Hunter V Moss: The Most Significant Cases In Trust Law PDF

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The Hunter v Moss Essay Question Hunter v Moss: Fair, sensible and workable. Introduction Hunter v Moss has been described as one of the most significant cases in trust law as it was the first case which essentially allowed a trust to be held valid without needing to separate the identifiable subject matter. This has produced a certain amount of criticism from academics. Canvassing the criticism and justifications of Hunter, this essay then argues that Hunter is a right decision reached in the wrong way. Admittedly causing considerable conceptual difficulties in the requirement of subject certainty, Hunter has nevertheless sparked a body of rich academic literature, showing the different ways in which, the same result can be reached equitably and correctly. Rather than throwing trust law into turmoil, Hunter serves as a timely reminder of the necessity of a principled approach when achieving an equitable outcome, lest trust law be misunderstood as a ‘roguish thing’ again where the standard of measurement is a ‘Chancellor’s foot.’ Before Hunter v Moss Lord Langdale in Knight v Knight effectively created the three certainties; the certainty of intention, certainty of object and the certainty of subject matter, with the latter being the main topic of discussion. It is trite law that the subject matter of a trust property must be sufficiently certain. This means that the property that is intended to be in the trust can be separated from other property in order to be identified, if there is no clear separation of goods then the trust will fail as in Re London Wine Co (Shippers) Ltd. Re London Wine Co (shippers) Ltd were unsecured creditors of a bankrupt wine trading company, and they demanded that they should be able to claim the wine they had bought, however because the wine in stock had not been individually marked as to which batch belonged to who, it was held that no trust had occurred because the bottles were not individually identifiable. Furthermore, Oliver J held that: ‘I appreciate the point taken that the subject matter is a part of a homogeneous mass so that specific identity is of as little as importance as it is, for instance, in the case of money. Nevertheless, as it seems to me, to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach.’ The trust failed and subsequently set a binding precedent in relation to the certainty of subject matter. Eight years later just as in Re London the certainty of subject matter needed clarification in the courts in Re Goldcorp Exchange Ltd. In the case of Re Gold Corp, the exchange contracted with its customers for the purchase of bullion, which was supposed to be stored in a vault and be delivered upon request. In breach of its contract, the exchange only kept enough bullion for its daily operation and did not segregate most of the bullion that it had. When the exchange went into insolvency, its customers could not establish a propriety interest to defeat the interest of the secured creditors because in Professor James Penner’s words, ‘a right in property…cannot hover over an unidentified mass of property…as an equitable interest can only exist in relation to property which is specifically ascertained…Equity should not develop its own flexible notion of certainty of subject matter.’ Similarly, in the case of MacJordan Construction v Brookmount the court of appeal stated in obiter that no valid trust could be created as the money was not paid into a separate account. By contrast, in Hunter v Moss, Dillion LJ attempted to soften the edges of Re Gold by distinguishing between chattels and fungibles, thus laying down the exception to subject certainty requirement in the case of a trust of shares of the same class in the same company – an exception that Professor

James Penner claimed to have plunged trust law into ‘turmoil.’ Penner’s comment was a robust call for certainty that is understandably needed in a commercial context. But when over-emphasised, certainty will fossilise into rigidity, depriving much of the virtues that equity is known for. As such, while equity should not unscrupulously tailor outcomes out of sympathy in individual cases, it should nevertheless never stop to strive for fairness with a principled approach- a possibility in Hunter that was not recognised. Hunter v Moss Hunter v Moss can be described as one of the most significant cases in trust law that deals with the certainty of subject matter. Moss was the founder of Moss Electrical Co Ltd and owned 950 shares in the company, and one day he said to Hunter that he could have 50 of these shares as part of his employment. Significantly, he said nothing involving the other 900 shares he owned. This gift of 50 shares was never implemented because of tax concerns, and mainly because Moss had second thoughts. Hunter subsequently sued Moss claiming his promised 50 shares, which rested on two factors. First, whether the language used was sufficient to create a trust, and secondly, whether or not the trust failed to provide the three certainties because of the lack of separation between the 900 and 50 shares. Criticisms: Distinction between chattel and fungibles One of the criticisms directed towards Hunter is that of the distinction made between chattel and fungibles. In Hunter, the defendant employer declared himself a trustee of 5% out of his 950 shares in favour of the plaintiff employee. Arguing that the trust was void for lack of subject matter certainty as the 50 shares were not segregated or identified, the defendant attempted to resile from his trustee obligations. Assuming that intangible goods were fungibles, Rimer QC held that the certainty of subject matter does not apply to shares: ‘All 950 of D’s shares carried identical rights. It mattered neither to him nor P which particular 50 shares were to be regarded as held for P. The shares were…of such a nature that each of them could satisfy the trust as well as any other of them. Why therefore should equity be concerned that 50 particular shares were not identified.’ Rimer QC held that since the shares were all identical, the lack of segregation between the shares did not invalidate the trust, the judge distinguished the precedent set by Re London Wine Co Ltd because the subject matter where potentially different, while all of Moss’s shares were all identical. Rimer J instead cited Rollestone v National Bank of Commerce in St.Louis, a decision of the supreme court of Minnesota where it was held that separation of goods was not needed in such a situation: ‘in this case I cannot leave the point open in my judgement in the decision in Rollestone, reflected the correct principle and I approach the present case in the same way.’ In the result, I conclude that the trust which I have found the defendant to have declared was not void for the lack of certainty as to its subject matter. This same line of reasoning was also expressly applied in Hong Kong in Re CA Pacific Finance Ltd and Another. Comparing the distinction between fungibles and chattels, Yeun J remarked ‘it is not really possible to have a homogeneous mass of tangible assets, because tangible assets are inherently physically separate.’ By contrast, ‘shares are simply bundle of rights of intangible rights against the company and each bundle of rights could satisfy the clients proprietary interest as any other.’ In other words, there is insufficient identification where a trust is declared upon 50 out of 100 bottles, but no such problem arises where a trust is declared upon 50 out of 950 shares.

Furthermore, the proposition that fungibles are excluded from the requirement of certainty of subject matter flies in the face of Mac-Jordan v Brookmount Erostin Ltd (in rec.) In Mac-Jordan, the employer defendant retained 3% of the contract price as trustee for the plaintiff builder. The employer failed to segregate the money and became insolvent. The plaintiff builder argued that he had a beneficiary interest that took priority against the employers secured creditors. And indeed, applying Hunter logic, money is fungibles, and the fact that it was unsegregated should be irrelevant. Yet, the court in Mac-Jordan decided that a trust was not in existent because there were no identifiable assets impressed with the trusts applicable to the retention fund notwithstanding money is a chose of action. The fact that Hunter was decided after Mac-Jordan and that the defendants counsel had submitted Mac-Jordan to Dillon LJ makes the distinction of fungibles in Hunter more problematic. In response to counsels submission, Dillon LJ admitted as much by quoting the MacJordan dicta above verbatim. With respect, Dillon LJ did not address how, if at all, could the distinction of fungibility in Hunter reconcile with the outcome of Mac-Jordan. It is with no great surprise that Hunter received masses of criticism from legal academics and more, as David Hayton writing in the Law Quarterly Review states: ‘the decision was hurried; he points out that inter vivos is not the same as a testamentary trust. With the later, the testator does everything necessary to strip himself of all his legal and equitable title in favour of the executor, which makes perfect sense as he/she is transferring the property upon death the gift is to be allocated by the executor of the will, it is important to note however that all the property has to be identical. With an inter vivos trust, the settlow does everything necessary in order to create the trust, but until he has segregated the assets which are to be held on trust then that subject matter of the trust is therefore uncertain. David points out that Dillion J ignored the fact that there is a ‘crucial difference between such a testamentary bequest, where undoubtedly the testator has effectively diversted himself of his beneficial ownership in specific property.’ Dillion J effectively said that both a testamentary trust and inter vivos were the same. David makes a very valid point; Moss should have separated the 50 shares from the remainder of his 900 shares and told the company registrar of this at the time of agreement. What if he then sold 100 shares the next day, whos to say that he has or hasn’t just sold all of Hunters 50 shares, it seems the Court of Appeal have followed the general thinking that because intangible property is so hard to distinguish it is therefore better to regard it as the same, which suggests that the problem might just be poor reasoning by the Court of Appeal because in fact a share can actually be distinguishable as shares each receive unique certificate numbers etc. By contrast of David’s opinions Jill Martin is in favour of Hunter, as she states that it was a fair, sensible and workable decision by Court of Appeal, she says the problems which arose in MacJordan v Brookmount did not occur in Hunter because in Hunter there was an identifiable fund of property shares out of which the trust was to be created. She states there was no need for segregation as the settlor retained the ownership of the remainder of the shares in the fund and acquired a ‘mixed pot of identical property.’ By Jill Martin’s rational if Moss had sold 100 shares in the fund the next day, the beneficiary via the trustee could still trace his entitlement into the 850 shares that remain and if all shares were gone a tracing action could be pursued into the proceeds of those shares to regain what he/she was entitled to. The tracing mechanism mentioned by Martin acts as a brilliant remedy for the beneficiary which means there is no need for the separation of property even with an inter vivos trust, however one can now argue now that if this tracing mechanism works, it should also work where the courts are dealing with tangible property? And this is a similar argument Alastair Hudson puts forward in

regards to the decision in Hunter v Moss ad claims it should not be relied upon, he says that it contradicts and element of property law which states that there be ‘specific and identificable’ property to be subject to a property right, he goes further and says it is difficult to see why there should be a dividing line between intangible and tangible, since there are principles which apply to both types of property, he gives the example that 500 ball bearings are tangible, but identical, this then means that under Hunter, there is no reason these should also net require separation, he proclaims the distinction between tangible and intangible is thus ‘spurious.’ He suggests that the reason Hunter v Moss was decided the way it was in contract to Goldcorp is simple, in that ‘it was open to the Court of Appeal to decide that there had been a valid trust created only because there were sufficient shares to satisfy the claim.’ Implying that if they were enough gold, would the decision have been different? Hunter v Moss received support from Barlow Clowes International v Vaughan and was followed in White v Shortall and Re CA Pacific Finance Limited, however it is adamant the most important case post-Hunter is Re Harvard Securities (Holland v Newbury) which applied the precedent set by Hunter. Neuberger J decided that there was no need to segregate intangible property, however even then the precedent was reluctantly applied, it seems the only way that Hunter can be followed is to apply it to intangible property only, with regard to the various points stated above it can only be said that Hunter was decided wrongly and should not be relied upon. As Alastair Hudson points out it ignores and contradicts a fundamental element of property law, having different rules to tangible and intangible property is unnecessary and will contribute to create uncertainty in the law, even the possible remedy created by Pearson v Lehman Brothers and Prof Roy Goode has its problems as it contradicts what Briggs J says that the approach of Prof Goode upholds the settlors true intention, when in fact it distorts what the settlor did in fact intend.

Criticism: Policy Secondly, in regards to Re Gold and Hunter, Professor Hudson argued that the only way to reconcile the two cases is public policy – the company in Re Gold was insolvent but the employer in Hunter was not. In Hunter, the stakes were different – ‘the question was not is there enough property to go around? But it was rather should the defendant have to transfer the property he has got?’ Instead, in cases such as Re Gold, it has been a recurring public policy concern that if the court enforces the trust in question, the beneficiary interest will take priority and defeat the creditor’s interest. Not only does this unsettle the basic tenet of insolvency law by conferring priority to an unsecured creditor, but in the words of Lord Mustill, ‘to enable the claimants a priority over a secured creditor would give them an adventitious benefit devoid of foundation in logic and justice.’ Whilst Hudson’s public policy argument can explain the divergence in the case law, it does not give satisfactory legal closure. Ways that the same result in Hunter v Moss can be reached in a proper way As Professor Hudosn noted, it would be plainly unconscionable for the employer in Hunter to declare 50 shares to be held on trust for his employee as a form of salary and then deny its existence by relying on legal technicality. Indeed, Dillon LJ could have simply resorted back to the ‘anciet equitable principle that was simply inequitable’ and held that the defendant employer’s conscience was affected, thus obliging him to transfer the 50 shares to the employee. But as a matter of legal reasoning, this is clearly not enough. If this were indeed what Dillion LJ had said, Penner’s caution that equity should not bend for a ‘sympathetic result’ would very much be apt. Percieving such a need for a balance between fairness and a principled approach, Rimer QC/Dillion LJ regrettably

opted to distinguish Hunter on the spurious ground of fungibility. The practical effect of Hunter is that it prevented the employer from benefiting from his own breach of non-segregation of shares, ‘indicating the pragmatism at the heart of equity.’ How else might this pragmatism be achieved properly? 1.

Proportionality

It is important to note that it was 5% of the defendant employers shares, but not 50 out of the 950shares, that was held on trust in Hunter. The distinction is crucial, for there is no difficulty in identifying the subject matter with certainty in the former scenario. The subject matter in the former is certain because the beneficiary employee will have a 5% proportional interest in every one of the 950 shares. Thus this solve the problem of identifying which of the 950 shares forms the trust subject. This is to be distinguished from Re London Wine and Re Gold where there was, in Professor Peter Parkinsons words, a fluctuating mass. Since the level of the bulk of wine or bullion varied as the companies stock changed, it was not possible to show that each customer in the two cases owned a specific percentage of the companies entire stock.

2. Certainty of obligation In the same article, Professor Patrick Parkinson furnished a more radical explanation, arguing that it is not so much the trust property that needs to be certain but rather it is ‘the trust obligation that needs to be defined with sufficient clarity’ such that a court can identity the trust property itself. In other words, certainty of subject matter on a closer look is a requirement of certainty of obligation. Arguably, the trust obligation in Hunter was sufficiently certain, namely the payment of salary in the form of 50 shares. If neither party at the time of the declaration of trust contemplated that the majority stockholding in the 950 shares would be sold, the value of the 50 sares that was held on trust would simply be that as existed at the time of the trust delcartion was made. Any subsequent sale of the 900 out of 950 shares by the trustee would be irrelevant, as that would necessarily occur after the trust obligation arose. Similarly, the potential existence of 50 forged shares out of the 950 shares would be a nonissue, as the trust obligation intended by the parties in Hunter was surely the payment of salary in the form of 50 valid and authentic shares. Applying Parkinson’s theory, the court could then identify the trust property as the trust obligation was made with sufficient certainty. Did Hunter throw the requirement of certainty of interest into a turmoil? As Professor Sarah Worthington highlighted, one of the key distinction between Hunter and ReGold is that the alleged equitable interest in the former arose out of a self-declaration of trust and the latter the specific performance of a contract of sale. If a contract can be specifically performed, then the purchaser will be regarded as the owner in equity because equity regards as done that which ought to be done. Warrington suggested that in cases of contractual sale of goods forming part of a fungible bulk, the vendor is holding the stored goods on trust because what equity regards as ought to be done by the vendor is the segregation of goods and its transfer to the purchaser. In other words, it does not matter that vendor did not segregate part of a fungible bulk because equity regarded that as ought to have been done, thereby rendering the requirement of subject matter certainty a non-starter. Of course, this could not apply to ReGold, for the customer contracts in it could not be specifically performed; and this could not apply to Hunter for it concerned a selfdeclaration of trust but not a contract of sale. What the distinction does, however, is to show the way in which Hunter could have avoided distinguishing Re Gold on the basis of fungibles, one that have caused considerable confusion in Re Harvard Securities Ltd

The case that immediately applied Hunters ratio of fungibility is Re Harvard. As Warrington remarked, however, Neuberger J. in Re Harvard could have distinguished Hunter as the former concerned a contract for sale of shares. As such, the customers equitable interest arose out of the vendors contractual obligations and not any super-added trustee duties. Put differently, whether the customers in Re Harvard should have an equitable in...