Continuing Uncertainty as to Certainty of Objects of Trusts Powers - Dissertation Example

Continuing uncertainty as to certainty of objects of trusts powers Introduction A trust can be administered easily if there is a certainty of its beneficiaries, objects etc. A trust would be declared as a valid trust if there is an adequate practical certainty in its description as it has to be administered properly and if required with administrative help of a court, as per the declared objectives of the creator or settler. Thus, a trust can be said to be properly constituted, if there is an enough practical certainty in its explanation for it to be administered, if necessary with the directives from the court as per the expressed aims of the creator. There arises from a problem if a trust contains provisions of uncertainty. The question of uncertainty relates both to the creation of trust and powers of appointment. The main predicament arises in most of the scenarios, whether the creator or settlor outlined his aim with “enough realistic certainty? “ Here, certainty connotes unambiguity over beneficiaries, trustees and even court as it has to decide in certain circumstances what the settlor conceived to accomplish. Finally, the main question would be whether the court can interpret with confidence what the settlor aimed. Thus, a court can easily decide whether a trust must be one which the court can exercise its direction and administer if the settlor has made his intentions without any ambiguity. However, in the last three decades, the English courts often dealt with the question what degree of certainty must a settler explain about the aims of his trust. The common issues witnessed in both about the powers of appointment and trust’s certainty of an object. In case of certainty of beneficiaries, Lord Upjohn expresses the common notion in a particular context. “Possibly, the most sanctified notion was that the Court of Chancery, which functions in the absence of trustees, must be aware with enough certainty the aims of the beneficence of the donor so as administer the trust. Lord Langdale, in Knight v Knight1, adverted certainties of three types which must be there so as to a trust to be efficiently stated. These are the certainty of subject-matter, intention (or words), and objects. It is essential that the above three elements should be present in trust so as to make it a trust with certainty and should have following conditions. a) There must be an intention on the part of a settlor to establish a trust; i.e., either to vest the legal title in third party trustees or to retain it in his own hands as trustee or and to pass only equitable title to the beneficiary; b) The beneficiaries’ interests and property to which the trust attaches must be obviously certain; c) The other objects of the trust or the beneficiaries must be clearly recognisable, either as a class (e.g. ‘my grandsons’) or as individuals According to Watkins, three certainties should be present in any trust deed namely a narration of the essential elements for the establishment of a trust; of the ingredients which a settlor has to make obvious if he wants the settlement to be implemented by the court. (Watkins 1979:123). According to Hopkins, Baden litigation, at its entirety, has several unreasonable elements and a stressful magnitude of ambiguity lingers after it." Thus, Hopkins is of the view that there is enduring ambiguity as to clear definition of main objects of trust’s authority. This research will discuss in detail about the necessity to have a clear, concise definition of objects of trust else there will be continuing uncertainty over the objects of a testator’s real intention which will lead to multiplicity of litigation on the s Certainty of Objects In the context of trust, certainty of a trust refers as to who the beneficiaries or persons of the trust are. If the trust is a trust for individuals, this connotes that the persons who are to derive advantage from the trust must be comprehensible. The trustee must be aware of whom they have to direct the benefits connected with the trust property. In order to take a decision to administer a trust in lieu of a trustee or to evaluate the breach of a trust or, the court must also be able to assess to whom the trust property is to be allocated. Likewise, third parties must be able to conclude whether they are beneficiaries of the trust or not. (Gillen & Woodman 2008 229). The basic norm is that the aims of a trust “must be delineated with sufficient “certainty” to facilitate the trustees or the court to administer the trust as per the settlor’s aim. Moreover, the aims of a power of appointment must be defined in crystal clear terms. The individuals or whose benefit for which a trust has been declared is known as the objects of a trust. In Re Endacott2 , Evershed M.R observed that “a trust, which is not a charitable trust, so as to be enforceable must have definite or discoverable human donees”. As a result to this averred beneficiary principle, the need for certainty of objects prescribes that the trust must be described in terms, which facilitate the trustees (and with the help from the courts) to ascertain who these beneficiaries are. The customary tests The courts have commonly had recourse to two tests in seeking to resolve whether the specified objects of a class gift are adequately definite, 1) Class ascertainability test (CAT): Whether the trustees can be able to list out a whole record of each person that falls among the group of beneficiaries? 2) Individual ascertainability test (IAT): Whether the trustees could identify beneficiaries or if the courts are required to devise many tests for this purpose? The CAT test is much more rigorous than the IAT, so that a nature is more likely to be invalid for uncertainty if this analysis is used. As for judging between tests: a) On the one hand, strict tests like that of CAT make a trust easier to enforcement and administer easier; b) Then again, because fewer trust will fail, less stringent tests like that of the IAT are more likely to give effect to a settlor’s intention, These tests have created a great deal of debate and have been the subject of severe erudite scrutiny and discussion, (Burgess, 1971:30). The need for certainty of Objects Clause To administer the trust by the trustee and for the enforcement of trust by the court, the objects or aims of the trust must be unambiguous. The persons who are to benefit from the trust must be crystal clear if the trust is a trust of persons. In other words, it should facilitate the trustees in clear terms to whom the benefits of the trust are to be directed who are associated with property of the trust. In order to evaluate a breach of trust or to execute the trust in lieu of the trustees, the court should also be proficient to evaluate to whom the trust property is to be divided. Beneficiaries or third parties should be able to know whether they are donees of the trust or not. The requisite for certainty under a power or a trust is demonstrated and equated by the House of Lords in Re Baden ; McPhail v.Doulton3 . This case was applied by the Supreme Court of Canada in Jones v. T.Eaten Co. In both of above cases, the court was distressed with “certainty” in terms of deciding the individuals entitled. The Supreme Court of Canada and House of Lords, UK perused a test that can be seen in the Second Restatement of Trusts , 1959 namely “ the class must not be so indefinite that it cannot be determined whether any person falls within it. “ Altering the first cited test to interrelate to “purposes”, I do not think that it could be able to demonstrate within a conviction that every agreed usage would meet the criteria. Hence, the trust deed suffers from drafting errors, which result in a linguistic uncertainty which vitiates the gift as diverse from the intricate of finding out the whereabouts or existence of members of the class which can be suitably dealt with on an application for a direction. (Gillen & Woodman 2008:229). As Lord Upjohn expresses in Re Gulbenkian; Whisaw v.Stephens4 “perhaps it may be a hollowed principle, in the absence or default of a trustee, the Court of Chancery, which acts must comprehend with enough certainty the aims of the beneficence of the creator so as to administer the trust. If the clause is not properly defined, then the donor’s aim in such events failed for uncertainty. For instance, in Palmer v. Simmonds5 , in which an author of a trust disposed the residue by expressing that “ I offer and work out (the residue) unto the said Thomas Harrison , for his own benefit and use , as I have complete faith in him , that if he should die without lawful issue he will , after providing for his widow during her life , leave the bulk of my said residuary estate unto the said (four-named persons) equally. The phrase “bulk” as the subject matter of the trust was referred to be uncertain. In Re Golay’s Will Trusts6, the testator instructed her executors to permit “Tossy” to dwell in the one of her flats during her lifetime and to have reasonable income from any other properties. It was held by Ungoed-Thomas that “reasonable income “was an objective assessment that both a court and a trustee could make and thus the subject matter of the trust was declared to be sufficiently certain (Gillen & Woodman 2008 82). McPhail v Doulton It is the leading case on the test for certainty of beneficiaries held by the House of Lords. This case related to a fund created by Mr. Baden for his company’s staff and their dependents. This case discusses about the proper test for certainty of beneficiaries. The verdict in McPhail v. Doulton is followed by the verdict in Re Baden’s Deed Trust (No 2), in which the Court of Appeal evaluated whether the elucidation of the beneficiaries in Baden’s trust deed was sufficiently certain footed on the test set out by the House of Lords. In Re Baden, the House of Lords, by a bare majority, laid a new yardstick of validity in relation to a discretionary trust in which donees are enumerated as a class, viewing that such trusts will be legal if the same could “be assumed with certainty that any known individual is not or not a part of that class.” This litmus test of validity had been confidently acknowledged in the sphere of powers of appointment among a class had been held previously in Re Gulbeenkian’s settlement two years before. (Emery 1982:551). Fixed Trusts In this type of trust, the number of beneficiaries and the degree of their interest are detailed in the trust instrument itself. The test for certainty of objects is to know whether the objects are determined or capable of determined. The trustees are required to draw up a complete at the time of creation of the trusts. Failure to meet this would end in the failure of the express trust. For instance, £50,000 is transferred to trustees. A and B have to divide equally between all my friends.” If all friends of the creator cannot be located or identified, then the intended express trust fails. It was not feasible to recognise each member of the class ‘urgent suppliers.’ In Inland Revenue commissioner v Broadway Cottage Trust7 , a settlement was established whereby trustees took possession of property upon trust to appropriate the income from the property for the benefit of all or any of a class of an object including, inter alia, the creator’s wife, particular relations of a settler and the Broadway cottage trust, a charitable institution. The Broadway Cottages was paid a share of income by trustees, and they claimed income tax exemption for this. It was not probable to determine all the objects who might fall within the group of objects, but it was probable to determine with certainty, whether a specific individual was a member of that class or not. The main issue was whether the trust was void or valid. Trust was held as void for uncertainty of an object by the court and the claim for refund of income tax was failed. (Rajmohan Mohammed 124). In OT Computers Ltd v First National Tricity Finance Ltd and others, it was considered by the High Court, whether the blueprint used by the settler for recognising the beneficiaries satisfied the test for certainty of objects for fixed trusts. In this case, the company created to trust bank accounts for its ‘urgent suppliers’ and its customers. The main issue in this case was whether valid trusts had been established for ‘urgent suppliers.’ It was observed by the court that a valid trust was created for the customers. The ‘urgent suppliers’ trust was held to be void ad it had uncertainty of objects. Discretionary Trusts A discretionary trust is one where the trustee is empowered to select at their discretion the beneficiaries and their interests from a class of objects. In a nutshell, the trustees are needed to determine on the distinctiveness of beneficiaries from a group of objects and matching interests which they may develop. For instance, on trust, for 10 years, to give away the dividends from my shareholdings in Godrej Plc to such of my relatives and dependents as my trustees will settle on in their complete discretion. Here, under this trust, trustees are required to decide not only who will derive advantage out of it but also the quantum of the interest of the beneficiaries. Like private trust, charitable trust is also subject to test of certainty of objects. A charity trust is subject to a distinctive test for certainty of objects namely, whether its objects are charitable or not. A trust will be considered as a charitable trust if its objects are exclusively charitable. It is not necessary for the settler or testator to note the charitable objects which are intended to take trust property if the trust deed manifests a concise objective to assign the funds for “charitable purpose.” In Morice v Bishop of Durham8, a fund was earmarked upon the trust for such deeds of liberality and benevolence as the Bishop of Durham should approve. It was held that the gift was not valid as the objects were not exclusively charitable. (Rajmohan 380). Moggridge v Thackwell For a charitable purpose, a testatrix transferred her residuary personality to a trustee so as to divest the same to such charities as he should deem fit. However, the trustee died before the testatrix. It was held that it was irrelevant the prior death of a trustee than that of the testator. The gift had vested for charitable purposes no sooner the death of the testatrix. The court later approved a scheme for the disposal of the residuary estate for the charitable purpose. (Rajmohan 381). Re Baden (No 29) is the new name given as the appeal to the Lords, which did not put a full stop to the Baden chronicle since their Lordships remanded the case to the Chancery Division and then the Court of Appeal to decide whether the allusion to ‘dependants’ and’ relatives’ resulted in an uncertainty of objects under the individual ascertainability test. (IAT). The phrase ‘relatives’ can longer be interpreted in a narrow logic since a majority of the English Court of Appeal in the above case held that ‘ relatives” connoted individuals descended from a common ancestor. Megaw LJ, in the above case observed that the test of uncertainty advanced in McPhail v Doulton by Lord Wilberforce would be met if it could be demonstrated that a major number of individuals was within the class and as to major number of other individuals, it could not be ascertained whether they were or were not within the group or class or not. Thus, in this case, Megaw has propounded a new test of certainty of objects and not explaining the test advocated by Lord Wilberforce in “McPhail v Doulton. “This is necessary since the trustees are capable of demonstrating with certainty, whether any person is a member of the group is not quite the same as merely to need them to be able to demonstrate with certainty that at least a major number of individuals falls within the group or class. Moreover, Megaw LJ refrained to expand on what he intended by a major number of persons. Since, each one of the three Lords “Justices of Appeal in re Baden’s Deed Trust (No 2)” had his own definite line of judgment for clarifying the word “relatives’ and it was adequately enough as demarking of a class of the objects and such verdict reveals no ratio decidendi of the court. Thus, the application of the test for certainty of objects continues to be uncertain. This is so, the test itself is uncertain with regard to some groups of individuals including groups like that of a person’s relative. (Ong 2007:97). By reference to opinions of third parties, can uncertainty be cured? “In some cases, conceptual uncertainty may be rectified by a clause that the opinion of a third party either by the trustees or by a third person is to resolve the matter”. This is corroborated by: In Re Leek10, the trust here was for the advantage of “such other persons as the company may deem to have a moral claim on me [i.e. settlor]”. Harman L.J opined that the trust would have been too ambiguous if it had simply been for such persons as have a moral claim on me. As the trustees had been made the arbiters, Harman did not see why they should not be able, on this ground, to decide and arrive at a decision; and In Re Tuck11’case, Lord Denning was of the view that he “had no reason why a settlor or testator should not offer that any doubt or dispute was to be resolved ...by a third party” and viewed that “if there is any theoretical vagueness in the provision of this settlement, it is remedied by the “Chief Rabbi clause”. In Re Coxen12. Jenkins J observed that to that extent as the specific stipulation was vague, the circumstances could not be rectified merely by having recourses to the judgment of the trustees where the testator had inadequately illustrated the state of affairs upon which the trustees were to shape their judgment. Re Wright’s W.T13 , a trust was acknowledged “for such institutions or people as [my trustees] believed to have assisted me or my later husband”. The phrase ‘help’ was declared to be theoretically vague and the trust was not protected from the collapse by the reference to the estimation of the trustees. In R v Auditor exp West Yorkshire MCC14, the concept that a trust could fail for administrative impracticability was later authorised. Lloyd L.J held that the scope of objects was so desperately wide as to be unable to establishing anything like a class and the trust was therefore, was administratively unworkable. Conclusion This research essay has analysed J.Hopkin’s statement, “The Baden lawsuit, at its entirety, has several unacceptable elements and an upsetting quantity of vagueness persists with it." Moreover, Megaw LJ refrained to expand on what he intended by a major number of persons. Since, each one of the three Lords Justices of “Appeal in re Baden’s Deed Trust (No 2) “had their own definite line of judgment for clarifying the word “ relatives’ and which was adequately enough as demarking of a class of objects and that verdict reveals no ratio decidendi of the court. Thus, the application of the test for certainty of objects continues to be uncertain. It appears that the approach perused by Megaw LJ is more elastic not only than Sachs L.J. E.g. and that of Stamp L.J’s approach. A trust has to allocate money to believers of the Anglican faith in such shares as the trustees decide. If Sach LJ’s description of the individual ascertainability analysis is perused, this trust is likely to fail since the phrase ‘adherent’ is theoretically ambiguous as it does not throw more light whether it is meant about the solace baptism, sporadic attendance, or without attendance or regular attendance and strict adherence of principles of the faith. By contrast, if the trust would perhaps adhere to Megaw LJ’s account of the test since it appears that, even if “faithfulness” involves regular attendance/observance. There would be substantial numbers falling within the class (e.g. devout Anglicans, the clergy, etc.). This is so, the test itself is uncertain with regard to some groups of individuals including groups like that of a person’s relative. (Ong 2007:97). References Burgess, R. (1971) “The certainty problem” 30 N.I.L.Q 24. Gillen, Mark R & Woodman, Faye. (2008). The Law of Trusts: A Contextual Approach. London: Emerald Montgomery Publication. Hopkins. (1973). “Continuing uncertainty as to certainty of objects of trusts and powers” 32 C.L.J 36. Ong, Denis S.K. (2007). Trusts Laws in Australia. Berth: Federation Press. Watkins, T.G. (1979). “Doubts and Certainties” 8 Anglo-Am. L. Rev. 123. Read More