A trust involves both a legal and an equitable title. Lord Langdale identified the three requirements required to validly create an express trust in Knight v Knight . This essay focuses on how ‘flexible’ the certainty of subject matter should be, with regards to the problem that arises when it is defined as a portion of a larger bulk of identical property and how courts act in situations where the property is an intangible good.
In order to satisfy the certainty of subject matter, firstly, specific property must be identified, intended to be subject to the trust obligation. Apart from the proper ascertainment of property, the beneficial interests must be clear. “This requirement is somewhat ambiguous: the phrase may mean that the property subject to the trust must be certain or that the beneficial interests of the trust must be certain.” Uncertainty of the subject matter of a trust will prevent it from taking effect, as it is likely to lead to the conclusion that the settlor had no intention to create a trust.
Firstly, an imprecise definition of the intended trust property will render the trust invalid for uncertainty of subject matter. The first case where this problem arose was Sprange v Barnard . The instructions ‘for his sole use; and at his death the remaining part of what is left, that he does not want for his own wants and use, to be divided between my siblings’ , were held to be too vague and the subject matter was not identified, therefore, it went as an outright gift to the husband. Following, in Palmer v Simmonds the subject matter was defined as a ‘the bulk of my residuary estate’ . It was held that this didn’t create a trust, as the term ‘bulk’ was too broad to ascertain a definite, clear and certain part of her estate. Additionally, in Boyce v Boyce , the testator bequeathed his property to be held on trust for each of his two daughters with one daughter having the first choice, but she died. As a result, the courts held the trust invalid, as it was impossible to ascertain the trust property. Consequently, as there was no ascertainment of subject matter, the property reverted back on a resulting trust to the settlor’s estate. There is no ‘flexible’ notion by equity or the courts in order to provide a sympathetic result in these cases. By contrast, in Re Golay’s Will Trusts , it was held that the term ‘reasonable income’ was sufficient enough to be quantified and specifically ascertained due to the flexibility of the courts for the particular case, and therefore the trust did not fail for uncertainty.
Moreover, another issue that exists with portions of a large bulk of property held on trust is that the trust may fail if there has been insufficient earmarking or segregation of the trust property . The judicial approach to tangible property was encapsulated in Re London Wine Co (Shippers) Ltd . Arguably, in this case, Oliver J was not satisfied with the fact that customers had no legal title for the wine so there should be a trust in their favour. The court established an intention to create a trust, but held that it failed on the ground of uncertainty of subject matter because of lack of any segregation or appropriation of the wine from the bulk until actual delivery of the wine to the purchaser. Thus, as the property had to be attached and the subject matter specified from a homogeneous mass, it was held there was no trust. The Privy Council approved this principle in the case of Re Goldcorp in which Lord Mustill observed that ‘a right in the property, whether legal or equitable cannot exist in the air, it can only exist in specific property’ . Likewise, the company had not appropriated or segregated any specific parcels of bullions to the individual purchasers, but rather held it in bulk. As a result, it was not held on trust. Hence, the case law makes it quite evident that Penner is right in saying that there should be property that is specifically ascertained in order to satisfy it is a right of property. The courts and equity have not been adapting their decisions in order to provide a sympathetic result in relation to a large bulk of tangible property.
However, the court took a very different approach in Hunter v Moss , compared to the ‘strict’ approach taken so far. This case in particular was very critical as it dealt with the issue of whether it is possible to make a valid declaration of trust over part of property which has not been ascertained, appropriated or otherwise specifically identified; in other words intangible property. In this case, Mr Moss argued that he had created a trust orally with Mr Hunter who he had given 50 shares out of 1000. Dillon LJ held that the oral declaration of trust was valid, despite the absence of segregation of shares. The reason was that all shares were interchangeable as they were identical and therefore no need to segregate them. Given that the shares were intangible property, the principles established in the House of Lords decisions in Re London Wine and Re Goldcorp did not need to be followed. Dillon J distinguished from Re London Wine Co on the basis that, unlike cases regarding tangible property, shares were indistinguishable from one another. Therefore, no segregation was required as holding any 50 of the shares on trust would achieve the same thing.
Nevertheless, there have been mixed reactions from critics. It has been positively commented on as ‘fair, sensible and workable.’ But other commentators also argue that intangible assets are not in a different position from tangible. Hudson wrote “the decision in Hunter v Moss is wrong and should not be relied upon\” . It contradicts the requirement that there should be specific and identifiable property to be subject to a property right. He also suggests it is difficult to see why there should be a dividing line between intangible and tangible property, since there are some principles which apply to both so the distinction is thus spurious. The law looks for workability, which was present in the case. Despite Hunter v Moss being followed in Re Harvard Securities , Hayton questioned whether Dillon J’s argument that there is no difference between a testator giving 50 shares to a legatee in his will and a settlor declaring himself trustee of 50 of his shares is correct and whether there is a broad and convincing distinction between trust of unascertained bulks of tangible and intangible property.
An alternative idea was seen in Pearson v Lehman Brothers where a possible solution was adopted. This was that the problem with segregation could be circumvented by treating the trust as having been declared in relation to a proportionate share of the trust fund. In this case, equity developed its own ‘flexible’ notion of certainty of subject matter in order to provide the sympathetic result that would help find a solution to fungible property.
In conclusion, for a trust to be valid, the subject matter needs to be identified. The orthodox view is that for property to be specifically ascertained, it must be defined clearly, especially if it is a portion of a larger bulk. In relation to tangible property, when the products are homogenous, there must be segregation for the subject matter to be identified, as a right of property cannot exist in the air. However, even though highly criticised, in relation to intangible property such as shares in Hunter v Moss , if they are indistinguishable from one another, there is no need for segregation. The maxim ‘equity follows the law’ makes it clear that the system of justice and the decisions made in these cases, will complement the common law already existing, therefore it is arguable that in some cases equity will develop its own ‘flexible’ notion of certainty of subject matter in order to provide the sympathetic result in a particular case.
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