Chapter 2: Trusts - The Three Certainties

Lord Langdale in the case of Knight v Knight (1840) 3 Beav 148 made it clear that a private express trust cannot be created unless the three certainties are present.

Lord Langdale in Knight v Knight stated that:

'As a general rule .... to create a trust.

First, ....the words are so used, that upon the whole, they ought to be construed as imperative;

Secondly, the subject of the...wish be certain; and,

Thirdly, the objects or persons intended to have the benefit of the recommendation or wish be also certain.'

Traditionally, this has been expressed as the certainty of intention (some refer to this as the certainty of words in line with what was stated by Lord Langdale), the certainty of subject matter and the certainty of objects.

Although the trustees of the trust must be certain, the lack of a trustee is not necessarily fatal to the creation of the trust. The court has the power to appoint new trustees under the Trustee Act 1925 or its inherent jurisdiction. The maxim that 'equity will not allow a trust to fail for a want of a trustee' applies.

The three cases in which a trust was found to have been created are Paul v Constance [1977] 1 WLR 527, Re Kayford Ltd [1975] 1 All ER 604, and Rowe v Prance [1999] 2 FLR 787.

In Paul v Constance [1977] 1 WLR 527, the deceased received a sum of money as compensation which he put into a bank account. He intended for the bank account to be in the plaintiff's and his joint names. However he was advised against this by the bank manager. Money from the account was used for their joint purposes and on a number of occasions, he had said to the plaintiff that 'the money is as much yours as mine'. The Court of Appeal decided that the words used by the deceased together with his actions were sufficient evidence of an intention to create a trust of the bank account in favour of the plaintiff and himself, though the specific moment of declaration of the trust could not be properly pinpointed.

Likewise in Re Kayford Ltd [1975] 1 WLR 279, the company carried on a mail order business. Monies received from their customers as deposit or advanced payment were placed in a separate bank account which was subsequently called the 'customers trust deposit account'. The court held that in the circumstances of the case a trust of the monies in that bank account had been created since the all the requirements for the creation of a valid trust of personalty had been satisfied.

In Rowe v Prance [1999] 2 FLR 787, the defendant had a relationship with the plaintiff. He acquired a boat that was registered in his sole name. He repeatedly referred to the boat as 'our boat' and said that the plaintiff could not be registered as legal owner as she did not have a master's certificate. The court held that the trust had been sufficiently declared and the plaintiff was entitled to half of the boat.

However in Jones v Lock (1865) LR 1 Ch App 25, Richards v Delbridge (1874) LR 18 Eq 11, and Re B (Child: Property Transfer) [1999] 2 FLR 418, no trust was found to have been created.

In Jones v Lock (1865) LR 1 Ch App 25 a father wrote out a cheque which he attempted to give to his nine month old son. He stated at the time that he was giving it to baby. He then took back the cheque but died before he could set up a trust for his son. The Court held that although there was an intention to make an outright gift, this failed and since there was no evidence of an intention to set up a trust, a trust could not be implied. The court stated that mere loose conversation would not be sufficient to show an intention to create a trust.

In Richards v Delbridge (1874) LR 18 Eq 11, a similar conclusion to that which was reached in Jones v Lock was reached. Here an attempted transfer of a lease from Delbridge to his grandson failed. It was held that there was no transfer nor a trust of the lease.

In Re B (Child: Property Transfer) [1999] 2 FLR 418, a financial provision order had been made following the termination of the relationship of an unmarried father and mother. The order stated that the legal interest in the family home was for the mother for the 'benefit of the said child...'. The court held that the words 'benefit of...' did not create a trust.

It is clear that there is no need to use the word 'trust' in order to create a trust. However, there must be a clear and unequivocal intention to create a trust which impose an imperative obligation on the trustee/s. It is a question of construction of the relevant words as to whether a trust was intended. If the words are in a written document this is usually the trust instrument, the will or can be a statute (see Duggan v Governor of Full Sutton Prison [2004] EWCA Civ 78).

As part of this it has been recognised by the courts in cases such as Lambe v Eames (1871) 6 Ch App 597, that the use of precatory words will not suffice to create a trust. This is because the use of precatory words indicate that the testator or settlor intended to impose only a moral as opposed to a legal obligation on the recipient of the property.

Although we have stated that the use of precatory words do not generally provide the requisite intent for the creation of a private express trust, this is ultimately a question of fact. In some cases, even after Lambe v Eames (1871) 6 ChD 597, it has been held that a trust existed even where the testator had used precatory words. This is because the circumstances of the case indicated a clear intention to create a trust.

In Comiskey v Bowring-Hanbury [1905] AC 84, the House of Lords found that precatory words did not negate the existence of a trust.

In that case, a testator left his wife 'the whole of my real and personal estate and property absolutely in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it to one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will or testament. I hereby direct that all my estate and property acquired by her under this my will shall at her death be equally divided among the surviving said nieces'.

The will went on to state that 'I appoint my said wife Ellen Hanbury and Charles Fisher....executrix and executor of this my will and I give the said Charles Fisher such sum not exceeding GBP150, as my dear wife may decide upon'.

The House of Lords (by a majority) decided that on a true construction of the will, the testator wanted his wife to have a gift of the real and personal property, with a gift over to his nieces on her death in accordance to such share as the wife would stipulate in her will or otherwise equally.

In Re Steele's Will Trusts [1948] Ch 603, the court held that a valid trust was created notwithstanding the use of precatory words in the relevant clause. What was the reason for this conclusion?

That there was evidence that in drafting the will a precedent was used where the precatory words were used which gave rise to a trust.

Concluding Remarks

(a) Where the trust fails for lack of certainty of intention, generally the property would belong to the donee absolutely, unless, there are words to the contrary. See for example, Lambe v Eames (1871) 6 Ch App 597.

(b) The use of the word 'trust' in relation to the Crown or the Government does not necessarily create a trust which can be enforced by the court: Tito v Waddell (No 2) [1977] Ch 106. This is sometimes referred to as a trust in the highest sense whilst the normal trust is a trust in the lower sense. It is strange that a trust in the highest sense is not enforceable by the court but as a matter of constitutional law and construction of the relevant clause, it would be inappropriate for the court to enforce this type of trust.

Certainty of Subject Matter

There are two aspects to be considered in the context of certainty of subject matter.

(a) The subject matter of the trust as whole must be certain, i.e. that is that property which is subject to the trust must be capable of being identified.

(b) The beneficial interest to be taken in the trust property must likewise be certain.

We will examine these two issues in turn.

In order for there to be certainty of subject matter as a whole, it is important that the property which is the subject matter of the trust is capable of being identified with some degree of certainty.

Identify which of the situations below satisfies this requirement and which doesn't.

Example: “I leave the residue of my estate to be held on trust for my children.”

This satisfies the certainty of subject matter. The residue of an estate is sufficiently certain. It is what remains after all the debts and legacies have been paid.

The Suspensory Trust

In the context of certainty of subject matter as a whole, it is important to consider the situation where a testator leaves property to a beneficiary and then directs that what s/he does not use or want at his or her death, is to be given to other named beneficiaries. In such a situation, a number of cases have made it clear that it fails the certainty of subject matter requirement and is construed as an absolute gift in favour of the first beneficiary. Note that this is different to leaving a remainder interest, where the principal beneficiary only has a life interest in the gift. With cases such as Sprange v Barnard (1789) 2 Bro CC 585, the gift was given ABSOLUTELY to the principal beneficiary with a stipulation that anything left over that was not used, was to go to the next of kin. This was held to be uncertain as it could not be determined what would be left. This can be contrasted with the case of Re Last [1959] 1 All ER 316 where a different construction was given to this type of limitation.

A third option would be to consider whether this gives rise to a suspensory trust. However, this has gained only limited acceptance. In Ottaway v Norman [1972] Ch 698 Brightman J suggested that:

'I am content to assume for present purposes,...that of property is given to [A] on the understanding that [A] will dispose by his will of such assets, if any, as he may have at his command at his death in favour of [B], a valid trust is created in favour of [B] which is in suspense during the lifetime of [A] but attaches to the estate of [A] at the moment of [A]'s death.'

This has been accepted in Re Cleaver [1981] 1 WLR 989 and has also been considered in the Australian case of Birmingham v Renfrew (1936) 57 CLR 666. It remains to be seen whether this principle will gain judicial acceptance in the future.

Certainty of Subject Matter as to the beneficial interest

The second aspect of the requirement of certainty of subject matter relates to the requirement that there must be certainty of subject matter as to the beneficial interest to be taken in the trust property.

In Boyce v Boyce (1849) 6 Sim 476, the testator devised two houses to trustees upon trust to transfer one of them to Maria, his daughter, 'whichever she may think proper to choose and elect'. The other house was to be conveyed to Charlotte. Maria died before the testator and the question arose as to what Charlotte was entitled to.

The statements represents the decision of the court:

Statement: Maria's gift lapsed as she failed to survive the testator, resulting in the failure of Charlotte's gift.

The Vice Chancellor decided that the gift to Charlotte was a gift of the other of the testator's house which Maria did not want. Since Maria did not survive the testator, no choice was or could be made. Accordingly the gift of the house to Charlotte failed.

If the Maria had survived the testator for a scintilla of time, then the gift to her would have taken effect. In that situation, her estate could have made the selection. As it was, since she did not survive the testator, the gift to her lapsed.

The issue of certainty of subject matter has also been considered in the context of the sale of goods. This arises in the situation where purchasers may have paid for goods to a seller but the goods have not yet been delivered nor has the seller segregated the goods in favour of specific purchasers.

The question arises as to whether there is a trust of the goods in favour of the purchasers. There have been a number of cases on this issue, not all of which are consistent.

In Re London Wine Co (Shippers) Ltd [1986] PCC 121, a wine merchant took orders from customers on the basis that the wines were then to be held on trust for the customers until delivery. However, the bottles of wine were never segregated for each customer. The court held that although a trust of the wine had clearly been intended, there was no certainty of subject matter as the bottles of wine had not been segregated by the company. Oliver J was of the view that it could not be said with certainty which bottles of wine were held for each specific customer.

Likewise in Re Goldcorp Exchange [1994] 3 WLR 199, which concerned the purchase of gold bullion for future delivery but which had not been segregated or earmarked for the specific purchasers, the Privy Council was of the opinion that property in goods had not passed to the specific purchasers because they had not been specifically ascertained. Their Lordships approved the rule in Re London Wine Co (Shippers) Ltd. Note that some of the bullion that had been segregated was held to be on trust as being sufficiently certain.

There are two important developments in this area. One of these is the decision in Hunter v Moss [1994] 3 All ER 215, a decision of the Court of Appeal. The facts of this case was that M, the owner of 950 shares in the company purported to make an oral declaration of trust of 50 shares in favour of H. M later sold all the 950 shares as a result of the takeover of the company. H claimed to be entitled to a proportionate share of the sale.

You will recall from the previous para that we considered the issue of certainty of subject matter in the context of the sale of goods especially where the purchasers may have paid for goods but the goods have not been delivered nor segregated.

We identified that in such a situation, there was no trust of the goods in favour of the purchasers. See Re London Wine Co (Shippers) Ltd [1986] PCC 121 and Re Goldcorp Exchange [1994] 3 WLR 199.

One of the important developments is the introduction of the Sale of Goods (Amendment) Act 1995 which amends the Sale of Goods 1979.

What changes did that Act introduce in relation to the issue we have been considering?

The Sale of Goods (Amendment) Act 1995 introduced Sections 20A and 20B to the Sale of Goods Act 1979. The effect of these sections is that in a contract for the sale of goods which have not been specifically ascertained but are identified from a specific source, the property in the goods will pass to the purchaser before the goods are specifically ascertained. The purchaser must however have already paid for the some or all of the goods which are the subject matter of the contract.

Effect of failure of subject matter

The final question that arises is what happens to the trust property where the trust fails for uncertainty of subject matter whether it is uncertainty of the subject matter as a whole or of the beneficial interest.

Uncertainty of subject matter as a whole: In this case, the trust fails ab initio and as the property subject to the trust is not identified, it does not leave the settlor's hands or the testator's estate.

Uncertainty of subject matter as to the beneficial interest: In this situation, there will be a resulting trust in favour of the settlor or testator's estate. Where it reverts back to the testator's estate, the property will go to the residuary legatee or if there is none, it will go in accordance with the intestacy rules.

Certainty of Objects

The final of the three certainties which we have to consider is the certainty of objects. This requires that the beneficiary (or 'object') or each member of the class of beneficiaries must be ascertained or are ascertainable with certainty.

For example, a trust of Blackacre in favour of James will fail for lack of certainty of object if it is not clear who James is. If the testator or settlor said '...in favour of my son James' and s/he had only one son named James, then there is no issue of uncertainty of objects.

A similar problem arises in the context of a trust to a class of objects. You will recall from the discussion in the earlier part of this workbook that there is a distinction between a fixed trust, a trust power and a mere power. In the context of certainty of objects, it is important to identify which of these we are dealing with as the requirement of certainty of objects may differ. This will be considered in the rest of this section.

Before we look at the requirement of the certainty of objects in the context of trusts and powers, it is important that you be able to identify where the problem of certainty of objects arise.

In the situations listed on the right hand side of this page, please drag them into the appropriate category.

Fixed trusts

Where there is a fixed trust, the issue of certainty of objects is satisfied if the trustees are able to draw up a complete list of the beneficiaries: IRC v Broadway Cottages [1955] Ch 20, Jenkins LJ (at p.29) stated that:

'There can be no division in equal shares amongst a class of persons unless all the members of the class are known.'

If a complete list can not be drawn up, then there may be uncertainty of objects. It is important for the complete list to be capable of being drawn up otherwise the trustees will be in breach of trust if they give part of the trust property to someone who may not be entitled or they leave out a potential beneficiary. There must be both conceptual (the class is ascertainable) and evidential (the individuals are ascertainable) certainty!

In the fixed trust situations below, we need to identify in which of these situations can a complete list be drawn up.

Discretionary Trusts

Until the decision in McPhail v Doulton [1971] AC 424, the test that was used to ascertain if there was certainty was the complete list test. However in that case, the House of Lords decided that the same test as that which was applied to mere powers laid down in Re Gulbenkian's Settlement [1970] AC 508, namely 'the any given postulant test' would be applicable to discretionary trusts.

The test is whether it can be said with certainty that any given individual is or is not a member of the class. This is known as the 'any given postulant' test.

The reasoning behind the test for discretionary trusts is that the trustees are able to discharge their duties within the term of the discretion without needing to be able to draw up a comprehensive list of all the potential beneficiaries. The test is satisfied so long as the trustees have the necessary criteria by which they can say of any given individual person is or is not a member of that class of beneficiaries.

From the situations listed below link up with what the outcome would be under the any given postulant test.

You will recall from the earlier discussions that the case of McPhail v Doulton [1971] Ch 424, adopted the 'any given postulant test' for discretionary trusts. The case was then referred back to the Chancery Division to consider whether in light of the new test, there was a valid trust. The referred case is known as Re Baden's Deed Trusts (No 2) [1973] Ch 9.

You have read the judgment of Megaw LJ in Re Baden's Deed Trusts (No 2) [1973] Ch 9, where he introduced the concept of the 'substantial number' to the 'any given postulant' test for discretionary trusts.

Administrative unworkability

The question of administrative unworkability relates to the issue of whether the class of beneficiaries is so hopelessly wide as not to form a class at all. This was suggested by Lord Wilberforce in McPhail v Doulton [1971] AC 424. This appears to add an extra condition on the validity of trusts. (See Lord Wilberforce's statement on this topic.)

Although Lord Wilberforce's statement was merely obita dicta, this has been followed in R v District Auditor ex p West Yorkshire Metropolitan County Council (1985) 26 RVR 24. In that case, Lloyd LJ followed Lord Wilberforce's dicta in McPhail v Doulton and decided that a trust in favour of the residents of the County of West Yorkshire was administratively unworkable. This was because the class was so hopelessly wide as to be incapable of being regarded as a class. See Lloyd LJ's dicta on this issue.

Capriciousness

A discretionary trust of a power may be invalid on the basis of capriciousness. In Re Manisty's Settlement [1974] 1 Ch 17, it was suggested by Templeman J that:

A power to benefit 'residents of Greater London' is capricious because the terms of the power negative any sensible intention on the part of the settlor. If the settlor intended and expected the trustees would have regard to persons with some claim on his bounty or some interest in an institution favoured by the settlor, or if the settlor had any sensible intention or expectation, he would not have required the trustees to consider only an accidental conglomeration of persons who have no discernible link with the settlor or any institution. A capricious power negatives a sensible consideration by the trustees of the exercise of the power.'

There is also the question of whether administrative unworkability and capriciousness are the same. It is clear from R v District Auditor ex p West Yorkshire Metropolitan County Council (1985) 16 RVR 24, that administrative unworkability and capriciousness are not one and the same. In that case, the trust was held to be administratively unworkable. However, the trust there was not capricious as there was a clear link between the settlor (the Metropolitan County Council) and the beneficiaries (the residents of the County of West Yorkshire).

Mere Powers

In the context of mere powers, you will have noted that the test of certainty of objects is the 'any given postulant test' as set out in Re Gulbenkian's Settlements [1970] AC 508, where the power has been given to fiduciaries.

Gifts subject to a condition precedent

The test for certainty of objects for gifts which are subject to a condition precedent is less strict than as compared with the test for trusts and powers which we considered in the preceding pages. Such a gift is not to a class but to an individual who satisfies a pre-condition.

Concluding Remarks

[a] Gifts subject to a condition subsequent - A stricter rule than the 'one given postulant' test which is applied to gifts subject to a condition precedent, is used to determine certainty of such gifts. The test appears to be that the event or condition subsequent must be ascertained or ascertainable otherwise it is void for uncertainty. Conceptual uncertainty would cause the gift to fail for uncertainty - Blathwayt v Lord Cawley [1976] AC 397 (although Lord Denning in Re Tuck's Settlement Trusts [1978] AC 49, has criticised this distinction - see his dicta on this point). A good example of a valid gift subject to a condition subsequent is Re Tepper's Will Trusts [1987] Ch 358. The condition subsequent required the beneficiaries to remain within the Jewish religion and not to marry outside it. See also Ellis v Chief Adjudication Officer [1998] IFLR 84, where a gift of a house to the donor's daughter was subject to a condition subsequent that she should care for her mother in the house, was upheld.

[b] Effect of uncertainty of objects - where a trust or gift fails for uncertainty of objects, the property is held on a resulting trust back for the testator's estate or for the settlor, as the case may be.