Equity and Trust: Three Certainties
- Valeria
- Mar 10, 2024
- 11 min read
Updated: Feb 7
'Trusts & Equity' and my lecture notes were used!
In order to create a valid trust, a settlor or testator must comply with certain requirements:
Capacity
Certainty of Intention
Certainty of Subject
Certainty of Object
Capacity
Any person who has the capacity to own property also has the capacity to create a trust of that property.
Minors | Mentally Incapacitated Persons |
Minors cannot be legal owners of land, and thereof cannot create a valid trust of land. Since 1st January 1970 a minor is a person under 18 years of age. | Re Beaney (1978) Re TB (1967) |
LPA 1925 s.1(6) 'A legal estate is not capable of subsisting or of being created in an undivided share in land or of being held by an infant. |
Knight v Knight - Lord Langdale MR identified 'three certainties' that must be satisfied before a court will acknowledge that a settlor or testator has created a private express trust.
CERTAINTY
Certainty of Intention
The requirement of certainty of intention is designed to protect transferors and transferees of property. It protects transferors by ensuring that their property is applied only per their expressed intention, and it protects transferees by ensuring that they are burdened with trust obligations only when it ought to have been clear to them that they were to take property as trustees. There will be no express trust unless the original owner certainly intended to create one, but neither will there be an express trust if the intention to create one was expressed with insufficient certainty to bind the conscience of the recipient.
There will be no trust if the donor of property appeals to the donee to apply it in a particular way instead of obliging the donee to apply it in a particular way.
Precatory words refer to words of prayer or petition from latin precari meaning 'to beg'. At one time such words routinely gave rise to trust but in 1840, council in Knight v Knight observed that the practice of finding trusts based on precatory words had frequently been disapproved; by the time of the Judicature Acts 1873-75, the practice had all but come to an end.
Re Diggles (1888) 39 Ch D 253 - The Court of Appeal held that there was no trust imposed upon the daughter requiring her to pay the annulity to her relative. The expression of the testatrix's 'desire' was held to be precatory and, construing the will as a whole, it could not be said that she had intended to create a trust of the annuity. Bowen LJ noted that the daughter had merely a 'moral duty to pay reasonable attention to the wishes of the testatrix'.
Construing intention from the document:
Re Osoba [1979] 1 WLR 247, per Goff LJ at 251 E | Byrnes v Kendle [2011] HCA 26, High Court of Australia |
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When a person disposes of property by means of a formal document such as a will, the court endeavours to ascertain his intention 'from the words he has used...in the light of such knowledge of relevant facts as...he must have had'. | The trial judge held that even if the defendant might not have fully understood what he was creating, the terms of the acknowledgement were clear and they establish a sufficient objective certainty of intention to create a trust, whether the defendant's subjective intent might have been. |
Generally precatory words such as 'hoping', 'feeling confident that...' will not be sufficient to show intention to create a binding trust, and will result in the gift being given absolutely with only a moral obligation to use the property in the way specifie, this moral obligation not being legally enforced. 'Sufficiently imperative'
Court's View:
Rabin v Gerson [1986] 1 WLR 526 | Murlees v Franklin (1818) followed in Shephard v Cartwright [1955] AC 431 | Lambe v Eames (1871) LR 6 Ch App 597, CA | Re Steel's Will Trusts [1948] Ch 603 |
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Existing evidence as to the meaning of the words, such as opinions written by barristers and correspondence with the settlor in the course of preparing the trust deed, will not be admitted. | The court will have no regard to similar transactions carried out by the same testator or settlor as evidence of his intention in the instant case. | Courts are reluctant to take into account the construction that other courts have placed on similar words in the past. | Where a disposition is made in terms that reproduce exactly the peculiar wording of a disposition considered in a previously reported case, the court may infer that the person making the present disposition intended to achieve the same result as that achieved in the earlier case. |
Without the benefit of an extra precedent, the construction of formal disposition falls to be decided on a case-by-case basis. It is sometimes hard to determine whether a gift or a trust was intended.
For example:
Lambe v Eames (1871) LR 6 Ch App 597 | Re Adams and the Kensington Vestry (1884) LR 27 Ch D 394, CA |
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The words 'to be at her disposal in any way she may think best, for the benefit of herself and her family' were held had not created a trust in favor of 'her family'. | There is no trust when a testator provided by his will that all his property real and personal should pass to his wife 'in full confidence that she would do what was right' as to the disposal thereof between his children, either in her lifetime or by will after her death. |
Comiskey v Bowring-Hanbury [1905] AC 84, HL - The testator's very detailed directions were held to demonstrate a clear intention to create an express trust. The direction that the nieces should, in any event, acquire an interest demonstrated that the testator had intended to subject his widow to a binding trust.
Construing dealings from informal dealings:
Jones v Lock (1865) LR 1Ch App 25 | Paul v Constance [1977] 1 WLR 527 | Hilton v Cosnier [2018] EWHC 2728 (Ch) |
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Where a disposition does not appear in a formal document, extra significance is attached to the context in which words are expressed. It was held that there had been neither a valid gift nor a valid declaration of trust in favor of the infant. Lord Cranworth LC stated that 'it would be of very dangerous example if loose conversation of this sort, in important transactions of this kind, should have the effect of declaration of trust'. | The fact that the deceased had expressed his intention on more than one occasion was essential to establishing the seriousness of his desire to create a trust, but it had the adverse effect of rendering uncertain the date at which the express trust came into being. The court's decision to find an express trust on these facts was a pragmatic one. | The district judge's decision that there was no trust was upheld on appeal. The court noted that the grandfather had never told anyone else about the trust and that he had acted inconsistently with the alleged trust by subsequently purporting to give the property to his daughter. It was unnatural to read his words as imposing an immediate, binding trust. |
Establishing intention to create a trust in commercial context:
Re Kayford Ltd [1975] 1 WLR 279 - The company fell into financial trouble, its accountants advised it to set up a 'customers' trust deposit account to hold customer's money until the delivery of their goods. After the company went into voluntary liquidation the court held that the customers were entitled to the monies in the account. The intention to create a trust was held to be manifestly clear, despite the failure to use a separate nominated 'trust' account from the outset.
Where a gift is given with a 'mere hope' that X will do something with the property, this will be an outright gift to X. However, where there is neither a gift nor a trust the property will remain with the settlor or the testator's estate. |
Certainty of Subject
As long as the subject matter of a trust is capable of being located, mere evidential uncertainty as to its location will not cause the trust to fail. The equitable maxim certum est quod certum reddi potest provides that courts should regard as certain that which can be made certain.
Palmer v Simmonds (1854) 2 Drew 221 | Re Golay [1965] 1WLR 969, per Ungoed-Thomas J at 972B |
A trust of ‘the bulk of my jewellery’ will likewise fail on the grounds of ‘conceptual’ or ‘linguistic’ uncertainty, because the language that the settlor has employed is incapable of being understood and applied with any certainty. The very concept is unclear - the settlor might have had in mind bulk by weight or by number of pieces or by value. | On the other hand, a trust purporting to grant a 'reasonable' income to a beneficiary will be valid, because the court is constantly involved in making objective assessments of what is 'reasonable'. |
Conceptual uncertainty with regard to subject matter may be fatal to an entire trust or fatal merely to a particular power conferred on the trustees.
For example:
Re Kolb's Will Trusts [1962]Ch 531 - The testator purported to grant his trustees a power to invest in 'blue chip' securities. The court held that the 'blue chip' status of securities was not capable of being assessed objectively.
Boyce v Boyce (1849) 16 Sim 476 - Even if the trust property and the trust beneficiaries are ascertained or ascertainable, the trust will fail if there is no means of ascertaining which part of the subject matter is to go to which of the beneficiaries. There will be no trust at all because, because there cannot be a resulting trust of unascertainable assets.
Trusts of a homogenous mass:
Re London Wine Co (Shippers) Ltd (1975) [1986] PCC 121: | Hunter v Moss Electrical Co Ltd [1994] 1 WLR 452: | Re Goldcorp Exchange Ltd [1995] 1AC 74: |
If a mass of property comprises a number of substantially distinct but apparently identical parts, a trust of the constituent parts will fail for uncertainty unless the relevant parts are specifically identified. | Even identical shares may exhibit substantial differences according to the number of shares held. | Their Lordship reasoned that an estoppel could not be established in relation to an unappropriated part of a homogeneous mass unless the mass itself was fixed and capable of being identified with certainty when the express assurance was given. |
There is no difficulty with a trust of the whole mass or of a certain percentage or fixed proportion of the whole. | In this case, the judge at first instance distinguished the decision in Re London Wine on the basis that the principles applicable to trusts of a homogenous mass of intangible property (such as shares) are different to those applicable to trust of tangible property (such as wine). | Their Lordship could not accept that the company would have intended to create trusts over its entire stock of gold (sold and unsold), the consequence of which would have been to prevent any dealing with the gold otherwise than by delivery to its customers. |
Example: If i declare that twoo sheep from my flock are held by me on trust for you, i must refine my description beyond the word 'sheep' in order to enable my trustees to identify with certainty which two sheep are subject to the trust. | There is a fundamental objection to the distinction between trust of tangible and intangible property, namely that it suggests a distinction in equity that has no counterpart in the common law of sale of goods. | No express trust would have been intended in such circumstances and no other trust should be inferred: '...high expectations do not necessarily lead to equitable remedies.' |
Disposing of Residue:
A thing may be conceptually certain even when it is evidentially unquantifiable. For example, a concept that may be practically unquantifiable, but is always conceptually certain, is 'everything'. If A leaves 'everything' to B when he dies we know for certain that B is entitled to everything in A's estate, even though it might be impracticable to quantify the exact contents of A's estate.
T. Choithram International SA v Pagarani [2001] 1 WLR 1 | Sprange v Barnard (1789) 2 Bro CC |
The Privy Council upheld an inter vivos trust of the entire estate of a living settlor. Mr Pagarani executed a trust deed on his deathbed in order to establish a foundation to be an umbrella organization for a number of charities he had established during his life. Immediately after signing the deed, he stated that all of his wealth belonged henceforth to the foundation. | A testatrix left a legacy to her husband 'for his sole use' but went on to provide that 'at his death the remaining part of what is left that he does not want for his own wants and use' should go to X. X claimed to have an ascertainable interest in the legacy. |
It might be the case that that the imminence of the settlor's death persuaded the Privy Council that a fund which was at present uncertain would shortly be made certain. | The court held that the residue of the legacy was, in practice, incapable of being ascertained, so the husband was subject to no trust. |
Certainty of Objects
A trust can be created even if the settlor fails to identify the object (the beneficiary or purpose) of the trust. If a person receives a certain property from a settlor knowing that he receives it is as a trustee, but not knowing for whose benefit he is to hold it, a trust has been created under which the settlor himself is presumed to be the beneficiary.
If, however, the settlor intended, as he generally will, that the trust property should be held for the benefit of other persons, it is mandatory upon him to furnish the trustee with some means of ascertaining who they are.
Certainty of object in fixed trusts:
The trustee has no say in the choice of the beneficiaries and each beneficiary's share is fixed. It follows that, in order for trustees to effect a division of the trust fund, they need to know exactly how many beneficiaries there are in total.
If it is not possible to ascertain the number of the beneficiaries, the trustees will not know how much of the fund to give to any particular beneficiary and, because an overpayment will be a breach of trust, the trust will be unworkable. In such a case, the trust property will return to the settlor under a resulting trust. |
It is important to note that a fixed trust does not fail for uncertainty merely because known beneficiaries can not be located. If a beneficiary is missing, the court can make an order, called a 'Benjamin order', permitting the trustees to distribute the shares amongst the other beneficiaries on the assumption that the other beneficiary no longer qualifies for an interest under the trust.
Re Green's Will Trust [1985] 3 All ER 455 - However, a Benjamin order 'does not vary or destroy beneficial interests. It merely enables trust property to be distributed in accordance with the practical probabilities', so if the missing beneficiary eventually reappears, the beneficiary will be entitled to assert the right to the share. For this reason the courts will generally require as a condition of making a Benjamin order that the beneficiaries receiving the 'windfall' give security (Dowley v Winfield (1844) 14 Sim 277) or an undertaking (Bullas v Public Trustee [1981] 1 NSWLR 641).
Certainty of object is just as much a consideration where express trusts are created in commercial contexts. In OT Computers Ltd (in administration) v First National Tricity Finance Ltd [2003] EWHC 1010 (Ch), a fixed trust for 'urgent suppliers' failed because the description did not identify the objects with sufficient certainty.
Certainty of object in discretionary trusts:
Mettoy v Evans [1990] 1 WLR 1587 - Under a discretionary trust, the duty of the trustees is 'to select from among a class of beneficiaries those who are to receive, and the proportions in which they are to receive, income or capital of the trust property'.
The rule under a discretionary trust is a response to the fact that a trust must be discharged and that, if no trustee can be found to discharge it, it might fall to be carried out by the courts.
Kemp v Kemp (1801) 5 Ves Jr 849 - Courts, however, are unable to exercise a private discretion relating to the division and distribution of the trust property.
IRC v Broadway Cottage Trust [1955] Ch 20, CA - So, the courts would have no option but to divide the fund equally between all potential beneficiaries just as if the discretionary trust were, in fact, a fixed trust.
Application of the individual ascertainability test in case of discretionary trust:
Linguistic or Semantic Uncertainty / Conceptual Uncertainty | Evidential Uncertainty | Administrative unworkability |
This causes discretionary trust to fail. | This element is the practical of ascertaining the existence or whereabouts of beneficiaries. | There will be uncertainty even if the class is certain if the overall class is so very large as to be administratively unworkable. |
Ex: Friends - A discretionary trust for friends fails because uncertainty of object prevents a fair distribution and therefore prevents the proper discharge of the trustee's duty of impartiality. | Evidential uncertainty will not cause a power or discretionary trust to fail. | R v District Auditor, ex parte West Yorkshire Metropolitan County Council (1986) 24 QBD |
Re Baden’s DT (No.2) (1973) Ch - passed the new 'individual ascertainability' ‘relatives’ and ‘dependants’ | Re Tuck's Settlement Trusts [1978] Ch 49 - In fact, the evidence of experts with special knowledge of the meaning of a particular class description may be admitted to assist the court to determine whether the description is objectively certain. | |
However, no amount of expert evidence will be able to overcome fundamental conceptual uncertainty. |