GDL Equity and Trusts Exam Revision Notes
Comprehensive easy to follow revision notes that summarise the essential cases, legislation and persuasive authorities for each topic.
Topics covered: The Three Certainties, The Beneficiary Principle (Purpose Trust) , Charitable Trusts, Secret Trusts, Cons...
Three Certainties
Laid out in– Knight v Knight 1840
Rationale: The three certainties
a- ensure that the true intention is carried out
b- allow courts to execute the trust if necessary
c- protect beneficiaries from misadministration of trust.
Intention
Must be clear that the settlor indented legal as opposed to moral obligation.
By Words
Precatory words
Historically: always created a trust
- Executers Act 1830 – not necessarily
- Lambe v Eames – courts attitude changed
Current Position
- Re Adams & Kensington – Look at whole context. Relationship between parties
- Comiskey v Bowring-Hanbury – length and imperativeness of the clause ‘in full
confidence’
- Re Steele’s Will Trust – using same words to achieve similar outcome
- Re Hamilton – construe will as a whole.
By Conduct
- Re Kayford – opening separate bank account- no access to funds, sufficient intention
- Re Challoner Club – separate bank account – but still had access to funds, decide
what to do with money later. Not sufficient. Cannot create trust after liquidation.
- Paul v Constance – redundancy money and shared bingo winnings in account in his
name that she can use – ‘money is as much mine as yours’, sufficient. settlor need
not understand the legal nature of trust, but they need to understand what
consequences they wish to achieve.
Intention in Commercial World
- Barclays v Quistclose – if trust if for purpose, unfulfilled purpose = money goes back
on resulting trust.
Lack of Intention (or certainty) to Create a Trust
- Absolute gift to the donee
OR
- Transfer to donee in a different capacity.
o As a power
o As a gift with a condition precedent. (e.g. complete GDL)
o As a gift with a condition subsequent. Gift terminates if condition is not
maintained.
Types of Powers
There is no obligation to exercise the power.
1) General Power:
a. This exactly having a legal ownership
b. Donee has power to do whatever he wants with the property
2) Special Powers:
a. when you have the power to distribute the trust to specific beneficiaries.
b. Fiduciary: person holding the power is obliged to consider if you must
exercise the power.
c. Non-fiduciary: person holding the power is not obliged to consider.
i. You may exercise the power if you wish it but nobody will force you to.
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, 3) Intermediate (Hybrid) Powers: When the donee can give the trust to anybody
except for a specified group of people.
Certainty of Subject
- Property must be identified or identifiable/ ascertainable in full
Vague Description
- Palmer v Simmonds – ‘Bulk of my estate’ – vague, not sufficient to create trust.
- Sprange v Varnard – ‘remaining part of what is left’
- Estate of Last – at my brother’s death ‘anything that is left’ goes to my grandchildren
– sufficiently clear to establish a life interest to brother.
- Re Golay – ‘to receive a reasonable income from my other properties’ – sufficient.
distinction between the words “bulk” and “reasonable”, reasonable can be objectified.
Part of a larger whole
Tangible Property Rule – has to be segregated or clearly labelled.
- Re London Wine – Wine sold but dispatched when requested. Stored with unsold
bottles in same cellar. Not labelled/segregated. Trust failed because bottles were not
segregated. Doesn’t matter that all bottles are identical
- Re Gold Corp – same issue as Re Wine but with gold bullions. Held: customers that
had their gold segregated or identified (specific gold coins) were able to establish a
trust. Customers owing indistinguishable bullions failed for lack of certainty.
Intangible Property Rule
Historical Position:
- MacJordan Construction v Brookmount – segregation required
Current:
- Hunter v Moss – established segregation is not needed in intangible property.
Is the distinction a sound one?
Some tangible properties are indistinguishable – (iPhones, Gold Bullions). Should the rule be
extended to identical tangible properties? Or abolished?
- Hayton - Hunter v Moss was wrongly decided; the segregation is a must.
Rationale: (1) one cannot have a proprietary right on an unknown property. (2) in the case
of sold shares. which shares were sold? The trust’s shares or his own shares?
- Parkinson: (for extension to identical tangibles)
- trust property should be treated as a contractual obligation rather than a proprietary
right. We can identify property by 3 ways.
1) Subtraction – subtract the amount that belongs to the trust and leave the rest
for the creditors or owners or whoever.
2) In proportions: divide it to what is available. It doesn’t matter which property
falls into which proportions because they are all the same.
3) Subsequent identification
Commercial solution
- S.20A of SOGA 1979 as amended by Sale of Goods (amendment) Act 1995
o In commercial/retail transactions where customers paid the product it hasn’t
been sent to them, like Re London Wine or Re London Gold Corp
o If the company goes into liquidation, the property will belong to the customers
as tenants in common.
o If no enough property to distribute, then portion to actual contribution
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, Certainty of Object
- Morice v Bishop of Durham (1804) – “there must be some persons in whose favour
the court can decree performance”
Test for the certainty of object
- Depends on the type of trust
Fixed Trust
- Complete List Test - IRC v Broadway Cottages Trust (1995
- trustee needs to list or must be able to list ALL beneficiaries that are supposed to
benefit before the trust is valid.
Rationale: object is to be divided equally amongst all beneficiaries –possible only if all
were identified.
Powers and Discretionary Trusts
- Originally Complete List was applied to DT.
Given Postulant Test
o Established in Re Gulbenkian (1970)
o Trustees must be able to establish whether ANY given postulant who claims
to be entitled to be considered for the trust IS or IS NOT a member the given
class of potential beneficiaries.
o Full list not required.
- McPhail v Doulton [1971]
Overruled IRC v Broadway in part - ‘given postulant’ test for discretionary trust
- The distinction between Power and Discretionary trust is artificial.
Rational: unlikely that the settlor intended for the trustees to distribute the property
equally amongst beneficiaries.
- Re Baden (no 2) (1971) - Application of the Test
3 different interpretations of the test.
- Stamp LJ – strict approach – validity of the trust is to depend upon whether trustees
can say if ‘any’ individual is in or out. If the answer regarding any individual is maybe,
then the trust fails.
- Sachs LJ – more liberal approach. Burden of proof on postulants.
o Semantic/conceptual uncertainties – when objects are described in
uncertain terms – that do not constitute identifiable characteristics or cannot
be objectively defined.
If this is the case trust will fail.
o Evidential uncertainties – lack of evidence, where beneficiary cannot prove
that they are to be included as part of the class.
This is not problematic. It is for the postulant to prove that he satisfies
the characteristics. One is either in or outside the class. There is no
‘maybe’. If a person cannot prove that they are in, they are not
considered a beneficiary.
- Megaw LJ: “substantial”. The trustees must be able to specify a substantial number
of the potential beneficiaries. They do not have to identify all beneficiaries.
Conceptual/semantic uncertainties:
When the beneficiaries have been identified with characteristics that cannot be objectively
identifiable.
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