Looking in principle why the individual certainty

Looking into the flexibility of the test for
discretionary trusts after the decision in McPhail v Doulton1,
some elements of certainty of objects are yet to be concluded. One of the apparent
issues regards if the individual certainty test should be used for both the
fixed and the discretionary trusts. It is yet to be agreed that there is no
reason in principle why the individual certainty test cannot be applied under
fixed trusts. This is in recognition of the fact that the court can make an
order for distribution under a discretionary trust, and this may lead to the
conclusion that an order can also be made for a fixed trust where one or more
of the objects cannot be verified. Nevertheless, apart from the obvious view
that the ‘individual ascertainability test’ is not applicable to fixed trusts,
it is equally considered that the approach is more theoretical than practical.
Further, the possibility of a case regarding a trust for objects that are not
ascertainable also involves a provision for sharing amongst them in specific
shares is remote.

Further, courts have established that for property to
be allocated according to the wishes of the testator, equity recognises both a
power of appointment and that of a trust. Those donating the power will hand
out the property through making appointments to the powers of the objects.
However, a donee is not obligated to exercise their power, and they have
absolute discretion to distribute the property. By contrast, a trustee is under
an obligation to distribute the property to the objects of the trust, and they
can enforce that obligation should the trustee fail to do so2. The words used in a trust
agreement are crucial since they determine if it is a trust or a power that is
created. Further, the words used also determine if the created trust results to
the objects of the trust being adequately certain; accordingly, where it is
established that the objects are uncertain, the trust considered void3. In McPhail v Doulton, the certainty of objects test was considered to
be extensive than it is for certainty of objects test in a trust. Thus, under a
trust the certainty of objects can be considered to be valid under the former rather
than under the later. However, in McPhail
v Doulton4
the Court amended the test for certainty of objects under a trust such that
they could not be nullified.

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In the case Knight
v. Knight5
it was famously ruled that for a private express trust to be considered valid,
it must clearly show or prove a presence of the “three certainties.’ These
include certainty of intention, the certainty of subject matter, and certainty
of objects. It is only under such circumstances that the court can
consider the trust to be binding in equity, and as a result, enforce the terms
therein so that the beneficiary can be rewarded. The regulations for the first
two certainties are very simple- that the certainty of intention should be
present, which in essence defines that the settling party must clearly
demonstrate that he/she intended (rather than anticipated or expected) that the
property in trust would be used in a specific manner. Secondly, certainty of
subject matter must be demonstrated, where in this case, the court can spot the
precise property that is to be the trust’s subject6. Regarding the third test,
for the certainty of objects, there are notable complexities, and as such
resulting in many legal battles and debate among law scholars. At its core of
the matter is the suggestion that a court should be able to establish single
person(s) who will be deemed to be the trust’s beneficiary or beneficiaries.
This is evidently important because the primary role of a trust is to award a
benefit on specified person(s)7. Nonetheless, some
people argue that the complexity is uncertain and vague, or has large categories
of beneficiaries. As such, it can be argued that regardless of this position by
the court, the separate tests set out by the courts to identify certainty of
objects in both discretionary and fixed trusts has functioned well in recent
decades, promoting fair and equitable outcomes where possible.

Issues of certainty of objects are real in both fixed
or a discretionary trust contexts. However, they differ, and this variance is
very crucial. Specifically, fixed trusts are formed for the purpose of
benefiting a specific person or classes of individuals whereby each is
entitled, in equity, to a fixed share. On the other hand, a discretionary trust
can be equalized to the gift of the trustees where they distribute the property
trust among a specific class of beneficiaries, or even at times they have
authority to decide on the membership of a class of possible beneficiaries.
Regarding the fixed trusts, a court must be able to declare with certainty the
specific beneficiaries and trustees. In reality, under a fixed trust, a
strict test is mandatory for the purpose of identifying each basic member of a
class.

Certainly, the Court of Appeal in IRC v. Broadway Cottages8affirmed
that in fixed trusts, lingual and evidential certainty about the beneficiaries
is both crucial. To this effect, it can be stated that the court uses the
“complete list” test to meet the threshold of identifying the full list of the
beneficiaries. In Re Wynn9
the ruling judge denied the enforcement of an arrangement claiming to allow the
trustees the authority to deny any benefits might be raised by the
beneficiaries in a dispute between the two classes. Nonetheless, this strict
approach contrasts other cases including Re
Tuck10,
where the court accepted that a third party could give guidance for an
expression that seemed, at face value, to lack conceptual certainty.

The “complete list” test’s flexibility has proved to
be very rational because it permits the court to make every effort to put in
force the trust. Furthermore, it vitiates a trust if the accurate position of
some of the likely members of a class is unknown, as long as there is a chance
to arrive at a full list of beneficiaries in an abstract sense. Besides,
the Benjamin Order has the power to
allow trustees to give the trust property to the identified beneficiaries
before other additional or absent beneficiaries can be identified. However,
this is conditional in that the former will be willing to reimburse the latter parri passu their shares upon demand.
The other alternative is to publish an advertisement in the London Gazette to
allow beneficiaries who would be unknown a notice of their entitlement. In
fact, the mentioned structure for fixed trusts has functioned well since IRC v Broadway Cottages11
and, this can be attested through the outcome in Re Tuck12.

The primary position under discretionary trusts was
that courts would rely on the approach in IRC
v Broadway Cottages13;
that is, depend on the ‘complete list’ test. Nonetheless, the ruling for McPhail v Dalton14
saw Lord Wilberforce restructure this approach. Noting that it was impossible
in this case to identify the complete list of all the members of the class, the
judge stated that the trust would have failed if the original test structure
was applied. Thus, he held that the operative issue under such circumstances
was on whether a court could declare with certainty that a specific person was
a member of a class. Since the facts proved the issue, the court enforced the
arrangement. In this case, it can be observed that the point was about
conceptual and not about evidential uncertainty. Accordingly, in the
recent past, the ruling in McPhail v
Dalton15has
operated effectively, and has given the court a degree of flexibility although
still vitiating systems that are genuinely conceptually vague. 

The ‘workability’ introduced by Lord Wilberforce has
been polished further with time with the intention to create a more consistent and
reasoned set of rules to be used by equity courts. For instance, in Re Hay’s Settlement Trust16,
it was ruled that it is possible to rule that an intermediate trust would be
administratively ineffective because the obligations of the trustee in a discretionary
trust since they are highly strict than for the authority to appoint. The
justification is that trustees are mandated to distribute trust property, and
for this reason, they would be required to carry out an extensive and highly
systematic survey than those holding appointment powers. To this end, it can be
stated that the only sensible logic in the ruling was that the duty to conduct
such surveys would ultimately cause to the collapse of the trust fund because
of the costs, therefore, defeating the object for which it was initially
intended.

As stated above in Re Hay’s Settlement Trust17,
it was ruled that it is possible to rule that an intermediate trust would be
administratively ineffective because the obligations of the trustee in a
discretionary trust because they are highly strict than for the authority to
appoint. Further, the pronouncement by the House of Lords in McPhail v. Doulton18is
that the validity test of trust powers is “that the trust is legal where
with certainty it can be said that any given person is either or not a member
of a class.” This changed the earlier held position set out in I.R.C. v. BroadwayCottages19
by the court of Appeal that “a trust for such members of a specified class
objects as the trustees are required to choose is invalid for uncertainty,
except if the whole range of objects qualified for selection is determined or
it has a possibility for ascertainment.” Similarly, the House of Lords was not
highly innovative in relation to maintaining the test proposed in Re Gulbenkian’s Settlement20regarding
“powers collateral.”

Accordingly, it can be argued that the rulings in the
cases Re Gulbenkian’s settlements21
and McPhail v Doultor22
have significantly helped in establishing the degree of certainty required to
define the objects or beneficiaries of a power of appointment. To this end, the
problem that a discretionary trust yield is that no person who is considered to
be an object can claim a definite award or any interest can be claimed until
and unless the discretion of the trustee is performed in their favour23. Nonetheless, the power of
such trustees is not so final because the courts have the power to restrict
them from acting against the terms of the trust system.  In the event of an unpredictable rejection,
to distribute to all will attract the court’s intervention for purposes of distribution
either through the selection of new trustees or through invoking the power
therein. A perfect example of this may be found in Re Murphy’s Settlements24
which ruled against a settlor demanding that all trustees be identified such
that a potential beneficiary may be allowed to assert their rights. While
recognising that a trustee obligated to distribute the whole of the fund ought
to make “an exhaustive and extensive systematic survey” of the objects, it was
warned that the cost therein might put the trust in danger. Regardless, in Re
Gulbenkian’s Settlements25His
Lordship Upjohn defended the pre-existing orthodoxy.

The general practice (but not necessarily) is that
discretionary powers should be held by the trustees and as for this reason,
they can be considered to “fiduciary powers.” To this end, powers that exist in
discretionary trusts can be classified depending on the collection of objects
of the power. For instance, under a general power, it can be exercised to the
benefit of anyone (even the individual holding the power)26. For special power, it
can only be favour specified persons or a defined class. Hybrid or intermediate
powers can be exercised to benefit anyone but not specified persons or classes
of persons. It is also noted that powers can equally be categorised according
to whether the person holding them has a duty to use them; where such
obligation is not present, the power is called “mere power”27. Accordingly, the trust
fund will be held in trust for the entitled persons in default of the power bestowed
to the beneficiaries. Such persons can be clearly established through the
instruments of the trust. On the other hand, where the holder of a power also
has the duty to use it, the resulting type of power is called the “trust
power.” Therefore, it can be stated that a general power is obviously valid
although it looks like a trust can fail if the class of objects’ definition for
a special power can be considered to be administratively unworkable.

Thus, if the power of appointment is held by a person
in a fiduciary capacity, the person holding it is considered to have a
fiduciary duty to give proper thoughtfulness when exercising the powers. Often,
this is expressed through the statement that an exercise of fiduciary’s
discretionary power is subject to interventions by the courts if it is not
executed correctly. Nonetheless, this power can mislead at times because it is
factual that an execution of a fiduciary power can be impugned in situations
where there is no premeditated wrongdoing28. As such, it can be said
that the test of certainty of objects
can be the same for discretionary trusts and powers of appointment.

From the above discussion, it is seen that the ruling
in McPhail v Doulton29 supported
that the test for a mere power is more effective for discretionary trusts,
unlike the previous strict test which even today is applicable for fixed
trusts. Thus, with the facts showing that beneficiaries were the employees and
ex-employees of the organisation or any dependants of any such persons, the main
challenge of certainty was with the terms expression dependant. To this end,
the test of IRC v Broadway Cottages30
if it were to be used, then the whole list of beneficiaries may not need to be
identified. Conversely, if the test is
applicable to powers used it can be seen that they would only be necessary to
say for certain if or if not any specified individual was within the class of
beneficiaries.

In consideration of the proposition that equity is
equality and for this reason the court should be allowed to reward in equal
fractions, Lord Wilberforce observed that it was not the accurate position. Implementation
is not possible unless an equal division is attainable. Further, the
justification offered by the judge was that maintaining that a principle of
equal division is applicable on equality applies to trusts is definitely
paradoxical. Equal sharing is certainly the last resort that the settlor always
intended31.
 

Lord Wilberforce also cited that the court had
implemented discretionary trusts by searching for effectiveness to the supposed
intention of the settlor instead of through equal division. Subsequent cases
established that the general approach was to compel that equity be enforced.
Regardless, Lord Wilberforce was of the opinion that the principle of equal
sharing failed to ‘rest on any principle innate in the trusts nature.” Thus, it
can be said that he was in support of the strict rule and it must not be done
away with and that the ‘is or is not’ test must be adopted as an alternative.
For the purpose of clearing, if any specific person ‘is or is not’ a member of
the class of beneficiaries, the denotation of the used word or words to
establish the class must be adequately clear to pressure the trustees to make
the decision; this refers to the principle of conceptual certainty. Therefore,
it may be considered that discretionary trusts should be conceptually certain,
although there is less stress on evidential certainty than is the case with
fixed trusts as not all members of the class should be clearly identified.
Certainty of objects test was deemed extensive than is the case for a certainty
of objects test in a trust. Thus, under a trust, the certainty of objects can
be considered to be valid under the former rather than under the later.
However, in the case McPhail v Doulton,
the Court amended the test for certainty of objects under a trust such that
they could not be nullified. More so, if the power of appointment is held by a
person in a fiduciary capacity, the person holding it is considered to have a
fiduciary duty to give proper thoughtfulness when exercising the powers. Often,
this is expressed through the statement that an exercise of fiduciary’s
discretionary power is subject to interventions by the courts if it is not
properly executed. Nonetheless, this power can mislead at times because it is factual
that an execution of a fiduciary power can be impugned in situations where
there is no premeditated wrongdoing.

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