EQUITY & TRUST

II
Tutorial Week 2

QUESTIONS:
3)Why there is a need to distinguish
between fixed trust and a discretionary
trust in discussing certainty of object
and explain the nature of these two
trusts.
4)Explain the case of Mc Phail v
Doultons [1971] AC 424 and Re Baden
Deed Trust(No 2) [ 1973] Ch 9 and the
relations with certainties of object.

CERTAINTY OF OBJECT
- IT MUST BE PRESENT FOR THE CREATION OF A TRUST
- THE DEGREE OF CERTAINTY NEEDED FOR CERTAINTY OF
OBJECT VARIOUS DEPENDING ON THE TYPE OF TRUST
- IT IS IMPORTANT TO KNOW WHO THE BENEFICIARIES
WERE AND THEN ONLY THE TRUST PROPERTY CAN BE
DISTRIBUTED.
- THE CERTAINTY OF OBJECT CAN BE EITHER FIXED TRUST
OR DISCRETIONARY TRUST.

CERTAINTY OF OBJECT TEST FOR FIXED TRUST:

IRC V BROADWAY COTTAGE TRUST

THE TEST- A FULL LIST OF THE BENEFICIARIES MUST

BE ABLE TO BE CREATED. (ALL THE BENEFICIARIES
MUST BE ABLE TO BE IDENTIFIED.)

FIXED TRUST:
THE TRUST INSTRUMENT SETS OUT THE SHARES OF
EACH BENEFICIARY IN THE TRUST PROPERTY, SO
THAT EACH BENEFICIARYS INTEREST IS FIXED.
THEBENEFICIARIESANDTHEIRINTERESTSUNDERT
HETRUSTARECLEARLY SPECIFIED.
EXAMPLE :
TOMYTWOCHILDRENADAMANDHAWA,ICREATEA
TRUSTOFRM20,000IN EQUAL
PARTS.THEYHAVERM10,000EACHHELDONTRUST.

DISCRETIONARY TRUST:
THE PROPERTY IS HELD ON TRUST BY THE TRUSTEE WHO HAS SOME
DISCRETION (CHOICE) OVER WHO, WITHIN THE SPECIFIED CLASS, IS TO
BENEFIT OR WHAT THEIR SHARE OF THE TRUST PROPERTY WILL BE, OR
BOTH.
EXAMPLE :
A TRUST OF RM20,000 TO MY TWO CHILDREN, ADAM AND HAWA, AS THE
TRUSTEE SHALL DECIDE..
1. THERE IS A DISCRETION AS TO THE SHARE OF THE PROPERTY.
2. NEITHER ADAM NOR HAWA HAS ANYTHING MORE THAN AN
EXPECTATION IN THE
TRUST.
3. ONLY WHEN THE TRUSTEE EXERCISES THAT DISCRETION WILL THEY
HAVE A CLEAR
INTEREST.
4. BUT, AS THIS IS A TRUST, THE CHILDREN CAN REQUIRE THE TRUSTEE
TO EXERCISE THAT DISCRETION.

CERTAINTY OF OBJECT TEST FOR DISCRETIONARY TRUST:

MCPHAILVDOULTON(REBADEN'STRUSTSNO1)

THE TEST- WHETHER IT COULD BE SAID WITH CERTAINTY THAT ANY

GIVEN INDIVIDUAL IS OR IS NOT A MEMBER OF THESE CLASSES.

FACTS AND ISSUE OF THE CASE:

THESETTLORSETUPAFUNDFORTHEBENEFITOFEMPLOYEESOFMAT
THEWHALL&COLTDAND
THEIRRELATIVESANDDEPENDANTSATTHE'ABSOLUTEDISCRETION'O
FTHETRUSTEES.
THE HOUSE OF LORDS HAD TO DECIDE :
(A) WHETHER THIS WAS A TRUST OR A POWER
(B) WHAT IS THE APPROPRIATE TEST FOR THE CERTAINTY OF OBJECTS
REQUIREMENT.

WHILE ALL THE JUDGES AGREED THAT THIS WAS A DISCRETIONARY TRUST RATHER
THAN A POWER, THEY WERE SPLIT REGARDING THE APPROPRIATE TEST FOR THE
CERTAINTY OF OBJECTS REQUIREMENT.
ON3:2MAJORITY,LORDWILBERFORCE,WHODELIVEREDTHELEADINGJUDGEMEN
TOFTHE MAJORITY, IT WAS HELD:
(I)THECOMPLETELISTAPPROACHADOPTEDINIRCVBROADWAYCOTTAGESWAS
OVERRULEDIN RESPECTOFDISCRETIONARYTRUSTS.
(II)THETESTFORCERTAINTYOFOBJECTSINDISCRETIONARYTRUSTSISTHESAME
ASTHETESTFOR
FIDUCIARYPOWERSINREGULBENKIAN'SSETTLEMENT,NAMELYWHETHERITCOUL
DBESAID
WITHCERTAINTYTHANANYGIVENINDIVIDUALISORISNOTAMEMBEROFTHECL
ASS.

HAVINGDECIDEDONTHETESTFORCERTAINTYOFOBJECTSFORDISCRETIONARYT
RUSTS,THECASE
WASRETURNEDTOTHECOURTOFFIRSTINSTANCEFORTHETESTTOBEAPPLIED.
DESPITETHECOURT
DECIDINGTHATITSATISFIEDTHENEWTEST,THEEXECUTORSOFBADEN'SWILLR
ELENTLESSLY

CONCEPTUAL AND EVIDENTIAL UNCERTAINTY

- CONCEPTUAL UNCERTAINTY IS SITUATION WHERE A CLASS OF BENEFICIARIES
WILL BE CONCEPTUALLY CERTAIN WHEN THE DESCRIPTION ENABLES YOU TO
DEFINE THE GROUP CLEARLY.
- EVIDENTIAL UNCERTAINTY WHERE THERE IS A QUESTION OF FACT THAT IT IS
IMPOSSIBLE TO ANSWER, SUCH AS WHEN A CLAIMANT CANNOT PROVE HE IS A
BENEFICIARY.
DISTINGUISHINGCONCEPTUALUNCERTAINTYFROMEVIDENTIALUNCERT
AINTY

CONCEPTUALCERTAINTYRELATESTOTHECERTAINTYOFTHECLASS.
IF CONCEPTUALLY UNCERTAIN; TRUST WILL BE VOID
EVIDENTIAL CERTAINTY RELATES TO THE ISSUE OF WHETHER AN INDIVIDUAL
CAN BE FOUND OR PROVEN TO BE A MEMBER OF THE CLASS OR NOT.
IF EVIDENTIALLY UNCERTAIN; WILL NOT DEFEAT A TRUST.
- BOTH ARE DISCUSSED IN THE CASE OF RE BADENS TRUST (NO 2).

FACTS OF THE CASE:

-MR BERTRAM BADEN SETTLED A TRUST FOR THE EMPLOYEES, RELATIVES AND DEPENDANTS OF HIS COMPANY, MATTHEW HALL & CO LTD.
-IT SAID THE NET INCOME OF THE TRUST FUND SHOULD BE APPLIED BY THE TRUSTEES IN THEIR ABSOLUTE DISCRETION AND AS THEY THOUGHT FIT FOR THE
EMPLOYEES, RELATIVES AND DEPENDANTS IN GRANTS.
-THE HOUSE OF LORDS IN MCPAIL V DOULTON HELD THAT THE TRUST WOULD IN PRINCIPLE BE VALID IF IT COULD BE SAID WITH CERTAINTY THAT A HYPOTHETICAL
CLAIMANT "IS OR IS NOT" WITHIN THE CLASS OF BENEFICIARIES.
-THE CASE RETURNED TO THE LOWER COURTS TO DETERMINE IF THE TRUST WAS IN FACT ENFORCEABLE.

APPLICATION OF THE TESTTOTHECASEOFREBADEN'STRUSTS(NO2).

THE COA WAS ASKED IF THE GROUPS DEPENDANTS AND RELATIVES WERE
CONCEPTUALLY CERTAIN. ALL THE JUDGES AGREED THAT DEPENDANTS WAS
CONCEPTUALLY CERTAIN. HOWEVER, THEY REACHED THIS CONCLUSION BY
DIFFERENT REASONING.

JUDGEMENT OF THE CASE:

STAMP LJ:
-APPLIED THE STRICT TEST FROM MCPHAIL.
THE TEST COULD ONLY BE SATISFIED IF IT COULD BE SAID OF EVERY POTENTIAL
CLAIMANT WHETHER OR NOT THEY BELONGED TO THE CLASS I.E. EVERY
POTENTIAL BENEFICIARY MUST BE GIVEN A POSITIVE OR
NEGATIVE ANSWER.
-STAMP LJ HELD THAT THE DISCRETIONARY TRUST WAS VALID, HE REACHED THIS
CONCLUSION BY TAKING A NARROW VIEW OF RELATIVES, HE VIEWED THEM AS
BEING STATUTORY NEXT OF KIN.

SACHS AND MEGAW LJ:

MENTIONED THAT EACH JUDGE NEED TO ADD CERTAINTY
REQUIREMENTS.
SACHS LJ STATED THAT THE CLASS OF THOSE TO WHOM A CAN
DISTRIBUTE THE BENEFIT OF AS RIGHT MUST BE
CONCEPTUALLY CERTAIN: THAT IS, IT MUST BE POSSIBLE TO
COME UP WITH A DEFINITION OF THE CLASS. PRACTICAL AND
EVIDENTIAL PROBLEMS AS TO WHETHER AN INDIVIDUAL IS OR
IS NOT WITHIN THAT DEFINITION CAN BE DEALT WITH BY
APPLYING THE SIMPLE RULE THAT THEY ARE OUT OF THE
CLASS UNTIL THEY PROVE OTHERWISE.
MEGAW LJ ADDED A DIFFERENT REQUIREMENT, STATING THAT
A DISCRETIONARY TRUST CAN ONLY BE VALID IF THERE ARE A
SUBSTANTIAL NUMBER OF PEOPLE WHO ARE CLEARLY
WITHIN THE CLASS TO WHOM A CAN DISTRIBUTE THE BENEFIT
OF AS RIGHT.