Introduction
Express trusts are essential structures in equity and trust law, established when a settlor intentionally creates a trust to manage assets for specified beneficiaries. The creation of an express trust necessitates strict adherence to the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. When dealing with parts of groups of things, or bulk assets, additional challenges arise in ensuring the trust is valid and enforceable. This area is rigorously assessed in the SQE1 FLK2 exam and necessitates a comprehensive knowledge of both the legal principles and the practical implications of asset identification and allocation within trusts.
The Three Certainties: Pillars of Express Trusts
The validity of an express trust hinges on the fulfillment of the three certainties, a doctrine originating from Knight v Knight (1840) 3 Beav 148. These certainties ensure that the trust reflects the settlor's clear intentions, precisely identifies the trust property, and clearly defines the beneficiaries.
Certainty of Intention
Establishing the settlor's explicit intention to create a trust is essential. Without a clear intent, a trust cannot be enforced.
Key points include:
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Express Language and Conduct: While clear language aids in demonstrating intent, sometimes actions speak louder than words. In Paul v Constance [1977] 1 WLR 527, the court recognized intention through the settlor's behavior, where informal statements and conduct indicated a trust.
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Avoiding Ambiguity: Ambiguous or wishful expressions, known as precatory words, are insufficient. For instance, in Lambe v Eames (1871) LR 6 Ch App 597, the use of vague terms like "in full confidence that she will do what is right" failed to establish a trust.
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Context Matters: The overall circumstances surrounding the declaration are considered. In Milroy v Lord (1862) 4 De GF & J 264, the court emphasized that equity will not perfect an imperfect gift, highlighting the necessity of clear intent.
Certainty of Subject Matter
Identifying the trust property with precision is essential, especially when dealing with parts of a whole or groups of assets.
Important aspects:
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Distinct Identification: The trust property must be distinguishable from the settlor's personal assets. In Re London Wine Co (Shippers) Ltd [1986] PCC 121, the failure to specify which bottles of wine were held on trust led to invalidation. It was akin to trying to find a needle in a haystack without knowing which needle you're looking for.
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Fungible Assets: With assets like cash or shares, specificity is still required, but Hunter v Moss [1994] 1 WLR 452 introduced some flexibility for intangible assets. The court held that a trust over an unidentified portion of identical shares was valid, treating them as indistinct from one another.
Certainty of Objects
The beneficiaries, or objects of the trust, must be identifiable.
Considerations:
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Fixed Trusts: Require a complete list of beneficiaries. The case of IRC v Broadway Cottages Trust [1955] Ch 20 established this necessity. Trustees must be able to draw up a comprehensive list to distribute the trust property accordingly.
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Discretionary Trusts: Allow for beneficiaries to be identified by a conceptual class, as demonstrated in McPhail v Doulton [1971] AC 424. The "any given postulant" test requires that it be possible to say whether any given individual is or is not a member of the class.
Handling Parts of Groups of Assets in Trusts
Dealing with parts of grouped assets within trusts introduces unique challenges. It's like trying to set aside a portion of sand from a beach—you need a clear method to distinguish your portion from the rest.
Tangible vs. Intangible Assets
The approach to certainty of subject matter differs between tangible and intangible assets.
Tangible Assets
For physical items, specific identification is mandatory.
- Example: If a settlor wants to place "50 of my sheep" into a trust, they must specify which sheep, perhaps by tagging them. In Re London Wine Co (Shippers) Ltd, the lack of specific identification of the wine bottles held on trust resulted in an invalid trust because the goods were not segregated.
Intangible Assets
Intangible assets, like shares or units in a fund, may not require specific identification.
- Example: In Hunter v Moss [1994] 1 WLR 452, a trust over "50 of my 950 shares" was held valid without identifying specific shares, because the shares were of the same class and thus indistinguishable. It was as if the settlor promised "50 liters of water from my tank"—since all the water is identical, specifying which liters isn't necessary.
The Hunter v Moss Principle and Its Application
The decision in Hunter v Moss provides some leeway when dealing with intangible, fungible assets.
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Flexibility with Shares: Shares are considered identical units, so specifying which ones are held in trust may not be necessary. This contrasts with tangible assets, where physical differences can exist.
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Limitations: However, this principle isn't universally accepted for all fungible assets and has been subject to debate. Some critics argue that without segregation, the trust lacks certainty of subject matter.
Administrative Considerations
Beyond the three certainties, trusts must also be administratively workable. It's essential that trustees can carry out their duties without facing insurmountable obstacles.
Administrative Workability
A trust must not be so impractical that it's impossible to administer.
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Example: A trust for "all the residents of London" would be unworkable due to the immense number of potential beneficiaries. Trustees would struggle to identify and distribute assets appropriately.
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Case Law: In R v District Auditor ex parte West Yorkshire Metropolitan County Council [1986] RVR 24, a trust for the benefit of "any or all or some of the inhabitants of the County of West Yorkshire" failed because the class was too large, rendering the trust administratively unworkable.
Avoiding Capriciousness
Trusts must have a rational purpose.
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Capricious Trusts: Those with arbitrary or whimsical objectives may be deemed invalid. The law seeks to prevent trusts that serve no meaningful purpose or are impossible to enforce.
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Example: A trust to benefit "friends of my friend" might be considered capricious due to its vague and potentially enormous beneficiary class.
Practical Applications: Case Study
The Art Collection Trust
Consider a philanthropist, Ms. Thompson, who wishes to establish a trust consisting of "half of my art collection" for the benefit of local art museums.
This scenario raises several issues:
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Certainty of Intention: Ms. Thompson's clear desire to create a trust is evident from her explicit declaration.
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Certainty of Subject Matter: Stating "half of my art collection" is ambiguous. Which pieces are included? Without specifying, it's like offering someone "half of the chocolates" without indicating which ones—they might not know which to take.
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Certainty of Objects: The beneficiaries are "local art museums." This needs clarification—does it include all museums in the city, or only certain ones?
Resolving the Issues:
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Provide a Detailed Inventory: Ms. Thompson could list the specific artworks to be included in the trust, ensuring certainty of subject matter.
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Define "Local Art Museums": She could specify criteria, such as museums within a certain geographic radius or those with a particular focus.
By addressing these points, Ms. Thompson can establish a valid trust that fulfills the three certainties and is administratively workable.
Recent Developments and Case Law
The field of trust law continues to change, with recent cases impacting how the principles are applied.
Lehman Brothers International (Europe) (In Administration) [2012] EWHC 2997 (Ch)
- Extension of Hunter v Moss: This case extended the principles to client funds, acknowledging that certain intangible assets could be treated flexibly regarding certainty of subject matter. It recognized that in modern financial contexts, strict segregation isn't always practical.
Akers v Samba Financial Group [2017] UKSC 6
- Cross-border Considerations: This case highlighted the complexities when trust property is subject to foreign laws. The Supreme Court examined whether English trust principles applied to shares registered in another jurisdiction, emphasizing the importance of certainty in international contexts.
Conclusion
The challenges of establishing express trusts involving parts of groups of assets demand meticulous attention to the three certainties, particularly the certainty of subject matter. The careful interplay between legal principles and practical asset management is evident in cases like Hunter v Moss and Re London Wine Co (Shippers) Ltd. Practitioners must ensure that the trust property is clearly identified, especially when dealing with fungible or intangible assets. Applying the doctrines derived from key cases, trustees and settlors can address these challenges by providing precise descriptions and employing clear criteria for both assets and beneficiaries. Moreover, staying abreast of recent developments, such as those in Akers v Samba Financial Group, is essential for understanding how international considerations may impact the validity of a trust. Ultimately, the creation of a valid express trust over parts of grouped assets relies on a thorough application of these principles, ensuring that the trust is both legally sound and practically enforceable.
