Certainty of Subject Matter

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Introduction

In order for a trust to be formed, there must be certainty as to which property is, and which is not, covered by the trust.

  • The requirement of ‘certainty of subject matter’ is a requirement that the property which is intended to constitute the trust fund is segregated from all other property so that is identity is sufficiently certain
  • If the trust fund is not sufficiently segregated, with the result that there is no certainty of subject matter, then the trust will be void

The underlying principle is that a trust, to be valid, must be enforceable. If there is uncertainty as to the property held on trust, then a court cannot enforce the settlor's wishes or the trustees' obligations.

  • It is important that if there are to be property rights and responsibilities over a trust fund, that fund must be identifiable, or else it would not be possible for the court to know which property is to be administered in accordance with the terms of the trust
  • Morice v The Bishop of Durham (Lord Eldon): “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 maladministration, nor direct a due administration”

Where the property is expressed in vague or uncertain terms, the trust will generally be held to be invalid.

Cases

In Sprange v Barnard (1789) property was not sufficiently clearly identified by the expression “the remaining part of what is left”. Thus, there was uncertainty of subject matter so no trust took effect

In Palmer v Simmons (1854) a testatrix left “the bulk of her estate” on certain trusts. It was held that the subject matter of this trust was too uncertain by dint of the vagueness of the expression “the bulk”

In Re Golay's Will Trusts [1965] it was held that a provision that a ‘reasonable income’ be provided out of a fund could be held to be valid

In other cases, the uncertainty arises from other considerations: usually, when it is not possible to say which property is the subject matter of the trust.

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CONTENT

Trusts of Bulk or Interchangeable Property

In Re London Wine Co. [1986] it was held that there could not be a valid trust because the claimants could not identify which wine was held for them out of the general store

  • It would have been necessary for the claimant’s wine to be segregated: that is, to be separately identifiable from the general stock of wine

In Re Goldcorp Exchange Ltd [1995] it was held that only those customers who could prove that their order of bullion was in fact held separately from the general store of bullion would be entitled to enforce a trust against the exchange and consequently be able to take their bullion orders away as secured creditors

  • Those customers who could not demonstrate that their orders had been segregated from the general store of bullion could not demonstrate that they were beneficiaries under a trust because the subject matter of that trust was uncertain

Intangible Property

In general terms there is no reason why the orthodox approach considered above should not apply equally to intangible property as to tangible property

The principle in Re London Wine Co. [1986] was also applied by the Court og Appeal in the following case:

  • McJordan Construction Ltd v Brookmount Erostin Ltd [1992]: for the formation of a valid trust over those moneys, it would have been necessary to segregate any money which was to be held on trust from other money in the bank account by paying that money into a new bank account
  • Hunter v Moss [1994]: this case reached a different conclusion in relation to the formation of a trust over intangible property. It was held that a trust over the shares in the case had been formed
  • The Australian case of White v Shortall [2006], faced with a similar situation, did not find Hunter v Moss ‘sufficiently persuasive’.
  • However, Re Harvard Securities (Holland v Newbury) [1997] appears to have applied the rule drawn from the Court of Appeal in Hunter v Moss
    • This means that in English law Hunter v Moss remains good law!

The Separate Bank Account

This is controversial with conflicting cases...

  • It is very uncertain as to whether money must be kept in a separate bank account for a trust to form over it → most people seem to think a separate bank account is essential, but the authority is far more clear

In Henry v Hammond [1913] the high court said that if trust money is placed in a separate account there will be a trust, but if it is mixed in it cannot be a trust (Channel J)

Megarry J in Re Kayford [1975]: “In Re Nanwa Gold Mines Ltd the money was sent on the faith of a promise to keep it in a separate account, but there is nothing in that case or in any other authority that I know of to suggest that this is essential.”

  • So Megarry says he doesn't think you need a separate account to set up a trust

Hunter v Moss (High Court) [1993]: this case said a separate bank account is not required. Colin Rimer QC said he “can see no reason in principle why” it is necessary to have money kept in a separate bank account for a trust to form over it

Westdeutsche Landesbank v Islington LBC [1996]: this is the usual authority and is an important judgment. It says trust money must be kept in a separate bank account to set up a trust (as per Lord Browne-Wilkinson)

Re Lehman Brothers International [2012]: However, Lord Collins in this case (a more recent case in the Supreme Court) provided contradictory authority stating "there is no doubt that money in a mixed fund may be held on trust, and that a trust of money can be created without an obligation to keep it in a separate account"

 

The position appears to be that, if a person receives money on trust, they are bound to keep the money in a separate bank account. If the terms of the agreement under which the money is received allow the recipient to mix the money with their own, this is inconsistent with (but not necessarily fatal to?) an intention the money is held on trust.

Also see the case of Re Farepak Food and Gifts Ltd [2006]

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