Re Baden (No 2) [1973] Ch 9

Facts

• The case concerned the validity of a discretionary trust whose terms included the word “relatives” to describe the class of beneficiaries.
• The core issue was whether the class of beneficiaries (“relatives”) was sufficiently certain for the trust to be valid and capable of practical administration.
• The case followed the House of Lords decision in McPhail v Doulton [1971] AC 424, which replaced the former requirement of a complete list of beneficiaries with the “is or is not” test for discretionary trusts.
• After McPhail, Re Baden (No 2) addressed how the “is or is not” test should be applied in practice, particularly regarding evidential uncertainty in identifying members of the class.
• The Chancery Division had ruled the trust valid, and this was affirmed by the Court of Appeal.

Issues

1. Whether a discretionary trust with a class of beneficiaries defined as “relatives” satisfied the requirement of certainty of objects.
2. How conceptual and evidential certainty should be distinguished and addressed in determining the validity of discretionary trusts.
3. What approach should be employed in cases of evidential uncertainty when ascertaining class membership.
4. Whether the various interpretations of “relatives” satisfied the “is or is not” test.

Decision

• The Court of Appeal unanimously held that the trust was valid and that the class was sufficiently certain for the purposes of the “is or is not” test.
• All judges agreed that the trust was conceptually certain but differed significantly regarding the approach to evidential uncertainty:
  • Sachs LJ held that, once the class is conceptually certain, evidential uncertainty does not invalidate the trust; those claiming to be beneficiaries must prove membership.
  • Megaw LJ posited that it sufficed if a substantial number of individuals could be said, with certainty, to be within the class, even if some could not be proved either way.
  • Stamp LJ insisted that the test required certainty as to whether any individual was or was not within the class, adopting a narrower definition of “relatives” as “next of kin.”
• The majority accepted a broader definition of “relatives” (persons tracing legal descent from a common ancestor), with only Stamp LJ favouring a narrower construction.

Legal Principles

• The “is or is not” test established in McPhail v Doulton supplanted the former “complete list” requirement for object certainty in discretionary trusts.
• Conceptual certainty requires the class of beneficiaries to be defined by clear criteria; evidential uncertainty (difficulty in proving specific membership) does not, on its own, invalidate the trust if the class itself is conceptually certain.
• Divergent approaches to evidential uncertainty emerged:
  • Presumption against membership in the absence of proof (Sachs LJ).
  • Substantial numbers test, permitting validity without total certainty as to every possible member (Megaw LJ).
  • Any person test, requiring clear identification of each potential member (Stamp LJ).
• Definitions of key terms in trust deeds (such as “relatives”) must be manageable for administration but may cover wide or narrow constructions depending on judicial approach.

Conclusion

Re Baden (No 2) [1973] Ch 9 is a landmark trust law decision confirming the “is or is not” test and illustrating divergent judicial approaches to evidential uncertainty, with lasting significance for class certainty and beneficiary identification in discretionary trusts.