Understanding the Three Certainties in Trust Law: Intent, Subject, and Object | Study notes Law

C. The Three Certainties

Exam Note:

o Answer the Q as to its own terms. If you think one of the certainties fails → ack → but

then say ‘the certainty could by valid if…’

▪ Say how the trust can be fixed/chaned.

o 3 certainties inform each other – If certainty of subject matter is uncertain → then

In order to create a valid express trust, three certainties must be satisfied:

(i) CERTAINTY OF INTENTION

Settlor must have certainty of intention to create a trust.

o Not concerned about what settlor wanted to do (i.e. what was in their mind), but what

they actually did.

Does the settlor’s language or conduct (what they said, wrote down) evinces a sufficiently

clear intention to create a trust?

o Imperative words to demonstrate certainty of intention.

▪ Expressing a wish/hope/desire/request/recommendation that a person hold

property on benefit for another are words of precation.

o Words used must impose a legal obligation not a moral obligation.

o Can be inferred from conduct.

Re Adams & Kensington Vestry (1884) – No Trust – ‘in full confidence that she would do what

was right as to the disposal thereof b/w my children’.

o Held – ‘expectation, confidence, hope, etc’ are not imperative words → no certainty of

intention.

Lambe v Eames (1871) – No Trust – Testator gave estate to his widow ‘to be at her disposal in

any way she think best, for the benefit of herself and her family’.

o Held – Precatory words → no certainty of intention.

Comiskey v Browning-Hanbury (1905) – Yes Trust – ‘Absolutely in full confidence that she will

make such use of it as I should have made myself…and in default of any disposition by her, I

direct that all my estate shall at her death be equally divided among the surviving nieces’.

o Held – ‘in full confidence’ → not imperative words.

o Objective Test – Court looks at whole doco rather than individual clauses on their

own – interpret words in context.

▪ However, ‘shall’ is an imperative word that expresses an intention to create a

trust.

▪ Gave explicit instructions on who to give property to if something doesn’t work

(nieces) = trust.

Is the word ‘trust’ positively determinative?

*Byrnes v Kendle – Rejected CSD v Jofelle – Once ‘trust’ is stated, there is certainty of

intention to create a trust.

o Real/subjective intention is irrelevant, it is about what you did (objectively).

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C. The Three Certainties

Exam Note: o Answer the Q as to its own terms. If you think one of the certainties fails → ack → but then say ‘the certainty could by valid if…’ ▪ Say how the trust can be fixed/chaned. o 3 certainties inform each other – If certainty of subject matter is uncertain → then In order to create a valid express trust, three certainties must be satisfied:

(i) CERTAINTY OF INTENTION

Settlor must have certainty of intention to create a trust. o Not concerned about what settlor wanted to do (i.e. what was in their mind), but what they actually did. Does the settlor’s language or conduct (what they said, wrote down) evinces a sufficiently clear intention to create a trust? o Imperative words to demonstrate certainty of intention. ▪ Expressing a wish/hope/desire/request/recommendation that a person hold property on benefit for another are words of precation. o Words used must impose a legal obligation not a moral obligation. o Can be inferred from conduct. Re Adams & Kensington Vestry (1884) – No Trust – ‘in full confidence that she would do what was right as to the disposal thereof b/w my children’. o Held – ‘expectation, confidence, hope, etc’ are not imperative words → no certainty of intention. Lambe v Eames (1871) – No Trust – Testator gave estate to his widow ‘to be at her disposal in any way she think best, for the benefit of herself and her family’. o Held – Precatory words → no certainty of intention. Comiskey v Browning-Hanbury (1905) – Yes Trust – ‘Absolutely in full confidence that she will make such use of it as I should have made myself…and in default of any disposition by her, I direct that all my estate shall at her death be equally divided among the surviving nieces’. o Held – ‘in full confidence’ → not imperative words. o Objective Test – Court looks at whole doco rather than individual clauses on their own – interpret words in context. ▪ However, ‘shall’ is an imperative word that expresses an intention to create a trust. ▪ Gave explicit instructions on who to give property to if something doesn’t work (nieces) = trust. *Is the word ‘trust’ positively determinative? Byrnes v Kendle – Rejected CSD v Jofelle – Once ‘trust’ is stated, there is certainty of intention to create a trust. o Real/subjective intention is irrelevant, it is about what you did (objectively ).

Associated Alloys (2000) HCA – AA supplied steel on credit to M (M owed AA money for the steel). Clause in agreement that if M used that steel to make products and then sold them, the ‘proceeds’ of sale would be held on trust for AA up to the amount that M owed them. o M became insolvent and AA claimed amount owed to it on basis that clause created a ‘trust’ in its favour. o Issue 1– Did use of word ‘trust’ mean there really was a trust? ▪ Fact that proceeds weren’t kept separate suggest it wasn’t a trust? o Held 1- Where existence of a trust is explicit, one of the hallmarks is segregation of trust property.* ▪ But where the existence of a trust is explicit, the absence of an express obligation to keep trust moneys separate does not deny the trust. o Issue 2 – Was this a charge (AA is charge, M is charger) or is it a trust (M is trustee, AA is beneficiary)? o Held 2 – It was a trust expressed only to cover the amount owing in the original debt ▪ ‘Proceeds’ could be confined to actual monies paid by 3rd^ party = trust.

Referred only to amounts that had actually been paid by 3rd^ party, and not to book debts. ▪ M [trustee] held money on trust for AA [beneficiary].
Trust did not require registration, meaning AA had priority on money if M went bankrupt. ▪ If the buyer was obliged to keep both the money and the book debts as ‘proceeds’ for the seller, then the clause = ‘charge’. o However, AA made redundant by PPSA – Whether something is a charge or trust, if the purpose of arrangement is to secure the performance of an obligation (debt) then it is a security interest → requires registration.

TANGIBLE PROPERTY

Tangible property subject to trust must be segregated. e.g. o Actual Separation – wine in Aisle A is on trust for X; houses 1 and 2 for X, house 3 for Y. o Abstract Separation – ask someone to choose the property – 3 houses held on trust for 3 daughters. ▪ However, if trustee has discretion as to selection of houses each daughter get – subject matter is certain. o 20% of grain in my barn - Invalid because beneficiary will want best grain whilst trustee will want to give 20% of worst grain. ▪ However, stating that trustee owns 80% of grain and beneficiary 20% is valid. Exam: o Explain why on its face value, the trust fails for (iii) certainty of subject matter because tangible property is not segregated. o However, maybe possible to construe the initial declaration as (use this language and show why!!)… ▪ 3 certainties in exam, easy to pass but hard to get high marks. Re London Wine – No trust – Seller sold wine to customers who were given CT, which descried them as ‘beneficial owner’ of the wine. But seller had not segregated the bulk of any wine to answer particular contracts – wine was unascertained. o Principle – To create a trust, must be able to ascertain with certainty not only what the beneficiaries’ interest is, but what property the interest is attached to. ▪ A farmer who declares himself trustee of 2 sheep (without identifying them) does not create a trust. ▪ Must declare himself trustee of a specified proportion of his whole flock. o Held – Wine was not segregated from the general stock → all individual trusts failed. Re Goldcorp Exchange (1995) UK – Approved Re London Wine – Company sold gold and offered to store it for customers. Told customers that sufficient and separate stock of bullion would be kept for each customer, but this was a lie → company went into receivership → did customers own their gold? o Claimant (i) – Specifically identifiable holdings of Gold which Goldcorp had acquired physically to match customer’s orders → Gold had been segregated and identifiable – certainty of subject matter = trust. o Claimant (ii) – Gold was not separated from bulk of bullion → unable to identify which gold belonged to who → no certainty of subject-matter. o Claimant (iii) – Rare gold coin – Claimant demonstrated that exchange would not have bought these coins for any other customer. ▪ However, since coins were not physically separated from other coins, they were unidentifiable → no certainty of subject matter.

(iii) CERTAINY OF OBJECT

Objects of trust must be identified with sufficient certainty (beneficiary principle). Requisite level of certainty depends on whether trustees are obliged to: o Distribute to a class of beneficiaries (fixed trust) o Or have a discretion to select beneficiaries within a class to whom distributions are to be made (discretionary trust).

Fixed Trusts

Objects must be defined with sufficient precision to satisfy the ‘list certainty’ (complete list) rule. IRC v Broadway Cottage Trusts (1955) UK – Beneficiaries must be identifiable so court can make a list of all EIs.

Discretionary Trusts

*Trustee has discretion to choose beneficiaries. But Class of Objects of discretionary trust must be defined with sufficient certainty. Re Gulbenkian’s Settlement Trusts (1970) UK – Gulbenkian conferred on trustees power to appoint as beneficiaries ‘any person in whose house or in whose control Gulbenkian may from time to time be residing or employed’. o Issue – Is this class of potential beneficiaries is uncertain? o Principle – CRITERION CERTAINTY TEST – Does the discretionary trust say with sufficient certainty that any given individual is or is not a member of the class. ▪ If class of beneficiaries are not defined with sufficient particularity to enable Court to determine whether a particular person is within a chosen class of beneficiaries = uncertain object. ▪ Does not fail – just because it is difficult to determine the class of beneficiaries.

Just because it is difficult to determine the class of beneficiaries does not make it bad.
Because it is impossible to ascertain every member of the class. *Re Badens Deed Trusts (No 2) (1973) UK – Trust for ‘The benefit of any of the officers and employees or ex-officers or ex-employees of company or to any relatives or dependants of any such persons’. ▪ How is a relative defined? Each person has a diff idea of what constitutes a relative. o Issue – What did ‘any given postulant’ mean. 3 Different interpretations of ‘CRITERION CERTAINTY TEST’ – *Re Gulbenkian’s – whether it can be said with certainty that any given individual is or is not a member of the class (any given postulant test) o Megaw LJ – Liberal View – As long as it can be said with certainty that at least a substantial number of objects fall within the trust (even I others are uncertain). ▪ With the borderline people , let the trustee decide honestly (beneficiary to prove whether they are in or out). o Sachs LJ – Middle View – Need conceptual, but not necessarily evidential certainty ▪ ‘Relative’ was conceptually but not evidentially certain. o Stamp LJ – Strict View – must be able to say with certainty whether an individual is a member of the class (definite yes or no to person). ▪ If that cannot be done, then descriptor is uncertain and therefore void. ▪ Held – ‘relatives’ did not satisfy the test because it cannot be said with certain whether they fit into class or not. Remark – Still an unsettled area of law

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C. The Three Certainties

(i) CERTAINTY OF INTENTION

TANGIBLE PROPERTY

(iii) CERTAINY OF OBJECT

Fixed Trusts

Discretionary Trusts