powers in the nature of a trust. powers collateral. certainty of objects

Editorial Committee of the Cambridge Law Journal

Powers in the Nature of a Trust. Powers Collateral. Certainty of ObjectsAuthor(s): John HopkinsSource: The Cambridge Law Journal, Vol. 26, No. 2 (Nov., 1968), pp. 211-217Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4505237 .

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211 211 C.L.J. C.L.J. Csse and Comment Csse and Comment

The dsion is analogous to that of the Privy Council in Com- missioner of Stamp Duties (Queenslartd) v. Livingston [19651 A.C. 694 [1965] C.L.J. 44, where it was held that the nght of a beneficiary to the residuary estate was, while the estate was still being adminiF tered and no clear residue had besl ascertained, not a right in the property comprising the estate but merely a right to compel tbe executors to administer the estate correctly. In Gartside, too, the bene- ficianes could prevent the trustees Erom committing a breacIl of trust, but that alone did not give them an interest in the property.

The ruling had one uncomfortable implication for the Rearenue. Estate duty is not levied on the death of one of the beneficiaries under a discretionary trust. X, however, on the death of A, one discretionary tmst ceases and another one beg,ins, estate dut has alutays been levied (e.g., Burrell and Kinrzaird v. Att.-Gen. [19371 A.C. 286). If, however, the reason for this levy is that one interest crsevs or another one begins, Gartside, by holding that there is no intsest, would seem to evcclude a charge to estate duty. In a subsequent case (Re Weir's Settlement [l968] 2 ASl E.R. 1241) Cross J. held that dutr was still leviable in such cases partly because the decisions in favour of the Revenue were many and of high authority and partly because the structure of estate duty, when devised in 1894, did not have to face up to the use of the discretionary trust. (The learned judge also held that there was no group right even where the trustees wereb under a duty to distnbute all the income among the beneficiaries.)

The Gartside case has two epitaphs. One is the Finance Act l9ti8, s. 39, which declares that discretionary beneficiaries in lik: circum- stances are to be deemed to have an interest in possession. 'Ishe other the case must share with other decisions. Cross J. described the problem m Re Weir (p. 1244E):

The facts are simple enough but it will not surpnse anyone acquainted with this branch of the law to learn that the argument lasted over four days during which counsel at all events wasted no wordand that some thirty authorities, many of them in the House of Lords were referred to. The law of estate duty has now attained a degree of reEnement that would have glad,Jened the heart of Lord St. Leonards.

JOHN rlLEY.

POWERS IN THE NATURE OF A TRUST POWERS OL>n- CERTAINTY OF OSE=S

THE substantial distinction betwsen a trust and a mere power of appointment is frequently stated in the terms that " a tIU,t is obli- gatory, a power discretionary." The pnncipal consequenfx of this

The dsion is analogous to that of the Privy Council in Com- missioner of Stamp Duties (Queenslartd) v. Livingston [19651 A.C. 694 [1965] C.L.J. 44, where it was held that the nght of a beneficiary to the residuary estate was, while the estate was still being adminiF tered and no clear residue had besl ascertained, not a right in the property comprising the estate but merely a right to compel tbe executors to administer the estate correctly. In Gartside, too, the bene- ficianes could prevent the trustees Erom committing a breacIl of trust, but that alone did not give them an interest in the property.

The ruling had one uncomfortable implication for the Rearenue. Estate duty is not levied on the death of one of the beneficiaries under a discretionary trust. X, however, on the death of A, one discretionary tmst ceases and another one beg,ins, estate dut has alutays been levied (e.g., Burrell and Kinrzaird v. Att.-Gen. [19371 A.C. 286). If, however, the reason for this levy is that one interest crsevs or another one begins, Gartside, by holding that there is no intsest, would seem to evcclude a charge to estate duty. In a subsequent case (Re Weir's Settlement [l968] 2 ASl E.R. 1241) Cross J. held that dutr was still leviable in such cases partly because the decisions in favour of the Revenue were many and of high authority and partly because the structure of estate duty, when devised in 1894, did not have to face up to the use of the discretionary trust. (The learned judge also held that there was no group right even where the trustees wereb under a duty to distnbute all the income among the beneficiaries.)

The Gartside case has two epitaphs. One is the Finance Act l9ti8, s. 39, which declares that discretionary beneficiaries in lik: circum- stances are to be deemed to have an interest in possession. 'Ishe other the case must share with other decisions. Cross J. described the problem m Re Weir (p. 1244E):

The facts are simple enough but it will not surpnse anyone acquainted with this branch of the law to learn that the argument lasted over four days during which counsel at all events wasted no wordand that some thirty authorities, many of them in the House of Lords were referred to. The law of estate duty has now attained a degree of reEnement that would have glad,Jened the heart of Lord St. Leonards.

JOHN rlLEY.

POWERS IN THE NATURE OF A TRUST POWERS OL>n- CERTAINTY OF OSE=S

THE substantial distinction betwsen a trust and a mere power of appointment is frequently stated in the terms that " a tIU,t is obli- gatory, a power discretionary." The pnncipal consequenfx of this



212 The Cambridge Law lournal [1968]

distinction is well known: if T holds property upon trust to divide

among a cetain class of persons, he has no option but to carry out

the trust and if he fails to do so, the court will see that the property

is divided amongst the members of the class. But if D is pven

property with a power to appoint in favour of the members of a class

and fails to appoint, the property will go to the person or persons

entitled to it in default of appointment. Between the two, however,

comes the so-called " power in the nature of a trust " which, whilst

it masquerades under the guise of a mere power, has more of the

c}waracteristics of a trust proper. Ihus, with regard to such power in

the nature of a trusts a duty is placed upon the donee of the power to

appoint within the specified class and he has a discretion merely as to

the particular member of the class whom he chooses to appoint. If

he fals to appoint at all, the property will be divided equally between

the members of the class by the court (see Burrough v. Philcox (l 84())

S My. & Cr. 72 at 92, per Lord Cottenham L.C.). Two problems with regard to such powers arise. In the first place,

it may frequently be a difficlllt question of construction as to whether,

in a particular case, a mere power or a trust power has been created.

Some aid in this question has recently been given by Buckley J. in

Re Leek (dec@.} [I967] Ch. 1061 in which his Lordship suggested

(at p. 1073) that the cases in which t;he question has arisen may be

divided into five categories: (i) Cases in which "the language is

such that it imposs a clear duty on the donee of the power of

selection to distribute the fund amongst some at least of the specified

class." In such a case (as was held to have arisen in Re Saxone Shoe

Co. Ltd.s Trust Deed [19621 1 W.L.R. 943) a trust ponver has been

created. (ii) Cases in which property is given on trust for such

members of a class as the donee shall select without a gift over in

defalllt of selection. In such a case " the power may be more aptly

described as a power of cxclusion rather than a power of selection,

for the language demonstrates an intention that all the potential bene-

ficiarles shall benefit unless the donee of the power of selection in the

exercise of his discretion picks out partlcular members of the class."

Such '4 power of seleceion " clearly amounts to a trust power: see

Inland Revenue Commissioners v. Brsdway Cortages Trust [1955]

ChZ 20. (iii) Cases in which property is given to be held on trust for

such members of a class as the donee of the power may se}ect, with a

gift over in default of appointment. In such a cases a mere power

has been created: the settIor has imposed no duty upon the donee

to appoint since he has expressly provided for the contingency of his

not appointig at all (see Re Gestetner Settlenwnt [1953] Ch. 672).

(iv) Cases in which property is to be held on trust for such members

of a class as the donee of a power may select, but with no gift over



Case and Comment 213 C.L.J.

in default of appointment. In such a case, a mere power may have been created if it is clear from the words that there was no intention on the part of the settlor to impose a duty to select upon the donee of the power (see the principQI gift irl Re Sayer [1957] Ch. 42:3). (v) Cases in which there is no gift over in default of appointment but where it is doubtful whether the settlor has created a trust power or a mere power. In such a case, the absence of a gift over may " aid the construction of the gift for the benefit of the specified class of objecsts as conferring a power coupled th a duty to make a Relection." Such an sterpretation was placed upon the second gift in Re Satrer (above).

The facts of Re Leek, so far as matenal to this question, were as follows. A company was directed to hold moneys payable on the death of Leek on trust for the be:nefit " of such one or more of the following persons as the company in its absolute discretion shall decide, namely, [Leek's] wife children or other issue or such other persons that the company may consider to have a moral c]aim upon [Leek] . . . and failmg them upon trust for such one or more of [Leek's] statutory next-of-kin . . . as the company in its absolute discretion shall decide." Buckley J.-interpreted the second clause of this arrangement as amounting to a gift over in default ol appointment and held that, notwithstanding the use of the word " shall," the instrument " should not be constnled as importing a duty to make a selection, but merely as conferring a discretionary power to do so." In his view, therefore, the case fell within class (iii) of tlhe claszes enumerated above. This decision has subsequently been approved by the Court of Appeal (Lord Denrling M.R., Danckwerts and Winn L.JJ.) in Re Gulbenkian's Settlemenfs [1968] C]n. 126, but has been reverseel on appeal by ie Court of Appeal (Harmm, Russell and Sachs L.JJ.) [l968] 2 W.L.R. 1385.

Harman L.J. stated (p. 1391) that although bis "mmd [had] wavered on this subject," he had come to the conclusion that the words '4 failing them " did not amo-unt to a gift over in default of appointment, but simply contemplated the situation which would h;3ve ansen had Leek's wife and children predeceased him; that the word " shall " imposed a duty and that, therefore, a power in the nature of a trust had been created, presumably within Buckley J.'s class (v). With respect, the judgment of Harman 1_.J. on this point is less convincing than is that of Buckley J. at first instance, as also is that of Sachs L..J. who, having stated that he had been attracted by the reasoning of Buckley J. and by his conclusion that no duty of selection had been imposed, then held that such dul;y had been imposed, iD his ovvn view, because he had read the opinions of his colleagues in the Court



214 The Cambridge Law Journal [1968]

of Appeal and felt himself bound to suppress "

a tendency to heresy "

which apparently he now felt the reasoning of Buckley J. to be.

Secondly, the question as to whether a mere power or a trust

power has been created is of importance in that the latter partakes so much of the nature of a trust that unless the so-called

" certainties

of a trust" have been duly satisfied, it will fail for uncertainty. In

the words of Lord Denning M.R. in Re Gulbenkian (at p. 132): " the

courts have held that, [for it] to be good, the trustees must be able to

make a complete list of all the beneficiaries," for the obvious reason

that, in the event of the duty of appointment not being discharged, on the basis of equality being equity, all persons within the class

should benefit: if no complete list can be drawn up, no appropriate division can be made. For this reason, the instrument which was

construed as having created a power in the nature of a trust in Re

Saxone Shoe Co. Ltd. (above) was held to be void for uncertainty. There, a large fund

" shall in the discretion of the directors [of the

Saxone Shoe Co. Ltd.] be applicable ... for any . . . purpose which

the directors should in their discretion consider to be for the benefit

of: the employees [of the company] or [their] dependants." "

Depen- dant " was defined as " one who is wholly or in part dependent or in

the opinion of the directors is or was wholly or in part dependent

upon the earnings of an employee or former employee." No complete list of such persons could be drawn up and, therefore, the trust power failed for uncertainty. For the same reason, in Re Leek, the Court of

Appeal, having held that a power in the nature of a trust had been

created, held further that since obviously no exhaustive list of persons who had " a moral claim

" upon Leek could be drawn up, the trust

power must fail for uncertainty. In the case of a mere power, however, the position is entirely

different. The best-known statement of the position here is that of

Harman J. in Re Gestetner at p. 688. The settlement in that case

was in some ways similar to that in the Saxone Shoe case (above), in that, here again, the class whose members might benefit was an

extremely wide one, comprising employees and ex-employees and their

dependants of the Gestetner Company. Here, however, it was held

that, upon a construction of the relevant deeds, a mere power rather

than a trust power had been created. Harman J. then considered the

question of certainty: " if a power [does] . . . not impose a trust

upon the conscience of the donee, then I do not think that it can

be the law that it is necessary to know all the objects in order to

appoint to one of them." In his Lordship's view, there was in such

a case no duty to appoint, but simply "

a duty to consider " whether

a particular person who presented himself was or was not within the



C.L.J. Case and Commert 215

limits of the se,ttlor's bounty. s; In fact, there is no difficulty s . . in ascertaining whether any pven postulant is a member of the specified class. 0f course, if that could not be ascertained, the mat:ter would be quite different, but of John Doe or Richard Roe it can be postu- lated easily enough whether he is or is not eligible to rerive the settlor's bounty."

The test looks a simple and workable one but, in fact, it is capable of two interpretations: it could mean that the pouer will be valid if it can be stated with certamty that evew possible claim.lnt does or does not fall within the class or that it will be valid if, notuathstanding that it is possible to imagine some person of whsom it could not be clearly stated th;lt he falls within or without, one person can be found who is clearl within it. The first, and narrower, interpretation was placed upon the matter by Harman J. himself in Re Gresham's Settlenzent [1956] 1 W.L.R. 573 in which case tbe power in question might be exercised in favour of " any person in whose house or apartments or iIl whose company or under whose care or control or by or with whom [the settlor] may . . . be employed or residings' In holding this limitation void for uncertaint, Harman J. stated that the class In Re Gestetrrer " though large, was not one as to the limits of which there was any doubt," whereas here " there must or may be a number of persons of whom it could not be postu- lated that they were (or were not) within the dragnet of this unusuaIly constructed clause."

The second, wider interpretation has recently been apFoved by two judges at first instance. Thus, in Re Gibbard [l967] I W.L.R 42, in which a testator directed that the objects of a power contained in his will were to be 44 any of m.y old friends," Goff J., in rejecting the argument that the powu was void for uncertaInty, heId that sinee there would be " no difficulty in envisaging cases where claimants might come along and establish beyond question that they [were] eligible to use that expression . . . there is not a sufficient degree of uncertainty about the expression ' any of my old friends ' as to force me to the conclusion that the power of appointment is invalid." Agains in Re Leek Buckley J. at first instance approved a similar argument: " I see no reason to think that in the present case the company might not have found and selected some potential belle- ficiary whom any reasonable man would recopse as having a moral claim on . . . Leek." This is certainly a much wider and mtre lIberal interpretation than that adopted by Harman J. in Re Gresbn, a decision which Goff and Buckley JJ. disposed of by the somewhat unsubtle method of ignoring it entirely. But in Re Grllbeekix, which was concerned with the validity of a power drawn up in terms



216 The Cambridge Aw lournal [lg68]

slar to the " unusually constructed " clause in Re Gresfiram, Lord Denning M.R. not surprisingly adopted the more liberal interpretation and expressly overruled Re Gresharn: "You should not hold [al power to be bad simply because you can envisage borderline cases in which it would be difficult to say whether or no a person was within the class" tl968] Ch. at 134.

After Re Gibbard, Re Lzek and Re Gulbenkian which had thus approved, respectivelys powers in favour of " any of my old friends," " any who may have a moral claim upon me " and " any in whose house I may live or by whom I may be employed," one might reason ably have thought that it would be difficult for a settlor to attempt to establish a power which could be void for uncertainty, but a note of caution must stilI be sounded. Though the Court of Appeal in Re

Leek decided, as has been noted above, that a power in the nature of a trust had there been created which would then, clearly, be void for uncertainty, Harman L.J. stated, obiter, that the position with regard to certainty of object in the case of a mere power was that "it is enough if the donee of the power can say of any particular person making a claim that he or she is or is not an object of it." Har L.J. thus stated the position in terms which are still consistent wth the narrower interpretation of Re Gestetner which he himself made in Re Gresksm. And subsequently, in Re Wootfon (decd.) [1968] 1 W.L.R. 681, Pennyouick I. has strucli a further note of caution. Pennyouick J. noted that the interpretation previously placed upon Re Gestetner, that it should be " possible to say of any given indivi- dual whether or not he was an object of the power," had been modified by Lord Denning M.R. irx Re Gulbenkian when he observed that " it is sufficient to show that there are some persons who come fairly and squarely withm the power." Pennyck J. stated that he himself was not concerned " with any distinction there may be ln the test as laid down In these authorities "; he was " content to take the more stringent test' which, in fact, enabled him even so to uphold the validity of the power before him.

There must, therefore, remain some degree of Imcertainty in the matter. The views of Buckley J. and of Lord Denning M.R. certainly provide a splendid illustration of the mm " verba ita sunt intelligenda ut res magis wAleat quam pereat," but it may well be that, in the long run, they may lead to an unacceptable degree of uncertainty. In any event, leave to appeal to the House of Lords has been given in Re Leek and one can but respecffully express the hope that their Lordships will lay down reasonably certain critena of interpretation to end the uncertainty which has prevailed in recent years. : Lord Denning M.R. also stated in Re Gulbenkian that the cases



C.L.J. C.L.J. Case and Comment Case and Comment 2.l7 2.l7

upon powers E the nature of a trust are unsatisfactory and " contrary to common sense." In his view, they should be " brought into line " with the cases upon mere powers. If his Lordship was advocating the adoption of a canon of construction by the courts which wollld lead to the interpretation of instruments as creating mere powers rather than trust powers, such a change would be warmly ̂4elcomed. Indeed, an illustration of such a change may be found mrRe Gulben- kian itself as well as, more recently, in Re Baden's Trust De,>ds [l9fi7] 1 W.L.R. 1457 in which Goff J. held a mere power to llave been created, in spite of a direction that its donees " shall apply " property for the benefit of the members of a class. , on the other hand, Lord Denning M.R. was advocating that the requirement oi certainty in the case of a trust power should be equated to that in the: case o:E a mere power, the suggestion appears to be a great deal more radical and to have very wide implications which cannot be discussed here. One can but hope, again, that the House of Lords will cast .some light into this somewhat murky corner.

JOB HOPKINS.

REASONABLE PROVISI4)N FOR A DEPENDANT IT is a trite observation that where words of a statute are plain and unambiguous they should be construed in their ordin;1ry sense; yet some thirty years have elapsed since Parliament passed the Inhentance ff;amily ProvIsion) Act 1938 before its words have Ixen allowed to bear what is, one would have thought, their natural meaning. The Act, by section 1, empowered the court to vary a will if, in the court's oZnion, it " does not make reasonable provision for the maintenance" of a dependant; and it has now been held by Megarry J. in Re Goodwin [1968] 3 W.L.R. 558 that this language (since slightly amended) should be constmed to mean just what it says.

Formerly a different view prevailed. In the leading case of Re Styler [1942] Ch. 387, Morton J. had declared that, before it collld intervene, " the court has to find that it was unreasonable on the part of the testator" to make no provision, or no larger provision, for the dependant in questlon. Ishis interpretation introdu(nd a SllS jective test which did not appear to be warranted by the wording of the statute. Moreover it gave rise to two difliclllties: the first (which could not of course have been foreseen by Morton J.) was that it became somewhat inapposite after 1952 when Parliament, in order to empower the court to vary the intestacy rules as well, amended the earlier Act to reqliire the court, on an applica-tion being

upon powers E the nature of a trust are unsatisfactory and " contrary to common sense." In his view, they should be " brought into line " with the cases upon mere powers. If his Lordship was advocating the adoption of a canon of construction by the courts which wollld lead to the interpretation of instruments as creating mere powers rather than trust powers, such a change would be warmly ̂4elcomed. Indeed, an illustration of such a change may be found mrRe Gulben- kian itself as well as, more recently, in Re Baden's Trust De,>ds [l9fi7] 1 W.L.R. 1457 in which Goff J. held a mere power to llave been created, in spite of a direction that its donees " shall apply " property for the benefit of the members of a class. , on the other hand, Lord Denning M.R. was advocating that the requirement oi certainty in the case of a trust power should be equated to that in the: case o:E a mere power, the suggestion appears to be a great deal more radical and to have very wide implications which cannot be discussed here. One can but hope, again, that the House of Lords will cast .some light into this somewhat murky corner.

JOB HOPKINS.

REASONABLE PROVISI4)N FOR A DEPENDANT IT is a trite observation that where words of a statute are plain and unambiguous they should be construed in their ordin;1ry sense; yet some thirty years have elapsed since Parliament passed the Inhentance ff;amily ProvIsion) Act 1938 before its words have Ixen allowed to bear what is, one would have thought, their natural meaning. The Act, by section 1, empowered the court to vary a will if, in the court's oZnion, it " does not make reasonable provision for the maintenance" of a dependant; and it has now been held by Megarry J. in Re Goodwin [1968] 3 W.L.R. 558 that this language (since slightly amended) should be constmed to mean just what it says.

Formerly a different view prevailed. In the leading case of Re Styler [1942] Ch. 387, Morton J. had declared that, before it collld intervene, " the court has to find that it was unreasonable on the part of the testator" to make no provision, or no larger provision, for the dependant in questlon. Ishis interpretation introdu(nd a SllS jective test which did not appear to be warranted by the wording of the statute. Moreover it gave rise to two difliclllties: the first (which could not of course have been foreseen by Morton J.) was that it became somewhat inapposite after 1952 when Parliament, in order to empower the court to vary the intestacy rules as well, amended the earlier Act to reqliire the court, on an applica-tion being



powers in the nature of a trust. powers collateral. certainty of objects

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