Nature and Constitution of Trusts

Nature and Constitution of Trusts
Professor Cameron Stewart

Defintion A trust exists when the titleholder of property is obliged to deal with that property for the benefit of another person

Elements 1. the trustee — a legal person who holds a vested legal title (or a vested equitable title) in the property, subject to fiduciary duties; 2. trust property — property in real or personal form which is identified or ascertainable and capable of being held on trust. The trust property can be legal or equitable property; and 3. the beneficiary (sometimes referred to as the cestui que trust in older cases, or the object of the trust in modern cases) — a person, or group of persons, who hold a beneficial equitable estate in the property and on whose behalf the trustee must act.

Definitions It should be noted that the person who creates the trust during their lifetime is usually referred to as a settlor. Such a trust is often described as an inter vivos trust or a settlement. When the trust has been created in a will, the creator is the author of the will, namely the testator (if male), or testatrix (if female). A trust created in a will is referred to as a post mortem trust. In this and following chapters, the word creator will be used as a collective term to cover both settlors and testators/testatrixs.

Actors in the trust 1. creator; 2. trustee; and 3. beneficiary
The three legal actors need not always be different legal persons. It is possible for a creator and a trustee to be the same person, for example, when a trust is created by declaration of trust Similarly it is possible for a creator to be a beneficiary, in cases where the creator instructs the trustee to hold the property for his or her benefit.

Actors in the trust A trustee might also be a beneficiary, but only in situations where the trustee is one of a number of beneficiaries. It is impossible to be the sole trustee and sole beneficiary because once a person owns complete legal and equitable estates they are said to merge together, leaving no distinction between the legal and equitable estates

History of the trust Henry and the purse strings
Taxation in Tudor England – feudal tenures Primogeniture Devising land by will The legal remainder rules

The use A B C (Landowner) (feoffee to use) (cestui que use) Legal estate Beneficial estate CL Equitable

The Statute of Uses 1535 Collapse the use Springing uses
The use on the use Equity creates property where there was none before……

DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510
An unconditional legal estate in fee simple is the largest estate which a person may hold in land. Subject to qualifications arising under the general law, and to the manifold restrictions now imposed by or under statutes, the person seised of land for an estate in fee simple has full and direct rights to possession and use of the land and its profits, as well as full rights of disposition. An equitable estate in land, even where its owner is absolutely entitled and the trustee is a bare trustee, is significantly different. What is, perhaps, its essential character is to be traced to the origin of equitable estates in the enforcement by Chancellors of ‘uses’ or ‘trusts’...

DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510
[A]lthough the equitable estate is an interest in property, its essential character still bears the stamp which its origin placed upon it. Where the trustee is the owner of the legal fee simple, the right of the beneficiary, although annexed to the land, is a right to compel the legal owner to hold and use the rights which the law gives him in accordance with the obligation which equity has imposed upon him. The trustee, in such a case, has at law all the rights of the absolute owner in fee simple, but he is not free to use those rights for his own benefit in the way he could if no trust existed. Equitable obligations require him to use them in some particular way for the benefit of other persons.

The three species of trust
1. express trusts; 2. resulting (or sometimes referred to as implied) trusts; and 3. constructive trusts.

Express Trusts Fixed Discretionary -Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 Exhaustive Non-exhaustive -Richstar Enterprises Pty Ltd; Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 Bare Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 CGU Insurance Limited v One.Tel Limited (in liq) (2010) 242 CLR 174 Charitable Non-charitable purpose – dogs, pussycats and tombs Commercial/ Unit CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 Family

Resulting Automatic Presumed Failure of express trust
Satisfaction of purpose Presumed Purchase in name of another Legal title no reflecting contribution to beneficial title Gifts

Contracts and trusts Gosper v Sawyer (1985) 160 CLR 548
Sawyer was injured at work and made redundant – he made a claim on his pension fund and they paid out less than what was paid in because he was not totally and permanently disabled The NWSW Industrial Arbitration Act allowed him to get the Commission to review contracts which were harsh, unconscionable, or oppressive Fund argued that the Commission had no jurisdiction Cahill J said they did – Service and Execution of Process Act 1901 allowed courts to proceed with interstate ‘contract’ claims HC – says its not about a contract – its about a trust

Contracts and trusts Gosper v Sawyer (1985) 160 CLR 548 at 568–9; 58 ALR 13 at 26, Mason and Deane JJ stated: The origins and nature of contract and trust are, of course, quite different. There is however no dichotomy between the two. The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust.

Contracts and trusts Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
A trust can attach to the benefit of the whole contract or of the whole or part of some particular contractual obligation. In the case of a policy of liability insurance under which the insurer agrees to indemnify both a party to the contract and others, there is no reason in principle or in common sense why the party to the contract should not hold the benefit of the insurer’s promise to indemnify him on his own behalf and the benefit of the promise to indemnify others respectively upon trust for those others. Where the benefit of a contractual promise is held by the promisee as trustee for another, an action for enforcement of the promise or damages for its breach can be brought by the trustee. In such an action, the trustee can recover, on behalf of the beneficiary, the damages sustained by the beneficiary by reason of breach. If the trustee of the promise declines to institute such proceedings, the beneficiary can bring proceedings against the promisor in his own name, joining the trustee as defendant.

Kowalski v MMAL Staff Superannuation Fund Pty Ltd (ACN 064 829 616) (No 3) [2009] FCA 53
… not necessary that the contracting parties know and understand that they are creating a trust. It is sufﬁcient that they intend to create a relationship which, in equity, conforms to that of a trust.

Fiduciary relationships and trusts
Trusts are a subset of fiduciary relationships and the duties owed by trustees to their beneficiaries are fiduciary in character Fiduciary duties and obligations of trust are not mutually exclusive. A person can owe separate and co-existing fiduciary and trustee obligations

Visnic v Sywak (2009) 257 ALR 517 Defendant held shares on trust and the defendant was ordered to return those shares to the plaintiff. In addition to these orders the plaintiff sought an account of profits and/or equitable damages for the breach of fiduciary duty and the plaintiff appealed the trial judge’s decision to refuse such relief. The Court of Appeal upheld the trial judge’s decision not to order an account of profits and equitable compensation. While there was a breach of trust, it was not clear that there was a breach of fiduciary duty in relation to a conflict of interest and duty; nor could it be said that any profit made by the defendant was sufficiently connected (in a causal sense) to the refusal to hand back the shares.

Deceased estates and trusts
Executors of deceased estates occupy a similar function to trustees. Executors, like trustees, are fiduciaries. However, an executor’s duties exist in relation to the proper administration of the deceased’s estate Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694

Bailments and trust A bailment only confers a weak possessory title on the bailee. It does not create a trust as the bailee does not take a vested title in the property

Olma v Amendola [2004] SASC 274 Plaintiff won a personal injury claim
Defendant had offered to take the money and invest it Plaintiffs requested return of money and interest Defendant said she was a gratuitous bailee Mutuum Full Court – intention was to create a trust

Agency and trust An agency exists where one person (the principal) authorises another person (the agent) to act as the principal’s representative. The actions of an agent bind the principal. Like bailments, agency agreements are based in contract Loughran v Perpetual Trustees WA Ltd [2007] VSC 50

Debts and trusts The position of creditors is therefore very different from that of beneficiaries. Beneficiaries have equitable interests in the property held by the trustee. Creditors do not have an interest in their creditor’s property. A creditor only has access to common law remedies to pursue the debt The institutions of debt and trust can co-exist in the one transaction if there is a common intention that funds will be held for specific purposes eg Quistclose

Caruana v DPP [2011] VSC 658 Kyrou J:
(a) If it is proved on the facts that the parties’ intention was that the payee was entitled to use the money as his or her own, and was only under an obligation to repay the same amount of money either on demand or at a specified time in the future, then there is no trust and the amount owed is a debt [Re Broad; Ex parte Neck (1884) 13 QBD 740 at 746]. (b) If it is proved on the facts that the parties’ intention was that the payee would hold the money for the benefit of the payer, would deal with the money as a separate fund on behalf of the payer and would not be free to use the money as his or her own, then a trust will arise [Cohen v Cohen (1929) 42 CLR 91 at 101.]

Caruana v DPP [2011] VSC 658 (c) The absence of a prohibition on the payee depositing the money into a general account (or the absence of a requirement that the payee deposit the money into a separate account) is significant [Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 498] but not determinative in distinguishing between an amount owed as a debt and an amount held on trust. Where the intention to create a trust emerges from other facts, the payee can still be a trustee [Associated Alloys Pty Ltd v ACN Pty Ltd (in liq) (2000) 202 CLR 588 at 604]] (d) A requirement that the payee is to keep the money received from the payer separate from the payee’s own funds is generally indicative of a trust. However, the fact that the payee deposits the money into a separate bank account is not conclusive of an intention to establish a trust [Re Kayford Ltd (in liq) [1975] 1 WLR 279 at 282].

Caruana v DPP [2011] VSC 658 (e) If the trustee and the beneficiary agree that the money can be paid into a general account maintained by the trustee, then the trustee must retain sufficient funds in that account to fulfil his or her obligations as trustee [Stephens Travel Service International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 at 348–9]

Debts and trusts Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Rolls Razor Pty Ltd (Rolls Razor) borrowed a large amount of money from Quistclose Investments Ltd (Quistclose). Quistclose lent the money on the basis that it was to be used for the specific purpose of paying Rolls Razor’s shareholders their dividends. Rolls Razor deposited the money in a special account with Barclays Bank. Barclays were informed that the money was only to be used to pay the dividend. Before the dividend was paid Rolls Razor went into liquidation. The bank sought to use the money in the account to set-off the debts which were owed to it by Rolls Razor. Quistclose sought to retrieve the money and claimed that the bank had no right to use the funds in a set-off.

Debts and trusts Lord Wilberforce found that the agreement between Quistclose and Rolls Razor created a primary trust for the shareholders. When that trust could not proceed (due to Rolls Razor’s insolvency) the loan became subject to a secondary trust in favour of Quistclose in the event of the money not being used for its dedicated purpose. Finally, given that the bank had notice of the mutual intention of the parties to create a trust, it was bound to respect that trust and could not use the funds to set-off debts owed to it by Rolls Razor.

Debts and trusts The mutual intention of the parties can be discerned from the language employed by the parties, the nature of the transaction and the relevant circumstances attending the relationship between them: Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502–3

Debts and trusts McManus RE Pty Ltd v Ward [2009] NSWSC 440, a deposit for the purchase of a hotel was paid directly into the vendor’s personal account. Absent any other indication that the money was to be held on trust, Palmer J found that the money was simply a debt and no trust had been created. McKechnie J found similarly in Smith v Western Australia [2009] WASC 189, where the mother and sister of a drug dealer were unable to establish a mutual intention to create a trust for funds which they provided to the drug dealer to help him pay his legal costs and mortgage. The drug dealer’s house was being confiscated as part of proceeds of crime legislation and the mother and sister claimed an interest in the house arising from their loans. This claim failed as there was no intention that they were to be given an interest in the house in response to their provision of funds. In Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135, money paid by one partner to fund a partnership was not found to have been paid with any objective intention that the money would be held on trust and repaid if the partnership failed. An intention to hold the funds on trust would have cut across the underlying assumption that partners had a right in every asset of the partnership

Debts and trusts Twinsectra Ltd v Yardley [2002] 2 AC 164- resulting trust? Quince v Varga [2008] QCA 376 at [38] Salvo v New Tel Ltd [2005] NSWCA 281 at [79] Marriner v Australian Super Developments Pty Ltd [2012] VSCA 171 George v Webb [2011] NSWSC 1608 Pearson v Western Australia [2012] WASC 102

Securities and trusts Debts will often be secured. This means that the debtor has agreed to give the creditor a proprietary interest in one or more of his or her assets. Should the debtor not pay, the creditor can realise the security by taking possession of the secured property or by ordering that it be sold and the proceeds be used to satisfy the debt.

Securities and trusts The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The proceeds of sale can then be used to satisfy amounts due to the chargee

Securities and Trusts The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The proceeds of sale can then be used to satisfy amounts due to the chargee

Securities and Trusts If the transferor intends that the title be transferred, ‘subject to’ payments being made to another, then it will be construed as a charge. For example, property might be given ‘to A subject to A paying B $1000’. This transfer evidences an intention that the obligation to pay is annexed to property as opposed to being a fiduciary obligation imposed on the transferee. The obligation is of a finite nature. It is satisfied after compliance. As such it is not of the same extent and duration as the trustee’s fiduciary obligations to care for the beneficiaries’ interest in a trust

Conditional dispositions and trusts
Transfers of property, which are subject to obligations being fulfilled to third parties, will ordinarily be viewed as equitable charges. If a transferor of property indicates a motive, hope or expectation that the property will be used in a particular way, the condition will be viewed as precatory and import no legal or equitable obligations. For example, gifts made in the belief that ‘justice will be done to my relatives’ will impose a moral obligation which has no force: In the Will of Warren; Verga v Taylor [1907] VLR 325

Gill v Gill (1921) 21 SR(NSW) 400 A disposition of a farm to the testator’s son was made on the condition that the son pay the testator’s debts and allow the testator’s three daughters to live in part of the farmhouse for as long as they remained unmarried. Harvey J found that the conditions were not conditions subsequent. Nor did they create a trust in favour of the sisters. Rather, the conditions were said to impose a personal equitable obligation on the son to provide appropriate accommodation to his remaining unmarried sisters.

Gill v Gill (1921) 21 SR(NSW) 400 Importantly, his Honour, at 407, said: In some cases the court may see that what the testator intended was to attach a charge or a trust upon the property, in other cases it may conclude a personal liability alone is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation. In cases where the obligation is merely personal in its nature, calling for the personal activity of the obligee, it may be the court could not effectively order speciﬁc performance; I see no reason why, in such cases the court should not mould the remedy so as to give a remedy by way of damages for the breach of the quasi contract.

Re Gardiner (dec’d) [1971] 2 NSWLR 494
Will gave whole estate to son “subject to my son paying the sum of £1,000 within two years from my death unto my son [A.]” A condition precedent (even if it could be satisfied Not a trust Not a charge

Re Gardiner (dec’d) [1971] 2 NSWLR 494
I can understand a trust arising or a charge being created where after the expiry of a certain time a payment is to be made or something is to be done or otherwise the property is to be dealt with in a particular way, but that is not the case here. What here arises from the words of the will is that something must be done within a particular time, and it seems to me that if, at the conclusion of that period of time, payment is not made or the act is not done, one must substitute a form of obligation, to enable performance, different from that which the testator indicated. I shall try to make myself clear. It might be that there is a personal obligation upon a prospective donee to make a payment in the present case within two years, but by the very terms of the will it seems to me that there cannot be a personal obligation upon him to make a payment within two years as in dicated by the testator after the expiry of that time. One must substitute a different obligation to enable the person to whom the legacy should have been paid to enforce it, and it seems to me the same applies in relation to a trust. What has to be done here is to impose an obligation by way of trust upon the first-named defendant which is to arise or accrue or continue after the expiry of two years, and I cannot see that in the terms of the will this is a possible form of obligation which can be said to arise. It seems to me that, in cases where you must replace an obligation imposed by the terms of the will by another, then neither the notion of trust nor the personal obligation created by the will is apt correctly to categorize the nature of the obligation which was intended to be created by the words of the testator.

If the transfer is made subject to a binding condition precedent, the transfer will not take place until the condition precedent is satisfied: Re Gardiner (dec’d) [1971] 2 NSWLR 494. If the condition is a condition subsequent the property will be forfeited if the condition is not fulfilled If the disposition states that the obligation is to be fulfilled within a time period it is viewed as a condition precedent: Re Gardiner (dec’d) [1971] 2 NSWLR 494 at 498, per Helsham J.

In cases where the conditional disposition is possibly a charge, condition precedent or condition subsequent, courts prefer to view the disposition as imposing a charge. It has been said that a conditional disposition will be treated as taking effect as a charge even where words of condition are used: Re Gardiner (dec’d) [1971] 2 NSWLR 494.

Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417
The countess was left a fund by her first husband to use for their infant daughter. The Countess was to be given the net annual income to spent on the child maintenance and education until she reached 15 years. The income was included in the assessable income of the Countess HC says income was not her beneficially

Personal equities Sometimes the obligation to the third party will be less definite, such as an obligation to ‘support’ or ‘take care’ of a third party, or make sure they ‘want for nothing’: Re Moore (1886) 55 LJ Ch 418; Broad v Bevan (1823) 38 ER 198 Such a personal equitable obligation does not create a property right in the third party beneficiary. Nor will the breach of the obligation give rise to a forfeiture of the gift. However, the personal obligation is enforceable and the breach of it may give rise to orders of specific performance, injunctions or equitable compensation: Kauter v Kauter [2003] NSWSC 741; Messenger v Andrews (1828) 38 ER 885; Gregg v Coates (1856) 53 ER 13. Gill v Gill (1921) 21 SR(NSW) 400 – sisters daughters to live in part of the farmhouse for as long as they remained unmarried Hammond v Hammond [2007] NSWSC 106 – never wants for anything

Personal equities Gill v Gill (1921) 21 SR(NSW) 400, Harvey J:
In some cases the court may see that what the testator intended was to attach a charge or a trust upon the property, in other cases it may conclude a personal liability alone is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation. In cases where the obligation is merely personal in its nature, calling for the personal activity of the obligee, it may be the court could not effectively order speciﬁc performance; I see no reason why, in such cases the court should not mould the remedy so as to give a remedy by way of damages for the breach of the quasi contract.

Retention of title clauses and trusts
Romalpa’ clauses, are contractual clauses used in the sale of goods. They allow suppliers to retain title in delivered goods until such time as full payment has been made: Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 2 All ER 552

Retention of title clauses and trusts
Romalpa clauses operate very much like a bailment and are therefore quite distinguishable from a trust relationship However, where the goods have been mixed with other goods or used in a manufacturing process or sold, Romalpa clauses can operate like a trust or a charge.

Associated Alloys Pty Limited
The seller had supplied steel to the buyer on terms that contained a Romalpa clause The clause stated that if the steel was sold before full payment, the buyer was required to hold an amount of the proceeds in a separate account that was equal to the amount owing on the steel ‘at the time of the receipt of such proceeds.’ The buyer had used the steel in the manufacturing process and sold the steel products to a third party. The third party had paid some, but not all, of the purchase price of the products. The buyer then went into liquidation.

The question for the High Court was whether the proceeds clause created a trust or a statutory charge which needs to be registered under s 262 The answer to the question hinged on the meaning of the word ‘proceeds’ in the proceeds clause. If the buyer was obliged to keep both the money and the book debts as ‘proceeds’ for the seller, then the clause would come under the definition of ‘charge’ under the Corporations Act, and be invalidated for want of registration. If the word ‘proceeds’ could be confined to the actual monies paid by the third party, the clause could be considered as trust.

A majority of the High Court (Gaudron, McHugh, Gummow and Hayne JJ) found that the clause had created a trust of the amounts that had been paid by the third party. The majority, at CLR 602; ALR 576-7, read the reference to ‘proceeds’ in the clause to refer only to the amounts that had actually been paid by the third party, and not to the book debts

Gaudron, McHugh, Gummow and Hayne JJ at CLR 602
The proper construction of the phrase ‘the proceeds’ is revealed by a consideration of the proceeds subclause as a whole … The phrase ‘the proceeds’ is to be construed as referring to moneys received by the buyer and not debts which may be set out in the buyer’s books (or computer records) from time to time ... The concluding sentence of the proceeds subclause would be strained if the phrase ‘the proceeds’ were to include book debts. In the event that a debt were subject to conditions, it may prove to be difficult to determine when the buyer is in ‘receipt’ of that intangible obligation. Moreover, to attempt to equate a chose in action, ‘in dollar terms’, to a sum of money, namely ‘the amount owing by the [buyer] to the [seller] at the time of the receipt of such proceeds’, is, at the very least, conceptually problematic. In contrast, limiting the phrase ‘the proceeds’ to refer to payments made to the Buyer results in this equation operating with certainty.

Gaudron, McHugh, Gummow and Hayne JJ at CLR 602
However, the majority found that the seller could not be given relief for breach of trust. The seller had failed to prove that the proceeds received by the buyer were received in relation to the steel that was subject to the Romalpa clause. This lack of evidence was fatal to the seller’s claims of relief.

Powers of appointment and trusts
In a power of appointment, the titleholder of property (the donor) gives another person (the donee) the power to deal with, or dispose of, the property that is the subject of the power. Normally the power will allow the donee to transfer the property to a third party who can be chosen from a class of people specified in the power (the objects of the power). Unlike a trustee, the donee of a power is not usually given the title to the property

1. general powers, where the donee is empowered to appoint the property to anyone including himself or herself; 2. special powers, which are powers to appoint the property to specific individuals or classes of objects, not including the donee; 3. hybrid powers, where the donee can give the property to anyone in the world except for a particular group or class or individual; and 4. intermediate powers, where the donee can add to the specified class of objects in the power.

Why does the distinction between trust powers and mere powers matter? Both mere and trust powers are required to describe their objects with sufficient certainty. It used to be the case that trust powers and mere powers were subjected to different tests of certainty

Re Gulbenkian's Settlement Trusts [1970] AC 508
Power - for the maintenance and personal support or benefit of all or any one or more to the exclusion of the other or others of the following persons, namely, the said Nubar Sarkis Gulbenkian and any wife and his children or remoter issue for the time being in existence whether minors or adults and any person or persons in whose house or apartments or in whose company or under whose care or control or by or with whom the said Nubar Sarkis Gulbenkian may from time to time be employed or residing and the other person or persons other than the settler for the time being entitled or interested whether absolutely, contingently or otherwise to or in the trust fund under the trusts herein contained to take effect after the death of the said Nubar Sarkis Gulbenkian in such proportions and manner as the trustees shall in their absolute discretion at any time or times think proper

Re Gulbenkian's Settlement Trusts [1970] AC 508
Lord Reid – poorly drafted but must be read with commercial sense Trust power or bare power? In my view it must follow that the trustees are to act in their fiduciary capacity. They are given an absolute discretion. So if they decide in good faith at appropriate times to give none of the income to any of the beneficiaries the court cannot pronounce their reasons to be bad. and similarly if they decide to give some or all of the income to a particular beneficiary the court will not review their decision. That was decided by this House in Gisborne v. Gisborne (1877) 2 App.Cas But their "absolute discretion" must, I think, be subject to two conditions. It may be true that when a mere power is given to an individual he is under no duty to exercise it or even to consider whether he should exercise it. But when a power is given to trustees as such, it appears to me that the situation must be different. A settler or testator who entrusts a power to his trustees must be relying on them in their fiduciary capacity so they cannot simply push aside the power and refuse to consider whether it ought in their judgment to be exercised. and they cannot give money to a person who is not within the classes of persons designated by the settlor: the construction of the power is for the court.

Lord Reid If the classes of beneficiaries are not defined with sufficient particularity to enable the court to determine whether a particular person is or is not, on the facts at a particular time, within one of the classes of beneficiaries, then the power must be bad for uncertainty. If the donee of the power (whether or not he has any duty) desires to exercise it in favour of a particular person it must be possible to determine whether that particular person is or is not within the class of objects of the power. and it must be possible to determine the validity of the power immediately it comes into operation. It cannot be valid if the person whom the donee happens to choose is clearly within the objects but void if it is doubtful whether that is so. So if one can reasonably envisage cases where the court could not determine the question the power must be bad for uncertainty. But it is not bad merely because such determination may be difficult in a particular case. The respondents have inserted in their case at the request of the trustees a statement that in the view of the trustees "it must be unlikely that they would in practice be able to exercise the said power or discretion except after obtaining a decision of the court whether any particular suggested object thereof did or did not fall within the said description." That in itself is not sufficient to warrant a decision that the power fails for uncertainty. It may be that there is a class of case where, although the description of a class of beneficiaries is clear enough, any attempt to apply it to the facts would lead to such administrative difficulties that it would for that reason be held to be invalid. But that is not this case.

Lord Upjohn There is no doubt that the first task is to try to ascertain the settlers intention, so to speak, without regard to the consequences, and then, having construed the document, apply the test. The court, whose task it is to discover that intention, starts by applying the usual canons of construction; words must be given their usual meaning, the clause should be read literally and in accordance with the ordinary rules of grammar. But very frequently, whether it be in wills, settlements or commercial agreements, the application of such fundamental canons leads nowhere, the draftsman has used words wrongly, his sentences border on the illiterate and his grammar may be appalling. It is then the duty of the court by the exercise of its judicial knowledge and experience in the relevant matter, innate common sense and desire to make sense of the settlers or parties' expressed intentions, however obscure and ambiguous the language that may have been used, to give a reasonable meaning to that language if it can do so without doing complete violence to it. The fact that the court has to see whether the clause is "certain" for a particular purpose does not disentitle the court from doing otherwise than, in the first place, try to make sense of it.

Lord Upjohn …with respect to mere powers, while the court cannot compel the trustees to exercise their powers, yet those entitled to the fund in default must clearly be entitled to restrain the trustees from exercising it save among those within the power. So the trustees or the court must be able to say with certainty who is within and who is without the power. It is for this reason that I find myself unable to accept the broader proposition advanced by Lord Denning M.R. and Winn L.J. mentioned earlier, and agree with the proposition as enunciated in In re Gestetner's Settlement [1953] Ch. 672 and the later cases.

Problem Characterise the following dispositions contained in Jock’s will: 1. I give my Rolls Royce to Isaac, and on the condition that Isaac pays my debts to Christos. 2. I give my house in Brewarina to Pauline absolutely, with the hope that she shall allow my mother to live there until she dies. 3. I give $25,000 to David, to be used for the costs of educating Millie and to be hers absolutely when she attains 21 years. 4. I give the residue of my estate to Frances who may, at her absolute discretion, give such residue to anyone she thinks fit, barring herself, Isaac, and Pauline. If Frances fails to dispose of the residue in her lifetime, it shall become the property of Millie.

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