three certainties

11/04/23 LAW OF TRUST (DR.ZURAIDAH ALI) 1

CREATION OF TRUST : THREE CERTAINTIES


LEARNING OUTCOME

Students will be able to appreciate and analyse methods of

creating a valid trust. understand the concept of three

certainties and how it is different from one another.

apply any of the tests to determine the class of beneficiaries.

differentiate between fixed trust and discretionary trust


Private Express Trust: Meaning

An express declaration by the person who want to create trust

during is lifetime

Trust Will Other form Deed -writing -verbal


Charitable Trust

Private Family Trust

Bare Trust

Fixed Interest Trust

Discretionary Trust

Protective Trust

Secret @ Floating Trust Trading Trust

Unit & Investment Trust

Assets in Unincorporated Associations

TYPES OF EXPRESS TRUST


THREE CERTAINTIES

INTENTIONSUBJECT MATTER OBJECT

IMPERATIVE

PRECATORY

TRUST PROPERTY

BENEFICIALINTEREST

FIXED TRUST

DISCRETIONARY

TRUST

Conceptual Uncertainties

Evidential Difficulaties


3 points that must be certain before an express private trust must be created

1) Certainty of intention 2) Certainty of subject matter 3) Certainty of objects


KNIGHT V KNIGHT (1840) 3 Beav 148

“As a general rule, it has been laid down that when property is given absolutely to command, recommended or entreated or wished, to dispose of that property in favour of another, the recommendation entreaty, or wish shall be held to created a trust. First, if the words are so used, that upon the whole they ought to be construed as imperative.


Secondly, if the subject of the recommendation or wish be certain and thirdly, if the objects or persons intended to have the benefit of the recommendations or wish be also certain.


Certainty of Intention

Certainty of intention on part of

the settlor/testator to create trust


No particular words are essential Imperative words

Equity looks to the substance rather than form

Trust may be created without using the word ‘trust’.

It all depends on the construction of the language used.


IMPERATIVES

Clear technical language = one party’s interest is safeguarded as much as possible.

Words must be imperative in nature in order to construe the essentials to create trust.

Eg: 1) : I direct my trustee…/ I instruct my trustee./ in full confidence that/ fully trusting that/ in firm expectation that/ it is my heartfelt desire that….


Precatory words

An expression of hope or desire is not sufficient.

Examples: “It is my sincere wish’, ‘ it is my hope…’

There is a need to see and examine the construction of trust as a whole.

To show intention on part of settlor/testator.


RE HAMILTON (1895) 2 Ch 270 (Lindley L.J)

“You must take the will which you have to construe and see what it means and if you come to the conclusion that no trust was intended you say so, although previous judge have said to the contrary on some wills more or less similar to the one you have construe.”


Lambes v Eames (1871) LR 6 Ch. 597

Ttor gave his estate to his widow ‘to be at her disposal in any way she may think best, for the benefit of herself and her family.”

By will she gave part of the estate to outsider

Ct: She had been absolutely entitled to the property and the gift was valid.


Re Adams and The Kensington Vestry (1884) 27 CH.D 395

Ttor gave his real and personal estate to his wife ‘absolutely in full confidence that she will do what is right as to the disposal thereof between my children, either in her life time or by will after her death.”

Ct: No trust. The world absolutely indicated that the property was left to the wife alone.


Comiskey v Bowring Hanbury (1905) AC 84

Ttor left his property to his wife; ‘in full confidence that she will make such use of it as I would myself and at my death she will devise it to such one or more of the nieces as she may think fit.”

Held : There was a gift to the wife and with trust in favour of the nieces after her death,


Peculiar situation : If the intention to create a trust is clear it will be upheld although the word trust is not expressly used.


PAUL V CONSTANCE (1977) 1 WLR 527

Mrs Paul lived with Mr Constance as his wife, He opened an account and told Mrs Paul ; ‘ The money is as much as yours as mine. It was repeated in a nbr of situations.

Held : Effective declaration of trust in favour of the plaintiff (Mrs Paul)


RE KAYFORD (1975) 1 WLR 279 De Fonseka v De Fonseka & Ors

[1971] 2 MLJ 155 Ct : Ct would give effect to the

intention of the author of the trust as expressed in the trust instrument.


HAMEEDA BEE V MRS P SEENIVASAGAM [1950] 1 MLJ267

- Held : Clear and unequivocal language must be used to establish a trust


KISHABAI V JAIKISHAN[1981] 2 MLJ 289

- no particular form of expression is necessary for the creation of a trust,

if on the whole it can be gathered that a trust was intended;


CERTAINTY OF SUBJECT MATTER

Certainty of subject matter falls under two heads;

A) trust property – B) beneficial interest –


EXAMPLES OF SUBJECT MATTER

A bungalow at Kota Damansara a bungalow in 5 acres of land: Mohan’s holiday get

away staying. a shop lot at Damansara Height

an apartment at Ampang Villa 20 acres of agricultural land at Ulu Yam

cash $1000 million at RHB Bank Jalan Ipoh Shares in Angkok Ware Composites (M) Sdn. Bhd.

worth $ 50million Jewelleries worth $ 100 million.

Trust property& Beneficial Interest


PALMER V SIMMONDS (1854) 2 DREW 221

A ttrix by her will gave her residuary to Thomas Harrison “for his own use and benefit as I have full confidence in him, that if he should die without lawful issue he will leave the bulk of my said residuary estate unto B,C, D and E.(certain named persons)”

Whether the subject matter of trust was sufficiently certain


Kindersley V.C : No trust as there was uncertainty of subject matter of trust

“What is the meaning of the bulk. The appropriate meaning according to its derivation is something which bulges out. It is a popular meaning. When a person is said to have given the bulk of his property, what is meant is not the whole but the greater part and that is in fact consistent with its classical meaning….”


RE GOLAY’S WILL TRUST (1965) 1 WLR 969

The testator directed his executor ‘ to let Tossy to enjoy one of my flats during her lifetime and to a reasonable income form my other property.”

Whether the gift of income was void for uncertainty?

Held : VALID


Ct: Reasonable income; there will be the yardstick in which the Court could and would apply in quantifying amount.

Abrahams v Trustee in bankruptcy of Abrahams [1999] BPIR 637

Swift v Dairywise Fans Ltd [2000] 1 All ER 320



Labuan Offshore Trust Act 1997

Section 7(1) A trust is an offshore where-

(b) the trust property does not include any immovable property in Malaysia unless allowed by relevant authorities


Effect of lack of certainty of subject matter

If a settlor failed to specify the trust property at all – there will be no trust.

If the settlor failed to specify the beneficial shares @ there will be resulting trust for the settlor’s estate.

A (settlor) ----B (trustee) -------C(bene)

resulting trust


Certainty of Object

Object of the trust : Human Wife / girlfriend/ mistress Children : Mother &Father,

brother /sister Best Friends Nephew & nieces


Certainty of Object

The Rules : Trust must be for human beneficiaries. Ascertainable beneficiaries is a must for a

trust other than a charitable trust. Lack of certainty of objects : Trust will be

void. the beneficiaries must be identifiable :

they can be given their appropriate shares of their for his beneficial interest.


Labuan Offshore Trust Act 1997 Section 7(1): A trust is an offshore trust

where- (c)all beneficiaries are qualified persons Section 8(1) :An offshore trust is created by

a will or other instrument in writing including a unilateral declaration of trust….

(2) A unilateral declaration of trust is a declaration in writing by a trust company stating-

(d) the names or information enabling the identification of all beneficiaries.


Re Endacott [1960] Ch 232;

Evershed MR : “No principle has greater sanction

or authority behind it than the general proposition that a trust by English Law, not being charitable trust, must be ascertained or ascertainable beneficiaries.”


The test

Depends upon the nature of trust. Need to differentiate between: A fixed trust and discretionary

trust. Trustees are given discretion: to

carry out of the trust.


A Fixed trust

A trust where the trust instrument specifies the share which each beneficiary is to take

The beneficial interest of potential beneficiaries are fixed.

Trustee(s) must identify each and every object.


Beneficiaries is equitable owner of his interest.

The test : the list principle. Need to know each and every

beneficiaries. Eg: ‘a trust of RM 1,000 to the

members of my family in equal share : a fixed trust requiring the trustees to determine all beneficiaries


What is Discretionary Trust It is an express Private Trust. A flexible type of trust- an attractive vehicle

for family money. Trustee has some form of power or

discretion. May involved a wide variety of discretion.

And deals with all situations: eg : power of appointments, the power to choose

Trustee has a choice and discretions to exercise to determine the class of object


To -lack prudence in dealing with money

The trustees can pay out income or capital to any one or more of the beneficiaries entirely at their own discretion.


Role of the Discretionary Trust

a) Protect trust property A useful device for a settlor who wishes to

protect family property against spendthrift.

Prevent and to safeguard the trust fund from dissipation by the beneficiaries- who are financially inexperienced

b) Adaptability to changing circumstances- family, fiscal & economic

- It lies in its flexibility.


Allows/enables trustees to provide such sums as the future circumstances of the beneficiaries require

3) The trustees own the trust's property on behalf of the beneficiaries.

- The trustees are given discretion as to who shall receive income and / or capital from the trust, and in some cases, what amounts, if any, they shall.

- The beneficiaries need not all even be born at the time the trust is created


4) Beneficiary-is not the equitable owner of the interest

- The beneficial interest is in suspense until the trustees exercise the discretion Trustees decide both who shall benefit and what the benefit shall be

Beneficiary cannot claim any right over the interest unlike


Trustee & the test

Need to determine the object with certainty.

Failure – Breach of trust Two tests: a) Criterion certainty testb) in and out test Trustee need to determine

whether a person is or is not within the description of relevant class


Mc Phail v. Doulton (1970) 2 All ER 228.- HOL

Settlor executed a deed for a fund to be held upon trust : in favour of the staff of Matthew Hall Co Ltd and their relatives and dependants.

Whether this is a trust or power? Void for uncertainty? If not what is the test


- Under clause 9(a) it is stated : The trustee shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees of the company or to any relatives or dependants of any persons in such amounts at such times and or such conditions as they think fit.


Judgment

Ct of 1st instance: It was power and not a trust. COA : It was power and not a trust. HOL : The deed created the trust and not

power. Trustee should not approach their duty in a

narrow way. Instead they ought to make a survey of the range of objects or possible beneficiaries as will enable them to carry out their fiduciary duty.


Re Baden Deed Trust (No 2) [1973.] Ch 9.

COA had to apply the test by the HOL in deciding and consider in particular whether the words ‘dependents’ and ‘relatives’ were too uncertain.

The test : Can it be said with certainty that any given individual is or is not a member of the class. (HOL test – applied by the Chancery & COA later)


Sachs LJ stated that in applying the test it is essential to bear in mind the difference between conceptual uncertainty and evidential difficulties


Three kinds of uncertainty

1) Semantic, conceptual or linguistic uncertainty

2) Evidential uncertainty3) Administrative uncertainty


Conceptual Uncertainty It is also known as administrative

uncertain/ semantic, linguistic uncertain Problem in the vagueness of language used

by the testator to express his intention. It will be administratively unworkable. Eg:

‘someone under a moral obligation My shorter employee. For my old friends and business associate For my fans For my friends who are good citizens.


Effect : Express trust fails. It will be held on resulting trust


Halsbury’s Law of Malaysia.

“If a trust accords trustees discretion to elect among a class of beneficiaries, it no longer fails if a list of every member of the class cannot be drawn up, it suffices if it is possible to predicate of any proposed beneficiary that he is or is not a member of that class. If there remain a number of persons who cannot be proved to be inside or outside the class, for example old friends of the testator, then the trust fails


Cases

Re Barlow’s Will Trust


Evidential Difficulties/ Uncertainty

Language used is precise. Trustee will have to find evidence

to carry out the settlor’s instruction.

It does not invalidate a discretionary trust.

The court is never defeated by evidential uncertainty


Judgment

a) Stamps LJ : ‘Relatives” meant next of kin or nearest blood relation.

b) Megaw LJ : ‘Relatives’ meant dependants from a common ancestor although giving rise to evidential uncertainty.

c) Sachs LJ : opts for wider meaning of the former and thought that the trustee ought not to pay an individual who failed to prove that he was a relative.


Administrative uncertainty Lord Wilberforce in Mc Phail v Doulton; “There may be a third case where the

meaning of the words used is clear but the definition is so hopelessly wide as not to form “anything like a class” so that the trust is administratively unworkable or .. one that cannot be executed. I hesitate to give examples for they may prejudice future cases but perhaps “all residents of Greater London will serve. I do not think that a discretionary trust for “relatives” even of a living person falls within this category.”


ESTATE & TRUST AGENCIES (1927) LTD V TUNGKU MERIAM BINTE ALMARHOUM SULTAN AHMAD OF PEKAN & ANOR[1948 - 1949] SUPP MLJ 82

The last question was whether the word "issue" of Tungku Omar and Tungku Meriam comprise all the descendants of Tungku Omar and Tungku Meriam or whether it is limited to their children.

Held: in this case the word "issue" was intended to include only the children of Tungku Omar and Tungku Meriam.