Certainty of objects

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For a Trust, Power of appointment, or Testamentory Gift to be enforced, it must be possible to determine who the beneficiaries (objects) are (see: Object (trust)), either in person or as members of a particular class. There is a great deal of uncertainty in this area, and the principles vary somewhat according to the meta of trust under consideration. However, what is clear is that certainty of objects, unlike certainty of intention, is a question of law, and therefore the usual rules of precedent apply.

Certainty of objects in fixed trusts

In afixed trust, the trustees have no discretion how to distribute the benefits to and between the beneficiaries. Historically, the position has always been that, for the trust to be valid, it must be possible to make a complete list of all the beneficiaries of the trust (often called the 'complete list' test). Although McPhail (see below) has undoubedly changed the law with respect to discretionary trusts, and it could be argued that McPhail should apply equally to fixed trusts, it seems to be settled that the 'complete list' test continues to apply to fixed trusts.

Certainty of objects in powers of appointment

Where the trustee has apower of appointment, particularly a Mere power, the Donee of the power is under no duty to exercise the power, although he may have a duty to consider exercising it from time to time. The certainty rule in mere powers is generally taken to be that established in Re gulbenkians settlements (1970). In that case, there was what the trust instrument referred to as a 'discretionary trust', but which the House of lords held to be, in fact, a Mere power. The correct test was taken to be whether it was possible to say with certainty whether a particular person was, or was not, within the class of potential beneficiaries (often called the 'is or is not' test, or the 'any given postulant' test). The test does not seem to create any serious problems for powers, but it does for discretionary trusts, as we shall see.

Certainty of objects in discretionary trusts

Historically, discretionary trusts were subject to the same test for certainty (the complete list test) as fixed trusts. This position was confirmed by the Court of Appeal in the very influential case of IRC v Broadway Cottages Trust (1955). The winning argument was that unless the complete list of beneficiaries could be established, a court would not be able to order the execution of the trust if necessary. A trust that could not be exercised by a court order was, it was argued, undesirable and dangerous. There are two obvious problems with this argument.

First, when the court executes a trust, it should do so to give effect to the wishes of the settlor. If a complete list of beneficiaries could be drawn up, the court could, presumably, order an equal distribution to all the beneficiaries. However, unless the court was prepared to assume to role of the trustee, with the trustee's discretion, it could not do any more than this. If the settlor had intended a uniform distribution of income, he would have said so in the trust instrument; the fact that he allowed discretion to the trustees indicated that a uniform distribution was exactly what he was not looking for.In short, it is not necessarily easier for the court to supervise a discretionary trust when the complete list of beneficiaries is known in advance, than when it is not.

Second, Broadway Cottages established a rule for certainty in discretionary trusts that was very different from that prevailing in a power of appointment. The distinction between the tests for certainty in mere powers and discretionary trusts was thought by many to be illogical, given that in many cases it is almost impossible to determine from the construction of the trust whether the trustees have a power or a discretion.

Consequently, in McPhail v Doulton (1971) the House took the opportunity to overturn Broadway Cottages, and make the test of certainty in discretionary trusts the same as for mere powers, as set out in Gulbenkian. When this test is applied to discretionary trusts, the test for certainty of objects is whether it is possible to determine whether a particular object is, or is not, entitled to benefit. However, this decision does not appear to disturb the rule for fixed trusts, which remains the 'complete list' test.

This new test for certainty caused a deal of confusion, as became obvious when the case was remitted back to the High Court for reconsideration (as Re Baden No 2). The High Court's decision was appealed to the Court of Appeal which held that the trusts were valid, but for what appeared to be three different reasons.

The differences of approach centred on whether the 'is or is not' test was a semantic test or an evidential test. If it is a semantic test, it must be possible to determine the meaning of the class with precision. For example, a trust for the benefit of 'my employees' is semantically certain -- there is usually no doubt about what the word 'employee' means (except in cases ofvicarious liability, where employers are wont to argue the toss, for obvious reasons). On the other hand, a trust for the benefit of 'my friends' is semantically uncertain -- the term 'friend' itself does not really admit of a precise definition.

If the 'is or is not' test is an evidential test, then it must be possible to determine with certainty whether for any person whether that particular person is a member of the specified class or not. Most likely an evidentiary test can only be applied if the semantic test is satisfied. A trust for 'my employees' might be semantically certain, but evidentially undertain, because even though I know what an employee is, I might have employees who cannot prove that they are employees (casual workers paid in cash, for example).

With this semantic/evidentiary distinction in mind, we can consider the tests set out in the Court of Appeal.

Stamp LJ imposed the most rigorous test -- it must be possible to say for certain of any individual whether he is, or is not, a member of a conceptually certain class. That is, both conceptual and evidential certainty are required in order for the trust to be valid.In practice, the difference between this test, and the 'complete list' test, is very slight.

At the other end of the strictness spectrum was the judgement of Megaw LJ. He held that a trust would not fail for uncertainty so long a it was possible to say, of a substantial number of people, whether they fell within the terms set out by the settlor. This test does not appear to distinguish conceptual certainty from evidential certainty; most likely it admits a measure of uncertainty in the boundaries of the class, and a good deal of uncertainty in the evidential requirements.

The judgement of Sachs LJ fell between these two extremes. In his view, the trust would succeed if it would be possible to determine in theory whether any given person was inside or outside it. That is, he requires semantic certainty, but not evidential certainty.

Most commentators seem to have accepted that Sachs' view is the best compromise. On this basis a trust will be workable, to the extent that if a person presents himself to the trustees as a potential beneficiary, the trustees will know the conceptual basis on which to make the determination. There may still be an issue of evidence, but the evidence will be of whether the putative beneficiary falls within the class, not evidence as to the nature of the class itself.

The problem with Sachs' view is that it has the same weakness as the original decision in McPhail -- it allows the creation of trusts which cannot be properly managed. Despite their similarities, a trust is not the same as a power. In a trust, the trustees have a duty to disburse benefits, not merely a right to do so. Since they have a duty, and not merely a right, their use of discretion can be challenged in the courts. The trustees may not be able to defend their actions, if they cannot show that they considered the relative merits of all potential candidates for the benefits of the trust. Why? Because they don't know who all the candidates are. Although the Sachs test prevents a situation where a particular person approaches the trustees, and the trustees are unable to tell even in theory whether he is entitled to benefit, only a trust that satisifies the 'complete list' test allows the trustees to be certain that they are able to exercise their discretion in favour of all objects.

Certainty of objects in gifts subject to condition precedent

The problem of certainty of objects arises not only in the content of a trust, but in the context of a testamentory gifts subject to condition precedent. For example, if a Testator makes a disposition in his will to my daughter if she is still unmarried, then this is gift is subject to a condition. The gift in this case is not class-defining -- presumably there is no uncertainty about who the testator's daughter is -- but where gifts are class-defining, the same problems arise as affect trusts.

In Re Barlow's will trusts (1979), for example, the testatrix left instructions to her executors to allow her paintings to be purchased by friends of mine. Browne-Wilkinson J held that the appropriate test in this case was whether it was possible to say for certain whether one or more persons qualified as 'friends of mine', even if would be impossible to make such a determination in the general case. It is not clear that this test corresponds to any those set out by the Court of Appeal in Re Baden. It does not, for example, require the class to be conceptually certain -- 'friends of mine' is not defineable with any precision -- and in that respect is most similar to the test propounded by Megaw LJ. However, Megaw's judgement required that it be possibile to state of a 'substantial number' of persons whether they satisfied the test, while the test in Barlow only requires that 'one or more' persons are able to satsify it.

The use of outside opinion to resolve uncertainty

It is a paramount principle of the construction of trust obligations that the courts are striving to give effect to the wishes of the settlor. It is this principle which gave rise to the decisions in McPhail and Re Barlow_, despite the complications they may engender. If, therefore, the settlor identifies a person with responsibility for resolving uncertainty, there is a strong argument for saying that the courts should defer to that person, rather than declaring the trust invalid. The contrary argument is that it is universally accepted that certainty of objects is an objective matter, not a subjective one, and therefore should not turn on particular person's opinion.

This issue was considered in Re Tuck's settlement trusts (1978), in which the settlor required his inheritable baronetcy to pass only to a son who married a woman of the Jewish faith. Where there was any doubt as to the wife's suitability in this regard, the Chief Rabbi was to decide the matter. Although the trust was upheld, it is uncertain whether the basis of the decision was an acceptance of the 'Chief Rabbi' clause or something else. Lord Denning, for his part, was unequivocal in his acceptance:

I do not see any reason why a testator or settlor should not provide that any dispute or doubt is to be resolved by his executors or trustees or even by a third person...

Lord Russell held that it was unncessary to consider the Chief Rabbi clause, since the class of persons of the Jewish Faith was already conceptually certain. Everleigh LJ held that nominating the Chief Rabbi only served to indicate the settlor's opinion of Jewishness, and therefore did not require that the Chief Rabbi would have to be consulted at some later stage.

At present, therefore, although it is generally accepted that certainty of objects can be resolved by reference to the opinion of a person nominated by the settlor, it is far from clear that the case usually cited to that effect really has that conclusion as part of its ratio.In addition, it should be noted that Re Tuck_ concerned a succession, not a trust, and -- if different rules apply to gifs and trusts, which is what Re Barlow suggests -- then Re Tuck_ does not have to apply to trusts at all.

Conclusion

Aside from the case of fixed trusts, the law regarding certainty of objects in most other forms of trust and gift is somewhat unclear. Although the rules for discretionary trusts and powers have been defined to be the same (in McPhail_), powers and trusts are not the same, and Re Baden shows how difficult it can be to apply the McPhail test to discretionary trusts. Although the 'is or is not' test is easy to state, it is difficult to apply. Although it seems to be accepted that an outside opinion can be sought to resolve uncertainty, the authority for that proposition is not very strong. Finally, it is unclear whether the certainty test for gifts subject to a condition precent is the same as the test -- or any of the tests -- derived from McPhail.





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