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In order for Telford's gifts to be valid it is first important to mention that the creation of a trust will depend on whether Telford has the right to hold and dispose of a legal/equitable interest in property. People under the age of 18years and anyone over the age of 18 who suffer from mental incapacity cannot create a trust. As we can see from the information given that Telford is certainty over 18 and was not mentally incapable so this is not a problem.
For there to be a valid trust for Telford's gifts three certainties must be satisfied as held: in the case of Knight v Knight (1840), the three certainties were identified as certainty of intention, certainty of subject matter and certainty of objects.
The purpose of the test of certainty is to ensure that an express trust has not been created against the wishes of the owner of the property. The three certainties need to be satisfied so that the trust can be enforced and supervised by the court if necessary.
Certainty of intention (or words) requires Telford (settlor) to use imperative words to indicate that Telford intends to impose an obligation on the trustee. The simplest way of doing this is to include the word “trust” or “trustee” in the declaration. Even if the two words are not present it is important that other imperative words such as direct, require, instruct are there. If such words are not present difficulties can arise.
Complications can occur at two levels, firstly in some instances it can become difficult to determine whether a trust or a power was intended. Secondly if construed as a trust and then fails to select proper beneficiaries than there will be a class entitlement.
In other words if the construed power of appointment fails to select the money will revert back to the donor or his estate. Also where precatory words are used e.g. hopes/desires/suggests/believes difficulties occur in determining whether a trust or outright gift was intended. Initially the Chancellors took the view that gifts accompanied by precatory words imposed a trust on the donee e.g. cases of Harding v Glyn (1739); Hart v Tribe (1854). However this approach changed after the Executors Act 1830 and cases such as Lambe v Eames (1871) which held that the use of precatory words in a gift did not mean that the donor intended the donee to hold the property on trust.
It is obvious from the words of both gifts that Telford intended to impose obligations on the trustees.
The second certainty to be complied with is that of intention. If on construction of the words and conduct of the transferor, no trust is intended, the transferee who has acquired the property will be entitled to it beneficially. Also the certainty of subject matter and beneficial interests must be met. Two issues arise here. Firstly the trust property must be certain and secondly there must be certainty as to the beneficial interest. Again a trust is likely to fail if there is no property to correctly identify. The test for certainly of trust property and beneficial interest is whether the subject matter is so precise that the court may attach a court order on the property or beneficial interest.
Again from the wording used by Telford in this gift it is absolutely clear what Telford intentions are and what the subject of the gifts are.
Certainty of objects refers to the beneficiaries in private trusts and these can only be effective if these beneficiaries are ascertained or ascertainable. This requirement of certainty can be easily complied with where a name of individuals is mentioned. There are only three exceptions to this rule, firstly where individual members are not named but can be identified by description. Secondly in a situation where the trust is for a class of persons e.g. “My employees” where the trust is for a designed class. However, it can only be carried out if there is sufficient certainty to enable the trustees to tell who it belongs to the class. Where class gifts can be a problem is, because the language used to describe the class is open to different interpretations (conceptual uncertainty) e.g. “on trust to my friends”. Another situation is where the evidence needed to establish who belongs to the class is incomplete (evidential uncertainty) e.g there is a difficulty in drawing up a list of beneficiaries. Again a trust here can fail for administrative unworkability if the class is too wide and therefore the list of beneficiaries is too much for the trustees to handle.
We can see that both of Telfords gift have wordings which are a class within a class. Hence this could become a problem as “my engineering companion and to my old buddies” maybe difficult and there is no distribution to aid the trustees as to the meaning behind the words.
In Re Barlow's WT (1979) judge Brown-Wilkinson held that from the test “if it is possible to say of one or more persons” quoted as a “friend of mine”, it was not necessary to define what a friend is. The relevance is that this is a broader test for certainty of objects.
In deciding whether there is certainty of objects the courts have made a distinguish between fixed trust and discretionary trusts.
A fixed trust is where a trustee has no problem in identifying and carrying out the wishes of the settler. The test for deciding whether the objects are certain is to consider whether a comprehensive list can be made, which accurately includes the names of all those who are beneficially entitled, while excluding all those who fall outside the class e.g. IRC v Broadway Cottages (1955); Re Gulbenkian's ST (1970) and McPhail v Doulton (1971)
When a comprehend list cannot be drawn because of the description of class is conceptually uncertain the trust will fail e.g. Re Gulbenkian's ST (1970) and in OT Computers Ltd v First national Tricity Finance Ltd and other (2003) the court decided that a trust intended for “urgent suppliers” was void because it was not possible to identify each member of the specified class of objects. Even if the class is conceptually certain, the trust will still fail if it is impossible to draw up a list because there is evidential uncertainty.
In a discretionary trust discretion is given to the trustee to determine the shares. Before 1970 the test for certainty of objects was comprehensive list as per fixed trust. This test was, however, discarded by the House of Lords in the case of Mcphail v doulton (1971). Here the lordships preferred a less stringent test formulated in Re Gestetner (1953) and Re Gulbenkian. In this test, the decisive criteria is whether the words employed in describing the discretionary class are such that it can be said with certainty that any individual is or is not a member of that class.
In the case of Re Baden (No 2) all three judges embraced this test but their approach in using the test was different.
When a trust fails due to uncertainty of objects then a resulting trust occurs.
A resulting trust can arise without having been specified by the settler. A resulting trust is recognised by statutory law under s53(2) of the law of property Act 1925, which provides that they need not comply with the same formalities as express trusts.
Two types of resulting trusts exist, presumed and automatic. Presumed resulting trust are those that arise where there is a voluntary transfer of property or a purchase in the name of another; and automatic resulting trust are those that arise in situations where there is a vaccum in beneficial ownership and “do not depend on any intentions or presumptions” as in case of Re Vandervell (1974).
The relevance of Vandervell v IRC (1967) is that as Lord Diplock declared “equity abhors a beneficial vacuum” i.e. where a trust which leaves some or all of the beneficial interest undisposed of equity automatically fills the vaccum by requiring trustees to hold the outstanding equitable interest on a resulting trust for the settler.
It is apparent here that both Telfords gifts could fail because of uncertainty of who “my companions” and “old buddies” can be. This could mean that both gifts can fail and the trustees may be required to hold the gifts in a resulting trust for Telfords niece Maria for three years after which the gift could pass on to her.
With regards to the powers of trustee powers in these types of discretionary trust it remains the trustees duties to consider the claims of beneficiaries before distributing the fund. The problem that arises here is whether the power is a trust power or a mere power. The trustees' obligation is either a duty or a discretion to distribute. If it is a duty than they have trust powers but if it is to distribute than they have a mere power.
The question as it whether there is a mere power or a trust will depend largely on the language used. According to the case Re Leek (1967) Lord Bukley J was of the opinion that a general power of appointment must be mere power, as would be in a situation where there was a gift over in default then the donor is allowing the possibility that the trustee might make no choice.
However where mandatory words refer to distribution than it is a trust power as held in the Saxone Shoe Company Ltd's T.D (1962). Also where a gift states that the trustee can select this also is a trust power as in the case of IRC v Broadway Cottages Trust (1954). However, if discretionary words are used to refer to the distribution than the powers is a mere power.
Since the test for the certainty of powers is the same for both mere power or trust power it is my opinion that the gift could became void, unless the trustees can draw up some criteria to decide who is “my engineering companies”
If the trustees decide that this definition is too wide than the gift will fail on conceptical uncertainty than this will make the power void.
In conceptual uncertainty the trustees need to find a concept which they can apply to see if someone is in a class but it is up to the testator (Telford) to provide a definition which the trustees can apply. If there is evidential uncertainty than i.e. difficult to prove that some is within that class the gift can still be valid it will be within the power of the trustee to decide how much proof they need hence, evidential uncertainty will not make the class or the power void.
The trustees must distribute the money in gift one within a reasonable period e.g. Re Lockers. It is the trustee's duties to make a survey of the class (e.g. case of Mc Phail v Doulton (1971)). In order to do this the trustees must decided on a reasonable criteria bearing in mind the size of the class. They have to also agree on what type of proof they are going to accept to show that they were Telfords engineering companions. The trustees also have to find a way to notify the potential beneficiaries e.g. advertise in the local paper or engineering gazettes/ magazines and send a notice to the university, places where Telford worked.
The trustees are allowed to discriminate to help “the distribution of the gift e.g. on the basis of those who knew him well, degree of friendship. The trustees will also have to decide whether to give everyone an equal amount or unequal amounts depending on the degree of friendship etc.
Hence the trustees duty is to exercise the discretion i.e. the trustees here (exhaustive discretionary trust) have to make a selection. It is possible here that each member of the class of beneficiary has a power to sue in order to make the trustees perform their duties e.g. the case of Re Locker's settlement (1977). Also it is a courts power to enforce that the trustees use their power of discretion where the trustees fail to carry out their duties a court of equity can make them as owners of the trust property to dispose of them in accordance of conscience. If the trustees refuse to perform their duties the court can itself execute the trust by appointing new trustees or the court will distribute itself in equal shares (Borray v Philcox)
E Martin, Jill, Hanbury & Martin, Modern Equity (sweet and Maxwell, 2009)18th ed
Hudson, Alastair, Understanding Equity and Trusts (Routledge Cavendish, 2008) 3rd ed
Watt, Gary, Todd & Watt's cases & materials on Equity and Trusts (Oxford, 2009) 7th ed
Equity and Trust Lawcards series (Routledge, 2010) 7th ed
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