{"id":2299,"date":"2018-02-02T08:40:46","date_gmt":"2018-02-02T08:40:46","guid":{"rendered":""},"modified":"2021-09-22T10:48:26","modified_gmt":"2021-09-22T10:48:26","slug":"concept-of-certainty-equity-and-trusts","status":"publish","type":"post","link":"https:\/\/www.lawteacher.net\/free-law-essays\/equity-law\/concept-of-certainty-equity-and-trusts.php","title":{"rendered":"Conceptual and Evidential Certainty in Trusts"},"content":{"rendered":"

Before examining the different tests for certainty of objects it is necessary to understand the different types of uncertainty. In Re<\/em> Baden<\/em>\u2019s Deed Trusts<\/em> (No 2)<\/em>[1]<\/sup><\/a> the Court of Appeal distinguished between \u2018conceptual\u2019 uncertainty and \u2018evidential\u2019 uncertainty.<\/p>\n

Conceptual uncertainty \u2018refers to any inherent semantic ambiguity in the words used to define a class of objects\u2019[2]<\/sup><\/a>. In Re Baden\u2019s Deed Trusts (No 2)<\/em>[3]<\/sup><\/a> Sachs LJ gave some examples of conceptually certain classes of beneficiaries as \u2018first cousins\u2019, \u2018members of the X trade Union\u2019, and \u2018those who have served in the Royal Navy\u2019. In contrast, an example of a conceptually uncertain class of beneficiaries would be \u2018friends\u2019 as the meaning of this word changes subjectively. As Browne-Wilkinson explained n Re Barlow\u2019s Will Trusts<\/em>[4]<\/sup><\/a>:<\/p>\n

\n

\u201c[\u2018Friends\u2019] has a great range of meanings; indeed its exact meaning probably varies from person to person. Some would include only those with whom they had been on intimate terms over a long period; others would include acquaintances who they liked. Some would include people with whom their relationship was primarily one of business; others would not. Indeed, many people, if asked to draw up a complete list of their friends, would probably have some difficulty in deciding whether certain of the people they knew were really \u2018friends\u2019 as opposed to \u2018acquaintances\u2019\u2026\u201d<\/em><\/p>\n<\/blockquote>\n

Evidential uncertainty, on the other hand, refers only to the difficulty of proving whether a person falls within the class. Whether evidential certainty is required for a trust to operate depends on the type of trust in question, in particular whether the trust is fixed or discretionary.<\/p>\n

A fixed trust is one in which the share or interest of the beneficiaries is specified in the instrument[5]<\/sup><\/a> and the beneficiary is therefore the equitable owner of the interest allocated, whereas a discretionary trust involves the trustees holding the trust property on trust for such member or members of a class of beneficiaries and they have discretion to determine which member or members receive what portion of the property. In the case of a discretionary trust therefore, no beneficiary owns any part of the trust fund unless and until the trustees have used their discretion to award him that a part of the trust property.<\/p>\n

The test for certainty of objects when dealing with fixed trusts must therefore be one which ensures that all the beneficial owners get the correct share of the property as they are beneficial owners as soon as the fixed trust comes into operation (unlike the position of discretionary trusts). It follows therefore that for a fixed trust to be sufficiently certain, all members of the class of beneficiaries must be ascertained as if the size of the class could not be ascertained with certainty, the trustees would not know how much of the fund to give to any particular beneficiary. The test for certainty of objects in a fixed trust is thus the \u2018class ascertainability\u2019 or \u2018fixed list\u2019 test[6]<\/sup><\/a>.<\/p>\n

The test was considered in the case of IRC v Broadway Cottages Trust<\/em>[7]<\/sup><\/a> where it was held that a trust was void unless it was possible to make, at the time when the trust came into operation, a list of all the beneficiaries. This test used to apply also to discretionary trusts[8]<\/sup><\/a>, though as will be seen, the test for discretionary trusts is now not as strict as the fixed trusts test.<\/p>\n

A fixed trust will therefore be valid only if it is possible to write a list containing all of the beneficiaries. It is thus imperative that there are no evidential difficulties in determining who is or is not a member of the class of beneficiaries. If it cannot be proved for certain with evidence whether a particular individual is a beneficiary then it is impossible to draw up the list and the fixed trust must then fail for uncertainty. There is therefore no room in fixed trusts for evidential uncertainty. However, once the list of all beneficiaries has been created, it does not matter that some of them may be unlocated as the court can use a \u2018Benjamin Order\u2019 to distribute the relevant share of the fund to those beneficiaries who have been found[9]<\/sup><\/a> or insurance can be obtained[10]<\/sup><\/a>.<\/p>\n

As already mentioned, the test laid out above for fixed trusts no longer applies for discretionary trusts. The strict test had originally applied because there was a concern that if the trustees failed in their duty and the court was called upon to execute the trust, it could only do so on the basis of equal division and this would be impossible unless the identity of all the members of the class could be ascertained[11]<\/sup><\/a>.<\/p>\n

This approach followed by the courts until the 1970s could be contrasted with the approach taken when dealing with powers. A person can be said to hold a mere power if he has a right, but is not under any obligation, to make a selection relating to the beneficial enjoyment of property[12]<\/sup><\/a>. The court\u2019s approach in this case was to hold that the objects were certain if it was possible to say of any given person that he was, or was not, an object of the mere power[13]<\/sup><\/a>. This difference between the treatment of discretionary trusts and mere powers caused potential difficulties for the courts when considering the proper construction of gifts which would be void if they were construed as having created discretionary trusts but valid if they were construed as having created mere powers[14]<\/sup><\/a>.<\/p>\n

However, the court in the case of McPhail v Doulton<\/em>[15]<\/sup><\/a> thought that the test for a mere power was more appropriate for discretionary trusts than the previous strict test which still remains for fixed trusts. The facts of the case were that payments were to be made in favour of \u2018employees, ex-officers or ex-employees of the Company or any relatives or dependants of any such persons\u2019. The problem of certainty regarded the expression \u2018relatives and dependants\u2019. If the strict test of IRC v Broadway Cottages<\/em> was applied then it could be seen that a complete list of beneficiaries was not able to be drawn up. However, if the test applicable to powers was applied then it would only be necessary to say for certain whether or not any given individual was within the class of beneficiaries.<\/p>\n

Regarding the argument that equity is equality and therefore the court must be able to award in equal portions, Lord Wiberforce said that it was not the case \u2018execution is impossible unless there can be equal division\u2019[16]<\/sup><\/a>. Explaining this he said \u2018As a matter of reason, to hold that a principle of equal division applies to trusts such as the present is certainly paradoxical. Equal division is surely the last thing the settlor ever intended: equal division among all may, probably would, produce a result beneficial to none. Why suppose that the court would lend itself to a whimsical execution? And as regards authority, I do not find that the nature of the trust, and of the court\u2019s powers over trusts, calls for any such rigid rule.\u2019<\/p>\n

Lord Wilberforce then cited cases in which the court had executed discretionary trusts by seeking to give effect to the perceived intention of the settlor rather than by equal division[17]<\/sup><\/a>. It was noted that in later cases the general approach was to order equal division take place. However, he held that the principle of equal division did not \u2018rest on any principle inherent in the nature of a trust\u2019[18]<\/sup><\/a>. He therefore concluded that the strict rule should be discarded and that the \u2018is or is not\u2019 test should be adopted instead. The House of Lords agreed by a majority of three to two.<\/p>\n

In order for it to be clear whether any given individual is or is not a member of the class of beneficiaries, the meaning of the word or words used to describe the class must be sufficiently clear to enable the trustees to make the decision as to whether that individual is or is not a member of the class. This is the doctrine of conceptual certainty. It may be seen therefore that discretionary trusts must be conceptually certain, but there is less emphasis on evidential certainty than with regard fixed trusts as not all members of the class must be ascertained.<\/p>\n

In Re Badens\u2019s Deed Trusts (No.2)<\/em>[19]<\/sup><\/a> LJ Sachs emphasised that the court was concerned only with conceptual certainty, so that is should not be fatal that there might be evidential difficulties in drawing up the list. He also took the view that the courts should place the burden of proof on someone claiming to be within the class rather than on the trustees.<\/p>\n

However, Megaw LJ thought that it would need to be clear that a substantial number of objects could be shown with certainty to fall within the class. This is a test which seems to require some level of evidential as well as conceptual certainty[20]<\/sup><\/a>. Furthermore, Stamp LJ emphasised that it must be possible for the trustees to make a comprehensive survey of the range of objects, but did not appear to think it fatal if it were impossible to make a list of every beneficiary.<\/p>\n

A further difficulty arises in the form of administrative unworkability. In McPhail<\/em>, Lord Wilberforce said: \u2018There may be a\u2026 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 or in Lord Eldon LC\u2019s words one that cannot be executed\u2026 I hesitate to give examples for they may prejudice future cases, but perhaps \u201call the residents of Greater London\u201d will serve. I do not think that a discretionary trust for \u201crelatives\u201d even of a living person falls within this category.\u2019<\/p>\n

It is very difficult to understand what Lord Wilberforce was really referring too. It does not seem logical that the size of a class should cause a trust to be administratively unworkable, as \u2018relatives\u2019 may surely create very large numbers indeed[21]<\/sup><\/a>. Nor surely could he mean that a trust would fail to be overly vague, as \u2018all the residents of Greater London\u2019 does not seem to be a vague concept.<\/p>\n

In R v District Auditor, ex p<\/em> West<\/em> Yorkshire<\/em> Metropolitan<\/em> County<\/em> Council<\/em>[22]<\/sup><\/a> a trust which would have had the effect of including within its class of beneficiaries 2.5 million people in West Yorkshire was held to be administratively unworkable. The terms of the trust would have included seeking to relieve unemployment in that region, assisting bodies that worked with young people and the encouragement of better race relations. It was held that these objectives, together with such a broad geographical region and large number of potential beneficiaries, would render the trust administratively unworkable and that it was consequently void[23]<\/sup><\/a>.<\/p>\n

It therefore seems that the concept of administrative unworkability is somewhat closer to evidential uncertainty and may invalidate a discretionary trust. However, to date it is only the R v District Auditor ex p<\/em> West Yorkshire<\/em> CC<\/em> case that has held such a trust to be void for administrative unworkability.<\/p>\n

Despite the relaxing of the test for discretionary trusts following the decision in McPhail v Doulton<\/em>, some aspects of certainty of objects have not yet been resolved[24]<\/sup><\/a>.<\/p>\n

Perhaps the most obvious of these is the question of whether the individual ascertainability test should apply to fixed trusts as well as discretionary trusts. It has been argued[25]<\/sup><\/a> that there is no reason in principle why it should not apply to fixed trusts. As an order for distribution can be made by the court in the case of a discretionary trust, it might be thought that an order could also be made in the case of a fixed trust where one or more of the beneficiaries are not ascertainable. However, not only is the more general view that the individual ascertainability test does not apply to fixed trusts, it is also a debate that is more academic than real as the likelihood of a case of a trust for objects which could not be fully ascertained also containing a provision for distribution to them in definite shares is remote[26]<\/sup><\/a>.<\/p>\n

Secondly should be considered powers whose donees are under an obligation to exercise them, known as \u2018powers in the nature of a trust\u2019. Where such a power exists and the donee fails to exercise it, the court must execute the power. It is somewhat unclear as to which test for certainty of objects such powers in the nature of a trust should conform. In Burrough v Philcox<\/em>[27]<\/sup><\/a> the court divided the relevant property equally amongst all the members of the class. It has been argued that this equal division is correct as powers in the nature of a trust should be regarded as fixed trusts \u2018subject to defeasance by exercise of the power of selection\u2019[28]<\/sup><\/a>. However, because of the factual similarity between these and discretionary trusts it seems logical that the appropriate test would today be the individual ascertainability test.<\/p>\n

A difficulty may arise where there is a class of beneficiaries which contains a long series of categories which complies with the McPhail v Doulton<\/em> test but to which there is added one category which does not. The principle of severing the offending category has not yet been established. Therefore in Re Wright\u2019s Will Trusts<\/em>[29]<\/sup><\/a> where the class consiste of identifiable named charities as well as other unidentifiable bodies, the Court of Appeal refused to give effect to the gift in favour of the named charities only. This may be seen as leading to injustice.<\/p>\n

Finally, the one person test, which does not require any conceptual certainty but only that one person can satisfy the criteria, has now been extended to gifts made to individuals who answer a particular description. In Re Barlow\u2019s Will Trusts<\/em>[30]<\/sup><\/a> the testatrix had provided that any \u2018friends of mine who may wish to do so\u2019 could purchase any of her paintings at probate valuation. If this had been a gift to a class and had had to satisfy the individual ascertainability test then it would have been void. However, it was held that as a series of gifts they were in fact valid.<\/p>\n

From the analysis above it may be seen that conceptual certainty is required to administer both fixed and discretionary trusts as without this a trustee can not establish whether an individual person meets the criteria for the class. However, when it comes to evidential certainty there is a difference between fixed and discretionary trusts. Fixed trusts need evidential certainty in order that all members of a class can be ascertained, in order that they each get their correct share of the property. This is less important in the case of discretionary trusts, where the discretion of the trustees means that they can choose whether or not and to what portion to award a particular individual with property. What is important here is that an individual can show whether he is or is not a member of the class of beneficiaries and not that all members of the class be identified and proved with evidence.<\/p>\n

Bibliography<\/h2>\n

Burn, E.H. and Virgo, G. J. (2002), Maudsley & Burn\u2019s Trusts and Trustees: Cases and Materials<\/em>, 6th<\/sup> Edition, Butterworths Lexis-Nexis<\/p>\n

Hudson, A. (2007), Equity and Trusts<\/em>, 5th<\/sup> Edition, Routledge-Cavendish<\/p>\n

Matthews [1984] Conv 22<\/p>\n

Martin, J. E. (2005), Hanbury and Martin: Modern Equity<\/em>, 17th<\/sup> Edition, Thomson Sweet & Maxwell<\/p>\n

Oakley, A. J. (2003), Parker & Mellows The Modern Law of Trusts<\/em>, 8th<\/sup> Edition, Thomson Sweet & Maxwell<\/p>\n

Pearce, R. & Stevens, J. (2006), The Law of Trusts and Equitable Obligations<\/em>, 4th<\/sup> Edition, Oxford University Press<\/p>\n

Penner, J.E. (2006), The Law of Trusts<\/em>, 5th<\/sup> Edition, Oxford University Press<\/p>\n

Riddall, J.G. (2002), The Law of Trusts<\/em>, 6th<\/sup> Edition, Butterworths Lexis-Nexis<\/p>\n

Watt, G. (2006), Trusts<\/em>, 2nd<\/sup> Edition, Oxford University Press<\/p>\n

Wilson, S. (2007), Todd & Wilson\u2019s Textbook on Trusts<\/em>, 8th<\/sup> Edition, Oxford University Press,\u00a01<\/p>\n

\n

Footnotes<\/h3>\n

<\/a>[1]<\/sup> [1973] Ch 9<\/p>\n

<\/a>[2]<\/sup> Pearce, R. & Stevens, J. (2006), The Law of Trusts and Equitable Obligations<\/em>, 4th<\/sup> Edition, Oxford University Press, pg 374<\/p>\n

<\/a>[3]<\/sup> [1973]\u2026<\/p>\n

<\/a>[4]<\/sup> [1979] 1 WLR 278 at 298<\/p>\n

<\/a>[5]<\/sup> Martin, J. E. (2005), Hanbury and Martin: Modern Equity<\/em>, 17th<\/sup> Edition, Thomson Sweet & Maxwell, pg 103<\/p>\n

<\/a>[6]<\/sup> Watt, G. (2006), Trusts<\/em>, 2nd<\/sup> Edition, Oxford University Press, pg 81<\/p>\n

<\/a>[7]<\/sup> [1955] Ch 20<\/p>\n

<\/a>[8]<\/sup> Burn, E.H. and Virgo, G. J. (2002), Maudsley & Burn\u2019s Trusts and Trustees: Cases and Materials<\/em>, 6th<\/sup> Edition, Butterworths Lexis-Nexis, pg 83<\/p>\n

<\/a>[9]<\/sup> Re Benjamin<\/em> [1902] 1 Ch 723<\/p>\n

<\/a>[10]<\/sup> Re Evans<\/em> [1999] 2 All ER 777<\/p>\n

<\/a>[11]<\/sup> Oakley, A. J. (2003), Parker & Mellows The Modern Law of Trusts<\/em>, 8th<\/sup> Edition, Thomson Sweet & Maxwell, pg 60<\/p>\n

<\/a>[12]<\/sup> Oakley (2003) ibid above<\/p>\n

<\/a>[13]<\/sup> Re Gestetner Settlement<\/em> [1953] Ch 673<\/p>\n

<\/a>[14]<\/sup> Oakley (2003) ibid pg 61<\/p>\n

<\/a>[15]<\/sup> [1971] AC 424<\/p>\n

<\/a>[16]<\/sup> [1970] 2 WLR 1110 at 1127<\/p>\n

<\/a>[17]<\/sup> Riddall, J.G. (2002), The Law of Trusts<\/em>, 6th<\/sup> Edition, Butterworths Lexis-Nexis, pg 38<\/p>\n

<\/a>[18]<\/sup> [1970] 2 WLR 1110 at 1128<\/p>\n

<\/a>[19]<\/sup> [1973] Ch 9<\/p>\n

<\/a>[20]<\/sup> Wilson, S. (2007), Todd & Wilson\u2019s Textbook on Trusts<\/em>, 8th<\/sup> Edition, Oxford University Press, pg 111<\/p>\n

<\/a>[21]<\/sup> Penner, J.E. (2006), The Law of Trusts<\/em>, 5th<\/sup> Edition, Oxford University Press, pg 189<\/p>\n

<\/a>[22]<\/sup> (1985) 26 RVR 24<\/p>\n

<\/a>[23]<\/sup> Hudson, A. (2007), Equity and Trusts<\/em>, 5th<\/sup> Edition, Routledge-Cavendish, pg 144<\/p>\n

<\/a>[24]<\/sup> Oakley (2003) ibid pg 63<\/p>\n

<\/a>[25]<\/sup> Matthews [1984] Conv 22<\/p>\n

<\/a>[26]<\/sup> Oakley (2003) ibid pg 64<\/p>\n

<\/a>[27]<\/sup> (1840) 5 Myl & Cr 72<\/p>\n

<\/a>[28]<\/sup> Oakley (2003) ibid pg 65<\/p>\n

<\/a>[29]<\/sup> (1999) 13 TLI 48 (decided in 1982)<\/p>\n

<\/a>[30]<\/sup> [1978] 1 WLR 278<\/p>\n","protected":false},"excerpt":{"rendered":"

Conceptual certainty is required to administer fixed and discretionary trusts but when it comes to evidential certainty there is a difference between the types of trust.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[85],"class_list":["post-2299","post","type-post","status-publish","format-standard","hentry","category-free-law-essaysequity-law","tag-uk-law"],"yoast_head":"\nConceptual and Evidential Certainty in Trusts | LawTeacher.net<\/title>\n<meta name=\"description\" content=\"Conceptual certainty is required to administer fixed and discretionary trusts but when it comes to evidential certainty there is a difference between the types of trust.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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