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Published: Fri, 12 Oct 2018
A history of the Court of Chancery in English law
In England, prior to the introduction of the Judicature Acts of 1873 and 1875, there existed a separate Court of Chancery. Unlike the law Courts, which were based upon pre-defined causes of action, the Chancery Courts, presided over by Lord Chancellors on behalf of the Monarch, provided a more flexible and pragmatic approach to the resolution of disputes. Approaching each case on its own merits, the Court of Chancery provided remedies to deserving parties where the application of the strict letter of the law could not. As Ramjohn (1995) writes: “Individual Lord Chancellors did not consciously set out to develop a system of rules, but attempted in individual cases to achieve fairness and justice ad hoc.”
Because of the varied nature of the cases which came before the Chancery Courts and also because the Lord Chancellors, in the interests of fairness, insisted upon handing down reasoned decisions; over time, from the exclusive jurisdiction of the Chancery division emerged a set of guiding maxims and equitable mechanisms. While no Court of Equity was obliged to follow the decisions of previous Courts, in practice, they often did so. Thus, the Chancery Courts developed their own jurisprudence and, by the 17th Century, ‘Equity’ had become consolidated into a system of precedents, much like that which governs the development of the common law. One of the most important equitable mechanisms invented and refined by the Courts of Chancery was the ‘trust’. It is with this mechanism that this paper is predominantly concerned.
While it is not possible to provide a single definition of ‘a trust’ which encompasses each and every aspect of its possible operation, one of the most commonly cited definitions is that which was provided by Underhill and Hayton (1995): “A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called trust property) either for the benefit of persons who are called beneficiaries or cestui que trust of whom he may himself be one, and any one of whom may enforce the obligation, or for a charitable purpose, which may be enforced at the instance of the Attorney General, or for some other purpose permitted by law though unenforceable.” [emphasis added]
At the heart of the operation of a trust is the separation between legal and equitable title in property. This artificial construct, developed by the Courts of Chancery, allows ownership of property to be divided between those parties entitled to enjoy the benefit of that property, and those parties entitled to retain and control that property. This is model has real practical value. As Ramjohn (1995) writes: “For a variety of reasons it may be prudent to prevent the entire ownership of property (both legal and equitable) being vested and enjoyed by one person. A trust may be set up in order to advance such objective.” For example, a parent may wish to create a trust fund to provide (financially) for her children when they have reached a certain age; by separating the legal and equitable titles in that fund, she can be sure that (a) the fund will not be used for the benefit of any person other than her children; and (b) her children will not be able to control or dispose of that fund until they have attained the age specified in the documents constituting that trust. We will return to examine different uses of the trust mechanism later in this paper when we analyse the various different types of trust that can be constituted under the law of England and Wales.
As well as the separation of legal and equitable title, another key feature of a trust is its obligatory nature. In our example above, the intentions of the parent might fail if the trustees (the title holders of the legal interest in the fund) were able to exercise full discretion in exercising legal ownership over the fund. For example, the trustees might decide to invest the money in a high-risk bond, placing the children’s legacy at risk. With these concerns in mind, a series of rules have developed to impose duties on trustees. For example, where a trust document confers a power of investment upon trustees, those trustees are legally obliged to exercise due diligence in the investment of the trust property.
The party who constitutes a trust is known as ‘the settlor’. In order to constitute a valid trust, a settlor must satisfy the three certainty requirements as handed down in the case of Knight v Knight (1840); namely, certainty of intention, certainty of subject-matter and certainty of object or beneficiaries. Let us examine each of these requirements in turn:
Certainty of intention requires that the intention of the settlor to create a trust, as opposed (for example) to an outright gift, is evidenced. This intention may be evidenced in writing, via parole or by conduct. Of course, it is much easier to ascertain certainty of intention when a trust is created through a written document. It is for this reason that trusts over land are required to be evidenced in writing– historically, land has represented the most valuable type of corporeal asset and so the law developed to protect land owners from fraudulent claims of beneficial ownership.
When trying to ascertain intention, it is not necessary that the word ‘trust’ is used within the constituting document. In fact, the Courts have shown themselves reluctant to assume that a trust has been created even when this word is employed in the trust instrument. Rather, what matters is evidence of a clear intention to separate the legal and equitable titles in the property being disposed of. This point was summarized by the Courts in the case of Re Kayford (1975).
In regard to the second certainty requirement; namely, certainty of subject-matter: In order for a trust to be deemed constituted it is imperative that the property over which that trust is to operate is readily identifiable.
This requirement can sometimes prove problematic. For example, imagine the following testamentary disposition: “All of my most valuable paintings are to be sold, that money to be placed on trust for the benefit of my son when he attains the age of 18.” While it is certain that the testator intended to create a trust, the property which must be sold to provide the subject-matter of that trust is not readily identifiable. In such cases the Courts generally try their best to honour the intentions of the testator, where evidence can be found to prove on the balance of probabilities what the testator meant. However, where there is no evidence to satisfy the Court that the subject-matter of an intended trust can be identified with certainty, then the trust will fail. For example, in the case of Re London Wine (1975), when the Company became insolvent, even though the Court was satisfied that a trust had been created over 50 bottles of wine; because it was not certain which 50 bottles were being held on trust, the Court held that the trust must fail for lack of certainty of subject-matter.
Finally, the third certainty requirement is certainty of object(s). Under this rule, a trust cannot be deemed constituted unless the beneficiaries of the trust are identifiable. Generally, in the context of express trusts, this is unlikely to prove problematic. However, many of the cases reaching the Court on this issue have proved highly complex. For example, in the case of Re Gulbenkian’s Settlement  the Courts were confronted with a trust provision which described the intended beneficiaries as: ‘persons with whom Nubar Gulbenkian may from time to time be employed or residing’. The Court held that, even though it was not possible to draw up an entire list of each and every person who might fall within the class of beneficiaries, because the nature of the trust was a power for the trustees to appoint to whomever they saw fit, such a list was not required—rather, in order for the trust to be deemed valid, it was sufficient to be able to say with certainty whether or not any given individual was or was not a member of the class of possible beneficiaries. While it should be noted that the case of Re Gulbenkian’s Settlement  concerned a mere power to appoint, rather than a trust, per se. It has been settled at law that the same test applies to discretionary trusts.
Of course, if the trust instrument instructed the trustees to share the fund equally between ‘persons with whom Nubar Gulbenkian may from time to time be employed or residing’, then this approach would not have been appropriate and it would have been necessary to construct a list of all intended beneficiaries in order for the trust to be deemed enforceable.
This is the primary distinction between a fixed and a discretionary trust. A fixed trust stipulates that the trustees must distribute the trust fund in fixed proportions to each and every member of a class of beneficiaries. As Ramjohn (1995) writes: “A fixed trust is one where the beneficiaries and their interests are identified by the settler. The trustees have no duty to select the beneficiaries or to quantify their interest. The settler has declared the interests that may be enjoyed by the beneficiaries.”
On the contrary, a discretionary trust allows the trustees discretion in determining which beneficiaries with a class should receive benefit from the trust fund. As Ramjohn (1995) writes: “A discretionary trust is one whereby the trustees are given a duty to exercise their discretion in order to distribute the property in favour of a selected group of persons. The objects, individually considered, do not have an interest in the property but have only a hope (‘spes’) of acquiring an interest in the property, prior to the exercise of the discretion by the trustees.”An example of a discretionary trust is provided by the case of Re Baden’s Deed Trusts (No. 1), McPhail v Doulton . In this case, the trust instrument provided that: “The trustees 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 or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit.”
While the ‘is or is not’ test for certainty of object is appropriate in the case of discretionary trusts, we have argued that, historically, it has not been deemed sufficient for use with fixed trusts.
Rather, the test which is traditionally utilized in cases of fixed trusts is called the ‘list test’. For example, in the case of IRC v Broadway Cottages Trust  the Court was confronted with a fixed trust and held that, in light of the fact that not all of the beneficiaries within the class could be identified; the trust was void for uncertainty. This makes sense—after all, under a fixed trust each beneficiary is entitled to a share of the trust fund and therefore if the beneficiaries cannot all be identified it is impossible to ascertain the proportion of that fund to which they are entitled.
On a final point: It should be noted that some commentators have criticized the use of the ‘is or is not test’, as handed down in the case of McPhail v Doulton  AC 424, for discretionary trusts on the basis that it is not possible for a trustee to exercise his discretion properly if he is unable to identify each and every potential beneficiary. A succinct and, in my opinion, successful counter-argument has been provided by Moffat et al (2005): “A trustee with a duty to distribute, particularly among potentially a very large class, would surely never require the preparation of a complete list of names, which anyhow would tell him little that he needs to know. He would examine the field, by class and category; might indeed make diligent and careful enquiries, depending upon how much money he had to give away and the means at his disposal, as to the composition and needs of particular categories and of individuals within them; decide on certain priorities and proportions, and then select individuals according to their needs or qualifications. If he acts in this manner, can it really be said that he is not carrying out the trust?”
Hayton, D. (1995). Underhill and Hayton: Law relating to Trusts and Trustees. 15th Edition. Butterworths Law, 1995.
Ramjohn, M. (1995). Law of Trusts. Cavendish Publishing, 1995.
Moffat, G., Bean, G., and Dewar, J. (2005). Trusts Law: Text and Materials. Cambridge University Press, 2005.
The Judicature Acts 1873
The Judicature Act 1875
Learoyd v Whiteley (1887) 12 AC 727
Knight v Knight (1840) 3 Beav 148
The Law of Property Act 1925
Paul v Constance (1976),  1 WLR 527
Jones v Lock (1865) LR 1 Ch App 25
Re Kayford  1 All ER 604
Re London Wine (1975) 126 NLJ 977
Re Gulbenkian’s Settlement (No 2)  Ch 408
IRC v Broadway Cottages Trust  Ch 20
Re Gestetner’s Settlement  Ch 672.
Re Baden’s Deed Trusts (No. 1), McPhail v Doulton  AC 424
 Ramjohn (1995) p1
 Varied because access to this Court was not restricted by the doctrine of standing, i.e. a claimant would be able to bring a case even in the absence of a pre-defined cause of action.
 Underhill and Hayton (1995) p2
 Ramjohn (1995) p2
 Learoyd v Whiteley (1887) 12 AC 727
 Knight v Knight (1840) 3 Beav 148
 Section 53(1)(b) of the Law of Property Act 1925
 Paul v Constance (1976),  1 WLR 527
 Jones v Lock (1865) LR 1 Ch App 25. Also, see the dictum of Megarry J in the case of Re Kayford  1 All ER 604 in which he stated (at p282A): “It is well settled that a trust can be created without using the words ‘trust’ or ‘confidence’ or the like: the question is whether in substance a sufficient intention to create a trust has been manifested.”
 Re Kayford  1 All ER 604
 For example, in regard to the testamentary disposition above, evidence might be found which suggests that the testator kept all of his most valuable paintings in the family vault.
 Re London Wine (1975) 126 NLJ 977
 Re Gulbenkian’s Settlement (No 2)  Ch 408
 This test was formulated in the case of Re Gestetner’s Settlement  Ch 672 in the context of mere powers to appoint.
 Re Gulbenkian’s Settlement (No 2)  Ch 408
 Re Baden’s Deed Trusts (No. 1), McPhail v Doulton  AC 424
 Ramjohn (1995) p15
 Ramjohn (1995) p16
 Re Baden’s Deed Trusts (No. 1), McPhail v Doulton  AC 424
 IRC v Broadway Cottages Trust  Ch 20
 Moffat et al (2005) p216
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