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PROPERTY LAW

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Property Law

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“In older cases, the courts tended to adopt a much stricter approach to the construction of trusts, so that virtually any uncertainty relating to a trust’s administration would result in its invalidity. More recently, the courts have tended to strive to uphold a trust if they possibly can.” (Virgo, The Principles of Equity and Trusts, 2020, p 73) Critically discuss this statement concerning the requirements for certainty set out in Knight v Knight (1840) 3 Beav 148.

Introduction

In older cases, UK courts tended to have a strict approach when dealing with the construction of trust. Any uncertainty about the administration of trust would certainly result in its invalidation¹. In response to the previous shortcomings, modern courts have purposed to uphold trust whenever possible². Originally, trusts were generally utilized when people left the property in their wills, established family settlements, established charities, or started certain types of businesses. The Common Law and English courts of equity and were merged in 1873, and equitable principles took precedence³. Nowadays, trusts play an important role in financial investments, particularly in pension trusts and, unit trusts where trustees and fund managers invest assets for people who want to save for retirement. Due to changing times and needs, the legal definition for trust was upgraded and courts now have to uphold trust whenever possible and not based on a strict paradigm.

Equity and Trust

Equity refers to justice. In terms of property law, judges must ensure equity is served based on the individual to who trust is bestowed. According to Graham (2018), only if the property has been transferred to a trustee on an express trust such that the trustee has legal title to the property that can subsequently be held on trust for the settlor will an automatic resultant trust arise⁴.

For a magistrate or judge to determine trust and uphold equity, they must determine the beneficiaries based on the three certainty criteria⁵. The magistrate should ensure that there is the certainty of; intention, subject matter, and objects. Through determining certainty, the beneficiaries should thereby be determined and entrusted to the property if they pass the certainty criteria⁶.

Trust

Trust is a legal relationship where the property is entrusted to an individual or legal entity with a fiduciary duty to use it for the benefit of the other person benefit⁷. A casing point is trust money which is invested by people in various financial institutions for use upon retirement. Trusts can be subdivided into two major categories; Express and non-express terms¹. Express trusts are bound by law and are usually represented in writings and take into consideration all legal requirements. Such trusts include; testamentary trusts, living trusts, fixed trusts, discretionary trusts, revocable and irrevocable trusts. Non-express trusts are usually inferred and do not follow legal protocols².

History of Upholding Trust in Property Law

In common property law jurisdictions, issues of trust and certainty take precedence. A casing point back in history is the Knight v Kight case in 1840. The Knight v Knight case saw the adoption of three strict criteria that were to shape the determination of trust in later cases. In 1841, the Saunders v Vautier case, (leading English Trust Law), saw the change in perception of equity as it focused on discretionary trust and also fixed trust⁸. The provision under the trustee act caption 167 provided that if all the trustees are of legal age and without disabilities, beneficiaries may be required to transfer the estates to them and thereby terminating the trust. The two cases formed an integral part in shaping the courts dealing with trust in later years. One of the most famous trust laws was McPhail v Doulton (1970). The case was famously referred to as “Re Baden’s Deed Trusts (No 1)”⁹. The case focused on the beneficiaries and ruled that so long as the beneficiaries can be determined with certainty, a trust remains valid.

To uphold trust, the magistrate or judge must establish with certainty whether the information contained in documents such as wills is clear and concise¹⁰. Using a casing point of Knight v Knight 1840; a court proceeding following the demise of Thomas Knight, a court ruling determined that Payne’s words were not sufficient to determine ownership that runs on the male line. Based on the ruling by Lord Langdale MR, 3 major certainty issues emerged;

1. Certainty of intention

2. Certainty of subject matter, and

3. Certainty of objects.

Certainty of Intention

Based on the ruling made on Knight v Knight, there must be a clear document showing that the donor intends to create a trust. The document doesn’t have to contain the word “trust” it should however show clearly the donor’s intention³. Although since the 1950s, judges have been even more willing to determine that a trust was intended rather than holding that the trust was void⁵. It is possible to develop an implicit trust without realizing it if the court can conclude from the person’s desire that a benefit right should be bestowed that the law (or equity) will enforce. Many trusts are established through wills, which adds to the complexity of establishing intent.

Certainty of subject matter

This type of certainty seeks to establish what property is contained in the trust. Historically, it was important to distinguish property and those held from the trust¹¹. It was a necessity that the subject matter be certain,⁵ that the property meant for the trust be segregated from other properties, and that the trust property be identified¹². The trust will fail if there is no apparent division. Most recently, courts have ruled for a distinction between tangible and intangible assets. Intangible assets mostly do not qualify for segregation.

Certainty of objects

Beneficiaries of the trust document are also referred to as objects. The beneficiaries of the trust project must be known. Within an express trust, it is especially difficult to determine certainty as it varies between fixed trusts and discretionary trusts. The test for determining trust varies based on the type of trust⁷. It may either require for beneficiaries to be individually identified or trustees to say with certainty whether an individual is a beneficiary or not when a claimant comes before them

Modern Approach to Trust

The former application of trust had limited scope and failed to meet modern needs. This saw a change in the laws applicable to trust and their recognition by the Hague Convention¹³. The law was enforced in January 1992. The convention’s main purpose was to harmonize the definition of trust and provide clarity in the choice of applicable law. The key provisions as per the convention were;

• Ensure that each party recognizes the presence and validates the trust,

• Setting out characteristics of trusts¹³

• Setting clear rules for establishing the trusts governing law with a cross-border element.

In modern times, the issues about trust have greatly changed as courts move from the conventional strict policies governing trust to currently upholding trust whenever possible. A recent case of Whaley v Whaley [2011]¹⁴, affirms the change in the perception to trust. In a divorce proceeding, the wife claims that the trust assets should be included in the husband’s assets. The court focused on the purpose of the trust and not merely settling on its legal structure. The husband’s influence on the trust overshadowed the legal concept and applicability of Trust. The decision affirmed that the creation of trust would not be essential evidence of the presence of trust.

Re the AQ Revocable Trust [2010]¹⁵, was a casing point of a testamentary trust that widely arose trust issues. The defendants being his two sons claimed that the revocation of the present will and consideration of a will made in 1978. The judges made their decisions focusing on the concatenation of the settlors’ powers and also bearing in mind that he was also a trustee. The court upheld the will say that it was meant to take effect upon his death and not his lifetime.

In New Zealand in 2012, a case emerged between Rea and Sargison v Russel¹⁶. In this case, the court was presented by a case whereby payments between a trust and a company were sought to be set aside with regards to the provisional of national law which could have rendered the payments void. In this case,

The court here was presented with a case in which payments between a company and a trust were sought to be set aside in regards to a provision of the national law that could render the payments void. The court ruled that it was difficult to impose liability on trustees based on their positions in the trust. In addition, the court determined that the powers of a trustee may be delegated to a third person.

Comparison Between Traditional and Modern Approach to Trust

1. Consistency

The traditional perception of trust was bounded by specific criteria. Any trust issue that failed to conform to the specific criteria saw the issue invalidated. A casing point is the Knight v Knight case in 1840. In modern times¹², the definition of trust is quite broad and a lot of mandate has been bestowed on judges to determine whether or not trust occurs. This has led to a lot of inconsistency as different judges give different rulings based on the evidence presented and their intuitions. A casing point is Whaley v Whaley [2011].

2. Flexibility

Traditional courts had lower flexibility and most of their issues about trust were based on whether an issue satisfies the certainty criteria. Failure to satisfy the criteria saw issues done away with. Modern courts have been given higher mandates in the making of decisions as per the Hague convention trust law¹⁷. The increased scope in the application of trust issues has seen an immense increase in the modern court flexibility when dealing with trust laws. A casing point is Rea and Sargison v Russel (2012).

3. Power

The traditional courts had limited jurisdiction and powers when dealing with trust cases. Their decisions were only limited to determining whether a certain case surpassed the three certainty criteria. In modern times, courts have more power and their mandate goes further to evaluate additional information about trust assets that could disqualify assets as being regarded as trusts. A casing point is Whaley v Whaley [2011]; Re the AQ Revocable Trust [2010],

Opinion

I argue that there has been a great change in dealing with trust issues. In traditional times, trust was bound by strict regulations as depicted in the Knight v Knight ruling. Failure to conform to the certainty criteria saw any trust issue invalidated. In modern times, there has emerged many issues such as divorce and even pension trusts¹⁸. The emergence of more fields has also seen an increase in the mandate of courts to freely execute trust issues based on the Hague Convention Law. The modern approach is quite effective and logical as compared to the traditional one. However, the modern approach has also seen confusion in the system as different judges put up different rulings based on their interpretation of trust and intuition.

Conclusion

In conclusion, there arises a great disparity between the traditional application of trust and the modern application. Back in older times, courts tended to uphold strict measures when it came to dealing with trust issues. Any issue regarding trust not included in the law was considered uncertain and would in turn result in invalidity. However, the case of Knight v Knight⁷ saw a change in the determination of certainty. The ruling was anchored on three main criteria;

• Certainty of intention

• Certainty of subject matter, and

• Certainty of objects.

For a case to be determined with equity, the trust case had to surpass the three certainty criteria¹⁹. However, recent times have seen a shift in the determination of certainty. This has mainly resulted in the shift in the types of assets and trust items held. Based on the shift in types of assets held, the legal requirements only require courts to uphold trust whenever possible.

References

Basheer G and others, ‘Certainty, Trust And Evidence: Towards An Integrative Model Of Confidence In Multi-Agent Systems’ (2015) 45 Computers in Human Behavior

Baxter J, Eyles J, and Elliott S, ‘From Siting Principles To Siting Practices: A Case Study Of Discord Among Trust, Equity And Community Participation’ (1999) 42 Journal of Environmental Planning and Management

Cullity M, ‘Judicial Control Of Trustees’ Discretions’ (1975) 25 The University of Toronto Law Journal

Goldsworth J, ‘Certainty Of Subject Matter’ (2007) 13 Trusts & Trustees

Hayton D, ‘The Hague Convention On The Law Applicable To Trusts And On Their Recognition’ (1987) 36 International and Comparative Law Quarterly

Holley C, ‘Access All Areas: Trusts And Divorce–The Court Of Appeal Decision In Whaley V Whaley’ (2011) 17 Trusts & Trustees

JGG, ‘Opinion: REFLECTIONS ON EQUITY AND PURPOSE TRUSTS’ (2005) 11 Trusts & Trustees

Nederhof A, ‘Self-Involvement, Intention Certainty And Attitude-Intention Consistency’ (1989) 28 British Journal of Social Psychology

Richardson B, ‘Fiduciary Relationships For Socially Responsible Investing: A Multinational Perspective’ (2011) 48 American Business Law Journal

Riley S, ‘The Rule In Saunders V Vautier And Its Recent Application Under Jersey Law’ (2009) 15 Trusts & Trustees

Robinson K, ‘Variation Of Trusts In Bermuda–A Rose By Any Other Name’ (2012) 18 Trusts & Trustees

Sitkoff R, and Schanzenbach M, ‘The Prudent Investor Rule And Trust Asset Allocation: An Empirical Analysis [2010] SSRN Electronic Journal

‘Trusts. Constructive Trust. Oral Promise Of Heir To Hold Land In Trust’ (1918) 28 The Yale Law Journal

‘Trusts. Powers And Obligations Of Trustees. Mandatory Provisions As To Investments’ (1918) 32 Harvard Law Review

Virgo G, ‘Trusts And Equity. By Gary Watt. [Oxford: Oxford University Press. 2003. Xxxviii, 523, And (Index) 25 Pp. Paperback £24.99. ISBN 0–19–870061–X.]’ (2004) 63 The Cambridge Law Journal

Wilde D, ‘THE THREE CERTAINTIES REQUIRED TO DECLARE A TRUST – OR IS IT FOUR? “DISTRIBUTIONAL CERTAINTY”’ (2020) 79 The Cambridge Law Journal

Williams G, ‘The Three Certainties’ (1940) 4 The Modern Law Review