Learning Outcomes
This article examines the requirement for certainty of subject matter when creating express trusts, particularly focusing on how the law treats assets that form part of a larger group or bulk. You will learn the distinction between tangible and intangible property in this context and understand the necessity of segregation for certain types of assets. For the SQE1 assessments, you need to be able to identify whether the subject matter of a trust is sufficiently certain, especially when dealing with fungible assets like shares or specific items within a collection.
SQE1 Syllabus
For SQE1, a clear understanding of the requirements for creating a valid express trust is essential. This includes the specific rules relating to certainty of subject matter, especially when the trust property constitutes part of a larger group of identical or similar items. Your revision should focus on:
- The requirement for certainty of subject matter in express trusts.
- The distinction between tangible and intangible property concerning certainty of subject matter.
- The principle of segregation for tangible assets forming part of a bulk.
- The rules applicable to intangible assets like shares, as established in key case law.
- Identifying whether trust property is sufficiently certain in various scenarios.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which of the following purported trust declarations is most likely to fail for uncertainty of subject matter?
- ‘I declare I hold 50 of my 950 shares in XYZ plc on trust for my son.’ (Assume all shares are identical).
- ‘I declare I hold three bottles of my vintage port wine collection in my cellar on trust for my daughter.’ (The cellar contains 20 identical bottles).
- ‘I declare I hold £10,000 from my current account at ABC Bank on trust for my nephew.’
- ‘I declare I hold the bulk of my residuary estate on trust for my niece.’
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True or false: A trust over part of a collection of identical gold coins requires the specific coins forming the trust property to be segregated from the rest.
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In the context of certainty of subject matter for trusts, which type of property generally requires segregation if only part of it is to form the trust fund?
- Shares of the same class in a public company.
- Money held in a single bank account.
- Tangible assets forming part of a larger identical bulk.
- Units in a unit trust.
Introduction
For an express trust to be valid, it must satisfy the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. This article focuses on the second requirement – certainty of subject matter – specifically addressing the difficulties that arise when the property intended to form the trust fund is part of a larger group or bulk of similar assets. Understanding how the courts approach this issue, particularly the distinction drawn between tangible and intangible property, is essential for advising clients and succeeding in the SQE1 assessment.
Certainty of Subject Matter: The Trust Property
The subject matter of a trust refers to the assets that are to be held by the trustee for the benefit of the beneficiaries. It is fundamental that this property is identified or ascertainable with sufficient clarity. If the property cannot be clearly identified, the trust will fail because the trustees (and the court) cannot know what property they are responsible for managing.
Key Term: Certainty of subject matter The requirement that the property subject to the trust, and the beneficial interests in that property, must be clearly defined or ascertainable.
A particular challenge arises when the intended trust property is described as a portion of a larger group of assets, for example, ‘10 of my 20 paintings’ or ‘50 of my 100 shares’. The key question is whether the specific assets forming the trust fund have been identified with sufficient certainty. The approach taken by the courts differs significantly depending on whether the assets are tangible or intangible.
Tangible Property Forming Part of a Group
Tangible assets are physical items that can be touched, such as wine bottles, gold bars, books, or animals.
Key Term: Tangible property Physical assets that can be touched and are individually identifiable (even if similar to others).
Where a trust is declared over a portion of tangible assets that form part of a larger group of identical or similar items, the trust will generally fail unless the specific assets forming the trust property are separated or clearly identified from the rest.
Key Term: Segregation The physical separation or clear identification of specific assets from a larger bulk or group to which they belong.
The leading authority is Re London Wine Co (Shippers) Ltd [1986] PCC 121. Customers purchased wine which remained stored in bulk by the company. When the company went into liquidation, the customers claimed the wine was held on trust for them. The court held that no valid trust existed because the specific bottles belonging to each customer had not been segregated or identified from the general stock. Without segregation, it was impossible to say which bottles were subject to the trust.
Similarly, in Re Goldcorp Exchange Ltd [1995] 1 AC 74, customers purchased gold bullion which the company stored. Again, the failure to segregate the specific bullion for each customer meant the trust failed for uncertainty of subject matter.
Worked Example 1.1
Sarah declares: ‘I hold 20 of my 100 gold Krugerrand coins, currently stored in my safe, on trust for my son, Ben.’ The coins are identical and are loose in the safe. Is this trust valid?
Answer: This trust is likely to fail for uncertainty of subject matter. Gold coins are tangible property. As the specific 20 coins intended for the trust have not been segregated or otherwise identified from the total 100 coins, it is impossible to determine which coins are held on trust for Ben. The principle from Re London Wine applies.
Intangible Property Forming Part of a Group
Intangible assets are non-physical assets, such as shares in a company, money in a bank account, or units in a unit trust.
Key Term: Intangible property Assets that do not have a physical form, such as shares, debts, or intellectual property rights.
The courts have adopted a different approach for intangible assets, particularly where those assets are fungible (identical and interchangeable).
Key Term: Fungible property Property where each unit is identical to and interchangeable with every other unit (eg, shares of the same class, money).
The leading case is Hunter v Moss [1994] 1 WLR 452. Moss owned 950 shares in a private company and orally declared a trust of 5% of his shareholding (50 shares) for Hunter. Moss did not identify or segregate any specific 50 shares. The Court of Appeal held that the trust was valid. Dillon LJ distinguished Re London Wine on the basis that shares of the same class in the same company are indistinguishable from one another, unlike tangible assets such as wine bottles. Therefore, segregation was not necessary. As long as the trustee holds sufficient shares of the specified type, the trust over a portion of that holding can be valid.
Revision Tip
The distinction between tangible and intangible property is critical. Remember: tangible items in a bulk generally require segregation for certainty; identical intangible items (like shares) generally do not.
Worked Example 1.2
David owns 500 ordinary shares in Tech Corp plc. He executes a trust deed declaring that he holds 200 of these shares on trust for his niece, Emily. He does not specify which 200 shares are subject to the trust. Is this trust valid?
Answer: Yes, this trust is likely valid. Following Hunter v Moss, shares of the same class are considered fungible intangible assets. As David holds sufficient shares (500) to satisfy the trust (200), and all ordinary shares in Tech Corp plc are identical, segregation is not required. The subject matter is certain.
Exam Warning
Be cautious about applying Hunter v Moss too broadly. It primarily applies to identical intangible assets like shares. If the intangible assets were not identical (eg, shares with different rights), segregation or specific identification might still be required. Also, the principle has faced academic criticism, although it remains good law.
Certainty of Beneficial Interest
Certainty of subject matter also requires certainty regarding the beneficial interests each beneficiary is to receive. If the property itself is certain, but the shares or interests the beneficiaries are to take are uncertain, the trust may fail. For example, a trust of ‘£100,000 to be divided amongst my children, with the eldest receiving the bulk’ would likely fail for uncertainty of beneficial interest, as ‘the bulk’ is too vague. This aspect is distinct from identifying the trust property itself when dealing with parts of a group.
Key Point Checklist
This article has covered the following key knowledge points:
- Certainty of subject matter is one of the three certainties required for a valid express trust.
- The trust property must be identified or ascertainable with sufficient clarity.
- When trust property is part of a larger group, a distinction is made between tangible and intangible assets.
- Tangible assets (e.g., wine, gold bars) generally require segregation or specific identification from the bulk to ensure certainty (Re London Wine).
- Identical intangible assets (e.g., shares of the same class) generally do not require segregation, provided the trustee holds a sufficient quantity (Hunter v Moss).
- The beneficial interests of the beneficiaries must also be certain.
Key Terms and Concepts
- Certainty of subject matter
- Tangible property
- Intangible property
- Segregation
- Fungible property
