Equity and Trust assignment PDF

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Equity and Trust Critically discuss by reference to appropriate case law, the issues arising from the application of the principle of certainty of objects in fixed and discretionary trusts. The basic principle to enable trust law to be valid, it would need satisfy the three certainties, which would therefore allow an express private trust to be created. As mentioned by Lord Langdale in the case of knight v Knight1, this case showed that for a trust to be acknowledged it must satisfy all the requirements.The three certainties are certainty of intention, certainty of subject matter and certainty of objects, once these have been met then a trust can be formed. Furthermore Lord Eldon in Wright v Atkyns (1823) 2 stated that in order to determine whether there is a trust, the court must observe, whether the words are imperative and if the subject is certain and finally object must be certain as the subject. Thus, allowing the court to impose a trust on the trustee if they fail to do so, or void if they fail to create a trust at the beginning. 3 A trust will be terminated if the “objects” of that trust are indecisive. The principles that deal with certainty of objects would relate to the trustee as it would enable them to figure out the beneficiaries under a trust.Also, the courts would not be able to know whether the trustee has been able to exercise their powers properly. However, if any of the trust that is uncertain to the beneficiaries it would be deemed as void. 4 Therefore requiring the courts to divide the property equally amongst the members of the class objects. 5 Modern case law allows a range of different tests to be carried out; this would be dependent upon the type of issues that arises. Also, this would allow the courts to know, who the objects of a trust are or a power are. 6 The difference between trusts and powers allows a better understanding of the roles they play. Trusts would an obligation on the trustee which would therefore require them to perform in accordance to the terms of the trust. However, if there is breach of the trust then the trustee personally liable to accumulate the account to the beneficiaries, that’s only if there is any loss suffered and this is only to restore the value of the trust fund. 7 However, in contrast, an ordinary power would not form as a trust obligation and would create no proprietary rights for the beneficiary but could possible impose fiduciary obligation on the holder. There are two types of power; firstly, fiduciary power which enables a holder to do an act but does not require the holder to do anything and secondly, personal power, which means giving power to anyone other than a fiduciary. 8 A fixed trust refers to those circumstances in which a trust provision involves the property to be held for a fixed number of known beneficiaries.9 It is therefore a possible to make a list of the beneficiaries which shall be able to identify them; this is known as the fixed list or Rule of exhaustive enumeration. The court would read the words in the trust and decide whether if this was possible, if however, it is not, then trust will fail and will be given back to the settler.10

1 Knight v Knight (1840) 3 Beav 148, 9 LJ Ch 354 2 Wright v. Atkyns (1823) Turn. & R. 143 3 Richard Clements and Adelmola Abass, Equity and

Trust Text, Cases, Materials (3rd edn, Oxford University

Press 2013) 105

4 Alastair Hudson , Equity and Trusts (9th edn, Routledge 2017) 122 5 Kemp v kemp (1801) 5 Ves Jr 849 6 ( n 5) 7 Target Holdings v Redferns (1996) 1 AC 421. 8( N 5) 123 9 (N 5) 125 10 ( N 3 ) 113

The trustees are required to distribute the property equally and as a result have no discretion to the amount of property held to each of the beneficiary. This showed that the trustees had limited manner to oblige in and would only act according to the manner identified in the trust. This would give proprietary rights to the beneficiaries in the impartial interest of trust fund which would be in accordance to the terms of the trust, thus making it a fixed trust. In regards to establishing a fixed trust under certainty of object, it is important for the trustees to be able to accumulate alist of the beneficiaries. As required in the case of IRC v Broadway Cottages. 11 Although, in this case the trust failed because of not being able to identify the list of beneficiaries, they were able to draw a clear line, the importance of all the beneficiaries. This is to allow the court to make equal distribution however if the trustee is not able to identify all the beneficiaries then this would make the trustto be voided due to uncertainty. Butif the identity of is unknown in the future then the trust can be carried on by complying with members that are present at the current time. 12 This was also reiterated by Lord Upjohn in Re Gulbenkian who confirmed that this test was for certainty in a fixed trust. 13 An illustration on how the courts enforce a Rule of exhaustive enumeration is in the case of Gold v Hill (1999) This was a trust for “carol and the six kids”, it was seen that although being difficult and time consuming. A complete list of the beneficiaries was important and should therefore not be a reason to null a trust, if however, all enquires have been taken on. Additionally, courts must be satisfied the beneficiaries are identifiable, however they must interpret the provisions of the trust in a logical and sensible way. This case also showed that Rule of exhaustive numeration requires a high level of precision when defining who the beneficiaries are.14 While in a fixed trust it requires all the beneficiaries to be able to be identified within the group, in order for thetrustees to be able to split the trust fund evenly amongst them. However, this is not required in regards to Discretionary Trust. Discretionary Trust allows the trustees to decide which of the larger groups of the beneficiaries (also known as postulants) should be given the trust fund. 15 Furthermore the beneficiaries will not hold any proprietary rights to the property, and it is seen that the holder is entitled to exercise their power or not exercise their power, without any obligations to their decisions. However, they won’t be held liable for the selection not like fiduciary power, which enables the exercise of trust obligation. 16 The primary case for the test of certainty of object to discretionary trust is the decision in Mcphail v Doulton, 17 in which the House of Lords adapted the “is or is not test” laid out by Lord Wilberforce in Re Gulbenkian. 18In this Lord Wilberforce gave out the reasons to adopting the “is or is not test” rather than the complete list, he mentioned that the court should give effect to the settlers intentions and providing equal distribution of the property is not the appropriate method to use for this trust.19The court stated that the test was not the power that would void uncertainty, it must require for the trustee to mention any of the postulant, whether that

11 IRC v Broadway Cottages (1995) Ch 20. 12 (N 5) 126 13(1970 ) AC 508 at 524. Cf Matthews (1984) Conv 22. 14 (N 3 ) 114 15Catrin Fflur Huws, Text, Cases, Materials on

Equity

limited 2015) 203back and edit info 16 ( N 5) 130

17 McPhail v Doulton [1970] UKHL 1, Ac 424 18 Re Gulbenkian's Settlement Trusts (No 1) [1968] UKHL 5 19 ( N 5) 132

and

Trust (1st

edn, Pearson

Education

person is or is not within the group of beneficiaries. If it is unattainable to tell if an individual is within a class then the trust, power fails. And Lord Hodson considered the test as hypothetical postulants and the tests related to trust should be stringency as this case dilutes previous complete list.20Likewise, Lord Wilberforce considered believedthat the complete list was far too rigid to be used in discretionary trust as it would be unable to identify the settler’s intent, and also felt that the settler would not intend on equal splitting of the trust property to the beneficiaries, which shall therefore give the trust to be worthless. 21Lord Wilberforce goes onto distinguish fixed trust by mentioning that it requires both conceptual and evidential certainty for it to be able to complete a list however in discretionary trust the is or is not test only requires conceptual certainty. In Re Barlow’s will trust22 it was held that gift was valid, it was stated that “if it is possible to say one or more person that are undoubtedly qualify.” This therefore allows the property to be distributed to the person that fits within the description of a “friend”.23 However, Judge Browne-Wilkinson questioned the decision as the definition of “friend” was too vague, unlike fixed or discretionary trust and it was not considered to be sufficiently certain because the court would be unable to arbitrate on such concepts given it is prejudiced. 24 As a result of the certainty of object test to a discretionary trust, it was seen that judges in the Re Baden (no 2)25 had problems in applying the test. The House of Lords had decided that the discretionary trust was valid, however because of the words such as “dependant“and “relative” were causing problems. It was further argued that discretionary trust had failed the certainty of objects test, as it was impossible to prove the applicant was not a relative. However, three judges had rejectedthat argument and believed that the discretionary trust was valid but for different reasons. 26 Judgment made by Sachs LJ approached the dilemma in a different manner; he had accepted that the test is about conceptually certainty. Once the class of conceptually certainty has been established it would be then the reasonability of the claimant to prove they are within the class. This was demonstrated in the Baden case when the court had to decide whether the “relative and dependant” were enough to form a class of beneficiaries. It was held that evidential certainty can be resolved by proving a whether an individual is within the class.27 Therefore, this approach by Sachs LJ was proven to be reasonable as it puts evidential burden on the beneficiaries. On the other hand, Megaw LJ had suggested that the discretionary power would be valid, if it able to show that a substantial number of objects are within the class, this would therefore satisfy the postulant test. However, the issue in regards to this is, is the requirements that the trustee would need, and should the class of object conceptually certain be found first before considering the number of people that satisfy the class object.28 Furthermore, judgement by Stamp LJ appears to be in accordance to the test laid out by Lord Wilberforce. He does make it clear that is it necessary to establish whether an individual is a member or not, by having a class

20 (N 19) 21 (N 19) 22 Re Barlow’s Will Trusts [1979] 1 WLR 278 23Mohamed Ramjohn, Cases & Materials on Trusts (3rd edn, Routledge-Cavendish 2004) 137 24 (N 5) 130 25 Re Baden’s Deed Trusts (No 2) [1972] EWCA Civ 10 26 (N 5) 133 27 (N 26) 28 (N 5) 134

of “any” is not allowed. However, Stamp LJ did conclude by narrowing the meaning of “relatives” and changing this concept to the “next of kin”. T29his therefore enables a person to say whether an individual is or is not within the category. Consequently, when “relative” is being used, it would therefore be put down as “Next of kin” In Mcphail v Doulton,30 Lord Wilberforce suggested that even if discretionary trust passes the certainty of objects, it can still be voided by administrative admissibility, for example there maybe too many beneficiaries in the class. This would occur in the R v District Auditor case, 31 in which the residents of west Yorkshire, had a population of 2.5 million beneficiaries and was considered to be conceptually uncertain and was judged to be simply unworkable.One could take into consideration of thejudge, that do not wish to apply the certainty of object test, as there was an easier way to decide the case. As there were too many beneficiaries for the trustee to make a meaning full decision, as a result of this discretionary trust had failed. 32 To conclude, it can be argued that the courts have been able to use a range of cases to exemplify the usage of the test for certainty of object in a practical scenario. Although it is evident clear that fixed trust is far more consistent than discretionary trust. However it is seen that the “is or is not test” is more flexible and suitable than the complete list test, in cases which require a large discretionary trust, as the complete list test would not void the trusts. However the complete list test does take into consideration the settlers intentions and would be approached quite substantially.

Bibliography

Books Alastair Hudson , Equity and Trusts (9th edn, Routledge 2017) Catrin Fflur Huws, Text, Cases, Materials on Equity and Trust (1st edn, Pearson Education limited 2015) Mohamed Ramjohn, Cases & Materials on Trusts (3rd edn, Routledge-Cavendish 2004) Richard Clements and Adelmola Abass, Equity and Trust Text, Cases, Materials (3rd edn, Oxford University Press 2013)

Cases 1970 ) AC 508 at 524. Cf Matthews (1984) Conv 22. IRC v Broadway Cottages (1995) Ch 20. Kemp v kemp (1801) 5 Ves Jr 849 Knight v Knight (1840) 3 Beav 148, 9 LJ Ch 354 McPhail v Doulton [1970] UKHL 1, Ac 424 Re Baden’s Deed Trusts (No 2) [1972] EWCA Civ 10 Re Barlow’s Will Trusts [1979] 1 WLR 278 Re Gulbenkian's Settlement Trusts (No 1) [1968] UKHL 5

29 (N 28) 30 McPhail v Doulton [1970] UKHL 1, Ac 424 31 R v District Auditor, ex parte West Yorkshire MCC [1986] RVR 24 32 (N 3 ) 125

Target Holdings v Redferns (1996) 1 AC 421. Wright v. Atkyns (1823) Turn. & R. 143...