THE THREE CERTAINTIES- FORMAL & INFORMAL TRUSTS.

The following shall comprise of trusts and equitable remedies that played significant role in English law. Before going through a deep discussion one must understand that for valid trusts there must be a certainty of express intention, certainty of object and certainty of subject matter being explicitly mentioned by the Settlor through his words or conduct. The following paragraphs will focus on relevant and recent case laws that display how the Courts of equity have been flexible towards evaluating the three certainties and informal trusts. It is pertinent to mention that laws relating to trusts have been developed through the modernization of equity which is to provide equitable remedies to people in order to give proper justice because trust mechanisms are too rigid and may not have the requisite remedy for the claimant. These issues causing problems in law were sorted out by the application of equity which is now being given at the discretion of the judge or the courts. Equity is now more flexible in giving legitimacy to a trust of any property that satisfies the requirements of a valid trust. The first test for the requirements of a valid trust was laid down by 'Lord Langdale' in the case of Knight V Knight[1] that the words mentioned must be made with clear imperative words; it must show that there was a subjected matter to that intention of words; lastly, the persons or objects must be certain.[2] Along with all the certainties some formalities for the trust to be executed must also be satisfied and then it must also address how a trust should be constituted when disposing of the property.

Starting with the equitable maxim, "equity looks to the intent but not the form" shows a clear direction that equity is flexible towards finding a valid intention for a valid trust. At- first, comes the point that there must be an intention which is certain. Identifying the intention of the settlor depends upon the facts written in the will or in the documented trust whether settlor or testator has created a trust or simply gifted the property to the object mentioned or precisely known as the beneficiary.[3] It is submitted that to understand whether a person giving a property to another has an intention or not, must first look at the words that the person has mentioned when committing to someone about the subject matter. Verbal promises may amount to trusts and it is not necessary to mention the word 'trust' whenever a property is been given to someone by way of appointing a trustee. It can be seen in a prominent case of Paul V Constance[4] where 50% the property was given to the claimant because there was uncertainty in regards to the intention of the defendant when giving away the property to Mrs. Paul (claimant), as the court stated that the defendant consistently saying that the property in question was 'as much as his (defendant)' amounted to an intention to be certain.[5] It can be argued that a trust can be made orally and the meaning of 'the Words' in a creation of trust does not have to have the proper means of formal language; it can be of informal nature that may eventually lead to a creation of trust.[6] Clearly, the Courts nowadays show a flexible approach towards the intention of a creation of a trust and have taken a more objective approach which is based upon the words said by the settlor that creates a proper intent as a whole to dispose the property.[7] Apparently, it is much easier to capture the words of the settlor whether they carry a probable intention to give away the property or not because it is assessed through the mentioning of imperative and precatory words but even sometimes precatory words can amount to a trust as can be seen in the case of Comiskey V Bowring-Hanbury[8] which was solely based upon the context of the trust and the Courts took a more flexible approach.[9] Lastly, as to the intention of the settlor does not have to be in a proper manner rather the intention or words of the settlor should be equivalent to those formal words that could justify the point that there is a valid trust which is capable of enforcement and can easily be recognized by the courts of equity.[10] Intention in some circumstances may differ in relation to self declaration of trust where a person holds their own property on trust for another's benefit and here intention is not clearly understood.[11] A father gifting his baby a cheque was not regarded as a valid gift and thus arose that whether the person was setting a self declaration of trust or whether it belonged to his legal estate and the court held that these sort of conversations may lead to consequences and thus it cannot be regarded as a declaration of trust because there was no valid intention to do so.[12] The words being said by a testator or settlor may represent an indication of assurance being given by the settlor that the property belongs to the beneficiary may be regarded as an intention to dispose. This was the case in Rowe V Prance[13] where it was confirmed that the word "ours" said by the defendant was to be considered as an express intention to hold the property for the beneficiary; and this case is similar to that of Paul V Constance. In relation to commercial trusts Courts have been reluctant to find a clear intention out of it but evidence of such intention can be granted as a valid trust.[14] There are other trusts where the intention of the settlor is very much vague and difficult to evaluate; such of these trusts are "Sham" trusts where the question arises whether the settlor had any intention to create a trust because ultimately the settlor lacked intention for a creation of trust.[15] Sham trusts can be regarded as fraud and it is similar to "illusory trusts" where the settlor or trustee has a lot of control over the trust which might result to a degree that the settlor or trustee by way of different actions takes the relevant property for their own interest.[16] This is how an intention of a trust can be determined and the courts have been very eager to establish a trust through even the most unexpected approach of intention to create a trust; moreover, "Sham" trusts are in general not enforceable and can be void on many occasions.

One of the three certainties for a trust is known as the 'subject matter' which is any kind of property or land. This is described as the properties that are subjected to the trust and it can be either tangible or intangible in nature. It is also important for the trustee to know that there is a property to hold on trust without which a trust instrument would be fail. Words mentioned in a trust will or in a testamentary trust may not have clear clarification as to the subject matter of the trust which may include to some extent vague wording such as, "my small part of the estate" or "my houses" etc are problematic because these are not certain statements and cannot be easily identified to enforce a trust.[17] Another example has been given in a case where a "the bulk of my state" was not clear as to the certainty of subject matter for the relevant trust property and could not be enforced because by the word "bulk", the amount of property could not be assumed even though it may mean the entirety of the property yet it was uncertain and thus was not a valid trust.[18] On a different case but similar circumstances the court took the wording "the remaining of what was left" in affirmative and held that it created a trust as it was clear as to the subject matter.[19] Re Golay's Will Trusts[20] is a case concerning wordings that created problems for the trustees regarding the subject matter being mentioned by the testator but the court looked at the wording "reasonable income" and assessed it in an objective manner by saying that the reasonable income is not uncertain and can be assessed easily because the court would not face any difficulty in ascertaining the certainty of reasonable income rather, the court looked at previous positions of the beneficiary according to the standard of living the object had and their Lordships gave judgment accordingly.[21]

The certainty of subject matter is obviously a broad concept in which it is important to ascertain the trust property as can be seen in a case of wine bottles being part of the trust could not be ascertained because they were not divided or segregated properly which resulted to be an invalid trust.[22] On the other hand, in relation to shares which are intangible properties can be identical in nature and in such a position a different sort of segregation is not necessary; might be irrelevant as well because they were of same class and can be identified easily thus a trust can be validly acceptable.[23] It is one of many examples that the courts have taken to achieve equity to all who face injustice and approached in a flexible method. This is the ultimate aim of English law and equity which helps to reduce the rigidity of law with fairness by creating a distinction between tangible and intangible properties.[24]

The most important part for a trust is the person who benefit from the trust property and this is one of the three certainties. An object or else known as beneficiary can be anyone and if there is an uncertainty as to the object then the trust will fail for lack of objects. Essentially the test for certainty here is for fixed trust which is not discretionary and the trustee is bound to act exactly according to the direction given by the settlor.[25] The test for fixed trust is the test of 'complete list' which Lord Tomlin said, that for fixed trusts the list of beneficiaries must be complete and clear or else the trust will be void.[26] A fixed trust might fail if the concept or definition of such object is not clear and similarly due to evidential uncertainty as to the objects of the trust will also be void if the there is lack of evidence of the beneficiaries.[27] Another kind of trust is discretionary trust where the trustee must use his discretion given by the settlor or testator in the trust. In the case of McPhail V Doulton[28], the complete list test of IRC[29] for both fixed trusts and discretionary trusts was changed in relation to discretionary trusts and thus the "is or is not" or else known as "any given postulant test" established in Re Gulbenkian’s S.T[30] for powers is now applicable for discretionary trusts as well. From such approach it can be said that, English Courts have shown flexibility towards discretionary trust as it had a rigid rule for beneficiaries thus, caused problems but now it is easy to evaluate the beneficiaries involved in a trust on the basis whether they can adduce the evidence that the trust property belongs to them.

Discretionary trusts are also described as 'trust power' and McPhail V Doulton was sent back to the Chancery division and was asked a question in relation to the definition of 'relatives and dependants' which covers the a) Conceptual Certainty and b) Evidential Certainty in regards to the beneficiaries of the trust and the case is known as Re Baden's Deed Trusts (No 2).[31] In relation to the question of relatives Sachs & Megaw LJ defined that they are "Descendants from common ancestor".[32] Stamp LJ said that relatives meant the next of kin of the persons who died and had blood relations with.[33] Sachs LJ agreed with Brightman J and said that, any one wholly or even partly dependent on the means of another is a "dependant"; moreover Stamp LJ held that dependants are persons who are financially dependent and it clears the uncertainty of the concept of the given objects in the case and in other words, reduces the difficulty in determining the class of beneficiaries.[34] Lastly, in evaluating the evidential certainty, all the judges unanimously agreed and maintained their flexible approach but all three of them took different tests to determine evidential certainty.[35] Sachs LJ suggested that, evidential uncertainty cannot defeat courts because the claimant must only need to prove that they are included or if it is not than they are not included.[36] The test Megaw LJ has given is that, Objects must be of 'substantial number' and in order to calculate substantial, one must use common sense.[37] In the end, Stamp LJ contented that, validity or invalidity of the evidence depends upon whether there is any individual or not and this is concentrated on the word "any" which is to say that uncertainty of evidence in regards to object would make the trust void.[38]

The question here also focuses that courts are now willing to give effect to informal trusts that are more related to trusts of land. Firstly, In order to do justice the courts of equity take actions upon their discretion that will eventually lead an informal trust to be valid by way of implied trusts. As can be seen in the case of Rochefoucauld V Boustead the Courts were to decide whether an express oral trust of land could be valid or not.[39] For trusts relating to land there is a statutory requirement of Sec 53(1)(b) LPA 1925 which contended that it needs to be in signed writing or else it will be invalid.[40] This case was concerned with parole evidence which could raise to frauds and as the maxims says "equity will not allow a statute to be used as an instrument of fraud" confirms that the court took this approach as there was a beneficial interest in the property despite it was not signed in writing.[41] Taking these into account it can also be seen that the effect of informal trusts are declared valid on the discretion of the judges and as Bannister V Bannister[42] suggests that it is even possible for courts to declare trusts impliedly or construct a trust upon the defendant despite the trust having an informal nature.[43] As per the discussion above it is evident that courts can if they want, enforce an informal trust even though if the matter is related to trusts of land.

Therefore it can be concluded that, the discussion here is basically providing an understanding on the approach which the court takes while providing equal justice when the law in question is rigid and harsh. Equity is the only available remedy for the people who face unjust consequences and recent cases show that judges are now much more flexible towards ensuring so that nobody faces unjust results but at the end, all depends upon the discretion of the judge.

Footnotes.

[1] Knight v Knight (1840) 3 Beav 148, 149

[2] Beginning Equity and Trusts, 'Mohamed Ramjohn'(2013, Routledge), 40

[3] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 72

[4] Paul v Constance [1977] 1 W.L.R. 527

[5] Paul v Constance [1977] 1 W.L.R. 527, [530]-[532]

[6] Paul v Constance [1977] 1 W.L.R. 527, [530]

[7] ibid

[8] Comiskey and Others v Bowring-Hanbury and Another [1905] A.C. 84

[9] Comiskey and Others v Bowring-Hanbury and Another [1905] A.C. 84, [86]

[10] Paul v Constance [1977] 1 W.L.R. 527, [532]

[11] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 73

[12] Jones v Lock (1865-66) L.R. 1 Ch. App. 25, [28]

[13] Ann Phyllis Rowe v Edward Prance 1999 WL 249829, [13]

[14] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 75

[15] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 77

[16] J E PENNER, ' The Law of Trusts'(tenth Edition, OUP), 195

[17] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 80

[18] PALMER V. SIMMONDS, 2 DREWRY 221, [222]-[225]

[19] Sprange v Barnard and Others (1789) 2 Brown's Chancery Cases 585 29 E.R. 320, [322]

[20] Re Golay (deceased); Morris v Bridgewater and others [1965] 2 All ER 660, [661]-[662]

[21] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 80

[22] London Wine Co (Shippers), Re [1986] PCC 121

[23] HUNTER v MOSS [1993] 1 WLR 934, [946]

[24] Alastair Hudson, 'UNDERSTANDING EQUITY & TRUSTS'(2001, Cavendish Publishing Limited), [34]-[36]

[25] Beginning Equity and Trusts, 'Mohamed Ramjohn'(2013, Routledge), 48

[26] Inland Revenue Commissioners v Broadway Cottages Trust; Inland Revenue Commissioners v Sunnylands Trust [1954] 1 All ER 878, [880]-[882]

[27] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), 86

[28] McPhail and others v Doulton and others [1970] 2 All ER 228, [244]-[246]

[29] Inland Revenue Commissioners v Broadway Cottages Trust; Inland Revenue Commissioners v Sunnylands Trust [1954] 1 All ER 878

[30] re GULBENKIAN'S SETTLEMENTS HACOBIAN AND OTHERS v MAUN AND OTHERS [1967] 3 WLR 1112, [1118]

[31] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), [90]-[91]

[32] In re BADEN'S DEED TRUSTS (No. 2) [1963 B No. 223] [1973] Ch. 9, [28]

[33] In re BADEN'S DEED TRUSTS (No. 2) [1963 B No. 223] [1973] Ch. 9, [29]

[34] In re BADEN'S DEED TRUSTS (No. 2) [1963 B No. 223] [1973] Ch. 9, [21], [30]

[35] Graham Virgo, 'The Principles of Equity & Trusts' (Third Edition, OUP), [92]

[36] In re BADEN'S DEED TRUSTS (No. 2) [1963 B No. 223] [1973] Ch. 9, [20]

[37] ibid [1963 B No. 223] [1973] Ch. 9, [24]

[38] ibid [1963 B No. 223] [1973] Ch. 9, [28]

[39] J E PENNER, ' The Law of Trusts'(tenth Edition, OUP), 160

[40] Law of Property Act 1925, s.53(1)(b) 

[41] ROCHEFOUCAULD v BOUSTEAD [1894 R. 1864] [1897] 1 Ch. 196, [206]

[42] Bannister v Bannister [1948] 2 All ER 133

[43] [1948] 2 All ER 133, [135]-[136]