SAMPLE NOTES FROM OUR LLB CASE BOOK: Equity and Trusts The Three Certainties chapter
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THE THREE CERTAINTIES KEY CASES CASE
Comiskey v Bowring Hanbury [1905]
Hunter v Moss [1993]
FACTS
PRINCIPLE
A disposition was made to the testator’s wife “absolutely in full confidence that she will make use of it as I should have”, and “at her death she will demise to one or more of my nieces”. This was held to give her a life interest and to create a trust.
Example of language which was sufficiently clear to show certainty of intention. Language is to be viewed as a whole. The existence of precatory language (“in full confidence”) will not necessarily prevent certainty of intention.
A company director purported to create a trust over shares. The shares were inter-changeable with others in their class.
Where property is intangible and interchangeable the subject matter will be sufficiently certain without the specific shares having to be segregated. COMPARE with Re London Wine
IRC v Broadway Cottages [1954]
Jones v Lock [1865]
Kasperbauer v Griffiths [2000] (continued overleaf)
A trust was set up under which some, but not all, beneficiaries could be identified. It was possible to identify whether a given individual was a member of the relevant class. A man gave a cheque to his baby saying, “I give this to baby for himself”. He then took the cheque back and it was found when he died. He had not created a trust for the child, he had not used imperative words to subject the cheque to a legally binding obligation for the benefit of the child.
A man attempted to pass on property in a secret trust established in his will by referencing his prospective fiancé and saying that she “knows what she has to do”.
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It was held that the trust was void for uncertainty. Payments made from the purported trust to charities were therefore made under a resulting trust from the settlor's income.
Example of a scenario where a trust will fail because equity will not perfect an imperfect gift. COMPARE with Mascall v Mascall and Pennington v Waine
1. Sets out the requirements for a secret trust: (i) communication; (ii) acceptance; and (iii) reliance. 2. The testator must clearly intend to establish a secret trust. Here, “knows what she has to do” was held not to demonstrate sufficiently clear intention.
THE THREE CERTAINTIES
CASE
FACTS
PRINCIPLE 3. States obiter that secret trusts are upheld to prevent them being used as instruments of fraud, so arguably secret trusts are constructive trusts, meaning a secret trust of land does not need to comply with the s. 53(1)(b) formalities, as per s. 53(2) LPA 1925.
Kasperbauer v Griffiths (continued)
COMPARE with Kasperbauer v Griffiths and Re Baillie Knight v Knight [1840]
McPhail v Doulton [1970]
Morice v Bishop of Durham [1805]
Paul v Constance [1977]
R v District Auditor ex parte West Yorkshire CC
A dispute over who inherited two castles in Downton, Herefordshire.
For a valid trust to exist, the three certainties (intention, subject matter and object) must be satisfied.
A discretionary trust was established, and the court considered whether the list test needed to be satisfied.
For a discretionary trust, it is only necessary to establish whether a person is or is not part of the class of objects. (The individual ascertainability test). The test is whether the definitions in the settlement are conceptually clear.
A trust was established to disperse property among “such objects of benevolence as the Bishop shall approve of”.
A trust that offends the “beneficiary principle” (the rule that trusts must have ascertainable beneficiaries) will generally fail, as it did here.
A bank account was set up by the deceased in his sole name to hold accident compensation. It was also used for bingo winnings. The deceased always told his partner it was a shared account and money withdrawn from it had been shared.
There had to be clear evidence of a trust from what was said and done. The deceased had been consistent in what he said. Conduct can also demonstrate intention. In this case, sharing a bank account and using it to deposit joint winnings demonstrated sufficient intention to create a trust.
A trust was created to benefit “any or some of the inhabitants of West Yorkshire”.
Where a trust is administratively unworkable, it will not be upheld, even if it has certainty.
[1986]
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THE THREE CERTAINTIES
CASE
FACTS
PRINCIPLE 1. It does not defeat a trust if a person cannot prove they are not a member; it is only necessary to prove they are a member of the class.
Re Baden (No. 2) [1972]
The trust established in McPhail was discussed further. Under consideration was whether “relatives” was evidentially certain and so whether a discretionary trust requires evidential certainty.
2. Applied the “is / is not” test to the term “relative”. In this case, Stamp LJ said that the meaning of “relatives” should be restricted to “next of kin” so as to be evidentially certain; Sachs LJ stated that “relatives” could mean “all descendants of a common ancestor”, which is too wide for evidential certainty, but the trust was workable if a person claiming to be in the class were able to prove that they were in the class; and Megaw LJ held that if a substantial number could prove themselves to be within the class it could stand as a trust. 1. “Some useful memorial” was deemed too uncertain to satisfy certainty of object.
Re Endacott [1959]
A testator attempted to leave money in his will to establish “some useful memorial to myself”. This was not a good charitable gift and it failed for uncertainty. The words created a form of trust. This is an example of the equitable doctrine – “Equity looks at the intention rather than the form”.
2. Set out the exceptions to the “beneficiary principle” (the rule that trusts must have ascertainable beneficiaries). 3. A “memorial” did not come within the exception for monuments established in Re Hooper. The list of exceptions is closed and narrowly interpreted. APPLIED BY Bourne v Keane, Pettingall v Pettingall, Re Hooper and Re Thompson
Re Goldcorp [1995]
A company established to allow customers to invest in gold was wound up following a petition by a creditor bank. The company did not have sufficient assets to cover its liabilities and had not kept gold bullion separate so as to be able to identify individual owners.
1. Where a creditor has made a prepayment to a company, their money will be protected on insolvency if it is deemed to be held on trust. 2. Gold bars and bullion here were not identifiable for each individual investor, so a trust could not be established. COMPARE with Re London Wine
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THE THREE CERTAINTIES
CASE
Re Gulbenkian’s Settlement Trust [1969]
Re Kayford [1975]
Re London Wine [1986]
FACTS
PRINCIPLE
A power of appointment was created to give property to a very wide class of beneficiaries including a wealthy businessman’s son and the son’s wife and heirs and anybody with whom he might be living,
The trust was not void for uncertainty. The “is / is not” test applies to powers of appointment. For any given individual it was clear whether they were, or were not, within the group of beneficiaries.
A company was in financial difficulty and was advised to set up a separate trust account to accept money coming in from customers. Instructions were given to the bank which re-designated (without renaming) an old account for the purpose.
When the company went into liquidation it asked the bank to change the name on the account. The question arose as to whether a trust had been created. The court held that the intention was clear and that it was not required that something be labelled a “trust” for a trust to be found.
A wine company attempted to create a trust over some of the wine in its cellars but failed to separate out the wine which was to form the subject of the trust.
Where the trust property is selected from property that is tangible, it must be possible to identify and segregate the specific property intended. Otherwise, the trust will fail, as it did here. COMPARE with Hunter v Moss
Sprange v Barnard [1789}
Vandervell v Inland Revenue Commiss-ioner [1967]
A £300 annuity was left by a testatrix to her husband in a will. The will stated that whatever was left or whatever the husband did not want was to be given to other beneficiaries. Vandervell transferred shares to a trustee company which would hold the shares in favour of himself as the beneficiary. He then orally instructed the trustee company to transfer both legal and equitable title to the Royal College of Surgeons.
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The subject matter (property and size of share) of the trust must be certain. It was not sufficiently certain here, so the trust failed.
Where legal and equitable title are transferred together, it is not necessary for the transferor to comply with the formalities in s. 53(1)(c) LPA 1925. The beneficiary of a bare trust is able to collapse the trust under the rule in Saunders v Vautier. COMPARE with Grey v IRC
THE THREE CERTAINTIES
ADDITIONAL CASES CASE
Boyce v Boyce [1849]
CRC Credit Fund Ltd v GLG Investments plc [2010]
Gold v Hill [1999]
Harvard Securities [1997]
Lambe v Eames [1871] Margulies v Margulies [2000]
Midland Bank v Wyatt [1995]
FACTS
PRINCIPLE
A testator left two houses on trust for his daughters. One daughter was to choose one, and the other would take the remainder. However, the first daughter died before choosing.
The beneficial entitlement must be capable of determination or the trust will fail for uncertainty. Here which house would have been chosen by the first daughter could not be known, the trust failed.
The court was asked to rule on the entitlement of creditors of Lehman Brothers to receive distributions from different asset pots held by the administrators.
The court had to look at statutory trusts applying to client money obtained for the purpose of investment business and to decide when they arose and what assets were held in them.
The claimant was nominated as the beneficiary under a life assurance policy, and was told by the deceased to apply the funds for the benefit of the deceased's wife and children.
It was held that a nomination like this operated as a secret trust, the purpose of the trust had been sufficiently communicated and the interest was created at the time of death.
The firm was a dealer in securities and had purchased shares for clients which had not been registered to those clients. The court had to determine whether those shares were held on trust.
There were some complexities due to jurisdiction, but the court held that it was possible for there to be a trust over a particular number of a particular class of shares being part of a larger holding. FOLLOWED Hunter v Moss.
A disposition was made to a man’s widow “to be at her disposal in any way she may think best, for herself and her family”.
This was held to be an absolute gift to the widow, rather than a trust. There was no certainty of intention.
A son argued that his father had intended to establish a secret trust in his favour with his brother as trustee.
The three certainties are required for secret trusts. “Knowing his wishes” and “giving what is appropriate” were too vague to demonstrate sufficient intention.
The defendant and his wife had bought a property. The defendant then purported to put the property into a trust for the benefit of his wife and family. He continued to use the property as collateral security for business loans. His bank was unaware.
When the business became insolvent the bank argued that the trust was a sham and should be set aside. The trust could be a sham without a need to demonstrate fraud.
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THE THREE CERTAINTIES
CASE Mussoorie Bank v Raynor [1882]
OT Computers Ltd v First National Tricity Finance Ltd [2003]
Palmer v Simmonds [1854]
Pearson v Lehman Brothers Finance SA
FACTS
PRINCIPLE
The case turned on the wording of a will whereby the testator left his property to his wife "feeling confident that she will act justly to our children…"
It was held that uncertainty as to the subject matter reflects doubts on the intention of the settlor.
A company was in financial difficulties. It set up two trust accounts, one for customers and one for "urgent suppliers". It subsequently went into liquidation.
The courts were asked to determine if the trusts were valid. The trust for customers was valid as the beneficiaries were clearly identifiable. The trust for suppliers failed because of the uncertainty of the meaning of "urgent suppliers."
The testatrix left her residuary estate to an individual, specifying that if he died without issue he should leave “the bulk” of her estate on trust for named others.
Example of an unclear subject matter that could not be the basis of a trust.
The case concerned the beneficial holdings of shares following the collapse of Lehman Brothers.
The court allowed the trusts and found that there was a beneficial coownership in an identified fund.
A will granted a power of appointment to give educational scholarships to “promising” relatives and referred to a list which had never been created.
Example of a power of appointment which was deemed too broad to be upheld.
A land lease contained a covenant that the lessee and his executors and assigns could purchase the fee simple of the demised land for a set price. The lessee died and nearly 20 years later his administrator exercised the option under the covenant and the fee simple was delivered.
Problems arose when the administrator tried to sell the property. The option to purchase was attached to the lease and the administrator could not give good title on a sale without the consent of the next of kin of the lessee.
A testatrix allowed her “friends” first refusal on a sale of paintings
“Friend” was certain enough for a gift subject to condition precedent to be upheld, as only reasonable evidence is required of friendship. It was possible to identify those who did fall into the class.
COMPARE with Re Golay’s Will Trust
[2011] Public Trustee v Butler [2012]
Re Adams and the Kensington Vestry [1884]
Re Barlow’s Will Trust [1979]
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THE THREE CERTAINTIES
CASE
Re Golay’s Will Trust [1965]
Re Snowden [1979]
Re Steele's Will Trust [1948]
Re Tuck's Settlement Trusts [1977]
Shah v Shah [2010]
FACTS
PRINCIPLE
A settlor directed that a person could live in one of his properties after his death and declared that she should receive “a reasonable income” from his other properties.
A “reasonable income” was held to be a sufficiently objective “yardstick” certain enough to form the basis of a trust. This was not void for uncertainty. COMPARE with Palmer v Simmonds
An elderly woman left her estate absolutely to her brother. She told her solicitor that her brother would "split up as he thought best" between nephews and nieces. Her brother died immediately after her and his estate vested in his son. A declaration was sought as to how to apply the testatrix's money.
There was no evidence of a trust here as there was no indication that the testatrix intended a court to be able to execute her wishes. Case confirmed view that extrinsic or parole evidence may not be produced to vary or contradict a will.
The testatrix left her diamond necklace to her son "to go on and be held as an heirloom by hm and by his eldest son on his decease and to go and descend to the eldest son of the eldest son" and so on. On his death the son purported to leave the necklace to his son for life and to his grandson absolutely.
The testatrix will was held to create a trust for life for her son and then to his son and so on. Her son held the necklace only for life and could not dispose of it by will. APPLIED Shelley v Shelley.
A settlement was made in 1912 by the first baronet. This provided that all subsequent baronets should marry an "approved wife”, defined as a wife "of Jewish blood" by one or both of her parents. She had to have been raised in and never departed from the Jewish faith. In an event of a dispute the decision of the Chief Rabbi was conclusive.
The third baronet divorced an "approved wife" and married a nonapproved wife. The court had to determine whether the limitation was valid. The limitation was not void. The restriction was not wholly uncertain and the Chief Rabbi clause provided a valid decision making process in the event of a dispute.
A man wrote " a declaration" to his brother purporting to transfer shares to him and enclosing a stock transfer form.
The legal ownership of shares cannot pass until the formalities of transfer have been complied with, but beneficial ownership can pass. The "declaration" indicated the intent to create a trust and the actions also showed that intention. A trust had been created.
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THE THREE CERTAINTIES
CASE Shelley v Shelley [1868] White v Shorthall [2006]
FACTS
PRINCIPLE
The testatrix left property on a trust for her nephew with remainder to his son and continuing subject to perpetuity rules.
The trust was held to be valid.
This was an Australian case regarding beneficial ownership of shares in a company as between a couple who had been cohabiting.
The subject matter of the trust was held to be sufficiently clear.
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