Pragmatism and emotion have distorted the UK
Pragmatism and emotion have distorted the UK courts ability to interpret consistently the three certainties required for the creation of a trust. Discuss
The ‘three certainties’ were created by Lord Langdale MR in the case of Knight v Knight . Subsequent case law has seen these tests develop in numerous ways. This essay will examine whether the interpretation has been in any way distorted by pragmatism and emotion.
Before discussing the ‘three certainties’, certain foundations need to be laid. Lord Langdale merely stated that they were necessary; reasoning was provided by Sir William Grant MR in Morice v Bishop of Durham . Sir William noted that the requirement was to ensure that the trustees were shielded by clear knowledge of whether the money was for their benefit or for the benefit of another. In addition, the court had to be certain of the terms so that they would be able to control the trust if necessary. As these were the reasons for having the rule, they are the benchmark that the current interpretations must be measured against.
Structurally this has been divided up into an examination of the courts interpreting certainty of intention, object and subject matter.
Certainty of Intention
The crucial issue here is a determination of the intent of the settler; whether the intention was to establish a trust, gift or neither. Chief among the difficulties is Lord Langdale's indication in Knight that the courts should “give effect to the intention of the testator”. This textualist approach means that the words should be final.
A powerful example of how this can be problematic can be seen in a comparison of Re. The Trusts of the Abbott Fund and Re Andrew’s Trust . In both cases there was no provision for the residue in the event of a surplus after the stipulated events. In the former a resulting trust was held, in the latter it was treated as an outright gift. These decisions were only 5 years apart and Watt contends that only pragmatism can explain the different results. In the Abbott case, the beneficiaries were deceased and had left no heirs. In the Andrew’s case the beneficiaries were alive and so there was a practical result to declaring the money a gift.
This disturbing analysis is partly confirmed by LJ Goff’s statement in Re. Osaba that “both cases may well have been right”. In cases that were, to all relevant degrees, identical and with the only difference being the status of the beneficiaries, this appears to confirm the courts willingness to doff their judicial caps towards practicality in preference over faithful interpretation.
Further violence to the purity of Lord Langdale’s tests can be seen in the two cases of Jones v Lock and Paul v Constance . In Jones the court ruled that “loose conversations” could not indicate an intention to create a trust. In Paul , a trust was created simply by using the words; “the money is as much yours as mine”. The court ruled that an intention to create a trust could be inferred from these words. It is fair to say that Mrs Paul had been given a belief that the money would be hers and so the court had arguably done ‘the right thing’. Yet simply by looking at the words in question, it is contended that the Jones decision is far closer to Lord Langdale’s interpretation.
A similar divergence has occurred in the commercial context. In Re Lewis’s of Leicester Ltd the question was whether money paid into an account in the usual course of business could constitute an intention to set up a trust. The court held that even though the question of a trust had never been brought up, requisite intention was present.
What these cases demonstrate is that when answering the question of certain intention the courts have drifted far from the original deference to the actual words used, often to prop up a more practical or emotionally palatial result.
Certainty of Subject Matter
The purpose of this requirement is to ensure that the trustee(s) and court can identify the subject matter of the disposition in question. The two difficulties have been where the disposition is one of many and where there is a choice of some sort to be made.
Concerning the first of these issues, the case in Re. Harvard Securities Ltd (in liquidation) is illustrative. The court held that as long as an en masse subject matter could be divided between the beneficiaries, it was sufficiently certain.
The rationale is understandable. It was preferable to believe that the company had set up a trust for the customers of the business; therefore allowing priority over the general creditors. Yet in no way can such a trust be described as certain.
This is by no means the only occasion where the courts have shown scant regard for faithful interpretation. Possibly most telling is in re. Last . The words used were that “anything that is left” should pass to relatives. In finding that this was sufficient to negate an absolute gift Karminski J noted that there had been no indication that a gift had been intended. Again this was a pragmatically understandable decision. In a choice between the individual and the government the court could reasonably be expected to want the inheritance to pass to the former. However by reversing the burden from certainty to set up a trust to absence of certainty to set up a gift, the court in Re. Last is guilty of ignoring the true purpose of the intention rules.
Certainty of Object
The final certainty concerns identifying the beneficiary. To analyse this section it is necessary to consider individual types of trusts: fixed trusts, powers and discretionary trusts.
The easiest to dispose of is a fixed trust. This is when the trustee has no discretion as to who the beneficiary is or the beneficial interest that will pass to the beneficiary. The test has long been that a list of all beneficiaries must be able to be drawn up (IRC v Broadway Cottages) . In relation to the benchmark of certainty, this test satisfies the high standards laid sown over a century and a half ago and conforms to the underlying principles.
At the other end of the spectrum is a mere power, which provides the trustee with only a duty to consider possible beneficiaries’ ad no duty to disperse the funds. The test in Re Gestetner’s Settlement is merely that there must be the ability to consider whether or not a given individual is within the class. Whether or not this is certain within Lord Langdale’s definition may not be relevant within for powers as it is arguable that Knight v Knight was concerned primarily with trusts and not powers.
The test comes under the spotlight when considering discretionary trusts. Initially these trusts, which allow the trustee discretion in who should benefit but not whether anyone should benefit, received the same treatment as fixed trusts. The breaking point came in McPhail v Doulton where Lord Wilberforce stated that the Re Gestetner test was appropriate.
It is the consequences of McPhail that are more relevant here than the fact of the case. The simple result has been an eruption of decisions which have spawned multiple dissents and arguments. The follow up to McPhail which held that ‘relative’ was a certain term constituted an oxymoron as Sachs LJ did not believe that it was certain and none of the majority could agree on the definition that should be used! In short, the desire of Lord Wilberforce to move to a more practical and less stringent test has merely served to move the courts further away from the original intent of Knight v Knight .
ConclusionThe certainty rules had two specific purposes; to facilitate governance of the trust by the trustees and the court. It is unsurprising that the case law has not uniformly followed these principles over the subsequent 150 years. What is clear though is that the guiding principles have diminished in importance and are in danger of being a mere foundation for the more persuading arguments of pragmatism and sentiment.
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Published by Blackstone Press
- Watt G ‘Law of Trusts’ 3rd Edition
Published by Blackstone Press
- Martin JE ‘Modern Equity’ 16th Edition
Published by Sweet & Maxwell
- Pearce R/Stevens J ‘The Law of Trusts and Equitable Obligations’ 2nd Edition
Published by Butterworths
- Knight v Knight (1840) 3 Beav 171
- Morice v Bishop of Durham (1804) 9 Ves 399
- Re. The Trusts of the Abbott Fund (1900) 2 Ch 326
- Re Andrew’s Trust (1905) 2 Ch 48
- Re. Osaba (1979) 2 All ER 393
- Re. Harvard Securities Ltd (in liquidation) (1998) CC 567
- Re. Last (1958) 1 All ER 316
- Jones v Lock (1865) 1 Ch App 25
- Paul v Constance (1977) 1 All ER 195
- Re Lewis’s of Leicester Ltd (1995) 1 BCLC 428
- IRC v Broadway Cottages (1955) 1 Ch 20
- Re Gestetner’s Settlement (1953) Ch 672
- McPhail v Doulton (1971) AC 424
- Re Baden’s DT (No. 2) (1972) 2 All ER 1304
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