The Beneficiary Principle

Morice v Bishop of Durham

Facts: Testatrix left the residue of her estate on trust “to such objects of benevolence and liberality as the Bishop of Durham in his own discretion shall most approve of”.

Held: “There can be no trust, over which this court will not assume control; for an uncontrollable power of disposition would be ownership and not a trust. If there be a clear trust, but for uncertain objects, the property, that is, the subject of the trust, is indisposed of, and the benefit of such trust must result to those whom the law gives ownership in default of disposition by the former owner. But this doctrine does not hold with regard to trusts for charity. Every other trust must have a definite object. There must be somebody in whose favour the court can decree performance”

The bequest was void for uncertainty. Neither ‘benevolence’ nor ‘liberality’ denoted a charitable purpose, hence the certainty of objects rule had to be applied.
If the Bishop has absolute power, then he has the power to deal with the bequest as he pleases. But if there is a trust, then unless the testatrix identifies a definite object (beneficiaries), the property returns to her estate and subsequently to her next of kin on an intestacy.

•    Perpetuity  Common law abhorred the idea that this creation of equity had potential to tie up income-producing property and sterilise it indefinitely.
•    Statute of Mortmain  clutches of the dead can’t determine what happens to property.
•    There is a rule against perpetuation of a trust when no one would be a beneficiary. Beneficial interests had to be created within 21 yrs of death of settlor.
•    A charitable trust is not subject to the rule against perpetuities
•    Can’t have a valid private trust that seems to go on for ever, it is subject to rule against perpetuities (80 yrs under statute)
Discretionary Trusts

“A trust is not uncertain merely because the actual persons entitled to the trust property cannot be known in advance of the date of distribution (provided no perpetuity is involved); it is sufficient if the provisions of the trust ensure that upon that date the beneficiaries can be ascertained with certainty” – Jacobs

•    Discretionary trusts involve gifts to classes of objects. The trustee, or a person appointed under the trust, exercises a power of selecting beneficiaries from among that class.

Distinguish between a Trust Power and a Mere Power
•    A trust is imperative
•    A power is permissive
•    We ask question if appointer is a fiduciary or not?

General Power: If someone given property and told they can give it to anyone they want, it is not a trust, although it confers a general power on the donee to dispose of it as they wish, it is an absolute gift.

Special Power: donee is to appoint from among a defined class of objects

Hybrid Power: Person given the property can appoint anybody except certain persons in a defined class. Usually can’t give it to themselves or back to the settlor (so there is no issue of not having alienated the property from themselves)

•    We focus on special powers
•    Special powers can be a “mere” (or “bare”) power or a trust power (that must be exercised according to the terms of the trust)

Bare Powers:
A trustee who is the donee of a bare power must:
•    Consider periodically whether or not to exercise it
•    Consider the range of possible appointments
•    Consider the appropriateness of individual appointments

A non-fiduciary donee of a bare power may refuse to exercise the power. In that case, the property goes to those entitled in default of exercise of that power.

Even a non-fiduciary donee of the power may not commit a “fraud on a power” i.e. an exercise of the power dishonestly, capriciously
or for an improper purpose. Person claiming improper purpose (i.e. person identified by the settlor) would get the gift over in default.

A gift over in default is evidence of a bare power (because it demonstrates that the donor contemplated the possibility that the donee would not exercise the power).  

Trust Power    

Donor intends that the donee is obliged to exercise the power. If there is no gift over in default, how do we decide if it is a mere power or a trust power?

Re Leek Dec’d
•    Buckley J’s five categories
(i)    Language clearly imposes a duty to select = trust power
(ii)    Property given on trust for such members of a class as donee shall select (i.e. power of exclusion), there is no gift over in default = trust power
(iii)    Property given on trust for such members of a class as donee may select, it is a gift over in default = mere power. (Word may is permissive)
(iv)    No gift in default, but terms clearly indicate selection is at the absolute discretion of the donee = mere power
(v)    Terms are neither manifestly permissive nor mandatory, no gift in default = doubtful

What is the test for certainty of objects?
•    This issue never been brought before Ct in Australia. Issue could be resolved differently in Australia from the way it has been in HOL (exam Q)

Re Gestetner
Harman J: the test of certainty for a trust power requires that the trustees must be able to compile a list of all members of the class: “list certainty”. This is a more rigorous test because specific individual must be named.
    For bare powers, the class must be defined so that the trustees can tell of any given individual whether that person is “in or out” of the class. I.e. there must be some criteria that can be applied to determine if a candidate is in or out of the class.

Re Gulbelkian’s Settlements (HOL decision therefore has more weight)

Facts: Calouste Gulbenkian had a son, Nubar, who was desolate: he spent money and couldn’t be trusted. He wanted to ensure that the estate could not be dissipated by the son absolutely.

Issue: Was a valid trust created by settlements made by Calouste Gulbenkian on the following terms: The trustees “shall”…at their absolute discretion pay all or any part of the income of the property …for the maintenance and personal support or benefit of all or any one or more to the exclusion of the other or others of the following persons…[including] any person or persons in whose house or apartments or in whose company or under whose care or control or by or with whom the said Nubar Gulbenkian may from time to time be employed or residing…”

There being a gift over in default, it was agreed by the parties that this gave the trustees a bare power.

Held (per Upjohn LJ): Affirms the distinction drawn by Harman J in Re Gestetner

Regarding trust powers: “The trustees have a duty to select the donees of the donor’s bounty from among the class designated by the donor; he has not entrusted them with any power to select the donees merely from among known claimants who are within the class, for that is constituting a narrower class and the donor has given them no power to do this…”

Regarding mere powers: “…with respect to mere powers, while the court cannot compel the trustees to exercise their powers, yet those entitled to the fund in default must clearly be entitled to restrain the trustees from exercising it save among those within the power. So the trustees or the court must be able to say with certainty who is within and who is without the power.”

The clause had a clear general object even though it contained poor grammar and ran too many situations together. It should be read in light of its general intention and construed with the object of giving effect to it if possible. Here the clause was not void for uncertainty.

What about pension funds and other trusts where the class of beneficiaries is huge? Does the requirement of list certainty for trust powers hinder the use of trusts in such cases?

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