Learning Outcomes
This article explains the concept of administrative unworkability as it relates to the creation of express trusts. For the SQE1 assessment, you need to understand how this principle affects the validity of discretionary trusts, particularly in relation to the certainty of objects requirement. This article will enable you to identify when a trust might fail for being administratively unworkable and apply this knowledge to SQE1-style multiple-choice questions.
SQE1 Syllabus
For SQE1, you are required to understand the requirements for the creation of express trusts. This includes the three certainties, with a focus here on certainty of objects. You need to distinguish the tests for fixed and discretionary trusts and recognise when a discretionary trust might be invalid due to administrative unworkability, even if the class of objects is conceptually certain.
As you work through this article, remember to pay particular attention in your revision to:
- The requirement for certainty of objects in express trusts.
- The distinction between the tests for certainty of objects for fixed trusts and discretionary trusts.
- The concept of administrative unworkability as a ground for invalidating a discretionary trust.
- The application of the principle from R v District Auditor, ex parte West Yorkshire MCC.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the test for certainty of objects in a discretionary trust as established in McPhail v Doulton?
- Can a discretionary trust fail even if the class of beneficiaries is conceptually certain? If so, on what grounds?
- Which case famously established that a trust for 'all the inhabitants of West Yorkshire' was void?
- True or false: Administrative unworkability applies equally to fixed trusts and discretionary trusts.
Introduction
For an express trust to be valid, it must satisfy the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. Certainty of objects requires that the beneficiaries of the trust must be identifiable. The test for identifying beneficiaries differs depending on whether the trust is fixed or discretionary. This article focuses specifically on a potential pitfall for discretionary trusts known as administrative unworkability, which can render a trust void even if the description of the beneficiaries is conceptually clear.
Key Term: Certainty of Objects The requirement that the beneficiaries of a trust must be identified or identifiable with sufficient clarity for the trust to be valid.
Certainty of Objects: Fixed vs Discretionary Trusts
To understand administrative unworkability, it is first necessary to recap the tests for certainty of objects.
Fixed Trusts
In a fixed trust, the share or interest of each beneficiary is specified in the trust instrument. The trustees have no discretion about who will benefit or in what proportions. For such a trust to be valid, the trustees must be able to draw up a complete list of all the beneficiaries. This is known as the 'complete list' test (IRC v Broadway Cottages Trust). Both conceptual certainty (clarity of the class description) and evidential certainty (ability to prove who is in the class) are required.
Discretionary Trusts
In a discretionary trust, the trustees have the discretion to decide which members of a defined class of potential beneficiaries will receive benefits and often in what amounts. The test for certainty of objects is less strict than for fixed trusts. The test, established in McPhail v Doulton, is whether it can be said with certainty that any given individual is or is not a member of the class described. This is often called the 'is or is not' test or the 'individual ascertainability' test. This requires conceptual certainty, but evidential difficulties in proving whether someone is or is not in the class will not necessarily invalidate the trust.
Key Term: Discretionary Trust A trust where the trustees have the power (discretion) to decide how to distribute the trust property among a class of potential beneficiaries.
Key Term: Individual Ascertainability Test / 'Is or is not' test The test for certainty of objects in a discretionary trust: can it be determined with certainty whether any given person is or is not a member of the beneficiary class?
Administrative Unworkability
Even if a discretionary trust satisfies the 'is or is not' test because the class of potential beneficiaries is conceptually certain, the trust may still be void if the class is so hopelessly wide that the trust is administratively unworkable.
Key Term: Administrative Unworkability A ground for invalidating a discretionary trust where the class of potential beneficiaries, although conceptually certain, is so large or ill-defined in scope that it is practically impossible for the trustees to administer the trust effectively.
The leading authority on administrative unworkability is R v District Auditor, ex parte West Yorkshire Metropolitan County Council.
Worked Example 1.1
A settlor attempts to create a discretionary trust for 'all the residents of Greater London'. The class 'residents of Greater London' is arguably conceptually certain. Is the trust likely to be valid?
Answer: No. Although the class might be conceptually certain, it is likely to be void for administrative unworkability. The class is so large (millions of people) that it would be practically impossible for the trustees to survey the class and sensibly exercise their discretion. This follows the principle in R v District Auditor, ex parte West Yorkshire MCC.
The rationale behind the doctrine is that if the class is too large, the trustees cannot meaningfully survey the range of potential objects and therefore cannot properly exercise their discretion. The task becomes practically impossible.
Exam Warning
Do not confuse conceptual uncertainty with administrative unworkability. A trust for 'my friends' fails for conceptual uncertainty because the definition is too vague. A trust for 'all residents of England' fails for administrative unworkability because, although the class is conceptually clear, it is impractically large.
It is important to note that administrative unworkability generally only applies to discretionary trusts. It does not typically invalidate fixed trusts, provided the complete list test can be satisfied (even if identifying everyone is difficult).
Capriciousness
A related but distinct concept is capriciousness. A trust might also fail if the settlor's choice of beneficiaries appears entirely irrational or capricious, meaning there is no sensible link or reason behind the selection of the class. For example, a trust for people with red hair living in Birmingham might be considered capricious if the settlor had no connection to either red-haired people or Birmingham. Administrative unworkability focuses on the size and practicality of managing the class, whereas capriciousness focuses on the rationality of the settlor's choice.
Key Term: Capriciousness A potential ground for invalidating a trust where the settlor's intentions in selecting the beneficiaries appear entirely arbitrary or irrational, lacking any sensible connection or purpose.
Revision Tip
While both administrative unworkability and capriciousness can invalidate discretionary trusts, administrative unworkability is more commonly tested. Focus on identifying situations where the sheer size of the class makes administration practically impossible, as in the West Yorkshire case.
Key Point Checklist
This article has covered the following key knowledge points:
- Express trusts require certainty of objects.
- The test for certainty of objects in discretionary trusts is the 'is or is not' test (McPhail v Doulton).
- A discretionary trust can be void for administrative unworkability even if the class is conceptually certain.
- Administrative unworkability arises when the class of potential beneficiaries is so large that the trust cannot be executed practically (R v District Auditor, ex parte West Yorkshire MCC).
- Administrative unworkability primarily applies to discretionary trusts, not fixed trusts.
- Capriciousness is a separate ground relating to the irrationality of the settlor's choice of objects.
Key Terms and Concepts
- Certainty of Objects
- Discretionary Trust
- Individual Ascertainability Test / 'Is or is not' test
- Administrative Unworkability
- Capriciousness
