Three Certainties PDF

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Covers the three certainties under trusts and equity...

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KEY C - cases J - judges T - thoughts Q – quotes L - legislation

THREE CERTAINTIES (i think For the exam you should revise the debate between tangible and intangible goods in regards to certainty of subject matter considering how much she talks about it) Key chararacteristics of a trust is the presentation of equitable and legal ownership – trustee has legal/nominal, beneficial has equitable. trustee under a duty to use property according to terms of trust and is personally liable to beneficiary for any breach of this duty express trust – settlor wants to create a trust two types of et: fixed and discretionary To ensure that an express trust is capable of being managed by a trustee (or the court if necessary) according to the terms intended by the settlor, a test known as the “three certainties” must be meet. Under this test, the settlor must have intended a trust, made certain the property that is the subject of the trust, and identified who is to benefit from it. The “three certainties” are therefore: · Certainty of intention

·

Certainty of subject matter

Settlor must have made certain the property, which is subject of trust ·

Certainty of object.

Settlor must have identified who benefits from the trust With certainty of subject matter there is a debate over the whether there ought to be a distinction between tangible and intangible property. Also, with certainty of object, the test is different depending on whether the trust is fixed or discretionary. (why does anyone use a DT which gives the trustee so much power?)

Reading - *Webb and Akkouh, Chapter 3 and/or Hayton & Mitchell, Part Two - * Emery, ‘The Most Hallowed Principle’ (1982) 98 Law Quarterly Review 551 - *Parkinson, ‘Reconceptualising the Express Trust’ [2002] Cambridge Law Journal 657 - * Martin, ‘Certainty of objects – what is heresy?’ [1984] Conveyancer 304

1.

Basic test

The three certainties test came from: Knight v Knight (1840) 3 Beav 148

Lord Langdale MR: First, if the words were so used, that upon the whole, they ought to be construed as imperative; [certainty of intention] secondly, if the subject of the recommendation or wish be certain, [certainty of subject matter] and thirdly, if the objects or persons intended to have the benefit of the recommendation or wish be also certain. [Certainty of object]

1.

Certainty of intention (otherwise no trust)

A settlor must intend to create a trust. Equity looks at substance not form so no magical formula you need to use to create the trust. Thus, precise words such as “trust” are not necessary. This intention can be inferred from conduct and construction of words used or expressly declared. If there is no intention, the property is an absolute gift or stays with the settlor. Mere desire to make a gift is not sufficient. So the test is: on the construction of words used and on the conduct is there a clear intention that the property is to be held on trust for a third party? There must be unequivocal intention to separate legal and equitable ownership.

2.1 Failed gift cases (covered in greater detail in the constitution of trusts lectures) An imperfect gift will not be rebranded as a trust because equity doesn’t assist a volunteer (no consideration) and it wouldn’t perfect an imperfect gift. An example of this: Jones v Lock (1865) LR 1 Ch App 25 Father holds out check for £900 places it in the hand of his child and says I gift this to baby and I’m going to put this away from him. Father does a few years later. Child entitled to check? Nope, gift failed because the legal title hadn’t passed to the child, as the father hadn’t endorsed

the check. Could there have been a declaration of trust? Court said no, because if a gift is intended the courts cannot regard a failure to transfer legal title as a failure of trust. A failed gift wouldn’t become a trust, because intention is to pass legal title absolutely, the intention wasn’t to create a trust. However, in the case of Sham v Sham, it is clear that this principle is being muddied. LORD CARNWORTH LC: ‘I think it would be a very dangerous example if loose conversation of this sort, in important transactions of this kind, should have the effect of declarations of trust.” Richards v Delbridge (1874) LR 18 Eq 11 Shah v Shah [2010] EWCA Civ 1408

2.2 Precatory words (e.g. “hope”, “confidence”) insufficient alone Precatory words would not show intention to create a trust. These are words of mere hope or desire e.g.: “I hope that…”; “I desire that..”; “in the hope that”; “in the expectation that.”; “I feel confident that..”. Prior to 19th century, these could create a trust but not anymore. Lambe v Eames (1871) Ch. App. 597 “to be at her disposal in anyway she may think best” à precatory words used here. JAMES LJ: “I could not help feeling that the officious kindness of the Court of Chancery is in interposing trusts where in many cases the father of the family never meant to create trusts must have been a very cruel kindness indeed.” Mussoorie Bank v Raynor (1882) 7 App. Cas. 321 Re Adams and the Kensington Vestry (1884) 27 Ch D 394 Estate was left for the absolute use of his widow, and the words were: “in full confidence that she will do what is right as the disposal thereof between my children…” à expression of hope or desire, not legal obligation to hold on trust. Held to be words of aspiration. Cotton LJ: … I think that some of the older authorities went a 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 shows 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.’

BUT SEE Re Steele’s Will Trusts [1948] Ch 603 “I request that my said son to do all in his power.” [in contrast, here the solicitor drafted this using an outdate precedent using precatory words, but the judge said he could still see intention to create a trust] I give my diamond necklace to my son to go and be held as an heirloom by him and by his eldest son on his decease and to go and descend to the eldest son of such eldest son and so on to the eldest son of his descendants as far as the rules of law and equity will permit (and I request that my said son to do all in his power by his will or otherwise to give effect to this my wish). HELD: trust established, as draughtsman had deliberately followed the old precedent of Shelley v Shelley. RE HAMILTON [1985] 2 Ch 370: ‘I wish them to bequeath them equally between the families of [X] and [Y] in such mode as they shall consider right’ RE DIGGLES [1888] 39 Ch D 253: “it is my desire that she allow A.G. an annuity of £25 during her life” MUSSOORIE BANK v RAYNOR [1882] 7 App Cas 321: “feeling confident that she will act justly to our children in dividing the same when no longer required by her” ‘Uncertainty in the subject of the gift has a reflex action upon the previous words... and seem to show that he could not possibly have intended his words of confidence, hope or whatever they may be … to be imperative words’ There can be a bit of an interrelationship between uncertainty of subject matter and uncertainty of intention - “reflex action” - because if subject matter is uncertain, that might indicate that no trust was intended. SO WHAT WORDS DO CREATE A TRUST?

2.3 The focus is on intention to create a mandatory obligation, as opposed to the precise words used. There needs to be imperative words that impose a mandatory, legal obligation on the trustee. The precise words aren’t importance because equity looks to substance not form so focus is on intention to create a mandatory obligation. A moral obligation or mere request is not enough Re Kayford [1975] 1 WLR 279 Megarry J: It is well settled that a trust can be created without using the word ‘trust’ or ‘confidence’ or the like: the question is whether in substance a sufficient intention to create a trust has been manifested. Duggan v Governor of Full Sutton Prison [2003] 2 All ER 678

→ Control of cash by prison governor under the Prison Rules. Held: there was nothing in the language of r 43(3) of the 1999 rules or, more generally, in the circumstances in which cash was taken from a prisoner under that rule or

dealt with under that rule pursuant to r 44(2), which should lead to the imposition of a trust on the moneys when they came into the hands of the prison governor. Re Snowden [1979] Ch 528

→ Intention to create trust subject to ordinary civil standard of proof (balance of probabilities). If there are no express words to show trust is intended court would look at conduct of the party and language used. There is no requirement that settlor has to be aware they’ve created a trust but intended to. So, he intends to create an obligation that the courts would recognise as a trust, so for example: FAMILIAL CONTEXT Paul v Constance [1977] 1 WLR 527 Described by the courts as simple people. Mr Constance, who had a bank account in his name alone, repeatedly said to Mrs Paul, “The money is as much yours as mine”. Arrangements were made so she could take money out of the bank account and she paid her bingo winnings into the bank account. Mr C died and the court found that he had made a declaration of an express trust that gave Mrs Paul an equal share of the bank account with Mrs Constance. SCARMAN LJ thought there was no need for stilted lawyers language to create a trust, saying: “[we are] dealing with simple people, unaware of the subtleties of equity, but understanding very well indeed their own domestic situation” The words of Mr C had to be viewed in light of his own circumstances. BUT SEE Gold v Hill [1999] 1 FLR 54 Mr Gilbert, the husband, took out a life insurance policy, and he named Mr Gold as the beneficiary. It was alleged that Mr Gilbert had said to Mr Gold, that if anything happens to him the insurance money should be used to look after his mistress, Carol, and her kids. Deceased to solicitor: “if anything happens to me you will have to sort things out. You know what to do. Look after Carol and the kids. Don’t let that b****h get anything” The wife was the major beneficiary under his will, Mr Gilbert died and Mr Gold claimed the money, saying he was the beneficiary under the life insurance and it was a gift to him. Carol wanted the money so the question was whether he had to give the money to her. The point of this case is that the conversation between Gold and Gilbert effectively made the former a trustee. So the intention to create he trust was inferred from conduct. Carnwath J: it seems to me that the most likely interpretation of Mr Gilbert’s intentions, as expressed in the ‘enrolment card’ and elaborated by his conversation with Mr Gold, was, as pleaded in the amended statement of claim, namely that he should hold them as trustee for her to apply those moneys for the use and benefit of herself and her children.

COMMERCIAL CONTEXT Don King Productions v Warren [1998] 2 All ER 608 (but see criticism in [2000] JBL 422 and 465)

Partnership agreement here, which was poorly drafted. Court held that regardless the inferred intention was that the agreements were held on trust for the partnership. Courts looked at two agreements and deduced an intention. LIGHTMAN J: “The essential task in construction is to deduce, if this is possible, from the two agreements construed as a whole against their commercial background the commercial purpose which the businessmen and entities who were parties to them must as a matter of business common sense have intended to achieve by entering into them; and if such intent can fairly be deduced and if this is necessary to effectuate that intent, the court may have to require what may appear to be errors or inadequacies in the choice of language to yield to that intention and be understood as saying what (in the light of that purpose) that language must reasonably be understood to have been intended to mean.

2.4 Sham intentions/Fictitious intentions An express declaration of a trust so “I am holding this on trust for…” would be held as an intention to create a trust, and thus result in a valid trust in most cases. However, where intention to create trust is false or a sham or pretence, the trust would fail and title to the property would remain with the settlor. Sham trusts are normally created to avoid creditors or preventing a spouse from making a claim to the property Midland Bank v Wyatt [1995] 1 FLR 697 Here a husband and wife declared a trust in respect of their matrimonial home. The beneficial interest in the trust remained with the wife and the daughters and the house was mortgaged to midland bank, and the husband continued to borrow on security of the family home and did not inform the bank of the trust. The bank then wanted to sell the house to recover husband’s debt. Bank held no true intention, declaration of trust was a sham thus trust was void.

David Young QC: I do not believe that Mr Wyatt had any intention when he executed the trust deed of endowing his children with his interest in Honer House, which at the time was his only real asset. I consider the trust deed was executed by him, not to be acted upon but to be put in the safe for a rainy day … As such I consider the declaration of trust was not what it purported to be but a pretence or, as it is sometimes referred to, a “sham” … Accordingly, I find that the declaration of trust sought to relied upon by Mr Wyatt is void and unenforceable.

2.

Certainty of subject matter (otherwise no trust)

Subject matter is essentially property that is the subject of the trust. Any existing property can be the subject matter of a trust e.g. land; personal goods; shares; cheques; money; debts; and covenants. However, future or after-acquired property cannot be the subject matter of a trust. Note though that existing property that has not yet become vested in the settlor can be subject matter because in this case there is an existing right – beneficial interest. Unless there is already an existing right, for example already the beneficiary of a trust but don’t physically have the property yet So is this saying that a beneficiary can give the trust away before they even have the physical property?

3.1 The general principle The general principle is that trust property must be identifiable. Each beneficiary’s interest must also be capable of being ascertained. If not, the trust fails. For example: “£100,000 to be divided equally between by children, Charlie and Lola” à Fixed trust, subject matter money is identifiable as is the beneficiary entitlement, ‘equal shares’. “£100,000 to be divided between my children in such amounts as my trustee sees fit” à Discretionary trust, trust fund is identified, 100,000 but because its not a fixed trust you need not know how much each gets, but because trustee decides (mechanism put in place) its identifiable. Does the amount each person get have to ne identifiable as well? The beneficiary can only enforce the trust if they know what the trust property is however, SOME PROBLEMS may arise: The fund might not be identifiable (e.g. the funds from which the trust is coming from might be an overdrawn bank account). – cannot then be subject of the trust -

Language used by settlor might be too vague (e.g.: “most of my money”)

Uncertainty might come from failure to segregate our the trust property from the larger bulk (e.g.: “50 stamps from my collection” – how do we know which 50 stamps if collection has more than 50 stamps?) Note there is a different approach to this with tangible/intangible property. (i) The entire trust fund must be certain Hemmens v Wilson Browne (a firm) [1995] Ch 223

The defendant solicitors were instructed to draft a document giving their client’s mistress the present right to call at an unspecified time in the future for a sum of £110,000 to enable her to purchase a house for herself and her daughter. Judge Moseley QC: It is common ground that the document granted Mrs Hemmens no enforceable rights. It was not a promissory note, not a contract (because there was no consideration), it was not under seal, and it did not create a trust because there was no identifiable fund, which could form the subject matter of such a trust. No contract because no consideration, and no trust because the subject matter wasn’t identifiable. How was there no identifiable sum? Does money have to be separated?

MacJordan Construction v Brookmount Erostin (1991) 56 BLR 1 Retention moneys were to be retained by the developer as trustee for the contractor, and were required to be placed in a separate bank account. In fact no such account was established. Scott LJ: There were no identifiable assets that had been subjected to the trusts to which the retention fund, once appropriated and set-aside, would be subject. This is a similar example, commercial context rather than familial. Building contract between the developer and the contractor saying the developer would keep 3% of the price as trustee for the building but no separate fund was made to put the money into and the developer went bankrupt. Builder claimed to have a trust interest in the money, to have priority over the bank but the source of money wasn’t identifiable and thus nothing upon which the trust could be based. So money has to be in a separate account? (ii) The amount of property forming the subject-matter of the trust must be certain Not only must trust fund be identifiable, the words used by the settlor must clearly identify the property held on trust (or provide a mechanism by which the property can be identified) Palmer v Simmonds (1854) 2 Drew 221 Testamentary gift left was ‘the bulk of my … residuary estate’.

Court held that “bulk” was too uncertain to create a trust, was it 99%? 30%? Kindersley V-C: What is the meaning then of bulk? … I am bound to say she has not designated the subject as to which she expresses her confidence; and I am therefore of opinion that there is no trust created … Anthony v Donges [1998] 2 FLR 775 Testamentary gift of ‘such minimal part of my estate [to which my wife] might be entitled to under English law for maintenance purposes’. Lloyd J: But since it seems to me that it is impossible to determine what she is entitled to under English law for maintenance purposes, or, rather, what is meant by that because, as I say, there is no such entitlement, it seems to me that cl 4 has no content, and therefore it is void for uncertainty.

More examples of conceptual uncertainty: Re Kolb’s Will Trusts [1961]: “first class” and “blue chip” Peck Halsey [1720]: “some of my best linen” Jubber v Jubber [1839]: “a handsome gratuity” These cases can be contrast with: Re Golay’s Will Trusts [1965] 1 WLR 969 Testamentary gift was of ‘a reasonable income from my other properties’.

The difficulty is calculating what a reasonable income is. However, the court upheld the trust as ‘reasonable’ gave the court an ‘objective yardstick to assess the income, looking at beneficiaries’ age, income and outgoings and calculated a fare that was reasonable. So without the word reasonable trust would have failed. Ungoed-Thomas J: In this case … the yardstick indicated by the testator is not what he or some other specified person subjectively considers to be reasonable but what he identifies objectively as ‘reasonable income’. The court is constantly involved in making such objective assessment of what is reasonable … Also, it has been seen that words such as “whatever is left after… is sufficiently certain.” (iii) Each beneficiary’s share forming the subject-matter of the trust must be certain In addition to the words needing to conceptually certain, each beneficiary’s share forming the subject matter of the trust must be certain, or capable of being made certain Boyce ...