General principle:
A trust, like a power, is valid if it can be said with certainty that any given individual is or is not a member of the class of beneficiaries.
Re Baden Deed Trusts (No 2) [1973] Ch 9
Facts:
A settlor created a trust for the benefit of the staff of his company. According to Clause 9 of the trust, the trustees had to 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. When the settlor died the executors alleged that the trusts were void for uncertainty.
Ratio:
Once the court had made that decision the trustee’s tried to implement the trust, but there was further litigation over what was actually meant, by the is or is not test. Each judge had a different opinion of what was meant by the is or is not test. The trust was upheld although each judge provided a distinct stance as to the is or is not test.
Lord J Sachs
He emphasised that the court was concerned only with conceptual certainty test and not evidential certainty. Sachs LJ was able to validate the trust only by adopting very wide definitions of both ‘relatives’ and ‘dependants’, enabling a clear line to be drawn between those who were within and without the class. He took the view that relatives were defined as any persons who are linked by a common ancestor. The meaning of people with a common ancestor is clear although, it is clear there may also be evidential problems, Sachs LJ believed evidential certainty was not an issue here. He observed that ‘dependants’ had already been defined by the courts, for example in relation to the Workmen’s Compensation Act 1897, but he was also able to adopt a bright line definition by taking the view ‘that any one wholly or partly dependent on the means of another is a “depend-ant”.’
Lord J Stamp
He emphasised that the is or is not test was not just about conceptual certainty, a class can be conceptually certain, but it can still fail the is or is not test because of evidential uncertainty. It must be possible for the trustees to make a comprehensive survey of the range of objects, but he did not think it would be fatal if, at the end of the survey, it was impossible to draw up a list of every single beneficiary. LJ Stamp took the view that relatives defined as any persons who are linked by a common ancestor, was evidentially uncertain. He would have taken the view that the trust failed, had he not felt compelled to follow an early House of Lords authority, which had held that a discretionary trust for ‘relations’ was valid, ‘relations’ being defined narrowly for distribution purposes as ‘next of kin’.
Lord J Megaw
He adopted a different solution, however, requiring that as regards a substantial number of people, it can be shown with certainty that they fall within the class. This is rather a vague test — clearly it is not enough to be able to show that one person is certainly within the class, as this test was rejected in Re Gulbenkian’s Settlements [1970] AC 508. Presumably, the test requires evidential, as well as conceptual certainty. For example, relatives defined as any persons who are linked by a common ancestor, LJ Megaw took the middle line and believed with that class if you could always show a substantial number of people, then they are relatives.
Application:
The court held that the trust was valid. The reasoning behind the judgment was based on the differentiation between powers and trusts. The content of clause 9 amounted to a power so that it was valid. The test of certainty did not need to be applied to the clause.
Argument in favour of Lord J Stamp’s view - It would seem LJ Sachs would uphold a trust that cannot be carried out. It is very well saying all you need is conceptual certainty, but if you do not have any evidential certainty the trust will not be viable. LJ Stamp recognises the realities that a trust should not be validated if it cannot be carried out.
Argument against Lord J Stamp view - One objection is that the way LJ Stamp interpreted the is or is not test, seems to resurrect the complete list test for discretionary trusts which was rejected by the House of Lords as the incorrect test. According to Stamp’s view that you have to be able to establish evidential certainty and who is in the class and who is not, this makes it unnecessarily strict on the class, which more or less amounts to resurrecting the complete list test.
Analysis
Law: The test for certainty of objects in respect of fiduciary powers came about in McPahil v Doulton [1971] AC 424. On Appeal in Re Gulbenkian’s Settlements [1970] AC 508 the House of Lords held that the test for certainty of objects for fiduciary powers is whether or not it can be said with certainty that any given person is or is not a member of the class. So, who is a friend? According to Re Baden (No. 2) [1973] Ch 9 conceptual uncertainty arises where the concept itself, in this case friends, is inherently vague and where the trustees are required to make an evaluative judgment. Friends is not sufficiently defined to be able to determine who is and who is not a member of the class and therefore conceptually uncertain. Apply: The term friends is inherently vague, and would require that Paola make an evaluative judgment and so is conceptually uncertain according to Re Baden (No 2). [1973] Ch 9, and therefore the fiduciary power would fail. Law: However, according to Lord Browne-Wilkinson in Re Barlow [1979] 1 WLR 278 the aforementioned cases do not apply to a case where there is a condition or description attached to one or more individual gifts. Apply: The question that arises in this case is that where the gift to friends is subject to a condition precedent can the gift be construed as a series of gifts to individuals rather than a gift to a class. Stefano’s gift is subject to a condition precedent which is that the remaining cars be sold so that Paola may pay any income arising for the benefit of the friends and relatives of any of those who worked with him at the Maserati factory in Modena, Italy.
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