-
employees or any relatives or dependants of any such persons’
• In applying the is or is not test the Q arose as to whether the terms ‘relative’ and
‘dependants’ are conceptually certain.
• Dependants = those who are wholly or financially dependant on someone else
• Relatives = all 3 judges agreed conceptually certain but had differing definitions and
they applied the is/is not test in different ways which impacted on the evidential test.
• Definition of relatives:
• Sachs and Megaw LLJ defined relatives as ‘descendants from a common
ancestor’
• Stamp LJ defined relatives as ‘next of kin or nearest blood relations’

Re Baden (no 2) – applying the is/is not test and evidential certainty
• Sachs LJ
• Is/is not test concerned with conceptual certainty only & evidential certainty
not required for DT
• Applying the test is a Q of fact – If a person could not prove they were a
member of the class then they fell outside it (i.e. that person is not an object of
the trust). But trust is still valid.
• Megaw LJ
• It is enough if it can be shown that a substantial number of objects come
within the class
• Stamp LJ
• It had to be shown that of any given person that either they were or were not
within the class
 • That does NOT mean a complete list but if there is uncertainty about any one
person the trust fails
 Virgo concludes that it is Stamp LJ’s application of the test which is the most
consistent with Lord Wilberforce’s judgment though he prefers Sachs’ application
because that is more likely to respect the settlor’s intentions.

Discretionary trusts
• Administratively unworkability
• When it comes to DT more likely that trusts have a large size of the class
• Role of T is to survey the class to decide on distribution – can the T do this?
• Capriciousness
• Trust void because settlor had no sensible intent
• No case in which a trust has been declared void for this reason alone
• Often there will be no conceptual certainty before we even get to consider
capriciousness

Resolving uncertainty via a Trustee arbiter

• Eg I set up a trust in which I say my Trustee can decide who falls within the class
• Need to be careful
• Trustee cannot resolve conceptual uncertainty
• Excessive delegation = trustee cannot take the place of the settlor!
• If T does not do their job then court has to distribute
• Trust ‘for my elderly neighbours’
• If that is conceptually uncertain I cannot rectify it by saying my trustee can decide
who is an elderly neighbour.
• Trustee may be arbiters of evidential certainty but NOT conceptual certainty. So for
example a Trustee can decide if a condition is satisfied that would allow the B to
receive an asset.
• If the trust said ‘those aged over 65 living on my road’ and in the event of a dispute
my Trustee can decide; then no conceptual uncertainty
• Not an easy topic!
Resolving uncertainty via a 3rd party arbiter
• Eg I set up a trust for people that were friends with me at school and if there is any
dispute then my former teacher Mrs Lawrence can decide whether someone was my
school friend.
• Similarly 3rd party cannot resolve conceptual uncertainty.
• Need to deal with the conceptual certainty first before considering the role of the
arbiter. In practice very difficult.
• Re Tucks Settlement [1978] Ch 49 – any dispute as to whether a person was married to
an ‘approved wife of the Jewish blood’ to be resolved by the chief rabbi.
• Lord Denning went further and said conceptual uncertainty could be resolved by the
3rd party arbiter.
• Trying to fulfill the intentions of the settlor against ensuring court’s supervisory role
is not ousted

Perpetuity periods
• Rule against remoteness of vesting = property must be vested in individuals within a
recognised period of time otherwise void i.e. it must belong to someone
• I can have a vested interest in an asset that I do not have immediate possession of.
• Reason? We do not want wealth locked in settlements for hundreds of years.
• Perpetuity period in common law = life in being plus 21 years
• Perpetuities and Accumulations Act 2009 = period of 125 years
• Wait and see rule = interest in the property not to be treated as void until clear that the
perpetuity period is going to be breached.
• In effect trust cannot go on for longer than 125 years.

Overall structure & summary

• In any disposition you need all 3 certainties.
• So the structure to adopt is to take each disposition and examine it as follows:
1) Certainty of Intention
a) What can you deduce to be the intention of the settlor? A gift? A trust? A
power? Are precatory words used? If trust then what type of trust?
2) Certainty of Subject Matter
 a) What is the asset? Is it clearly identifiable? If part of a bulk has it been
sufficiently segregated?
3) Certainty of Object
a) What type of trust is it?
b) If fixed = conceptual & evidential certainty needed and need complete list
c) If discretionary (or power) = is/is not test applied. Need conceptual certainty
but evidential certainty is debated as per Re Baden’s case.
d) Is there a 3rd party arbiter involved?
e) What about administrative unworkability or capriciousness?
4) Come to a conclusion in relation to that disposition

Linked seminar & reading

• Chapter 4 of Virgo
• Seminar 2 – will practically apply the rules to a set of facts
• Explore some of the conceptual complexities