Certainty of intention PDF

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Certainty of intention...

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Introduction Certainty is essential in order for an express trust to be valid in English law. In English trusts law, we speak of the ‘three certainties’: (i) intention, (ii) subject-matter, and (iii) objects. The case which is often cited as authority for the three certainties is the nineteenth century case of Knight v Knight (1840) 3 Beav 172, but its origins appear in the earlier case of Wright v Atkyns (1823) Turn & R 143, where the Lord Chancellor, Lord Eldon said: “...first...the words must be imperative...; secondly...the subject must be certain...; and thirdly...the object must be as certain as the subject" (at p 157).

Rationale There are several reasons why the courts look for the three certainties. First, the trustee needs to know what is required of them in carrying out the terms of the trust. Secondly, if the court is called upon to intervene in a trusts dispute, it must be able to act with clarity and with a sensible understanding of what the settlor has attempted.

Certainty of Intention The first of the three certainties is certainty of intention. This requires that the words or actions of the settlor must be sufficiently clear in order to create the trust. It is said that the words or actions must be imperative in order to create a trust. Words or actions which express a hope or wish ( precatory words) will not. The courts aren’t looking for technical words, as Maitland remarked at the end of the nineteenth century, trusts can be created with the most untechnical of words, and it seems that the word ‘trust’ may not even be necessary to create one ( Paul v Constance [1977] 1 WLR 527). Indeed, all this is summed up neatly in the maxim equity looks at the intention not the form. A good starting point on the imperative / precatory dichotomy is offered by two contrasting cases. In Re Adams and the Kensington Vestry (1884) 27 ChD 394, the Court of Appeal was required to determine the issue of certainty of intention where a testator left all his property, “...to the absolute use of [his] wife, ... in full confidence that she will do what is right as to the disposal thereof between my children, either in her lifetime or by will after her decease”. It was held that the attempt to create a trust failed and that the wife took the property absolutely, ie, it was regarded as an outright gift to her rather than an attempt to create a trust. As Cotton LJ stated: “I have no hesitation in saying myself, that I think some of the older authorities went a great 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 shews 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. Having regard to the later decisions, we must not extend the old cases in any way, or rely upon the mere use of any particular words, but, considering all the words which are used, we have to see what is their true effect, and what was the intention of the testator as expressed in his will. In my opinion, here he has expressed his will in such a way as not to shew an intention of imposing a trust on the wife, but on the contrary, in my opinion, he has shewn an intention to leave the property, as he says he does, to her absolutely.”(at page 409). In the course of his judgment Cotton LJ referred to ‘older cases’ which treated the issue of certainty of intention with rather more flexibility than is now the case. The reason for the more benevolent treatment of intention in the older cases might have something to do with the Executors’ Act 1830 which removed the rule that the undisposed part of the testator’s estate passed to his executors. Thus freed from this rule of law by the 1830 statute, the courts were free to take a less liberal, and frankly more realistic approach to the issue of certainty of intention, the change in judicial attitude being evident in the cases of

Lambe v Eames (1871) LR 6 Ch 597 38, In re Hutchinson and Tenant 8 ChD 540 and Mussoorie Bank v Raynor 7 App Cas 21, in the latter case the Privy Council commenting that, “ current of decisions now prevalent for many years in the Court of Chancery shews that the doctrine of precatory trusts is not to be extended." The case often contrasted with Re Adams is Comiskey v Bowring-Hanbury [1905] AC 84. This time, the House of Lords was asked to determine the following: “the whole of my real and personal estate [to my wife] 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 such one or more of my nieces as she may think fit and in default of any disposition by her thereof by her will I hereby direct that all my estate and property acquired by her under this my will shall at her death be divided equally among the surviving said nieces”. The House held that the wording created a trust; the wife was to have a life interest with the remainder to pass to the nieces either by her will or to them equally if she did not so bequeath it. It is to be noted that both the clause in Re Adams and the clause in Comiskey contained the same phrase, in full confidence. However, the prominence to be given to such phrases, even though followed in previous cases, was to be lessened. The most important thing is to determine the context of words used, not to give inflated importance to particular phrases. As Lindley LJ commented in the case of Re Hamilton [1895] 2 Ch 370: “You must take the [document] which you have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one which you have to construe.”(at page 373). Where the court seeks to evince the settlor’s intention it is a relatively straightforward matter where there is a document to interpret, whether it is a trust deed or a will. However, matters assume greater complexity where there is no document purporting to create a trust. In such circumstances, the courts might infer intention from the spoken words of conduct of the parties ; this happened in the case of Paul v Constance [1977] 1 WLR 527 and the facts are straightforward. Mr Constance was married but started a relationship with Ms Paul, without divorcing his wife. He moved in with Paul and they attempted to open a joint bank account, but this failed due to the bank manager’s disapproval of their unmarried status. Therefore, the account was opened in Mr Constance’s name only. Two notable facts are worth mentioning at this stage. Mr Constance assured Ms Paul on a number of occasions that the ‘money in the bank account’ was as much her money as his. Further, they deposited joint bingo winnings into the account, and made certain withdrawals for joint purchases. Matters became complicated on Mr Constance’s death. Since he had never divorced, and he died without having made a will, his wife (Mrs Constance) stood to inherit the whole of his estate, including the bank account deposit, via the statutory scheme under the Administration of Estates Act 1925. Naturally, Ms Paul was less than happy with this situation and challenged it, principally respecting the bank account. The matter went to the Court of Appeal which held (endorsing the first instance) that a trust had been created which split the contents of the bank account 50-50 between Mr Constance and Ms Paul. This meant that Ms Paul received half the contents of the bank account, while Mrs Constance was entitled to her late husband’s half. As well as the moral tale that one should sort out one’s affairs rather than leave them to the technical statutory rules of intestacy, this case raises many other interesting legal questions. The court indicated that the absence of the word ‘trust’ was not fatal to finding a trust exists. The deceased was an, “unsophisticated character” and together they were, “simple people” to whom the law should exercise some benevolence. Additionally, Scarman LJ drew attention to other matters which permitted the court to conclude that a trust existed: “Mr. Wilson [counsel for Ms Paul] submits that the words that he did use on more than one occasion, "This money is as much yours as mine," convey clearly a present declaration that the existing fund was as much the plaintiff's as his own. The judge accepted that conclusion. I think that he was well justified in doing so and, indeed, I think that he was right to do so. There are, as Mr. Wilson reminded us, other features in the history of the relationship between the plaintiff and the deceased which support the interpretation of those words as an express declaration of trust. I have already described

the interview with the bank manager when the account was opened. I have mentioned also the putting of the "bingo" winnings into the account and the one withdrawal for the benefit of both of them. ... “The question, therefore, is whether, in all the circumstances, the use of those words on numerous occasions as between the deceased and the plaintiff constituted an express declaration of trust. The judge found that they did. For myself, I think that he was right so to find.”(at page 532). The case of Paul v Constance is not an easy one. First, it is difficult to see, since it was regarded as an express declaration of trust, when that declaration of trust was actually made, something which Scarman LJ admitted was difficult to “pin-point”. In a sense, therefore, the declaration was ambulatory which might have caused difficulties for the trustee, Mr Constance (since his name was on the bank account), as the point at which he had the extensive range of trustees’ duties imposed on him was not, at any stage, known to him. Secondly, Moffat (2009) suggests that the court gave a rather too benevolent construction to Mr Constance’s words. While there was certainly a general intention to benefit, this ought not to have translated into a specific intention to create a trust. The case does, Moffat concludes, blur the distinction between trusts and gifts. Thirdly, there are problems of reconciling Paul v Constance with the earlier case of Jones v Lock (1865) 1 Ch App 25. In Jones v Lock, a father placed a £900 cheque in his child’s cot stating, “I give this to baby. It is for himself.” However, the father died before indorsing the cheque to the son (which is what he ought to have done). The court rejected the argument that ownership of the cheque had passed to the son. The statement made was a ‘one-off’ and, as a consequence, insufficient to manifest a clear intention the father was to give the money to the son. The problem is that the words used in Jones v Lock were as generic as those used in Paul v Constance, and the suggestion is therefore that in neither case was the intention sufficiently specific. However, there are distinguishable elements between the cases, specifically the independent and corroborative evidence of the bank manager in Paul v Constance, the fact that the statement was repeated (even though a repeated statement, even if generic, remains so), and that their conduct was mutual. Ultimately, therefore, their actions probably spoke louder than their words. The final word on this goes to Gardner (2011) who suggests that the difference between the two cases is merely a reflection of changing judicial attitudes.

Certainty of subject-matter The subject-matter is the property over which the trust is declared. This might be property of any form, including land, shares, bank deposit accounts and so on. It is split into two parts: (a) certainty as to the property itself and, second, (b) how much of the property each beneficiary is to receive. Insofar as the property itself is concerned, a useful starting point is the case of Sprange v Barnard (1789) 2 Bro CC 585. In that case, a testatrix made the following provision in her will: “…for my husband Thomas Sprange, to bewill to him the sum of £300 … for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use, to be divided between [other named legatees].”(my emphasis) The issue turned on whether the clause created a trust and, if so, whether it was certain. In finding that the husband was absolutely entitled, and therefore that there was no trust, the court said that the trust needed to be certain from the outset, and that the remaining part of what is left would not become certain when the husband died. Indeed, it could not be said that there would be any property left after the husband’s death. Likewise, in Palmer v Simmonds (1854) 2 Drew 221, a clause which purported to leave the “bulk” of the testatrix’s estate to named individuals was void and that the purported trustee took the gift absolutely. Recently, the courts have seemed concerned to create a somewhat artificial distinction between tangible and intangible property. Where the property in question is tangible, if the property is not identified, the trust will fail. In Re London Wine Co (Shippers) Ltd [1986] PCC 121, buyers of wine were unable to

establish that a trust of wine had been declared in their favour as the wine had not been segregated before the wine supplier went into liquidation. Consequently, they lost their money and became unsecured creditors as they sought to recover the money they had paid for the wine. If they had established a trust, they would have taken priority as creditors ahead of the unsecured creditors and been able to claim their wine. Of course, if this had happened it would have reduced the funds available for the unsecured creditors. However, there is a more tangible argument in that no two bottles of wine are alike, especially where closed with a natural cork. Such a form of storage also raises the prospect that the wine could be corked, ie, oxidised by the ingress of air reacting with the wine and turning it bad. Consequently, wine from the same vineyard, with grapes of the same vintage, from the same appellation could not necessarily be said to be the same as any other bottle. However, this becomes a little more difficult to sustain when considering the case of Re Goldcorp Exchange Ltd [1995] AC 74. In Goldcorp, a company sold gold bullion to investors. The investors has not taken delivery of the bullion when it went into insolvency. Naturally, like the investors in London Wine, the bullion investors sought to assert their rights to bullion for which they had paid but not yet taken delivery. The claimants whose bullion had been segregated were successful, but those whose bullion had not been segregated failed in their claim. Where the property is intangible (chose in action), the approach seems somewhat different. In Hunter v Moss [1993] 1 WLR 934, the holder of 950 shares in a private company with an issued share capital of 1,000 shares made an oral self-declaration of trust of five per cent of the company’s issued share capital in favour of the claimant. After a falling out, it was suggested that the trust was void for certainty of subject-matter, since it was not know which 50 shares should be held on trust for the claimant. Judgment was ordered in favour of the claimant. Where a declaration of trust is made over intangible property, segregation (as with tangible property), was not a necessary requirement. This was or appropriation of the specific property which was to form the subject matter of the trust; that, since the shares were of such a nature as to be indistinguishable one from another and were therefore all equally capable of satisfying the trust, it was unnecessary to identify any particular 50 shares; and that, accordingly, the trust was not void for uncertainty of subject matter. Colin Rimer, QC, sitting as a Deputy High Court Judge placed significant emphasis on the tangible / intangible distintinction. He stated: “Even tangible assets which are regarded as forming part of a homogeneous mass are physically separate, and so distinguishable, from other assets comprised within the same mass. Further, certain of the assets in a group of ostensibly similar or identical assets may in fact have characteristics which distinguish them from other assets in the class. Consignments of wine provide a good example. Some of the cases in it may contain wine that is corked, or may have been stored badly and have deteriorated or may have other inherent defects. Oliver J. [in Re London Wine] held that, before any trust could be said to attach to any tangible assets comprised within a class of assets, the particular assets have to be identified. I do not, however, consider that the principle which he applied with regard to the certainties requisite for the purposes of a trust relating to tangible assets is one which is necessarily also applicable by analogy to trusts of intangible assets, for example, to a purported trust of a specific sum of money forming part of a larger credit balance in a particular bank account. The latter trust will of course only be valid if its subject matter is certain. But the determination of whether the requisite degree of certainty has been achieved is, in my judgment, not necessarily governed by principles analogous to those which apply in the case of tangible assets.”(at page 940). The decision was affirmed by the Court of Appeal ([1994] 1 WLR 452), but Dillon LJ, who delivered the judgment of the court, did not place the same emphasis on the tangible / intangible distinction, rather emphasising the sameness of the shares; they were indistinguishable from one another being all shares of the same class. This would seem a more important point. However, there may be something to take for future cases in the lack of emphasis in the Court of Appeal on the tangible / intangible distinction and whether, if a case such as Goldcorp were to come about in the future, whether it would be appropriate to decided it differently. After all, are not gold bars indistinguishable from one another? In the case of Re Harvard Securities Ltd [1998] BCC 567, Neuberger J reluctantly followed the decision of Hunter v Moss, considering it binding upon him. Echoing counsel for the liquidator who cited the criticism

of Hunter v Moss in the leading practitioner text, Underhill and Hayton, Law of Trusts and Trustees (15th edn, 1995, Butterworths) that the reasoning was weak, and that, “there is no sound reasoning for distinguishing trusts of goods from trusts of intangibles.” Nevertheless, Hunter v Moss remains good law, at least for now. Two final cases are worth noting. The first, Boyce v Boyce (1849) 16 Sim 476, concerned a gift from a father to his daughters. One daughter was to choose one of his three houses, which the other daughter was to have the remaining two. Rather simple, unless, of course, the first daughter pre-deceases the father without choosing. This is precisely what happened. The court held the whole gift was invalid on the basis that it was impossible to determine which house the first daughter would have chosen. The second case is Re Golay’s Will Trusts [1965] 2 All ER 660. In this case, the testator directed his executors to allow the beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.” The court held that the trustees might choose a flat for the beneficiary to live in, and that the clause purporting to provide a reasonable income was valid on the basis that it was an objective yardstick. Ungoed-Thomas J, said: “Another question that arises is whether this gift of reasonable income fails for uncertainty.... The question ... comes to this: whether the testator by the words “reasonable income” has given a sufficient indication of his intention to provide an effective determinant of what he intends so that the court in applying that determinant can give effect to the testator's intention.” “Whether the yardstick of “reasonable income” were applied by trustees under a discretion given to them by a testator or applied by a court in course of interpreting and applying the words “reasonable income” in a will, the yardstick sought ...