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McPhail v Doulton (1971) AC 424

Info: 1636 words (7 pages) Essay
Published: 7th Aug 2019

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Jurisdiction / Tag(s): UK Law

This was an appeal to the House of Lords from an order of the Court of Appeal which affirmed in part the judgement of Goff J sitting at first instance. The dispute related to the construction of a deed dated 17 July 1949. The purpose of the deed was the transfer to trustees shares in a company. This was intended to provide the nucleus of a fund for the benefit of staff of the company and their dependants and relatives. The clause in question (9(a)) provided that the trustees should apply the net income of the fund to the making “in their absolute discretion” grants “in such amounts at such times and on such conditions (if any) as they think fit”. The executors of the settlor claimed that the deed was wholly void and sought the payment of the fund to the estate. Goff J held that clause 9(a) constituted a power and not a trust and that the deed was therefore valid. The Court of Appeal (by a majority) upheld the finding of a power but held that the judge had applied the wrong test for the validity of such powers. The Court of Appeal therefore remitted the case to the Chancery Division for reconsideration of the question of whether the clause constituted a power. The consequent appeal to the House of Lords therefore turned upon the distinction between trusts and powers the former of which are imperative and the latter discretionary.

The judgement of Lord Wilberforce (pp.447 et seq) is determinative of the issue. At p.450A he states:

“Naturally read, the intention of the deed seems to me clear: clause 9(a) whose language is mandatory (“shall”), creates, together with a power of selection, a trust for distribution of the income, the strictness of which is qualified by clause 9(b), which allows the income of any one year to be held up and…either placed, for the time, with a bank, or, if thought fit, invested.”

Accordingly, it was held that the provisions of clause 9(a) constituted a trust and that the case would be remitted to the Chancery Division for determination of the issue of whether the clause was valid or void for uncertainty.

However, Lords Hodson and Guest dissented in respect of the second finding that the test to be applied in determining the validity of trust powers was that propounded in Re Gulbenkians Settlements[1] namely that the trust was valid f it could be said with certainty that any given individual was or was not a member of the class. Lord Hodson adhered to the view expressed in Inland Revenue Commissioners v Broadway Cottages Trust[2] (at p.441A):

“…where there is a trust there is a duty imposed on the trustees who can be controlled if necessary in the exercise of their duty. Whether the trust is discretionary r not the court must be in a position to control its execution in the interests of the objects of the trust. Where there is a mere power entirely different considerations arise. The objects have no right to complain.”

Lord Guest reinforced this argument (at p.444F) by stating that in the case of a power there is a resulting trust in favour of the settlor upon failure to exercise the power or an invalid exercise whereas in the case of a trust “the beneficiaries are the objects of the trustee’s bounty.”

The most lucid description of the test of certainty of objects for discretionary trusts is contained in the judgement of Lord Wilberforce. He comments (at p.453F) upon the difficulties posed in Gulbenkian in terms of the indication given (albeit obiter) that there was a distinction between the kind of certainty required for powers and that required for trusts. His Lordship cites with approval the judgment of Harman J in In re Gestetner Settlement[3]:

“If, therefore, there is no duty to distribute, but only a duty to consider, it does not seem to me that there is any authority binding on me to say that this whole trust is bad. In fact, there is no difficulty, as has been admitted, in ascertaining whether any given postulant is a member of the specified class.”

and concludes (at p.456A-B):

“…in the case of a trust, the trustees must select from the class…[it is not the case] that in order to carry out their duty of selection they must have before them, or be able to get, a complete list of all possible objects.”

This was not however wholeheartedly adopted by Lord Guest. He argues (at p.445D-E) that the distinction between a mere power and a trust power is fundamental:

“The court, apart from a mala fide exercise of a mere power, has no control over the exercise of the power by a donee or trustees, as the case may be. If it is not exercised or fails for invalidity the fund goes to those entitled in default, under the settlement or on a resulting trust. It is very different in the case of a trust power. There the trustees are under a fiduciary duty to exercise the power. The beneficiaries can compel the trustees to exercise the power by application to the court if necessary.”

In the opening of his judgment (at p.447B-C), Lord Wilberforce highlights the problems posed by trusts of this type:

“The trusts established by the deed are of a general type which has recently become common, the beneficiaries including a wide class of persons among whom the trustees are given discretionary powers or duties of distribution. It is the width of the class which in this and in other cases before the courts has given rise to difficulty and to the contention that the trusts are too indefinite to be upheld.”

The difficulty arise from the question of whether as a matter of practical reality “a complete list (or on another view a list complete for practical purposes) can be drawn up of all possible beneficiaries.” (p.448E). This concern flows from the Broadway Cottages decision (supra) against the background of which His Lordship observes:

“It is striking how narrow and in a sense how artificial is the distinction, in cases such as the present between trusts or as the particular type of trust is called, trust powers…A layman and, I suspect, also a logician would find it hard to understand what difference there is.”

There then follows a complaint about the “delicate shading” that is involved in making such a distinction. The difference between a mere power which there is no obligation to exercise and a trust which is mandatory could be regarded as merely semantic. In either case, the trustee is under a fiduciary duty which ought to compel similar performance.

As a result of this case it is accepted that a fixed interest trust will be void unless at inception it is clear that all beneficiaries are capable of being ascertained. This is an apparently simple test but has been complicated by subsequent attempts at interpretation. Moffat[4] opines:

“One potential source of misunderstanding lies in what might be termed the different elements of the certainty requirement. It will be recalled that Lord Wilberforce endorsed the distinction, drawn by Lord Upjohn in Re Gulbenkian {1968] 3 All ER 785 , between ‘linguistic and semantic uncertainty which, if unresolved by the court, renders the gift void and the difficulty of ascertaining the existence or whereabouts of members of the class.”

Moffat proceeds to explain that there is a discernible difference between evidential uncertainty – the lack of evidence to assist in the identification of the class and ascertainability – identifying the existence or whereabouts of persons clearly a member of the class.

In conclusion it is submitted that this decision was ultimately unhelpful. The distinction that is drawn between a mandatory trust and the existence of a “mere” power is, it is suggested, a distinction which is of little practical assistance. The exercise conducted in McPhail may be likened to the classic theological debate surrounding the number of angels that are capable of dancing on the head of a pin! Ultimately, as has been observed above, trustees are charged with a fiduciary duty. The process of ascertaining members of a class must be one which is confined to the bounds of common sense since problems of ascertain ability might be extended indefinitely. While their Lordships and their judicial brethren may agonise about the precise meaning of terms such as “relative” and “employee”, these are categories which would pose little difficulty of identification to the layman. It is perhaps significant to observe that when this case was eventually remitted to the High Court (and subsequently challenged in the Court of Appeal) there remained unanimity that the deed was valid but the certainty of objects debate continued to rage. This is therefore perhaps an instance of judicial sensitivity exceeding the bounds of common sense and the practical necessity of giving effect to the clearly discernible wishes of a testator.


[1] [1970] AC 508

[2] [1955] Ch 20

[3] [1953] Ch 672 at 688-9

[4] Moffat, G., Trusts Law: text and Materials, (4th Ed., 2005), p.221

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