Topic 2: The 3 Certainties
In order to have a valid express trust, the trust must:
1. Have sufficiently clear terms
2. Satisfy the Three Certainties (Knight):
(i) Certainty of intention of the settlor to create an express trust;
(ii) Certainty of subject matter (the assets that form the trust property); and (iii) Certainty of object: the people who are to be bens/objects
3. Comply with statutory formalities 4. Be properly constituted
5. Not be for illegal purposes.
Once a valid trust is created, there are binding consequences, and it is too late for settlor to change mind (Mallot).
CERTAINTY OF SUBJECT MATTER 3 criteria:
1. Present property: the subject matter of a trust must be composed of presently existing property 2. Assignability: the settlor must own (have rights over) that property; AND
3. Identifiability: The property must be sufficiently identifiable (described by settlor).
CRITERION 1: Present property
Trust property must be presently existing and presently owned.
o C.f. future income that is yet to accrue – Williams; mere expectancies under a trust – Kennon Future property: (for our course’s purposes) is either:
1. Property not yet in existence; OR
2. Property that currently exists but isn’t owned by the person purporting to deal with it now.
Future Property
Caveat #1: Future property vs. future interest in existing property Caveat #2: Consideration
The income cases from Equity:
1. Williams v Comm’r of Inland Revenue: Unearned income = future property
2. Norman v FCT: undeclared & unearned dividends and (ii) money owed to you under loan = future property
3. Shepherd v FCT: The right to unearned income = present property CRITERION 3: Identifiability
Trust property is identifiable where the trustee can definitively tell what property they are holding on trust 1. Identifiable: ‘the rest and residue of my estate’ is identifiable
2. Not identifiable: ‘bulk of my estate’ (Palmer), ‘whatever is no longer required by her’ (Mussourie) Where property is bulk and identical: may not be necessary to specify which exact assets are held on trust (e.g. 5% of my 950 shares where shares are identical; shares of the same class in the same company – Hunter;
Shortall) Mussourie
(1882) A testator left the residue of his estate to his widow in his will: ‘feeling confident she will act justly to our children in dividing [a list of assets] when no longer required by her’.
HELD: The words ‘no longer required by her’ are too vague.
Palmer v Simmonds (1854)
‘leave the bulk of my residuary estate unto’ other named parties.
HELD: because the court could not be sure which parts of the residue were meant to be held on trust, the trust failed. The term "bulk" was too uncertain for the court to determine what was meant.
Note: residuary clauses is sufficiently clear (certainty of subject matter).
Hunter v Moss (UK Case)
Robert Moss owned 950 shares out of 1000 in a co (i.e., 95% of shares). Trial judge: Moss had made an oral declaration of trust over 5% of those 950 shares for Hunter (i.e., over 50 out of the 950 shares).
HELD: High Court held that since the shares were all identical, the lack of segregation between them did not invalidate the trust. With intangible, identical property, not necessary to segregate the trust.
Shortall v White – authority for shares
S owns 1.5 million shares in the company, but only includes 222K in the trust. Further, the individual shares aren’t numbered.
HELD: Trust over all the shares: 222K for White, the rest held by Shortall as trustee for himself as the 2nd beneficiary. In Hunter, if only 5% shares held on trust, the trustee may breach the duty to keep trusts assets separate (all shares held together). Shortall thereby steps around the duty by saying all shares regarded as trust assets.
CERTAINTY OF OBJECT
The trustee must be able to identify who they owe fiduciary duties to (Morice).
STRUCTURE
Fixed Interest Trusts Discretionary Trusts
Duty aka ‘Trust’
(special class only.
Otherwise, it’s invalid)
Trust power
(Special class only. Otherwise, invalid)
Mere power
(can be general, hybrid, or special) Test: List Certainty Test:
1. Criterion certainty &
2. Administrative unworkability
Test:
1. Criterion certainty; &
2. Capriciousness STEP 1: Characterise the trust/power
a. Fixed interest trust – The beneficial interest under the trust has been fixed, stated and defined b. Discretionary trust –act of distribution is mandatory, but the proportions/objects are discretionary c. Bare power – mere authority to deal with property, no obligation to distribute (includes default
clauses)
STEP 2: Recognise the class of trust/power we are concerned with a. General class: Anyone in the world
b. Hybrid class: Anyone in the world except for certain individuals/a specified class c. Special class: An ascertainable class defined by criteria
STEP 3: Apply the relevant test TYPE 1: Fixed interest trust
List certainty test: a trustee be capable of drawing up a list of all of beneficiaries (at the distribution date) if the trust is to be valid (Kinsela)
o ‘Mates/friends’: no possibility of listing this unless special instructions given by S to T (L. Upjohn—
Gulbenkian)
TYPE 2: Discretionary trust 2.1: TRUST POWERS
Lord Wilberforce on Mere vs Trust Powers
A wider and more comprehensive range of inquiry is called for in case of trust powers than [mere] powers.
Criterion Certainty for Trust Powers Two steps as per McPhail:
1. Criterion certainty test (Re Gulbenkian): The trust power will be valid if it can be said with certainty that any given individual is or is not a member of the class
(1) Semantic certainty – Class must be described in a way that is not vague (E.g. ‘relatives’, ‘dependant’
‘employees’ (McPhail) – certain; ‘my old friends (Re Gulbenkian) – uncertain)
(2) Evidentiary certainty – Can the trustee tell whether any given person is inside or outside the class?
NB: Evidentiary uncertainty does not invalidate the clause (McPhail)
2. Administrative unworkability: If the class is so broad that trustee has no objective criteria to make a decision between objects, it is AU (R v District)
• The class is ‘so hopelessly wide so that the trust is administratively unworkable’.
(1) E.g. a trust for residents of Greater London (McPhail)
(2) Note: If general/hybrid classes of objects, trust power automatically invalid under AU Re
Gulbenkian – criterion certainty test
‘any person or persons in whose house/apartments or in whose company or under whose care or control or by or with whom the said Gulbenkian may from time to time be employed or residing.’
HELD: The Criterion Certainty Test: valid if you can with certainty say whether any given individual is or is not a member of the class; do not have to be able to ascertain every member of the class.
o Requires the clauses/terms be conceptually or semantically certain R v District
– AU. Trust established for the 2.5 million ‘inhabitants’ of West Yorkshire in England.
HELD: Met criterion certainty, but administratively unworkable McPhail v
Doulton – UK Case
‘at their absolute discretion grants to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants … as they think fit
…
9(B) Trustees shall not be bound to exhaust income …and any income not so applied shall be [placed in a bank or invested].
HELD: There is a trust power – there is a duty to put any residual income into the capital. Court held that the trust in question is administratively workable.
2.2: MERE POWERS
The test depends on the class of power
1. General class: Always certain. Criterion certainty (semantic certainty + evidentiary certainty) (Re Gulbenkian) (see above) – always valid
2. Hybrid class: Exclusionary criteria. Criterion certainty (semantic certainty + evidentiary certainty) (Re Gulbenkian) (see above)
3. Special class: Inclusionary criteria.
i. Criterion certainty (semantic certainty + evidentiary certainty) (Re Gulbenkian) (see above) ii. Capriciousness: There must be a discernible link between the objects and the settlor, otherwise
capricious and fails (Templeman J in Re Manisty) Re
Manisty’s Settlement
Trustee given power to appoint to settlor’s children or two brothers, but also given power to add to that class any person, corp or charity except for settlor, s’s wife, or other people who may have put money into the trust. Hybrid mere power concerning being able to add people into the class.
HELD: Administrative unworkability test does not apply to mere powers because they don’t have to be exercised.
On Capriciousness: A power to benefit ‘residents of Greater London’ is capricious because the terms of the power negative any sensible intention on the part of the settlor…no discernible link with the settlor or with any institution.
Consequences of COO not satisfied, but COSM and COI satisfied
But with COI to create a trust satisfied, it is clear that [T] was not intended to receive the property as a gift.
Accordingly, he holds it on resulting trust for [settlor], pending the later direction.
Topic 5: Statutory Writing Formalities and Constituting the Trust
FORMALITIES S 53(1)a: Validity condition for creating or disposing interests in land S 53(1)b: Enforceability requirement for declarations of trust in land
S 53(1)c: Validity condition for disposing of already-existing equitable interests S 53(2): Exceptions
INTERVIVOS TRUSTS
STEP 1: Identify which section applies to the trust clause S 53(1)(a)
No interest in land can be created or disposed of except by writing signed by the person creating or
conveying the same, or by their (authorised) agent thereunto lawfully authorised in writing, or by will, or by operation of law
(i) Includes both legal and equitable interests in land (Adamson) (ii) Writing is a validity requirement
S 53(1)(b)
A declaration of trust respecting any land or interest therein must be manifested and proved by some writing signed by a person who is able to declare the trust or by their will
(i) Includes both legal and equitable interests in land (Adamson)
(ii) Writing is an enforceability requirement: if oral declaration, unenforceable until intention evidenced in writing (DSS).
(iii) Can be evidenced by numerous, informal documents (Hagan— with correspondence; Chang with multiple letters to son as trustee; DSS with government documents in pension application)
S 53(1)(c)
A disposition of an equitable interest or trust subsisting at the time of disposition must be in writing signed by the person disposing of it or by their agent thereunto lawfully authorised in writing or by will
(i) Subsisting equitable interest: one already split from legal estate, e.g. beneficial interest/equitable mortgage/partnership interest.
(ii) Concerns both personal property and land (Maradona)
(iii) Writing: validity requirement – requires disposition itself to be in writing, not merely evidenced in writing
(i) A ‘disposition’ requires a final direction with immediate effect rather than merely giving
permission to deal with your interest – Howard (e.g. ‘requesting trustee pay money to persons and institutions here undermentioned’ before probate granted - not a disposition – Howard)
Consideration: Two potential approaches to the application of s 53(1)(c) to declarations of sub-trust
(1) Barkehall-Thomas and Vann – declaration of sub-trust might be regarded as a ‘disposition’ and, thus would need to be made in writing.
(2) MGL – declarant of a sub-trust retains a beneficial interest and that, reading the paras of s 53(1) together, writing is not required for a declaration of sub-trust over personal property. Oral statement sufficient.
S 53(2): EXCEPTIONS
This section shall not affect the creation or operation of resulting, implied or constructive trusts 1.1: What else is ‘excluded?
Wills Act, S 7: testamentary trusts (trust by will) must be in writing, signed, and witnessed (by at least two people).
STEP 2: If overlap between applicable sections, which one applies?
Adamson v Hayes – oral
agreement, s 53(1)(a)
A, B, and C make oral agreement to pool their interests (mineral rights on Crown land) and reorganize them. They made new declarations of trust in order to achieve this. A also granted options to B and C to enable them, or a co they could nominate, to purchase A’s interest at a future date. B and C did so. But, A refused. B and C sue for specific performance from A.
HELD: Court refused to provide specific performance for the oral agreement. S 53(1)(a) applies to both legal AND equitable interests in land. As this was an oral agreement, it failed to comply with the statutory formality requirement of being in writing.
DSS v James – declaration s 53(1)(a), (b)
J testifies 2nd unit was held on trust for her invalid daughter (life estate holder) and granddaughter (remainderperson). However, J never made a formal declaration of trust.
Instead, she presents several documents to make her case, which seem to evidence there having been a trust.
HELD: Court carves out 53(1)(b) from 53(1)(a). Declarations of trust in respect of interests in land only need to comply with 53(1)b. 53(1)b constitutes an exception to 53(1)a.
53(1)a now covers: all creations and dispositions of legal and equitable interests in land, EXCEPT declarations of trusts in respect of land or interests therein à only 53(1)b.
o 53(1)b can be satisfied by a combination of documents capable of being read together.
o Any informal writing can be evidence of the existence of a trust: including correspondence, affidavit, answers to interrogatories, etc.
Regarding 53(1)(c)’s relationship to the above sections post DSS v James:
53(1)b only concerns the declaration of trusts in land, while 53(1)c concerns the disposition of subsisting interests in land or personal property.
Chang v
Tjiong S 53(1)(b) – 'Manifestation' requires that the terms of the trust be obvious from the documents - that is, the essential terms: the 3 certainties. These can be gathered from various documents Comptroller
of Stamps (Vic) v Howard- Smith (1936) – disposition s 53(1)(c)
Mr H-S sent a letter to co: ‘I have to request you, as executors and trustees of her will and estate, and as my attorney under power…’ Each party to receive a definite, equal amount of wealth. However, it was up to trustee to decide whether to distribute shares or money to a given party.
HELD: The letter provided an authority, rather than a final direction to the trustees. To count as a direction, it must be immediately binding. Therefore, not a disposition.
Dixon J in Howard-Smith: three ways to voluntarily dispose of an equitable interest:
1. Donor express intention to hold equitable interest on trust for other (decl. of sub-trust).
2. Sufficient expression of an immediate intention to assign interest.
3. Donor gives a direction to the T to hold trust property on trust for the intended donee.
(It must be a direction, not a mere authority for the trustee to act.)