IRC v Broadway Cottages Trust [1955] Ch 20

Facts

  • The settlor created a trust fund of £80,000 for individuals who had been employed by the settlor or his family during a specified period.
  • Trustees were empowered to distribute the income from this fund to whichever members of the class of former employees they chose, making it a discretionary trust.
  • The main issue arose as to whether the class of beneficiaries—described as former employees—was sufficiently ascertainable to make the discretionary trust valid.
  • The court found that, due to uncertainty in defining the class of beneficiaries, the trust was invalid.

Issues

  1. Whether a discretionary trust is valid if it is not possible to identify every potential beneficiary within the class (i.e., whether certainty of objects is satisfied).
  2. Whether, absent a complete list of beneficiaries, the court can enforce and execute the trust as required by law.

Decision

  • The Court of Appeal, led by Jenkins LJ, held that the trust was void for uncertainty because the class of beneficiaries (former employees) was unascertainable.
  • It was reasoned that a discretionary trust requires the ability to draw up a complete list of all potential beneficiaries (“complete list test”) for the court to execute the trust properly.
  • Because the class could not be completely enumerated, the trust failed for want of certainty.

Legal Principles

  • A valid discretionary trust must satisfy the “complete list test,” requiring that every potential beneficiary be identifiable.
  • This principle is grounded in the need for the court to control and execute the trust, as stated in Morice v Bishop of Durham.
  • Jenkins LJ reasoned that a trust could only be enforced if the court could divide the trust property equally among all beneficiaries, presupposing a definable class.
  • The rigidity of this test was later overruled by McPhail v Doulton (Re Baden (No. 1)), which introduced the “is or is not” test focusing on conceptual certainty for each person considered as a beneficiary.

Conclusion

IRC v Broadway Cottages Trust [1955] Ch 20 established the strict “complete list test” for the certainty of objects in discretionary trusts, requiring all beneficiaries to be identifiable for the trust to be valid. This approach, upheld at the time by Jenkins LJ, was later rejected in McPhail v Doulton in favour of a more flexible test of conceptual certainty, reflecting the courts’ evolving concern with effecting settlor intention over rigid technical requirements.

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