Introduction
The principle of certainty of objects constitutes a critical requirement for the validity of trusts and powers within English law. It dictates that the beneficiaries of a trust, or the objects of a power, must be defined with sufficient clarity to allow for effective administration and judicial oversight. The foundational requirement involves identifying who is intended to benefit from the arrangement. This necessity arises from the equitable principle that a court must be able to ascertain the beneficiaries to ensure the trust is executed according to the settlor’s intention. In cases of discretionary trusts and powers, where the trustees or power holders have some latitude in allocation, this requirement is particularly significant. The House of Lords case Re Gulbenkian’s ST [1970] AC 508, a key case in this area, provided clarification on this principle as it applies to powers, specifically, the ‘is or is not’ test. This article will provide a detailed analysis of Re Gulbenkian, its legal impact, and how it distinguishes from certainty requirements in fixed trusts and discretionary trusts.
The "Is or Is Not" Test in Re Gulbenkian’s ST
The core principle established in Re Gulbenkian’s ST [1970] AC 508 revolves around the ‘is or is not’ test for certainty of objects in the context of powers of appointment. A power of appointment grants a person, the donee, the authority to designate the recipients of property. Unlike a trust where the trustee is obliged to distribute the assets, the donee of a power is not under such an obligation. Therefore, the House of Lords stipulated that for a power to be valid, it must be possible to determine whether any given individual is within or outside of the class of objects specified in the power. This criterion of 'is or is not' demands conceptual clarity in the definition of the class of beneficiaries. Specifically, the court is able to determine if an individual does or does not fit the description, irrespective of if it is difficult to ascertain all members of the class. The case concerned a settlement with a power to appoint in favour of any person related to G's son, his wives, children, or any individuals employed by or residing with G. The court found the power valid under the "is or is not" test, even though the concept of "residence" could present some evidential difficulties.
Distinction from Certainty in Fixed Trusts
The Re Gulbenkian test contrasts sharply with the certainty requirements for fixed trusts. A fixed trust mandates a trustee to distribute assets to specific beneficiaries in predetermined shares. This requirement, further elaborated on in IRC v Broadway Cottages [1955] Ch 20, necessitates a ‘complete list’ of beneficiaries. In a fixed trust, therefore, a court must be able to identify all the members of the beneficiary class. The court must know with sufficient clarity the objects of the trust to execute it, since trustees cannot simply distribute to known claimants, as this creates a narrower class than that specified. The complete list test demands both linguistic and evidential certainty regarding the identity and number of beneficiaries, which is a far more stringent requirement than the ‘is or is not’ test. The rationale for this distinction stems from the nature of the trustee's obligations in each situation. A trustee of a fixed trust must know all the beneficiaries to properly administer the distribution.
Certainty of Objects in Discretionary Trusts: The Impact of McPhail v Doulton
The case of McPhail v Doulton (Pre Baden (No. 1)) [1971] AC 424 significantly altered the landscape for discretionary trusts. Prior to McPhail, discretionary trusts were also subject to the ‘complete list’ test, similar to fixed trusts. This approach was deemed impractical because it was often impossible to establish all beneficiaries in complex discretionary trusts. The House of Lords, in McPhail v Doulton, adopted a modified approach drawing on Re Gulbenkian. The court held that the 'is or is not’ test should apply to discretionary trusts. It is sufficient for a discretionary trust to be valid if the court can determine, for a given individual, whether he is within or outside of the specified class. This shift allowed greater flexibility and ensured that trusts would not fail for mere administrative challenges. McPhail v Doulton concerned a trust fund for the benefit of employees of a company, their relatives and dependants, where the trustees had discretion over distribution. The House of Lords held that the trust was valid. It is important to note, however, that Lord Wilberforce also noted an exception, in that a trust can fail for ‘administrative unworkability’, such as one for all residents of Greater London.
Conceptual Certainty, Ascertainability, and Administrative Workability
The concepts of conceptual certainty, ascertainability, and administrative workability are fundamental to the law of trusts and powers. Conceptual certainty refers to the clarity of the definition of the class of beneficiaries or objects. If the language used to define the class is too vague or ambiguous, the trust or power will fail. The 'is or is not’ test, applicable to both discretionary trusts and powers post Re Gulbenkian and McPhail v Doulton, addresses conceptual certainty. Ascertainability relates to the ability to locate or identify actual individuals within a class. A trust will not fail for lack of ascertainability provided it is conceptually certain. The courts can deal with situations where some beneficiaries cannot be identified via directions to pay a share into court, or by the granting of a Benjamin Order. This differs significantly to the approach before the reforms in McPhail. Lastly, administrative workability concerns whether the definition of beneficiaries is so wide as to render it impossible for the trustees to administer the trust. A class that is too wide might be deemed unworkable and may render a trust void, such as the hypothetical “residents of Greater London” example, introduced by Lord Wilberforce in McPhail v Doulton.
The Single Person Test in Re Barlow's Will Trusts
Re Barlow’s Will Trusts [1979] 1 WLR 278 further refined the application of certainty principles, particularly in the context of individual gifts on a condition precedent. The case concerned a gift of pictures to be sold, with members of the testatrix’s family and friends given the option to purchase them at a low price. Browne-Wilkinson J held that a distinction could be drawn between those cases where the court has to establish all members of the class, and those where the uncertainty only relates to the size of an individual gift. Where a gift is to an individual based on satisfying a condition, it is sufficient if it can be shown that one or more person undoubtedly falls within that description. For example, in the case of a gift to "friends," it is not necessary to define all the friends; it is enough if a person who is clearly a friend can claim the gift. In contrast, in the Re Gulbenkian and McPhail v Doulton, all possible members of a class of beneficiaries are to be considered. The ‘is or is not’ test established in Re Gulbenkian is therefore not applicable to individual gifts on condition precedent, where the “single person test” is preferred.
Implications and Practical Applications
The judgment in Re Gulbenkian’s ST continues to have significant practical implications for the drafting and administration of trusts and powers of appointment. It provides a vital framework for determining the validity of powers, ensuring that they are not frustrated by unduly rigid requirements of certainty. When creating powers, it is necessary to define the class of objects with sufficient clarity to satisfy the ‘is or is not’ test, avoiding terms that could be construed as conceptually uncertain. Examples of conceptually uncertain classes might include those defined by subjective or vague criteria, such as "deserving people" or “socially conscious individuals”. In cases of discretionary trusts, the ruling in McPhail v Doulton, influenced by Re Gulbenkian, allows for the flexible distribution of assets, provided the class of beneficiaries is clearly defined, and is not administratively unworkable. The courts have demonstrated a desire to give effect to the settlor’s intentions and to uphold trusts and powers where possible.
Conclusion
The development of the law relating to certainty of objects, particularly in relation to powers and discretionary trusts, is marked by significant cases such as Re Gulbenkian's ST and McPhail v Doulton. The ‘is or is not’ test established in Re Gulbenkian provides a workable solution for evaluating the certainty of objects in powers, differing from the ‘complete list’ requirement for fixed trusts. The extension of this test to discretionary trusts via McPhail v Doulton introduced a level of flexibility, allowing trustees to operate where there is some uncertainty in identifying individual beneficiaries, provided the class itself is conceptually clear. Together with the requirement for administrative workability and the single person test for individual gifts as laid down in Re Barlow's Will Trusts, these cases illustrate a sensible and adaptable approach by the courts to the application of equity in the area of trusts and powers. The ‘is or is not’ test is the crucial determinant of conceptual certainty, balancing the need for precision in trust arrangements with the practicalities of execution and administration. The principles articulated in these cases remain fundamental to the functioning of trusts and powers within English law.
