Re Manisty's Settlement [1974] Ch 17

Facts

• The case addressed the principle of administrative unworkability in discretionary trusts, focusing on when a class of potential beneficiaries is too broad or uncertain for trustees to carry out the settlor’s intentions.
• The trust in question involved consideration of whether certain descriptions of beneficiary classes, such as “residents of Greater London” or “friends”, were workable or valid.
• The court examined distinctions between valid and invalid classes based on their relationship to the settlor and practical manageability by the trustees.

Issues

1. Whether the class of beneficiaries in the trust was so broad or arbitrary that it rendered the trust administratively unworkable.
2. Whether the class definition was conceptually certain, or merely too large and irrational for effective administration.
3. How the court should differentiate between administrative unworkability and conceptual uncertainty in determining the validity of a discretionary trust.
4. To what extent trustee discretion is limited by the size and nature of the beneficiary class.

Decision

• The court held that discretionary trusts may be invalid for administrative unworkability where the class of beneficiaries, although conceptually certain, is so wide or lacks rational connection to the settlor that effective administration is not practicable.
• A class described as “residents of Greater London” was considered administratively unworkable due to its arbitrariness and lack of connection to the settlor, despite being conceptually certain.
• Classes such as “employees of a company and their families” remain valid if they display a rational link to the settlor, regardless of their size.
• The definition “friends” was deemed conceptually uncertain, while a clear but arbitrary class may fail for unworkability rather than uncertainty.
• The court maintained that drafting trusts requires balancing breadth with practical manageability by trustees.

Legal Principles

• Administrative unworkability operates independently from conceptual certainty; a class may be certain but still unworkable.
• Trustee powers will be limited by the courts if the beneficiary class is so broad or irrational that it prevents reasoned decision-making.
• Trusts should define beneficiaries in a manner that reflects a direct, rational connection with the settlor’s intentions and objectives.
• The "is or is not" test from McPhail v Doulton was reaffirmed; however, Re Manisty’s Settlement clarified that some classes, though meeting this test, may still be invalid for practical reasons.
• Precision and clarity in drafting beneficiary definitions are essential for a trust’s validity and operation.

Conclusion

Re Manisty’s Settlement clarified that discretionary trusts can fail for administrative unworkability when the beneficiary class is so broad or arbitrary that trustees cannot reasonably administer the trust, emphasizing the importance of clear, purpose-driven drafting distinct from conceptual certainty.