Equity & Trusts 2005

Equity & Trusts 2005 2. Trusts C - The Essentials of an Express Trust

The Essentials of an Express Trust • The Three Certainties: • Certainty of Intention • Certainty of Subject Matter • Certainty of Object

The Essentials of an Express TrustCertainty of Intention • Intention of the settlor • Equity looks to intent over form • Question of construction • Dean v Cole: • Testamentary disposition - left all real and personal estate to the wife “trusting to her that she will … divide in fair just and equal shares between my children … all such part and portion of my estate as she may be in the use and enjoyment of.”

The Essentials of an Express TrustCertainty of Intention • Precatory words • Hayes v National Heart Foundation of Australia • Balance of estate to daughter on “the understanding that she write into Her Will, that, at Her death, these Shares are to be sold and the capital received and divided in equal parts” between three named charities. • Options?: • Life interest in property subject to a trust in favour of the charities • Property subject to a condition or charge in favour of charities • Property subject to a mere moral obligation

The Essentials of an Express TrustCertainty of Intention • Hayes v National Heart Foundation of Australia • Relevance of absence of “gift over”? • Needham J (at [15.105]): • It tends, in my opinion, to support the conclusion that the testator was imposing upon the plaintiff an obligation which would be enforceable at the instance of the three defendants.

The Essentials of an Express TrustCertainty of Intention Bahr v Nicolay (No 2) Contract A R1 lease-back Contract R2 Trustee?

The Essentials of an Express TrustCertainty of Intention • Bahr v Nicolay (No 2) • Mason CJ and Dawson J (at 618-619): • If the inference to be drawn is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred.

The Essentials of an Express TrustCertainty of Subject Matter • Re Golay • …let T receive a reasonable income from my other properties… • Ungoed-Thomas J at 661: • The question therefore comes to this: whether the testator by the words “reasonable income” has given a sufficient indication of his intention to provide an effective determinant of what he intends so that the court in applying that determinant can give effect of the testator’s intention.

The Essentials of an Express TrustCertainty of Subject Matter • Hunter v Moss • Dillon LJ (at 220): • It would not be good enough for a settlor to say, “I declare that I hold 50 of my shares on trust for B”, without indicating the company he had in mind of the various companies in which he held shares. There would be no sufficient certainty as to the subject matter of the trust. But here the discussion is solely about the shares of one class in the one company.

The Essentials of an Express TrustCertainty of Object • Beneficiary Principle: • A trust must be in favour of definite beneficiaries, ascertained and capable of ascertainment, or of a recognised charitable purpose. • Morice v Bishop of Durham: • There can be no trust over the exercise of which this Court will not assume a control: for an uncontrollable power of disposition would be ownership and not trust … • Every trust must have a definite object. There must be somebody, in whose favour the court can decree performance. Sir William Grant MR at 404-405

The Essentials of an Express TrustCertainty of Object • Fixed Trusts - list certainty test • West v Weston • Testamentary gift - “to divide the balance then remaining equally (per capita) amongst such of the issue living at my death of my grandparents … as attain the age of twenty-one (21) years”

The Essentials of an Express TrustCertainty of Object • West v Weston - Young J (at 664-665): • …it seems to me that I would be justified in slightly modifying its operation for Australian conditions of the present day. The rule will be satisfied if, within a reasonable time after the gift comes into effect, the court can be satisfied on the balance of probabilities that the substantial majority of the beneficiaries have been ascertained and that no reasonable inquiries could be made which would improve the situation….

The Essentials of an Express TrustCertainty of Object • Discretionary Trusts - Criterion Certainty Test • The trustee needs to be able to determine with certainty whether any claimant is or is not within the description of the class. • McPhail v Doulton • To understand McPhail v Doulton need to understand the difference between trusts and powers.

The Essentials of an Express TrustCertainty of Object • Trusts and Powers • Power: • Authority to dispose of real or personal property irrespective of any existing estate or interest in the holder of the power. • The person who exercises this authority is the donee of the power. • The persons to whom the property is disposed pursuant to this authority are the objects of the power. • The person who confers the power is the donor (or settlor)

The Essentials of an Express TrustCertainty of Object Powers Donor Donee Object

The Essentials of an Express TrustCertainty of Object • Trusts and Powers • Power: • Types: • General: - donee is entitled to appoint any person the donee wishes • Special: - entitles the donee to appoint in favour of some or all of the persons within a specified class of objects. • Trust Powers verus Mere Powers • Trust power: - If the donee of the power is subject to a duty to make a distribution, the power is termed a “trust power” (imperative) • Mere power: - If the donee of the power has a discretion or option whether or not to exercise her or his power, he or she has a “mere power”. (facultative)

The Essentials of an Express TrustCertainty of Object • Discretionary Trusts - Criterion Certainty Test • The trustee needs to be able to determine with certainty whether any claimant is or is not within the description of the class. • McPhail v Doulton • Clause 9A - trustees were required to apply in their absolute discretion the fund to any of the officers and employees or ex-officers and ex-employees of the company and any relative or dependants of any such person, in such amounts, at such times and under such conditions, as the trustees thought fit. • Clause 10 - all benefits were at the absolute discretion of the trustees.

The Essentials of an Express TrustCertainty of Object • McPhail v Doulton • Lord Wilberforce at (449, 456): • Differences there certainly are between trusts (trust powers) and powers, … Such distinction as there is would seem to lie in the extent of the survey which the trustee is required to carry out; if he has to distribute the whole of a fund’s income, he must necessarily make a wider and more systematic survey than if his duty is expressed in terms of a power to make grants. … • the wide distinction between the validity test for powers and that for trust powers, is unfortunate and wrong, …[and] ought to be discarded, and that the test for the validity of trust powers ought to be similar to that accepted by this House in Re Gulbenkian’s Settlement Trusts [1970] AC 508 for powers, namely that the trust is valid if it can be said with certainty that any given individual is or is not a member of the class.

The Essentials of an Express TrustCertainty of Object • Three forms of uncertainty of object: • Semantic/Linguistic Uncertainty • Evidential Uncertainty • Administrative Uncertainty

The Essentials of an Express TrustCertainty of Object • Semantic / Linguistic Uncertainty • A class is semantically certain if the terms used to define the class by the settlor have precise boundaries of meaning. A disposition tainted by semantic uncertainty is void. • Re Gulbenkian ‘s Settlement • “My old friends”? • Re Barlow • Testatrix - bequeathed some of her pictures with the remainder to be held by the executor on trust for sale provided the executor allowed any member of her family and friends to purchase any of the pictures. • “Family and Friends” - Sufficiently certain - Why?

The Essentials of an Express TrustCertainty of Object • Evidential Uncertainty • Evidential uncertainty relates to the extent to which the evidence available in a particular case enables specific persons or bodies to be identified as members of a class. A disposition will not fail for evidential uncertainty. • Re Gulbenkian’s Settlement (Lord Unjohn at 524): • … if the class is sufficiently defined by the donor, the fact that it may be difficult to ascertain the whereabouts or continued existence of some of its members at the relevant time matters not. The trustees can apply to the court for directions…

The Essentials of an Express TrustCertainty of Object • Administrative Uncertainty • McPhail v Doulton(Lord Wilberforce at 457): • There may be a third case where the meaning of the words used is clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable … I hesitate to give examples for they may prejudice future cases, but perhaps ‘all residents of Greater London’ will serve.

The Essentials of an Express TrustCertainty of Object • Purpose Trusts • Beneficiary Principle: • A trust must be in favour of definite beneficiaries, ascertained and capable of ascertainment, or of a recognised charitable purpose (Morice v Bishop of Durham) • Trusts for non-charitable purpose - void • Exceptions: • “Tomb” and “Animal” Cases • Trusts for purposes “directly or indirectly for the benefit of ascertainable beneficiaries”.

The Essentials of an Express TrustCertainty of Object • Re Denley’s Trust Deed • Clause 2(c) • trustees were to maintain the land for use as a sports ground “primarily for the benefit of the employees of the company and secondarily for the benefit of such other person or persons (if any) as the trustees may allow to use the same”.

The Essentials of an Express TrustCertainty of Object • Bermuda: Trusts (Special Provisions) Act 1989 s 13(1): • Notwithstanding any law to the contrary but subject to this section … a person may create a valid trust for a purpose or purposes (whether charitable or not), … if and only if – • (a) the purpose or purposes are specific, reasonable and possible; • (b) the purpose or purposes are not under the law immoral, contrary to public policy or unlawful; • (c) the trust is created by deed or by will which is capable of being and is admitted to probate in Bermuda or in respect of which letters of administration in Bermuda are capable of being and are granted; • (d) the sole trustee, or at least one of the trustees, is a designated person; • (e) the instrument creating the trust appoints a person to enforce the trust and provides for the appointment of a successor to such person; and • (f) the instrument creating the trust specifies the event upon the happening of which the trust terminates and provides for the disposition of surplus assets of the trust upon its termination.

The Essentials of an Express TrustCertainty of Object • Gifts to Unincorporated Associations • Re Grant’s Will Trusts: • Gift to an unincorporated association may take effect in of three ways: • Gift to the existing individual members of the association - member can sever his or her share. • Gift to the existing individual members of the association - subject to their respective contractual rights and liabilities towards one another. • Gift for the purposes of the association which takes effect as a trust for those purposes - to be valid must be charitable.

The Essentials of an Express TrustCertainty of Object • Gifts to Unincorporated Associations • Leahy v A-G (NSW) • Disposition in a will: • Grazing property left “upon trust for such Order of Nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select.” • Issue: • … It must now be asked then whether in the present case there are sufficient indications to displace the prima facie conclusion that the gift made by cl 3 of the will is to the individual members of the selected order of nuns at the date of the testator’s death so that they can together dispose of it as they think fit. (at 485 per Viscount Simonds)

The Essentials of an Express TrustFormalitiesfor Establishing a Trust • Formal requirements for inter vivos trusts • CLPA (Tas) s 60(2): • (2) Except as hereinafter provided – • no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorized in writing, or by will, or by operation of law; • a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust, or by his will; and • a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing, or by will – • but this provision does not affect the creation or operation of resulting, implied, or constructive trusts.

The Essentials of an Express TrustFormalitiesfor Establishing a Trust • Formal requirements for inter vivos trusts • Enforceability in the absence of writing: • Dispositions by will • Resulting and constructive trusts • Doctrine of part performance • Estoppel • Where the writing requirements would operate as an instrument for fraud • Pearce v Public Trustee

The Essentials of an Express TrustFormalitiesfor Establishing a Trust • Formal Requirements for Trusts in a Will • Wills Act 1992 (Tas) s 10 • Except as provided by this Act, a will is invalid unless it is in writing and executed in the following manner: • (a) it is to be signed at the foot or end of the will by the testator or by some other person in the presence of, and by the direction of, the testator; • (b) the signature is made or acknowledged by the testator in the presence of 2 or more witnesses present at the same time; • (c) the witnesses must attest and subscribe the will in the presence of the testator, but no form of attestation is necessary.

The Essentials of an Express TrustSecret Trusts • Secret Trusts • Fully Secret • Half Secret • Elements: • Intention - of the testator that the property be used according to her or his specification • Communication - of this intention by the testator to the intended trustee(s) • Acquiescence - by the trustee(s)

The Essentials of an Express TrustSecret Trusts • Communication • What needs to be communicated? • That would like the person to be a trustee • Terms of the trust • Time of Communication? • At time the will executed - that would like the person to be a trustee • Terms of the trust - prior to death • Traditional Approach • Fully secret trusts - any time prior to death • Half secret trusts - before of contemporaneously with the execution of the will.

The Essentials of an Express TrustSecret Trusts • Communication • Ledgerwood v Perpetual Trustee • I GIVE free of all duties all my articles and effects of personal or domestic or household use or ornament, furniture and jewellery and any motor car belonging to me to my Trustees with the request that they will dispose of the same in accordance with any existing or future Memorandum written or signed by me but the foregoing expression of my wishes shall not create any trust or legal obligation even if communicated to any person in my lifetime.

The Essentials of an Express TrustSecret Trusts • Communication: • Ledgerwood v Perpetual Trustee (at 540 per Young J): • I cannot get away from the view…that it against the conscience of the donee that the donee should be permitted to have undertaken to the testatrix to carry out her wishes and then not to have done so.

The Essentials of an Express TrustSecret Trusts • Secret trusts operate outside the will • Validity of the will will not affect the validity of the a secret trust • But need to satisfy the requirements for a valid trust.

The Essentials of an Express TrustComplete Constitution • Trusts by transfer - must be completely constituted: • Milroy v Lord (at 274-277 per Turner J): • I take the law of this Court to be well settled, that in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. • First element - everything that must be done • Second element - according to the nature of the property

The Essentials of an Express TrustComplete Constitution • Corin v Paton(at 558 per Mason CJ and McHugh J): • The rationale for refusing to complete an incomplete gift is that a donor should not be compelled to make a gift, the decision to give being a personal one for the donor to make. • However, that rationale cannot justify continued refusal to recognise any interest in the donee after the point when the donor has done all that is necessary to be done on his part to complete the gift, especially when the instrument of transfer has been delivered to the donee. • Just as a manifestation of intention plus sufficient acts of delivery are enough to complete a gift of chattels at common law, so should the doing of all necessary acts by the donor be sufficient to complete a gift in equity. • The need for compliance with subsequent procedures such as registration, procedures which the donee is able to satisfy, should not permit the donor to resile from the gift .… • Viewed in this light, Griffith CJ’s approach has the advantage that it gives effect to the clear intention and actions of the donor rather than insisting upon strict compliance with legal forms. It is a reflection of the maxim “equity looks to the intent rather than the form”.

The Essentials of an Express TrustComplete Constitution • Exceptions to the “complete constitution” rule: • Estoppel • Rule in Strong v Bird • Succession - gifts in contemplation of death • Consideration • Other broader ground - Pennington v Waine?

The Essentials of an Express TrustComplete Constitution • Pennington v Waine(at 2090-2091 per Arden LJ): • There are countervailing policy considerations which would militate in favour of holding a gift to be completely constituted. These would include effectuating, rather than frustrating, the clear and continuing intention of the donor, and preventing the donor from acting in a manner which is unconscionable … • [B]oth these policy considerations are evident in Choithram … If one proceeds on the basis that a principle which animates the answer to the question whether an apparently incomplete gift is to be treated as completely constituted is that a donor will not be permitted to change his or her mind if it would be unconscionable, in the eyes of equity, vis-á-vis the donee to do so, what is the position here? • There can be no comprehensive list of factors which makes it unconscionable for the donor to change his or her mind: it must depend on the court’s evaluation of all the relevant considerations.

Equity & Trusts 2005