McPHAIL and Others
v.
DOULTON and Others
Lord Reid
Lord Hodson
Lord Guest
Viscount Dilhorne
Lord Wilberforce
Lord Reid
MY LORDS,
For the reasons given by my noble and learned friend, Lord Wilberforce,
I would allow this appeal and make the Order which he suggests.
Lord Hodson
MY LORDS,
The question under appeal is whether on its true construction the provisions
of Clause 9(a) of a Deed dated 17th July, 1941, by which one Bertram
Baden established a fund to provide benefits for the staff of Matthew Hall &
Co. Ltd., and their relatives and dependants, constitutes a trust binding
the Trustees to distribute income in accordance with its provisions or is
a mere power not imposing any such duty. Clause 9 provided :
” (a) The trustees shall apply the net income of the fund in making
” at their absolute discretion grants … in such amounts at such
” times and on such conditions (if any) as they think fit. …
” (b) The trustees shall not be bound to exhaust the income of any
” year or other period in making such grants . . . and any income not
” so applied shall be … [placed in a bank or invested].
” (c) The trustees may realise any investments representing accumula-
” lions of income and apply the proceeds as though the same were
” income of the fund and may also … at any time prior to the
” liquidation of the fund realise any other part of the capital of the
” fund … in order to provide benefits for which the current income
” of the fund is insufficient.”
Clause 10 provided that all benefits being at the discretion of the trustees,
no person had any interest in the fund otherwise than pursuant to the
exercise of that discretion.
Of the preceding clauses, Clause 6(a) provided that all moneys in the hands
of the trustees and not required for the immediate service of the fund may
be placed in a deposit or current account with any bank or banking house
in the name of the trustees or may be invested as hereinafter provided ;
Clause 7 dealt with the trustees’ power of investment.
The settlor died in April, 1960, and his executors, the present Appellants,
claim that, the deed being wholly void, payment of the fund is due to
the settlor’s estate. This claim is resisted by those whose interest it is to
establish that, whether there is a trust or a mere power under which they
may benefit, in neither case is the provision which they seek to support void
for uncertainty.
The importance to the parties of the particular question under appeal lies
in the circumstance that as the law stands on the authorities it appears at
least probable that the prospect of success for the Appellants upon the
question whether the deed is void for uncertainty are considerably greater
if the effect of Clause 9 is to constitute a trust that if, on the other hand,
it only has the effect of giving to the Trustees a mere power not amounting
to a trust.
At first instance Goff J. held that nothing more than a power imposing
no duty was contained in the provision contained in Clause 9. On appeal
the majority of the Court of Appeal sustained his judgment without being
2
able to find any certainty in their conclusion, in view of the even balance,
as it seemed to them, of the arguments presented. The majority felt able
to sustain the judgment by relying on the doctrine ut res magis valeat quam
pereat in order that the terms of the deed might have a chance of being
effective since, without flying in the teeth of its provisions, the view of the
trial judge might prevail thus giving a better opportunity to those upon whom
the testator wished to confer benefit.
There is no doubt that the primary trust here is expressed in a mandatory
form. True that this is not necessarily conclusive, cf. In re Main’s Settlement
[1961] 1 W.L.R. 440 per Lord Evershed M.R. at page 443, but it is powerful
foundation for the argument that a trust so created in its inception is not
converted into a power by the mere addition in a later clause of a power
to accumulate surplus income. Notwithstanding the different views expressed
by the learned judges who have considered the matter in the Courts, I cannot
for myself resist the conclusion reached by Russell L.J. that Clause 9 is
a provision for the distribution of the whole with power to accumulate.
There is a complete disposition with a primary duty to distribute, a trust
for the whale period of its existence with a power to carry forward from
year to year.
Clause 10 is relied upon by the Respondents as showing that no member
of the class was to be entitled to benefit from the fund otherwise than by
the exercise of the discretion of the Trustees. So it is said that there cannot
be a trust of the income but only a power over it. I do not accept this.
I agree with Russell L.J. that Clause 10 correctly recites the effect of
Clause 9 viz. that all benefits are at the discretion of the Trustees. The
remainder of the clause states the legal result. If this makes Clause 10
superfluous it does not justify, in my opinion, the conclusion that it produces
a resulting trust to the settlor of income over which the Trustees might
not exercise their discretion in the event of accumulation being no longer
permissible. On the face of it, Clause 9(b) is no more than a provision
for retention of monies unexpended during the lifetime of the trust and as
Russell L.J. pointed out it has no other function. True that the language
of Clause 9(c) using the word ” accumulation ” which often has a technical
significance, denoting capital, followed by the permission to apply the
proceeds as though the same were income and the succeeding reference to
any other part of the capital of the fund suggest and lend support to the
contrary conclusion. I am, I admit, unable to account for this language
except on the footing of attributing to the draftsman a failure to give accurate
expression to the intention of the Settlor. I am, however, satisfied after
construing this deed as a whole that the Appellants are right in their first
contention viz. that Clause 9(a) constitutes a trust or power coupled with a
duly under which the Trustees are bound to distribute the whole estate.
Clause 9(a) and (b) together are mandatory, the latter being assisted by
administrative proviso including provision for the retention and investment
of unexhausted income. Clause 9(c), notwithstanding its references to capital,
is concerned only with those investments which it is to be noted can be realised
only with the consent of all the Trustees. This treatment is in contrast
with powers given to two (or more) trustees as to the trust fund generally
(see Clause 6(b)). For these reasons I am of opinion that the order of the
Court of Appeal should be reversed in so far as it affirmed that part of the
order of Goff J. dated 12th July, 1967, which declared that the provisions
of Clause 9(a) constitute a power and not a trust. Unfortunately this does
not settle the dispute between the parties.
Goff J. had in addition held that the power was valid and was not void
for uncertainty, and on that footing had held that an amending Deed
dated 21st December, 1962, was also valid. This additional holding was
discharged by the Court of Appeal which ordered remission to the Chancery
Division for further hearing of the question whether upon the true construction
of the Deed of the 17th July, 1941, the provision for the benefit of officers
and employees and ex-employees of the company and relatives or dependents
of such persons are (a) valid or (b) void for uncertainty or for any other
reason.
3
This latter part of the order of the Court of Appeal should stand together
with a declaration that the provisions of Clause 9(a) constitute a trust, not
a power.
There remains the vexed question, much canvassed before your Lordships
not only in this case but in Whishaw and Another v. Stephens and Others
[1968] 3 WLR 1127, as to the distinction, if any, between trusts and bare
powers in favour of a class of persons when the Court has to consider
whether a disposition fails by reason of uncertainty.
Of late years a number of dispositions have been considered by the Courts
in which donors have sought to make elaborate provisions in favour of
beneficiaries including such persons as the employees of limited companies
and their wives and widows. Such a case was the Broadway Cottages case
decided in the Court of Appeal and reported in [1955] Ch 20. It was there
recognised that the accepted test of the validity of a trust was that it must
be such as the Court can control. The authority for this proposition is to
be found in Morice v. Bishop of Durham (1805) 10 Ves 522 as stated by
Lord Eldon at page 540 where he said : ” As it is a maxim, that the execution
” of a trust shall be under the control of the Court, it must be of such a
” nature, that it can be under that control; so that the administration of it
” can be reviewed by the Court; or, if the trustee dies, the Court itself
” can execute the trust; a trust therefore, which, in case of mal-administration
” could be reformed ; and a due administration directed ; and then, unless
” the subject and the objects can be ascertained, upon principles, familiar
” in other cases, it must be decided, that the Court can neither reform mal-
” administration, nor direct a due administration.” In a sentence there is
no trust over which the Court cannot assume control. If the inability arises
from inability to ascertain the objects of the alleged trust, it is said to be
void for uncertainty.
The language used on this topic may have varied from time to time but
is, I think, consistent with that used in the Broadway Cottages case where,
in holding that the trusts of income were not such as the Court could enforce,
the Court based itself upon the judgment of Lord Tomlin (sitting at first
instance) in In re Ogden [1933] Ch. 678 who held that a trust for such
members of a given class of objects as the trustees shall select is void for
uncertainty, unless the whole range of objects eligible for selection is ascer-
tanied or capable of ascertainment.
I adhere to the view expressed in the Court of Appeal in the Broadway
case, that this proposition is based on sound reasoning. The Broadway Trust
ease has stood for many years. Disquiet has, however, now arisen about a
strict adherence to the requirement of certainty there propounded. This
disquiet is due to the narrow distinction between trust, on the one hand,
where certainty is required and mere powers, on the other hand, where
something less is needed. This matter was discussed before your Lordships
in Whishaw v. Stephens (supra) (usually called the Gulbenkian case) and
disquiet at the effect of the Broadway Trust decision is, I think, to be
discerned in the speech of my noble and learned friend, Lord Reid, in the
Gulbenkian case; and was clearly expressed by the two learned Lords
Justices, both experienced equity lawyers, in the Court of Appeal in this
case. The observations upon the distinction to which I have referred were
not strictly necessary to the discussion in the Gulbenkian ease but the matter
does become of crucial importance in the instant case in view of the ratio
decidendi which prevailed in the Court of Appeal.
The problem itself is not new. I may. I hope, be forgiven for referring
to the leading case of Brown v. Higgs twice heard before the Rolls Court
by Sir Richard Arden and finally in your Lordships’ House by Lord Eldon
(see 4 Ves. Jun. 709, 5 Ves. Jun. 495 and 8 Ves. 562). At the rehearing
at page 505 Sir Richard is reported as admitting that the distinction between
trust and power was very nice. He illustrated the nicety by reference to the
case of the Duke of Marlborough v. Lord Godolphin 2 Ves. Jun. page 61.
The distinction between a trust and a mere power can be stated shortly
although the short statement will require some explanation. It is that where
there is a trust there is a duty imposed upon the trustees who can be
4
controlled if necessary in the exercise of their duty. Whether the trust is
discretionary or not the Court must be in a position to control its execution
in the interests of the objects of the trust. Where there is a mere power
entirely different considerations arise. The objects have no right to complain.
Where by the instrument creating the power the discretion is made absolute
and uncontrolable the Court cannot interfere (Gisborne v. Gisborne 2 App.
Cas. 300). The trust in default controls and he to whom the trust results
in default of exercise of the power is in practice the only one competent to
object to a wrongful exercise of the power by the donee. Counsel did not
profess to know of any successful application to the Court by a person
claiming to be an apparent object of a bare power. I exclude from considera-
tion cases in which bad faith may be alleged.
I do not deny that what I have said about powers is, so to speak, blurred
at the edges by cases in which powers of donees who refuse to exercise
their discretion have been treated by the Courts as trusts. These powers
have been described as intermediate between trusts and powers and are
described in detail in Farwell on Powers 2nd edition page 468 where he
cites from the judgment of Lord Eldon in Brown v. Higgs (supra) the
following passage:
” Where there is a mere power of disposing and it is not executed.
” the Court cannot execute it; but wherever a trust is created and the
” execution of that trust fails by the death of the trustee or by accident,
” the Court will execute the trust. But there arc not only a mere
” trust and a mere power, but there is also known to the Court
” a power which the party to whom it is given is intrusted and required
” to execute; and with regard to that species of power, the Court
” considers it as partaking so much of the nature and qualities of a trust,
” that if the person who has that duty imposed on him does not discharge
” it, the Court will to a certain extent discharge the duty in his room
” and place. The principle is that if the power is one which it is the
” duty of the donee to execute, made his duty by the requisition of
” the will, put upon him as such by the testator, who has given him an
” interest intensive enough to enable him to discharge it, he is a trustee
” for the exercise of the power, and has a discretion whether he will
” exercise it or not. The Court adopts the principle as to trusts, and
” will not permit his negligence, accident, or other circumstances to
” disappoint the interests of those for whose benefit he is called upon to
” execute it.”
This passage as quoted by the learned author is to the same effect but not
verbatim the same as that which appears in the report of Vesey Junior.
It does, however, show that where powers of a fiduciary character, as
opposed to being mere powers not coupled with a duty, are concerned the
Court’s position differs in no way from that which it occupies in the case of
trusts generally. Lord Eldon in the same case at page 576 of the report in
8 Vesey said that it was difficult to reconcile all the cases.
Examples of interference by the Court are to be found in such cases as
Gower v. Mainwaring 2 Ves. Sen. 87 which shows that the Court, where a
rule has been laid down for the guidance of donees of powers, will act upon
it in the same way as the donees might have done. If trustees disclaim the
power, the Court may execute it—see Hewall v. Hewell 2 Eden 332. In In
re Hodges, Davey v. Warr 7 Ch.D. 759 the Court interfered where trustees
were considered to be acting capriciously. Where duty and power are
coupled the Court can compel the trustees to perform the duty—see
Gisborne v. Gisborne (supra) and Tempest v. Lord Camoys 21 Ch.D. 571.
In the Gulbenkian case (supra) the majority of your Lordships held the
view that where there is a valid gift over in default of appointment a mere
or bare power of appointment among classes is valid if it can be said with
certainty whether any given individual is or is not a member of a class
and that the power did not fail simply because of the impossibility of
determining every member of the class.
5
In my opinion a mere power is a different animal from a trust and the
test of certainty in the case of trusts which stems from Morice v. Bishop
of Durham (supra) is valid and should not readily yield to the test which
is sufficient in the case of mere powers.
The unhappy results which may follow from incompetent drafting may
be, in the case of an instrument held to impose a trust, that it is so much
waste paper whereas in the case of an instrument differing perhaps on the
face of it very little from the invalid trust instrument a good gift of a power
to benefit objects may emerge. Thus it is said in order to avoid fine
distinctions the test should be the same for both.
One persuasive argument used is that, in applying the principle that where
there is a trust the Court must be in a position to exercise it, the Court cannot
exercise the trustees’ discretion in the event of their failing to do so. The
discretion being conferred on and exercisable by the trustees alone the
Court cannot do other than authorise a distribution in equal shares. This,
in cases comparable with the present, must lead to a result tending towards
absurdity and makes the strict test of certainty open to serious criticism.
This disability of the Courts to exercise the discretion reposed in trustees
was referred to in the recitation of the argument for the Crown in the
judgment of the Court in the Broadway case (supra) at page 30. It was
not referred to specifically in the conclusion reached by the Court although
it would be fair to say that the arguments of the Crown set out in the
judgment were implicitly accepted. For myself I do not deny that there
is force in the argument based on the absurdity of an equal division
especially as it has not always been accepted.
In what are called the relations cases, Moseley v. Moseley (1673) Rep.
Temp. Finch 53, Clarke v. Turner (1694) 2 Freeman 198 and Warburton v.
Warburton (1702) 4 Bro. P.C.1, the Court did exercise its own discretionary
judgment against equal division. Similarly, in a different context the same
principle was applied in the case of Richardson v. Chapman (1760) 7 Bro.
P.C.318 where it appears from the reported argument that the Court
decreed the proper act to be done not by referring the matter to the trustee’s
discretion but by directing him to perform as a mere instrument the thing
decreed (pages 726-7). These cases may be explained as cases where there
were indications which acted as pointers or guides to the trustees and enabled
the Court to substitute its own discretion for that of the trustees.
This practice, however, has fallen into desuetude and the modern, less
flexible, practice has it appears been followed since 1801 when Sir R. Arden
MR. in Warburton v. Warburton 5 Ves. 849 stated that the Court now
disclaims the right to execute a power and gives the fund equally. The basis
of this change of policy appears to be that the Court has not the same freedom
of action as a trustee and must act judicially according to some principle or
rule and not make a selection giving no reason as the trustees can. The
Court, it is said, is driven in the end to the principle that equity is equality
unless, as in the relations cases, the Court finds something to aid it. Where
there is no guide given the Court, it is said, has no right to substitute its own
discretion for that of the designated trustees.
I regret that the Court is driven to adopt a non possumus attitude in cases
where trustees fail to exercise a trust power. In this connection it is perhaps
not irrelevant to note that the Court has not shown itself helpless in cases of
failure and uncertainty where an order has been made to distribute part and
pay the balance into Court (see Re Benjamin [1902] 1 Ch. 723. Difficulties
of fact in these cases must often arise especially after the passage of time when
it is not known what has happened to members of a class who have gone
abroad or disappeared and should be capable of solution. Certainty of
description, however, if required, must be required at the moment when a
trust instrument operates.
I have had the advantage of reading the speech which has been prepared
by my noble and learned friend Lord Wilberforce whose opinion particularly
on this topic is of very strong persuasive power. I cannot, however, bridge
6
the gulf which still I think yawns between us. If one bases oneself, as I do,
on the passage from Lord Eldon’s judgment in Morice v. Bishop of Durham
(supra) as defining the features of a trust, it is, in my opinion, impermissible
to sanction, in the case of an uncertain disposition in the sense of the passage
quoted, the authorisation by the Court of a scheme of distribution such as
he suggests. I cannot accept that this is justified by stating that a wider
range “of enquiry is called for in the case of trust powers than in the case of
powers (meaning ” mere ” as opposed to ” trust powers “). To adopt this
solution is I think to do the very thing which the Court cannot do. As was
pointed out by my noble and learned friend Lord Upjohn in the Gulbenkian
case (at page 1139)—
” The trustees have a duty to select the donees of the donor’s bounty
” from among the class designated by the donor; he has not entrusted
” them with any power to select the donees merely from among claimants
” who are within the class, for that is constituting a narrower class and
” the donor has given them no power to do this “.
I have read and re-read the speech of my noble and learned friend, Lord
Wilberforce, with, I hope, a readiness to change my mind and to temper
logic with convenience, but have given the best consideration I can to the
problem I still adhere to the view I have previously expressed in the Broadway
Cottages case and in the Gulbenkian case as to the requirements for certainty
in the case of the objects of a trust.
I agree with Russell L.J. that the appeal should be allowed and declare
that the provision of clause 9 (a) constitute a trust, and remit the case to the
Chancery Division for determination whether clause 9 is (subject to the effects
of section 164 of the Law of Property Act, 1925), valid or void for uncertainty.
Lord Guest
MY LORDS,
I have had the advantage of reading the speech of my noble and learned
friend, Lord Hodson. I agree with it. I only make a few observations of
my own.
Upon the question of construction I have no doubt, in agreement with
Russell L.J. in the Court of Appeal, that this is a trust and must be so
construed. Clause 9 (a) is mandatory and provides that the Trustees shall
apply the net income of the Fund in making at their absolute discretion
grants to or for the benefit of certain persons. By clause 9 (b) they are not
bound to exhaust the income of any one year or period in making such
grants. Any income not so applied is to be dealt with according to clause
6 (c) which provides that moneys in the hands of the Trustees not required
for the immediate service of the Fund are to be placed on deposit or current
account or invested. There is a distinction made between the Fund as
defined by clause 1 and consisting of the capital of the Fund and the income
which according to clause 9 (a) is to be distributed among the beneficiaries.
It was argued for the Respondents that the terms of the deed imported an
accumulation of income with power to distribute. I prefer the Appellants’
description as a direction to distribute income with a power to withhold
income.
There is, in my view, a complete answer to the argument that clause 9 (c)
contains a mere power and not a trust in that if it was a power the Trustees
would not be bound to distribute one penny of the income. This is quite
which according to clause 9 (a) is to be distributed among the beneficiaries,
should be distributed with a power to withhold.
If I understand English law correctly there is a basic distinction between
a deed containing a power and a deed containing a trust. The distinction
may be difficult to draw, but once drawn the effect is different. In the
former case there is a resulting trust in favour of the Settlor upon failure
to exercise the power or in the case of an invalid exercise. In the case of a
7
trust the beneficiaries are the objects of the trustee’s bounty. The trustees
are acting in a fiduciary capacity. If the trustees fail to exercise their dis-
cretion, the Court can compel them to exercise the trust. This distinction
has been recognised in the authorities over the years (see Gisborne v. Gisborne
2 App. Cas. 300) and finally confirmed by a majority of your Lordships
in Whishaw v. Stephens [1968] 3 WLR 1127. In that case the deed
admittedly contained a power and the test accordingly was whether in the
case of any individual the trustees could safely say that he did or did not
come within the category of objects of the power and it was held that the
deed was valid (see Lord Upjohn at page 1113). But my noble and learned
friend Lord Upjohn having dealt with the question of a mere power pro-
ceeded to make some general observations upon the question where there
was a trust and not a power. The distinction between a power and a trust
was clearly recognised in those observations albeit obiter by Lord Upjohn.
My noble and learned friend, Lord Hodson, and I concurred in his opinion.
But I do not detect in the opinions of the other noble Lords in that case any
disagreement with the distinction.
Upon the assumption that this is a deed containing a trust power and not
a mere power—as I understand all your Lordships agree—the question then
arises what test is to be applied in order to determine the validity of the
trust. Up till the present day the test in each case has been different. In
the case of a power it is only necessary for the trustees to know whether a
particular individual does or does not come within the ambit of the power.
(Whishaw v. Stephens (sup. cit.) In the case of a trust power it is necessary
for the validity of the trust that the class among whom the trustees are to
exercise their discretion must be ascertainable. This is the result of the
decisions in In re Ogden [1933] Ch. 678 (a decision of Lord Tomlin) and
latterly in Broadway Cottages Trust [1955] Ch 20 as confirmed in the
opinions of the majority of your Lordships in Gulbenkian’s case sub. nom.
Whishaw v. Stephens [1968] 3 W.L.R. 1117.
It is now suggested for the first time that so far as the test of validity is
concerned a mere power and a trust power can be assimilated. It is worth
observing at the outset that this is a change of direction from the opinion
expressed by the majority as recently as 1968. This is justified not upon
the ground that the arguments in the previous case were not fully canvassed
nor upon the ground that the previous decision was plainly wrong, but upon
the basis of expediency.
I will now attempt to analyse the basis of the view of those who consider
that there should be an assimilation of the tests for validity. As I have
already said, the distinction between a mere power and a trust power is funda-
mental. The Court, apart from a mala fide exercise of a mere power has
no control over the exercise of the power by the donee or trustees as the
ease may be. If it is not exercised or fails for invalidity the fund goes to
those entitled in default, under the settlement or on a resulting trust as the
ease may be. It is very different in the case of a trust power. There the
trustees are under a fiduciary duty to exercise the power. The beneficiaries
can compel the trustees to exercise the power by application to the Court
if necessary. If the beneficiaries agreed among themselves to equal divisions
they could compel the trustees to distribute the whole fund. (See Harman
L.J. in in re Gestetner [1953] Ch. 672 at page 686.) One of the reasons
which, it is said, requires complete ascertainment of the class of objects is
that if the Court has to administer the trust then, as it is only the trustees
who have discretionary powers, the Court can only make an equal division.
” Equity is equality “. This basic conception is challenged by reference to
what is known as the ” relation ” cases. It is said that the Court in these
eases has, instead of making an equal division, made a selection in the
exercise of its discretion. This shows, it is said, that the principle of equal
division is not a necessary result of the exercise of a trust power by the
Court. I regard the ” relation ” cases as special for this reason, that in all
of them some guide or pointer was given to the trustees as to the manner in
which that discretion was to be exercised. The settlor entrusted a discretion
to his trustee with certain guide lines and in these circumstances the Court
8
did not find it difficult to exercise its own discretion in accordance with the
supposed intention of the settlor. For example in Clarke v. Turner 2 Free 198
the devise was to ” such of the relations as he should think fit, most
reputable for his family”. The Court chose the heir-at-law as the most
reputable. In Warburton v. Warburton (1702) 4 Bro. P.C.I “a most
extraordinary case ” as described by the Master of the Rolls in Kemp v.
Kemp (infra cit.) the discretion was among the executors, brothers and sisters
according to their needs. The Court gave a double share to the heir.
Richardson (1760) 7 Bro. P.C. 318 was not a “relation” case but depended
on its own very special facts. Granted that the Court did not in these
cases direct an equal division, it by no means follows that in a non-relation
case where the trustees are given the discretion to distribute amongst a wide
class of objects with no guide lines the Court would exercise a power of
selection. The Court has no discretion and is given no guide lines upon
which to exercise a discretion. It is on the trustees that the settlor has
conferred the discretion. The Court can in these circumstances only order
an equal division. I consider that the reliance on the “relation” cases is
based upon an insecure foundation. Moreover in none of those cases was
it ever suggested that the class of objects was not ascertainable. The test
of validity never therefore arose.
A more fundamental objection, however, to the reliance on these cases
as a basis for a change in the law is not only their great antiquity—all in
the eighteenth century—but also that they were all decided before Kemp v.
Kemp (1801) 5 Ves. Jun. 849 and Morice v. Bishop of Durham (1805)
10 Ves. Jun. 522 where the principle of equality was firmly established and
has, so far as my researches go, never been questioned since. In Kemp
the relation cases were cited but were not thought of sufficient importance
to alter the practice. I do not re-quote the passage from Lord Eldon’s
judgment in Morice v. Bishop of Durham referred to in the speech of my
noble and learned friend Lord Hodson.
It Would be presumptuous on my part to attempt to improve upon the
language of my noble and learned friend Lord Upjohn in Gulbenkian
(supcit). I agree with the conclusions he expresses in that part of his
speech which has been correctly described as obiter dictum. It seems to be
as plain as can be that if all the objects are not ascertainable then to
distribute amongst the known objects is -to take a narrower class than the
settlor has directed and so to conflict with his intention.
It has been suggested that it is not in conformity with the Court’s duty
to administer a trust that the settlor’s intentions are to be defeated by this
” narrow distinction ” between mere power and trust power. As I have
already said I regard the distinction as basic. It is also suggested that it
is in the public interest that trusts of the nature of the present should be
saved, if possible, because of the great benefit conferred on the beneficiaries.
I agree, but if this is desirable the remedy is by legislation and not by
judicial reform.
For these reasons, I adhere to my concurrence with the whole of the
opinion of my noble and learned friend, Lord Upjohn, in Gulbenkian.
I would allow the appeal.
Viscount Dilhorne
MY LORDS,
I have had the advantage of reading the opinion of my noble and learned
friend, Lord Wilberforce. I agree with it. For the reasons he gives in my
opinion the provisions of Clause 9(a) of the Deed constitute a trust and I
entirely agree with his observations as to the tests to be applied to determine
the validity of a trust.
I too, would allow the appeal and make the orders he proposes.
9
Lord Wilberforce
MY LORDS,
This appeal is concerned with the validity of a Trust Deed dated 17th July,
1941, by which Mr. Bertram Baden established a fund for the benefit, broadly,
of the staff of the Respondent company Matthew Hall & Co. Ltd. Mr. Baden
died in 1960 and the Appellants are the executors of his will. They claim
that the Trust Deed is invalid and that the assets transferred to the Trustees
by their Testator revert to his estate. The Trusts established by the Deed
are of a general type which has recently become common, the beneficiaries
including a wide class of persons among whom the Trustees are given
discretionary powers or duties of distribution. It is the width of the class
which in this, and in other cases before the Courts, has given rise to
difficulty and to the contention that the trusts are too indefinite to be upheld.
The Trust Deed begins with a recital that the Settlor desired to establish
a fund for providing benefits for the staff of the Company and their relatives
or dependants. The critical clauses are as follows:
” 9. (a) THE Trustees shall apply the net income of the Fund in
” making at their absolute discretion grants to or for benefit of any of
” the officers and employees or ex-officers or ex-employees of the Com-
” pany or to any relatives or dependants of any such persons in such
” amounts at such times and on such conditions (if any) as they think
” fit and any such grant may at their discretion be made by payment to
” the beneficiary or to any institution or person to be applied for his
” or her benefit and in the latter case the Trustees shall be under no
” obligation to see to the application of the money.
” (b) The Trustees shall not be bound to exhaust the income of any
” year or other period in making such grants as aforesaid and any
” income not so applied shall be dealt with as provided by Clause 6 (a)
” hereof.
” [Clause 6 (a) -All moneys in the hands of the Trustees and not
” required for the immediate service of the Fund may be placed in a
” deposit or current account with any Bank or Banking House in
” the name of the Trustees or may be invested as hereinafter provided.]
” (c) The Trustees may realise any investments representing accumula-
” tions of income and apply the proceeds as though the same were
” income of the Fund and may also (but only with the consent of all
” the Trustees) at any time prior to the liquidation of the Fund realise
” any other part of the capital of the Fund which in the opinion of the
‘ Trustees it is desirable to realise in order to provide benefits for which
” the current income of the Fund is insufficient.
” 10. ALL benefits being at the absolute discretion of the Trustees,
” no person shall have any right title or interest in the Fund otherwise
” than pursuant to the exercise of such discretion, and nothing herein
” contained shall prejudice the right of the Company to determine the
” employment of any officer or employee.”
Clause 11 defines a perpetuity period within which the trusts are, in any
event, to come to an end and Clause 12 provides for the termination of the
Fund. On this event the Trustees are directed to apply the Fund in their
discretion in one or more of certain specified ways of which one is in making
grants as if they were grants under Clause 9 (a). There are certain other
provisions in the Deed upon which arguments have been based, but these
are of a subsidiary character and citation of them is unnecessary.
The present proceedings were started in 1963 by an Originating Summons
taken out in the Chancery Division by the Trustees of the Deed seeking the
decision of the Court upon various questions, including that of the validity
or otherwise of the trusts of the Deed. It came before Goff J. in 1967.
He first decided that the references in Clauses 9 and 12 to employees of
the Company were not limited to the ” staff” but comprised all the officers
and employees of the Company. There was no appeal against this.
10
On the main question of validity, the learned judge was, it seems invited
first to decide whether the provisions of Clause 9 (a) constitute a Trust or a
power. This was on the basis that certain decided cases (which I shall
examine) established a different test of invalidity for trusts on the one hand
and powers on the other. He decided in favour of a power, and further
that on this footing Clause 9 (a) was valid. On appeal, the Court of Appeal
by a majority upheld the decision in favour of a power, but held also that
the learned judge had applied the wrong test for the validity of powers,
the correct test being that stated (subsequent to the hearing before Goff J.)
by this House in re Gulbenkian’s Settlement, Whishaw v. Stevens [1968]
3 W.L.R. 1127. The Court of Appeal therefore remitted the case to the
Chancery Division to reconsider the validity of Clause 9 (a) as a power.
In this House, the Appellants contend, and this is the first question for
consideration, that the provisions of Clause 9 (a) constitute a trust and not a
power. If that is held to be the correct result, both sides agree that the
case must return to the Chancery Division for consideration, on this footing,
whether this trust is valid. But here comes a complication. In the present
suite of authority, the decision as to validity would turn on the question
whether a complete list (or on another view a list complete for practical
purposes can be drawn up of all possible beneficiaries. This follows from
the Court of Appeal’s decision in In re Broadway Collages Trust [1955]
Ch. 20 as applied in later cases by which, unless this House decides other-
wise, the Court of Chancery would be bound. The Respondents invite your
Lordships to review this decision and challenge its correctness. So the
second issue which arises, if Clause 9 (a) amounts to a trust, is whether the
existing test for its validity is right in law and if not, what the test ought
to be.
Before dealing with these two questions some general observations, or
reflections, may be permissible. It is striking how narrow and in a sense
artificial is the distinction, in cases such as the present, between trusts or as
the particular type of trust is called, trust powers, and powers. It is
only necessary to read the learned judgments in the Court of Appeal to see
that what to one mind may appear as a power of distribution coupled with
a trust to dispose of the undistributed surplus, by accumulation or otherwise,
may to another appear as a trust for distribution coupled with a power to
withhold a portion and accumulate or otherwise dispose of it. A layman
and, I suspect, also a logician, would find it hard to understand what
difference there is.
It does not seem satisfactory that the entire validity of a disposition should
depend on such delicate shading. And if one considers how in practice
reasonable and competent trustees would act, and ought to act, in the two
cases, surely a matter very relevant to the question of validity, the distinction
appears even less significant. To say that there is no obligation to exercise
a mere power and that no court will intervene to compel it whereas a trust is
mandatory and its execution may be compelled may be legally correct enough
but the proposition does not contain an exhaustive comparison of the duties
of persons who are trustees in the two cases. A trustee of an employees’
benefit fund, whether given a power or a trust power, is still a trustee and he
would surely consider in cither case that he has a fiduciary duty: he is most
likely to have been selected as a suitable person to administer it from his
knowledge and experience, and would consider he has a responsibility to do
so according to its purpose. It would be a complete misdescription of his
position to say that if what he has is a power unaccompanied by an imperative
trust to distribute he cannot be controlled by the Court if he exercised it
capriciously, or outside the field permitted by the trust, c.f. Farwell on Powers
3rd ed. p. 524. Any trustee would surely make it his duty to know what is
the permissible area of selection and then consider responsibly, in individual
cases, whether a contemplated beneficiary was within his powers and whether,
in relation to other possible claimants, a particular grant was appropriate.
Correspondingly a trustee with a duty to distribute, and particularly among
a potentially very large class, would surely never require the preparation of
a complete list of names, which anyhow would tell him little that he needs to
11
know. He would examine the field, by class and category; might indeed
make diligent and careful enquiries, depending on how much money he had
to give away and the means at his disposal, as to the composition and needs
of particular categories and of individuals within them ; decide upon certain
priorities or proportions, and then select individuals according to their needs
or qualifications. If he acts in this manner, can it really be said that he is
not carrying out the trust?
Differences there certainly are between trusts (trust powers) and powers,
but as regards validity should they be so great as that in one case complete,
or practically complete ascertainment is needed, but not in the other? Such
distinction as there is would seem to lie in the extent of the survey which the
trustee is required to carry out: if he has to distribute the whole of a fund’s
income, he must necessarily make a wider and more systematic survey than
if his duty is expressed in terms of a power to make grants. But just as, in
the case of a power, it is possible to underestimate the fiduciary obligation of
the trustee to whom it is given, so, in the case of a trust (trust power), the
danger lies in overstating what the trustee requires to know or to enquire into
before he can properly execute his trust. The difference may be one of
degree rather than of principle: in the well-known words of Wilmot C. J.
(Wilmot p. 23) trusts and powers are often blended, and the mixture may vary
in its ingredients.
With this background I now consider whether the provisions of Clause
9 (a) constitute a trust or a power. I do so briefly because this is not a matter
on which I or, I understand, any of your Lordships have any doubt. Indeed,
a reading of the judgments of Goff J. and of the majority in the Court of
Appeal leave the strong impression that if it had not been for their leaning
in favour of possible validity and the state of the authorities, these learned
judges would have found in favour of a trust. Naturally read, the intention
of the Deed seems to me clear: Clause 9 (a), whose language is mandatory
(” shall “), creates, together with a power of selection, a trust for distribution
of the income, the strictness of which is qualified by Clause 9 (b) which allows
the income of any one year to be held up and (under Clause 6 (a)) either
placed, for the time, with a Bank, or, if thought fit, invested. Whether there
is, in any technical sense, an accumulation, seems to me in the present context
a jejune enquiry: what is relevant is that Clause 9 (c) marks the difference
between ” accumulations ” of income and the capital of the fund: the former
can be distributed by a majority of the trustees, the latter cannot. As to
Clause 10, I do not find in it any decisive indication. If anything, it seems
to point in favour of a trust, but both this and other points of detail, are
insignificant in the face of the clearly expressed scheme of Clause 9. I there-
fore agree with Russell L. J. and would to that extent allow the appeal, declare
that the provisions of Clause 9 (a) constitute a trust and remit the case to the
Chancery Division for determination whether on this basis Clause 9 is (subject
to the effects of section 164 of the Law of Property Act 1925) valid or void
tor uncertainty.
This makes it necessary to consider whether, in so doing, the Court should
proceed on the basis that the relevant test is that laid down in In re Broadway
Cottages Trust (u.s.) or some other test.
That decision gave the authority of the Court of Appeal to the distinction
between cases where trustees are given a power of selection and those where
they are bound by a trust for selection. In the former case the position, as
decided by this House, is that the power is valid if it can be said with
certainty whether any given individual is or is not a member of the class and
does not fail simply because it is impossible to ascertain every member of
the class. (In re Gulbenkian’s Settlement (u.s.).) But in the latter case it
is said to be necessary, for the trust to be valid, that the whole range of
objects (I use the language of the Court of Appeal) should be ascertained or
capable of ascertainment.
The Respondents invited your Lordships to assimilate the validity test for
trusts to that which applies to powers. Alternatively they contended that in
any event the test laid down in the Broadway Cottages case was too rigid,
12
and that a trust should be upheld if there is sufficient practical certainty in
its definition for it to be carried out, if necessary with the administrative
assistance of the Court, according to the expressed intention of the settlor.
I would agree with this, but this does not dispense from examination of the
wider argument. The basis for the Broadway Cottages principle is stated
to be that a trust cannot be valid unless, if need be, it can be executed by the
Court, and (though it is not quite clear from the judgment where argument
ends and decision begins) that the Court can only execute it by ordering
an equal distribution in which every beneficiary shares. So it is necessary
to examine the authority and reason for this supposed rule as to the execution
of trusts by the Court.
Assuming, as I am prepared to do for present purposes, that the test of
validity is whether the trust can be executed by the court, it does not follow
that execution is impossible unless there can be equal division.
As a matter of reason, to hold that a principle of equal division applies
to trusts such as the present is certainly paradoxical. Equal division is surely
the last thing the settlor ever intended: equal division among all may, prob-
ably would, produce a result beneficial to none. Why suppose that the Court
would lend itself to a whimsical execution? And as regards authority, I do
not find that the nature of the trust, and of the Court’s powers over trusts,
calls for any such rigid rule. Equal division may be sensible and has been
decreed, in cases of family trusts for a limited class, here there is life in the
maxim ” equality is equity”, but the cases provide numerous examples
where this has not been so, and a different type of execution has been
ordered, appropriate to the circumstances.
Moseley v. Moseley (1673) Rep. Temp. Finch 53 is an early example, from
the time of equity’s architect, where the Court assumed power (if the executors
did not act) to nominate from the sons of a named person as [it] should think
fit and most worthy and hopeful, the testator’s intention being that the estate
should not be divided. In Clarke v. Turner (1694) 2 Freeman 198, on a
discretionary trust for relations, the Court decreed conveyance to the heir
at law judging it ” most reputable for the family that the heir at law should
“have it”. In Warburton v. Warburton (1702) & Bro. P.C.1 on a dis-
cretionary trust to distribute between a number of the testator’s children, the
House of Lords affirmed a decree of Lord Keeper Wright that the eldest son
and heir, regarded as necessitous, should have a double share, the Court
exercising its own discretionary judgment against equal division.
These are examples of family trusts but in Richardson v. Chapman (1760)
7 Bro. P.C. 318 the same principle is shown working in a different field. There
was a discretionary trust of the testator’s ” options ” (viz. rights of presentation
to benefices or dignities in the Church) between a number of named or
specified persons, including present and a former chaplains and other
domestics; also ” my worthy friends and acquaintance, particularly the Rev.
” Dr. Richardson “. The House of Lords (reversing Lord Keeper Henley)
set aside a ” corrupt” presentation and ordered the trustees to present Dr.
Richardson as the most suitable person. The grounds of decision in this
House, in accordance with the prevailing practice, were not reported, but
it may be supposed that the reported argument was accepted that where the
Court sets aside the act of the trustee, it can at the same time decree the
proper act to be done, not by referring the matter to the trustee’s discretion,
but by directing him to perform as a mere instrument the thing decreed
(I.c. pages 726-7). This shows that the Court can in a suitable case execute
a discretionary trust according to the perceived intention of the truster. It
is interesting also to see that it does not seem to have been contended that
the trust was void because of the uncertainty of the words ” my worthy
” friends and acquaintance”. There was no doubt that Dr. Richardson
came within the designation.
In the time of Lord Eldon, the Court of Chancery adopted a less flexible
practice: in Kemp v. Kemp (1801) 5 Ves. 849 Sir R. Arden, M.R. com-
menting on Warburton v. Warburton (” a very extraordinary case “) said that
the Court now disclaims the right to execute a power (i.e. a trust power) and
13
gives the fund equally. But I do not think that this change of attitude, or
practice, affects the principle that a discretionary trust can, in a suitable case,
be executed according to its merits and otherwise than by equal division.
I prefer not to suppose that the great masters of equity, if faced with the
modern trust for employees, would have failed to adapt their creation to its
practical and commercial character. Lord Eldon himself, in Morice v.
Bishop of Durham (1805) 10 Ves 522 laid down clearly enough that a trust
fails if the object is insufficiently described or if it cannot be carried out,
but these principles may be fully applied to trust powers without requiring
a complete ascertainment of all possible objects. His earlier judgment in
the leading, and much litigated, case of Brown v. Higgs (1801) 8 Ves. 561,
shows that he was far from fastening any rigid test of validity upon trust
powers. After stating the distinction, which has ever since been followed,
between powers, which the Court will not require the donee to execute, and
powers in the nature of a trust, or trust powers, he says of the latter that
if the trustee does not discharge it, the Court will, to a certain extent,
discharge the duty in his room and place. To support this, he cites Harding
v. Glyn (1739 1 Atk. 469) an early case where the Court executed a discretion-
ary trust for ” relations ” by distributing to the next of kin.
I dwell for a moment upon this point because, not only was Harding v.
Glyn described by Lord Eldon as having been treated as a clear authority
in his experience for a long period, but the principle of it was adopted in
several nineteenth century authorities. When the Broadway Cottages Trust
case came to be decided in 1955, these cases were put aside as anomalous
(see [1955] Ch. pages 33, 35) but I think they illustrate the flexible manner
in which the Court, if called on, executes trust powers for a class. At
least they seem to prove that the supposed rule as to equal division does
not rest on any principle inherent in the nature of a trust. They prompt
one to ask why a practice, or rule, which has been long followed and found
useful in ” relations ” cases, should not also serve in regard to ” employees “,
or ” employees and their relatives “, and whether a decision which says the
contrary is acceptable.
I now consider the modern English authorities, particularly those relied
on to show that complete ascertainment of the class must be possible before
it can be said that a discretionary trust is valid.
In re Ogden [1933] Ch. 678 is not a case which I find of great assistance.
The argument seems to have turned mainly on the question whether the
trust was a purpose trust or a trust for ascertained objects. The latter
was held to be the case and the Court then held that all the objects of the
discretionary gift could be ascertained. It is weak authority for the require-
ment of complete ascertainment.
The modern shape of the rule derives from In re Gestetner [1953] Ch. 672
where the judgment of Harman J., to his later regret, established the
distinction between discretionary powers and discretionary trusts. The focus
of this case was upon powers. The judgment first establishes a distinction
between, on the one hand, a power collateral, or appurtenant, or other
powers ” which do not impose a trust on the conscience of the donee ” and
on the other hand a trust imposing a duty to distribute. As to the first, the
learned judge said: ” I do not think it can be the law that it is necessary
” to know of all the objects in order to appoint to any one of them “. As
to the latter he uses these words: ” It seems to me there is much to be said
” for the view that he must be able to review the whole field in order to
” exercise his judgment properly”. He then considers authority on the
validity of powers, the main stumbling block in the way of his own view
being some words used by Fry J. in Blight v. Hartnoll (1881) 19 Ch. D. 294,
301, which had been adversely commented on in Farwell on Powers, and I
think it worth while quoting the words of his conclusion. He says:
” The settlor had good reason, I have no doubt, to trust the persons
” whom he appointed trustees ; but I cannot see here that there is such
14
” a duty as makes it essential for these trustees, before parting with any
” income or capital, to survey the whole field, and to consider whether A
” is more deserving of bounty than B. That is a task which was and
” which must have been known to the settlor to be impossible, having
” regard to the ramifications of the persons who might become members
” of this class.
” If, therefore, there be no duty to distribute, but only a duty to
” consider, it does not seem to me that there is any authority binding
” on me to say that this whole trust is bad. In fact, there is no
” difficulty, as has been admitted, in ascertaining whether any given
” postulant is a member of the specified class. Of course, if that could
” not be ascertained the matter would be quite different, but of John
” Doe or Richard Roe it can be postulated easily enough whether he
” is or is not eligible to receive the settlor’s bounty. There being no
” uncertainty in that sense, I am reluctant to introduce a notion of
” uncertainly in the other sense, by saying that the trustees must worry
” their heads to survey the world from China to Peru, when there are
” perfectly good objects of the class in England.”
Subject to one point which was cleared up in this House in Re Gulbenkian’s
Settlement all of this, if I may say so, seems impeccably good sense, and I
do not understand the learned judge to have later repented of it. If the
judgment was in any way the cause of future difficulties, it was in the
indication given—not by way of decision, for the point did not arise—that
there was a distinction between the kind of certainty required for powers
and that required for trusts. There is a difference perhaps but the difference
is a narrow one, and if one is looking to reality one could hardly find better
words than those I have just quoted to described what trustees, in either case,
ought to know. A second look at this case, while fully justifying the decision,
suggests to me that it does not discourage the application of a similar test for
the validity of trusts.
So I come to I.R.C. v. Broadway Cottages Trust [1955] Ch 20. This was
certainly a case of trust, and it proceeded on the basis of an admission, in the
words of the judgment, ” that the class of ‘ beneficiaries ” is incapable of ascer-
” tainment “. In addition to the discretionary trust of income, there was a
trusl of capital for all the beneficiaries living or existing at the terminal date.
This necessarily involved equal division and it seems to have been accepted
that it was void for uncertainty since there cannot be equal division among a
class unless all the members of the class are known. The Court of Appeal
applied this proposition to the discretionary trust of income, on the basis that
execution by the Court was only possible on the same basis of equal division.
They rejected the argument that the trust could be executed by changing the
trusteeship, and found the relations cases of no assistance as being in a class
by themselves. The Court could not create an arbitrarily restricted trust to
take effect in default of distribution by the trustees. Finally they rejected the
submission that the trust could take effect as a power: a valid power could
not be spelt out of an invalid trust.
My Lords, it will have become apparent that there is much in this which
I find out of line with principle and authority but before I come to a con-
clusion on it, I must examine the decision of this House in Re Gulbenkian’s
Settlement (u.s.) on which the Appellants placed much reliance as amounting
to an endorsement of the Broadway Cottages case. But is this really so?
That case was concerned with a power of appointment coupled with a gift
over in default of appointment. The possible objects of the power were
numerous and were defined in such wide terms that it could certainly be said
that the class was unascertainable. The decision of this House was that the
power was valid if it could be said with certainty whether any given individual
was or was not a member of the class and did not fail simply because it was
impossible to ascertain every member of the class. In so deciding their
Lordships rejected an alternative submission, to which countenance had been
given in the Court of Appeal, that it was enough that one person should
certainly be within the class. So, as a matter of decision, the question now
15
before us did not arise or nearly arise. However the opinions given were
relied on, and strongly, as amounting to an endorsement of the ” complete
” ascertainment” test as laid down in the Broadway Cottages case.
My Lords, I comment on this submission with diffidence, because three of
those who were party to the decision are present here today, and will express
their own views. But with their assistance, and with respect for their views,
I must endeavour to appraise the Appellants’ argument. My noble and
learned friend Lord Reid’s opinion can hardly be read as an endorsement of
the Broadway Cottages case. It is really the opinion of my noble and learned
friend Lord Upjohn which has to be considered. Undoubtedly the main part
of that opinion, as one would expect, was concerned to deal with the clause
in question, which required careful construction, and with the law as to
powers of appointment among a numerous and widely defined class. But
having dealt with these matters the opinion continues with some general
observations. I have considered these with great care and interest: I have
also had the advantage of considering a detailed report of the argument from
counsel on both sides who were eminent in this field. I do not find that it
was contended on either side that the Broadway Cottages Trust case was open
to criticism—neither had any need to do so. The only direct reliance upon it
appears to have been to the extent of the fifth proposition appearing on
page 31 of the report, which was relevant as referring to powers, but does
not touch this case. It is consequently not surprising that my noble and
learned friend Lord Upjohn nowhere expresses his approval of this decision
and indeed only cites it, in the earlier portion, in so far as it supports a proposi-
tion as to powers. Whatever dicta therefore the opinion were found to
contain, I could not, in a case where a direct and fully argued attack has been
made on the Broadway Cottages case, regard them as an endorsement of it
and I am sure that my noble and learned friend, had he been present here,
would have regarded the case as at any rate open to review. In fact I doubt
very much whether anything his Lordship said was really directed to the
present problem. I read his remarks as dealing with the suggestion that trust
powers ought to be entirely assimilated to conditions precedent and powers
collateral. The key passage is at page 1139 where he says:
” Again the basic difference between a mere power and a trust power
” is that in the first case trustees owe no duty to exercise it and the
” relevant fund or income falls to be dealt with in accordance with the
” trusts in default of its exercise, whereas in the second case the trustees
” must exercise the power and in default the court will. It is briefly
” summarised in 30 Halsbury’s Laws (3rd edn.) page 241, para. 445:
” ‘. . . the court will not . . . compel trustees to exercise a purely
” ‘ discretionary power given to them ; but will restrain the trustees
” ‘ from exercising the power improperly, and if it is coupled with a
” ‘ duty . . . can compel the trustees to perform their duty ‘ “.
“It is a matter of construction whether the power is a mere power
” or a trust power and the use of inappropriate language is not decisive
” (Wilson v. Turner (1833) 22 Ch. D. 521 at p. 525).”
” So, with all respect to the contrary view, I cannot myself see how,
” consistently with principle, it is possible to apply to the execution
” of a trust power the principles applicable to the permissible exercise
” by the donees (even if trustees) of mere powers: that would defeat the
” intention of donors completely.
” But 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 Re Gestetner [1953] 1 All E.R. 1150 and the later cases.”
The reference to ” defeating the intention of donors completely ” shows
that what he is concerned with is to point to the contrast between powers
16
and trusts which lies in the facultative nature of the one and the mandatory
nature of the other, the conclusion being the rejection of the “broader”
proposition as to powers accepted by two members of the Court of Appeal.
With this in mind it becomes clear that the sentence so much relied on by
the Appellants will not sustain the weight they put on it. This is :
” The trustees have a duty to select the donees of the donor’s bounty
” from among the class designated by the donor; he has not entrusted
” them with any power to select the donees merely from among known
” claimants who are within the class, for that is constituting a narrower
” class and the donor has given them no power to do this.”
What this does say, and I respectfully agree, is that, in the case of a trust,
the trustees must select from the class. What it does not say, as I read it,
or imply, is that in order to carry out their duty of selection they must have
before them, or be able to get, a complete list of all possible objects.
So I think that we are free to review the Broadway Cottages case. The
conclusion which I would reach, implicit in the previous discussion, is that the
wide distinction between the validity test for powers and that for trust
powers, is unfortunate and wrong, that the rule recently fastened upon the
courts by I.R.C. v. Broadway Cottages Trust ought to be discarded, and
that the test for the validity of trust powers ought to be similar to that
accepted by this House in Re Gulbenkian’s Settlement for powers, namely
that the trust is valid if it can be said with certainty that any given individual
is or is not a member of the class.
I am interested, and encouraged, to find that the conclusion I had reached
by the end of the argument is supported by distinguished American authority.
Professor Scott in his well known book on Trusts (1939) discusses the
suggested distinction as regards validity between trusts and powers and
expresses the opinion that this would be ” highly technical ” (I.c. s. 122.
p. 613). Later in the second Restatement of Trusts (1959) section 122
(which Restatement aims at stating the better modern view and which
annotates the Broadway Cottages case) a common test of invalidity is taken,
whether trustees are ” authorised” or ” directed ” : this is that the class
must not be so indefinite that it cannot be ascertained whether any person
falls within it. The Reporter is Professor Austin Scott. In his abridgement,
published in 1960, Professor Scott maintains the same position. ” It would
” seem that if a power of appointment among the members of an indefinite
” class is valid, the mere fact that the testator intended not merely to confer
” a power but to impose a duty to make such an appointment should not
” preclude the making of such an appointment. It would seem to be the
” height of technicality … (as above) ” I.c.. § 122.
Assimilation of the validity test does not involve the complete assimilation
of trust powers with powers, As to powers, I agree with my noble and
learned friend Lord Upjohn in In re Gulbenkian’s Settlement that although
the trustees may, and normally will, be under a fiduciary duty to consider
whether or in what way they should exercise their power, the Court will
not normally compel its exercise. It will intervene if the trustees exceed
their powers, and possibly if they are proved to have exercised it capriciously.
But in the case of a trust power, if the trustees do not exercise it, the Court
will: I respectfully adopt as to this the statement in Lord Upjohn’s opinion
(page 1139 B—D). I would venture to amplify this by saying that the
Court, if called upon to execute the trust power, will do so in the manner
best calculated to give effect to the settlor’s or testator’s intentions. It
may do so by appointing new trustees, or by authorising or directing repre-
sentative persons of the classes of beneficiaries to prepare a scheme of distri-
bution, or even, should the proper basis for distribution appear by itself
directing the trustees so to distribute. The books give many instances where
this has been done and I see no reason in principle why they should not do
so in the modern field of discretionary trusts (see Brunsden v. Woolredge
(1765) Amb. 507. Supple v. Lowson (1773) ib. 729, Liley v. Hey (1842)
1 Hare 580 and Lewin on Trusts 16th ed. p. 630. Then, as to the trustees’
duty of enquiry or ascertainment, in each case the trustees ought to make
17
such a survey of the range of objects or possible beneficiaries as will enable
them to carry out their fiduciary duty (c.f. Liley v. Hey u.s.). A wider
and more comprehensive range of enquiry is called for in the case of trusts
powers than in the case of powers.
Two final points: first, as to the question of certainty, I desire to emphasise
the distinction clearly made and explained by Lord Upjohn (page 1138
D–G), between linguistic or semantic uncertainty which, if unresolved by the
Court, renders the gift void, and the difficulty of ascertaining the existence
or whereabouts of members of the class, a matter with which the Court
can appropriately deal on an application for directions. There may be a
third case where the meaning of the words used is clear but the definition of
beneficiaries is so hopelessly wide as not to form ” anything like a class”
so that the trust is administratively unworkable or in Lord Eldon’s words
one that cannot be executed (Morice v. Bishop of Durham (u.s.) 527). I
hesitate to give examples for they may prejudice future cases, but perhaps
” all the residents of Greater London ” will serve. I do not think that a
discretionary trust for ” relatives ” even of a living person falls within this
category.
I would allow the appeal and make the order suggested earlier in this
opinion. The costs of the Appellants of this appeal taxed on a common
fund basis should be paid out of so much of the Trust Fund subject to
the Trust Deed of the 17th July, 1941, as was derived from Bertram Baden
deceased.
Source: https://www.bailii.org/
