trust 2009 ZAQ1 answer | Assignments Law

2009 ZAQ1

This question requires a discussion on elements of declaration of trust and how strict it is

applied in courts today. Lord Langsdale in Knight v Knight has laid down the three

certainties test to determine whether it is a valid trust. These elements help to ensure that an

individual is not made trustee if a gift was intended. These rules exist since a trust creates

legal obligations enforceable by the courts, although a court will not uphold a trust if the

obligations under the trust are unclear. These are certainty of intention,certainty of subject

matter and certainty of object matter.

Certainty of intention

Certainty of intention has to be distinguished from the other two rules as it deals with the

initial stage of declaration of trust which is whether the settler really meant to create a trust at

all whereas the other two rules have past that point. Certainty of intention to create a trust is

important or else it would be deemed to be a gift or a power.

The maxim ‘equity looks to intent,not form’ completely relates to declaration of a trust . It is

important to determine whether settlor has the intention to create trust because if intention is

valid. In the case of Jones v Lock the father wrote a cheque for his young infant then told his

solicitor that he will make a corresponding entry onto his will. However the father died

before he could do so. Here,if the father had an intention to create a trust, the sum will be

held for the infant. On behalf of the infant, it was argued that the father had declared himself

a trustee of the cheque, so that there was a trust created in favour of the infant when the father

was alive. The court rejected this argument. Lord Cranworth LC said ‘I should have every

inclination to sustain this gift, but unfortunately I am unable to do so; the case turns on the

very short question whether Jones intended to make a declaration that he held the [right] in

trust for the child; and I cannot come to any other conclusion than that he did not.’ Thus the

court ruled that ‘loose conversations’ cannot amount to intention to create a trust.

In Paul v Constance on the other hand, MrConstance deposited his accident claims into an

account after the bank requested that the account should be in Constance’s name alone as he

is not married to his new partner. After they won a bingo match Mr Paul told his partner, Mrs

Paul that ‘ this money is as much yours as mine’. After he died his wife sought to claim the

account as part of his estate. Here the issue was whether there was sufficient certainty of

intention for Mrs Paul? The courts held that it was sufficient to amount to a valid trust. Also,

the fact that the couple was treating that money as joint was considered by the courts.

Comparing Jones and Paul v Constance, in Paul v Constance a trust was simply created using

the words ‘the money is as much as yours as mine’ because the courts could find intention

inferred from these words. However, looking at the words in question, both Jones and Paul v

Constance are not far apart and Jones decision is also closer to Lord Langsdale

interpretation.

In Lambe v Earnes , the testator gave all 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. The courts

held that precatory words in a gift and did not mean that the doner intended the donee to hold

the property for trust . These are enforced as trust ,gifts accompanied by precatory words .

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2009 ZAQ

This question requires a discussion on elements of declaration of trust and how strict it is applied in courts today. Lord Langsdale in Knight v Knight has laid down the three certainties test to determine whether it is a valid trust. These elements help to ensure that an individual is not made trustee if a gift was intended. These rules exist since a trust creates legal obligations enforceable by the courts, although a court will not uphold a trust if the obligations under the trust are unclear. These are certainty of intention,certainty of subject matter and certainty of object matter. Certainty of intention Certainty of intention has to be distinguished from the other two rules as it deals with the initial stage of declaration of trust which is whether the settler really meant to create a trust at all whereas the other two rules have past that point. Certainty of intention to create a trust is important or else it would be deemed to be a gift or a power. The maxim ‘equity looks to intent,not form’ completely relates to declaration of a trust. It is important to determine whether settlor has the intention to create trust because if intention is valid. In the case of Jones v Lock the father wrote a cheque for his young infant then told his solicitor that he will make a corresponding entry onto his will. However the father died before he could do so. Here,if the father had an intention to create a trust, the sum will be held for the infant. On behalf of the infant, it was argued that the father had declared himself a trustee of the cheque, so that there was a trust created in favour of the infant when the father was alive. The court rejected this argument. Lord Cranworth LC said ‘ I should have every inclination to sustain this gift, but unfortunately I am unable to do so; the case turns on the very short question whether Jones intended to make a declaration that he held the [right] in trust for the child; and I cannot come to any other conclusion than that he did not.’ Thus the court ruled that ‘loose conversations’ cannot amount to intention to create a trust. In Paul v Constance on the other hand, MrConstance deposited his accident claims into an account after the bank requested that the account should be in Constance’s name alone as he is not married to his new partner. After they won a bingo match Mr Paul told his partner, Mrs Paul that ‘ this money is as much yours as mine’. After he died his wife sought to claim the account as part of his estate. Here the issue was whether there was sufficient certainty of intention for Mrs Paul? The courts held that it was sufficient to amount to a valid trust. Also, the fact that the couple was treating that money as joint was considered by the courts. Comparing Jones and Paul v Constance, in Paul v Constance a trust was simply created using the words ‘the money is as much as yours as mine’ because the courts could find intention inferred from these words. However, looking at the words in question, both Jones and Paul v Constance are not far apart and Jones decision is also closer to Lord Langsdale interpretation. In Lambe v Earnes , the testator gave all 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. The courts held that precatory words in a gift and did not mean that the doner intended the donee to hold the property for trust. These are enforced as trust ,gifts accompanied by precatory words.

However this does not automatically mean that a trust can never be created where precatory words are employed. On the contrary, the courts are willing to give effect to a trust where intention can be found when looking at the precatory words as a whole. For example, Lindley LJ in Re Hamilton said that the courts must look at all the words used by the testator or settlor to see if, on their true construction in the context of the particular transfer, a trust was intended by the settlor. In other words, cases have to be looked at individually and even though the courts used to give effect to cases that has particular words that gave effect to the trust, now, it is clear that courts are willing to expand their interpretation and that there is no fixed rule as to whether words can amount to a gift or trust. Next, in Choithram v Pagarani ,Mr Pagarani wished to transfer some of his properties and wished to set up a foundation to execute this. The issue was that no such body was ever created. Alternatively, his legal advisers drew up the documentation for a trust that his ‘foundation’ (trust) was to have seven directors (trustees), including himself. Mr Pagarani had then executed a deed by which he purported to create the ‘foundation’ (trust) and appointed himself a ‘director’ (trustee). Some of the other directors had also signed the document. He had orally stated that he gave the whole of his estate to his foundation but failed to transfer his assets before he died. The issue was that was there an inter vivos trust created? If the answer is no then his fortune would go to his widow under his will. The Privy Council held that eventhough the words used were of outright gift, the words meant a gift to the trustees of the foundation. If it is a valid trust, one of the several trustees has the rights under the trust to transfer the trust rights into all the trustees although Mr Pagarani failed to do so because he cannot resile from his declaration of gift since he is a trustee himself. Lord Browne Wilkinson said that there are two ways in which gift can take place which is a gift and an express trust. He said that this case fell between the twoand in this case, the words said by him took effect as words of trust. Thus, there was valid declaration of trust. Here it is evident that the courts eventhough not creating an exception to the rule that equity will not perfect and imperfect gift, however they are still willing to

generously find a self declaration of trust when theres a novel situation.

Certainty of subject matter Certainty of subject matter refers to the property that must be available for trust to attach. The motive of this element is to ensure that trustees and court can identify the subject matter of the disposition. The two difficulties when deciding subject matter is that where the disposition is of many and where there is a choice to be made. In some circumstances, personal rights can also be the subject matter of trust. Courts are willing to find a trust for an unidentified selection of assets when there is slightest bit of intention. In the case of Re London Wine Co, a company that dealt in wines went into receivership. Customers had purchased the wine but left the company to hold possession of the wine bottles to store it and assumed they can get back ‘their’ wine but that was not a part of the insolvent company’s assets. The customers were not the legal owners of the wine. The company did not allocate any particular cases of wine to any particular customers and failed to ensure that it had on hand sufficient quantities for all customers. The wines were only

number, everyone would have an indefinite and large number of distant relative and if they were to be included as well, then it would be a too large of a number to track down.. However, the court held that there was no i conceptual uncertainty in the words’relatives’ as the three judges gave their different views as to why the trust was valid. Stamp LJ held that the trust was valid because a relative can be restricted to the definition of the next of kin for practical purposes. Sachs LJ on the other hand stated, “The court is never defeated by evidential uncertainty… Once the class of persons to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it: if it is not so proved, then he is not in it.” Thus, although Sachs LJ would not allow evidential uncertainty to defeat the trust, he does rely upon the existence of evidence to define the boundaries of the class. Lastly, Megaw LJ stated ,“…the test is satisfied if, as regards at least a substantial number of objects, it can be said with certainty that they fall within the trust; even though, as regards a substantial number of other persons, if they ever for some fanciful reason fell to be considered, the answer would have to be, not ‘they are outside the trust’, but ‘it is not proven whether they are in or out’.” The court also said where there is a wide class of beneficiaries, trustees cannot just wait for postulants to come forward but instead trustees must make a survey of the class to get a feel for who is potentially in class when exercising their discretion. As such, it also seen that the courts are not being too strict when the class of object matter is large if they can find intention for a valid trust. In conclusion, the three certainties rule have been expanded by the courts to give effect to a trust when sufficient intention can be found. As such, the courts are not as strict as they used to be based on al the cases discussed above.

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2009 ZAQ

generously find a self declaration of trust when theres a novel situation.