Nature and Constitution of Trusts

Professor Cameron Stewart

 Defintion
• A trust exists when the titleholder of property
is obliged to deal with that property for the
benefit of another person
 Elements
• 1. the trustee — a legal person who holds a vested legal title
(or a vested equitable title) in the property, subject to
fiduciary duties;
• 2. trust property — property in real or personal form which
is identified or ascertainable and capable of being held on
trust. The trust property can be legal or equitable property;
and
• 3. the beneficiary (sometimes referred to as the cestui que
trust in older cases, or the object of the trust in modern cases)
— a person, or group of persons, who hold a beneficial
equitable estate in the property and on whose behalf the
trustee must act.
 Definitions
• It should be noted that the person who creates the
trust during their lifetime is usually referred to as a
settlor. Such a trust is often described as an inter
vivos trust or a settlement. When the trust has been
created in a will, the creator is the author of the will,
namely the testator (if male), or testatrix (if female).
A trust created in a will is referred to as a post
mortem trust. In this and following chapters, the
word creator will be used as a collective term to
cover both settlors and testators/testatrixs.
 Actors in the trust
• 1. creator;
• 2. trustee; and
• 3. beneficiary

• The three legal actors need not always be different

legal persons. It is possible for a creator and a trustee
to be the same person, for example, when a trust is
created by declaration of trust Similarly it is possible
for a creator to be a beneficiary, in cases where the
creator instructs the trustee to hold the property for
his or her benefit.
 Actors in the trust
• A trustee might also be a beneficiary, but only
in situations where the trustee is one of a
number of beneficiaries. It is impossible to be
the sole trustee and sole beneficiary because
once a person owns complete legal and
equitable estates they are said to merge
together, leaving no distinction between the
legal and equitable estates
 History of the trust
• Henry and the purse
strings
• Taxation in Tudor
England – feudal
tenures
• Primogeniture
• Devising land by will
• The legal remainder
rules
 The use

A --------------------------B ----------------------C
(Landowner) (feoffee to use) (cestui que use)

Legal estate Beneficial estate

CL Equitable
 The Statute of Uses 1535
• Collapse the use
• Springing uses
• The use on the use
• Equity creates property where there was none
before……
 DKLR Holding Co (No 2) Pty Ltd v Commissioner
of Stamp Duties (NSW) [1980] 1 NSWLR 510
• An unconditional legal estate in fee simple is the
largest estate which a person may hold in land. Subject
to qualifications arising under the general law, and to
the manifold restrictions now imposed by or under
statutes, the person seised of land for an estate in fee
simple has full and direct rights to possession and use
of the land and its profits, as well as full rights of
disposition. An equitable estate in land, even where its
owner is absolutely entitled and the trustee is a bare
trustee, is significantly different. What is, perhaps, its
essential character is to be traced to the origin of
equitable estates in the enforcement by Chancellors of
‘uses’ or ‘trusts’...
 DKLR Holding Co (No 2) Pty Ltd v Commissioner
of Stamp Duties (NSW) [1980] 1 NSWLR 510
• [A]lthough the equitable estate is an interest in property, its
essential character still bears the stamp which its origin
placed upon it. Where the trustee is the owner of the legal
fee simple, the right of the beneficiary, although annexed
to the land, is a right to compel the legal owner to hold and
use the rights which the law gives him in accordance with
the obligation which equity has imposed upon him. The
trustee, in such a case, has at law all the rights of the
absolute owner in fee simple, but he is not free to use
those rights for his own benefit in the way he could if no
trust existed. Equitable obligations require him to use them
in some particular way for the benefit of other persons.
 The three species of trust
• 1. express trusts;
• 2. resulting (or sometimes referred to as
implied) trusts; and
• 3. constructive trusts.
 Express Trusts
• Fixed
• Discretionary -Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146
– Exhaustive
– Non-exhaustive -Richstar Enterprises Pty Ltd; Australian Securities and
Investments Commission v Carey (No 6) (2006) 153 FCR 509
• Bare
– Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281
– Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639
– CGU Insurance Limited v One.Tel Limited (in liq) (2010) 242 CLR 174
• Charitable
• Non-charitable purpose – dogs, pussycats and tombs
• Commercial/ Unit
– CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98
• Family
 Resulting
• Automatic
– Failure of express trust
– Satisfaction of purpose
• Presumed
– Purchase in name of another
– Legal title no reflecting contribution to beneficial
title
– Gifts
 Contracts and trusts
• Gosper v Sawyer (1985) 160 CLR 548
• Sawyer was injured at work and made redundant – he made a
claim on his pension fund and they paid out less than what
was paid in because he was not totally and permanently
disabled
• The NWSW Industrial Arbitration Act allowed him to get the
Commission to review contracts which were harsh,
unconscionable, or oppressive
• Fund argued that the Commission had no jurisdiction
• Cahill J said they did – Service and Execution of Process Act
1901 allowed courts to proceed with interstate ‘contract’
claims
• HC – says its not about a contract – its about a trust
 Contracts and trusts
• Gosper v Sawyer (1985) 160 CLR 548 at 568–9;
58 ALR 13 at 26, Mason and Deane JJ stated:
The origins and nature of contract and trust are, of
course, quite different. There is however no
dichotomy between the two. The contractual
relationship provides one of the most common bases
for the establishment or implication and for the
definition of a trust.
 Contracts and trusts
• Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119
CLR 460
• Woodar Investment Development Ltd v Wimpey
Construction UK Ltd [1980] 1 All ER 571
Trident General Insurance Co Ltd v McNiece Bros
Pty Ltd (1988) 165 CLR 107
• A trust can attach to the benefit of the whole contract or of the
whole or part of some particular contractual obligation. In the case
of a policy of liability insurance under which the insurer agrees to
indemnify both a party to the contract and others, there is no
reason in principle or in common sense why the party to the
contract should not hold the benefit of the insurer’s promise to
indemnify him on his own behalf and the benefit of the promise to
indemnify others respectively upon trust for those others. Where
the benefit of a contractual promise is held by the promisee as
trustee for another, an action for enforcement of the promise or
damages for its breach can be brought by the trustee. In such an
action, the trustee can recover, on behalf of the beneficiary, the
damages sustained by the beneficiary by reason of breach. If the
trustee of the promise declines to institute such proceedings, the
beneficiary can bring proceedings against the promisor in his own
name, joining the trustee as defendant.
Kowalski v MMAL Staff Superannuation Fund Pty
Ltd (ACN 064 829 616) (No 3) [2009] FCA 53

• … not necessary that the contracting parties

know and understand that they are creating a
trust. It is sufficient that they intend to create
a relationship which, in equity, conforms to
that of a trust.
 Fiduciary relationships and trusts
• Trusts are a subset of fiduciary relationships
and the duties owed by trustees to their
beneficiaries are fiduciary in character
• Fiduciary duties and obligations of trust are
not mutually exclusive. A person can owe
separate and co-existing fiduciary and trustee
obligations
 Visnic v Sywak (2009) 257 ALR 517
• Defendant held shares on trust and the defendant was
ordered to return those shares to the plaintiff.
• In addition to these orders the plaintiff sought an account
of profits and/or equitable damages for the breach of
fiduciary duty and the plaintiff appealed the trial judge’s
decision to refuse such relief.
• The Court of Appeal upheld the trial judge’s decision not to
order an account of profits and equitable compensation.
• While there was a breach of trust, it was not clear that
there was a breach of fiduciary duty in relation to a conflict
of interest and duty; nor could it be said that any profit
made by the defendant was sufficiently connected (in a
causal sense) to the refusal to hand back the shares.
 Deceased estates and trusts
• Executors of deceased estates occupy a similar
function to trustees. Executors, like trustees,
are fiduciaries. However, an executor’s duties
exist in relation to the proper administration
of the deceased’s estate
• Commissioner of Stamp Duties (Qld) v
Livingston [1965] AC 694
 Bailments and trust
• A bailment only confers a weak possessory
title on the bailee. It does not create a trust as
the bailee does not take a vested title in the
property
Olma v Amendola [2004] SASC 274
• Plaintiff won a personal injury claim
• Defendant had offered to take the money and
invest it
• Plaintiffs requested return of money and
interest
• Defendant said she was a gratuitous bailee
• Mutuum
• Full Court – intention was to create a trust
 Agency and trust
• An agency exists where one person (the
principal) authorises another person (the
agent) to act as the principal’s representative.
The actions of an agent bind the principal. Like
bailments, agency agreements are based in
contract
• Loughran v Perpetual Trustees WA Ltd [2007]
VSC 50
 Debts and trusts
• The position of creditors is therefore very different
from that of beneficiaries. Beneficiaries have
equitable interests in the property held by the
trustee. Creditors do not have an interest in their
creditor’s property. A creditor only has access to
common law remedies to pursue the debt
• The institutions of debt and trust can co-exist in the
one transaction if there is a common intention that
funds will be held for specific purposes eg Quistclose
 Caruana v DPP [2011] VSC 658
• Kyrou J:
• (a) If it is proved on the facts that the parties’ intention was
that the payee was entitled to use the money as his or her
own, and was only under an obligation to repay the same
amount of money either on demand or at a specified time
in the future, then there is no trust and the amount owed is
a debt [Re Broad; Ex parte Neck (1884) 13 QBD 740 at 746].
• (b) If it is proved on the facts that the parties’ intention was
that the payee would hold the money for the benefit of the
payer, would deal with the money as a separate fund on
behalf of the payer and would not be free to use the money
as his or her own, then a trust will arise [Cohen v Cohen
(1929) 42 CLR 91 at 101.]
 Caruana v DPP [2011] VSC 658
• (c) The absence of a prohibition on the payee depositing the money
into a general account (or the absence of a requirement that the
payee deposit the money into a separate account) is significant [Re
Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 498] but
not determinative in distinguishing between an amount owed as a
debt and an amount held on trust. Where the intention to create a
trust emerges from other facts, the payee can still be a trustee
[Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000)
202 CLR 588 at 604]]
• (d) A requirement that the payee is to keep the money received
from the payer separate from the payee’s own funds is generally
indicative of a trust. However, the fact that the payee deposits the
money into a separate bank account is not conclusive of an
intention to establish a trust [Re Kayford Ltd (in liq) [1975] 1 WLR
279 at 282].
 Caruana v DPP [2011] VSC 658
• (e) If the trustee and the beneficiary agree
that the money can be paid into a general
account maintained by the trustee, then the
trustee must retain sufficient funds in that
account to fulfil his or her obligations as
trustee [Stephens Travel Service International
Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR
331 at 348–9]
 Debts and trusts
• Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC
567
• Rolls Razor Pty Ltd (Rolls Razor) borrowed a large amount
of money from Quistclose Investments Ltd (Quistclose).
Quistclose lent the money on the basis that it was to be
used for the specific purpose of paying Rolls Razor’s
shareholders their dividends. Rolls Razor deposited the
money in a special account with Barclays Bank. Barclays
were informed that the money was only to be used to
pay the dividend. Before the dividend was paid Rolls
Razor went into liquidation. The bank sought to use the
money in the account to set-off the debts which were
owed to it by Rolls Razor. Quistclose sought to retrieve
the money and claimed that the bank had no right to use
the funds in a set-off.
 Debts and trusts
• Lord Wilberforce found that the agreement between
Quistclose and Rolls Razor created a primary trust for
the shareholders. When that trust could not proceed
(due to Rolls Razor’s insolvency) the loan became
subject to a secondary trust in favour of Quistclose in
the event of the money not being used for its
dedicated purpose. Finally, given that the bank had
notice of the mutual intention of the parties to
create a trust, it was bound to respect that trust and
could not use the funds to set-off debts owed to it by
Rolls Razor.
 Debts and trusts
• The mutual intention of the parties can be discerned
from the language employed by the parties, the
nature of the transaction and the relevant
circumstances attending the relationship between
them: Re Australian Elizabethan Theatre Trust; Lord v
Commonwealth Bank of Australia (1991) 30 FCR 491
at 502–3
 Debts and trusts
• McManus RE Pty Ltd v Ward [2009] NSWSC 440, a deposit for the purchase of a
hotel was paid directly into the vendor’s personal account. Absent any other
indication that the money was to be held on trust, Palmer J found that the money
was simply a debt and no trust had been created.
• McKechnie J found similarly in Smith v Western Australia [2009] WASC 189, where
the mother and sister of a drug dealer were unable to establish a mutual intention
to create a trust for funds which they provided to the drug dealer to help him pay
his legal costs and mortgage. The drug dealer’s house was being confiscated as
part of proceeds of crime legislation and the mother and sister claimed an interest
in the house arising from their loans. This claim failed as there was no intention
that they were to be given an interest in the house in response to their provision
of funds.
• In Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135, money paid by one partner to
fund a partnership was not found to have been paid with any objective intention
that the money would be held on trust and repaid if the partnership failed. An
intention to hold the funds on trust would have cut across the underlying
assumption that partners had a right in every asset of the partnership
 Debts and trusts
• Twinsectra Ltd v Yardley [2002] 2 AC 164- resulting
trust?
• Quince v Varga [2008] QCA 376 at [38]
• Salvo v New Tel Ltd [2005] NSWCA 281 at [79]
• Marriner v Australian Super Developments Pty Ltd
[2012] VSCA 171
• George v Webb [2011] NSWSC 1608
• Pearson v Western Australia [2012] WASC 102
 Securities and trusts
• Debts will often be secured. This means that
the debtor has agreed to give the creditor a
proprietary interest in one or more of his or
her assets. Should the debtor not pay, the
creditor can realise the security by taking
possession of the secured property or by
ordering that it be sold and the proceeds be
used to satisfy the debt.
 Securities and trusts
• The equitable charge is very similar to a trust.
An equitable charge is a form of security that
allows the creditor (chargee) to order the sale
of the property, after a triggering event, like
default of payment. The proceeds of sale can
then be used to satisfy amounts due to the
chargee
 Securities and Trusts
• The equitable charge is very similar to a trust.
An equitable charge is a form of security that
allows the creditor (chargee) to order the sale
of the property, after a triggering event, like
default of payment. The proceeds of sale can
then be used to satisfy amounts due to the
chargee
 Securities and Trusts
• If the transferor intends that the title be transferred,
‘subject to’ payments being made to another, then it
will be construed as a charge. For example, property
might be given ‘to A subject to A paying B $1000’.
This transfer evidences an intention that the
obligation to pay is annexed to property as opposed
to being a fiduciary obligation imposed on the
transferee. The obligation is of a finite nature. It is
satisfied after compliance. As such it is not of the
same extent and duration as the trustee’s fiduciary
obligations to care for the beneficiaries’ interest in a
trust
 Conditional dispositions and trusts
• Transfers of property, which are subject to
obligations being fulfilled to third parties, will
ordinarily be viewed as equitable charges.
• If a transferor of property indicates a motive, hope or
expectation that the property will be used in a
particular way, the condition will be viewed as
precatory and import no legal or equitable
obligations. For example, gifts made in the belief that
‘justice will be done to my relatives’ will impose a
moral obligation which has no force: In the Will of
Warren; Verga v Taylor [1907] VLR 325
 Gill v Gill (1921) 21 SR(NSW) 400
• A disposition of a farm to the testator’s son was made
on the condition that the son pay the testator’s debts
and allow the testator’s three daughters to live in part
of the farmhouse for as long as they remained
unmarried.
• Harvey J found that the conditions were not conditions
subsequent. Nor did they create a trust in favour of the
sisters.
• Rather, the conditions were said to impose a personal
equitable obligation on the son to provide appropriate
accommodation to his remaining unmarried sisters.
 Gill v Gill (1921) 21 SR(NSW) 400
• Importantly, his Honour, at 407, said:

• In some cases the court may see that what the testator
intended was to attach a charge or a trust upon the
property, in other cases it may conclude a personal liability
alone is intended. The view taken would depend partly on
the language used to describe the obligation, partly on the
nature of the property given to the obligee, and partly on
the nature of the obligation. In cases where the obligation
is merely personal in its nature, calling for the personal
activity of the obligee, it may be the court could not
effectively order specific performance; I see no reason why,
in such cases the court should not mould the remedy so as
to give a remedy by way of damages for the breach of the
quasi contract.
 Re Gardiner (dec’d) [1971] 2
NSWLR 494
• Will gave whole estate to son “subject to my
son paying the sum of £1,000 within two years
from my death unto my son [A.]”
• A condition precedent (even if it could be
satisfied
• Not a trust
• Not a charge
 Re Gardiner (dec’d) [1971] 2
NSWLR 494
• I can understand a trust arising or a charge being created where after the expiry of
a certain time a payment is to be made or something is to be done or otherwise
the property is to be dealt with in a particular way, but that is not the case here.
What here arises from the words of the will is that something must be done within
a particular time, and it seems to me that if, at the conclusion of that period of
time, payment is not made or the act is not done, one must substitute a form of
obligation, to enable performance, different from that which the testator
indicated. I shall try to make myself clear. It might be that there is a personal
obligation upon a prospective donee to make a payment in the present case within
two years, but by the very terms of the will it seems to me that there cannot be a
personal obligation upon him to make a payment within two years as in dicated by
the testator after the expiry of that time. One must substitute a different
obligation to enable the person to whom the legacy should have been paid to
enforce it, and it seems to me the same applies in relation to a trust. What has to
be done here is to impose an obligation by way of trust upon the first-named
defendant which is to arise or accrue or continue after the expiry of two years, and
I cannot see that in the terms of the will this is a possible form of obligation which
can be said to arise. It seems to me that, in cases where you must replace an
obligation imposed by the terms of the will by another, then neither the notion of
trust nor the personal obligation created by the will is apt correctly to categorize
the nature of the obligation which was intended to be created by the words of the
testator.
 Conditional dispositions and trusts
• If the transfer is made subject to a binding condition
precedent, the transfer will not take place until the
condition precedent is satisfied: Re Gardiner (dec’d)
[1971] 2 NSWLR 494. If the condition is a condition
subsequent the property will be forfeited if the
condition is not fulfilled
• If the disposition states that the obligation is to be
fulfilled within a time period it is viewed as a
condition precedent: Re Gardiner (dec’d) [1971] 2
NSWLR 494 at 498, per Helsham J.
 Conditional dispositions and trusts
• In cases where the conditional disposition is
possibly a charge, condition precedent or
condition subsequent, courts prefer to view
the disposition as imposing a charge. It has
been said that a conditional disposition will be
treated as taking effect as a charge even
where words of condition are used: Re
Gardiner (dec’d) [1971] 2 NSWLR 494.
 Countess of Bective v Federal Commissioner of
Taxation (1932) 47 CLR 417
• The countess was left a fund by her first
husband to use for their infant daughter. The
Countess was to be given the net annual
income to spent on the child maintenance and
education until she reached 15 years.
• The income was included in the assessable
income of the Countess
• HC says income was not her beneficially
 Personal equities
• Sometimes the obligation to the third party will be less definite,
such as an obligation to ‘support’ or ‘take care’ of a third party, or
make sure they ‘want for nothing’: Re Moore (1886) 55 LJ Ch 418;
Broad v Bevan (1823) 38 ER 198
• Such a personal equitable obligation does not create a property
right in the third party beneficiary. Nor will the breach of the
obligation give rise to a forfeiture of the gift.
• However, the personal obligation is enforceable and the breach of it
may give rise to orders of specific performance, injunctions or
equitable compensation: Kauter v Kauter [2003] NSWSC 741;
Messenger v Andrews (1828) 38 ER 885; Gregg v Coates (1856) 53
ER 13.
• Gill v Gill (1921) 21 SR(NSW) 400 – sisters daughters to live in part
of the farmhouse for as long as they remained unmarried
• Hammond v Hammond [2007] NSWSC 106 – never wants for
anything
 Personal equities
• Gill v Gill (1921) 21 SR(NSW) 400, Harvey J:
• In some cases the court may see that what the testator
intended was to attach a charge or a trust upon the
property, in other cases it may conclude a personal liability
alone is intended. The view taken would depend partly on
the language used to describe the obligation, partly on the
nature of the property given to the obligee, and partly on
the nature of the obligation. In cases where the obligation
is merely personal in its nature, calling for the personal
activity of the obligee, it may be the court could not
effectively order specific performance; I see no reason why,
in such cases the court should not mould the remedy so as
to give a remedy by way of damages for the breach of the
quasi contract.
 Retention of title clauses and trusts
• Romalpa’ clauses, are contractual clauses used
in the sale of goods. They allow suppliers to
retain title in delivered goods until such time
as full payment has been made: Aluminium
Industrie Vaassen BV v Romalpa Aluminium
Ltd [1976] 2 All ER 552
 Retention of title clauses and trusts
• Romalpa clauses operate very much like a
bailment and are therefore quite distin-
guishable from a trust relationship
• However, where the goods have been mixed
with other goods or used in a manufacturing
process or sold, Romalpa clauses can operate
like a trust or a charge.
 Associated Alloys Pty Limited
• The seller had supplied steel to the buyer on terms that
contained a Romalpa clause
• The clause stated that if the steel was sold before full
payment, the buyer was required to hold an amount of
the proceeds in a separate account that was equal to
the amount owing on the steel ‘at the time of the
receipt of such proceeds.’
• The buyer had used the steel in the manufacturing
process and sold the steel products to a third party.
• The third party had paid some, but not all, of the
purchase price of the products.
• The buyer then went into liquidation.
 Associated Alloys Pty Limited
• The question for the High Court was whether the
proceeds clause created a trust or a statutory charge
which needs to be registered under s 262
• The answer to the question hinged on the meaning of
the word ‘proceeds’ in the proceeds clause. If the
buyer was obliged to keep both the money and the
book debts as ‘proceeds’ for the seller, then the clause
would come under the definition of ‘charge’ under the
Corporations Act, and be invalidated for want of
registration. If the word ‘proceeds’ could be confined
to the actual monies paid by the third party, the clause
could be considered as trust.
 Associated Alloys Pty Limited
• A majority of the High Court (Gaudron,
McHugh, Gummow and Hayne JJ) found that
the clause had created a trust of the amounts
that had been paid by the third party.
• The majority, at CLR 602; ALR 576-7, read the
reference to ‘proceeds’ in the clause to refer
only to the amounts that had actually been
paid by the third party, and not to the book
debts
 Gaudron, McHugh, Gummow and
Hayne JJ at CLR 602
• The proper construction of the phrase ‘the proceeds’ is revealed by
a consideration of the proceeds subclause as a whole … The phrase
‘the proceeds’ is to be construed as referring to moneys received by
the buyer and not debts which may be set out in the buyer’s books
(or computer records) from time to time ... The concluding
sentence of the proceeds subclause would be strained if the phrase
‘the proceeds’ were to include book debts. In the event that a debt
were subject to conditions, it may prove to be difficult to determine
when the buyer is in ‘receipt’ of that intangible obligation.
Moreover, to attempt to equate a chose in action, ‘in dollar terms’,
to a sum of money, namely ‘the amount owing by the [buyer] to the
[seller] at the time of the receipt of such proceeds’, is, at the very
least, conceptually problematic. In contrast, limiting the phrase ‘the
proceeds’ to refer to payments made to the Buyer results in this
equation operating with certainty.
 Gaudron, McHugh, Gummow and
Hayne JJ at CLR 602
• However, the majority found that the seller
could not be given relief for breach of trust.
The seller had failed to prove that the
proceeds received by the buyer were received
in relation to the steel that was subject to the
Romalpa clause. This lack of evidence was
fatal to the seller’s claims of relief.
 Powers of appointment and trusts
• In a power of appointment, the titleholder of
property (the donor) gives another person (the
donee) the power to deal with, or dispose of, the
property that is the subject of the power. Normally
the power will allow the donee to transfer the
property to a third party who can be chosen from a
class of people specified in the power (the objects of
the power). Unlike a trustee, the donee of a power is
not usually given the title to the property
 Powers of appointment and trusts
• 1. general powers, where the donee is empowered
to appoint the property to anyone including himself
or herself;
• 2. special powers, which are powers to appoint the
property to specific individuals or classes of objects,
not including the donee;
• 3. hybrid powers, where the donee can give the
property to anyone in the world except for a
particular group or class or individual; and
• 4. intermediate powers, where the donee can add
to the specified class of objects in the power.
 Powers of appointment and trusts
• Why does the distinction between trust
powers and mere powers matter? Both mere
and trust powers are required to describe
their objects with sufficient certainty. It used
to be the case that trust powers and mere
powers were subjected to different tests of
certainty
 Re Gulbenkian's Settlement Trusts
[1970] AC 508
• Power - 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, namely, the said Nubar Sarkis Gulbenkian and
any wife and his children or remoter issue for the time being in
existence whether minors or adults and 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 Sarkis
Gulbenkian may from time to time be employed or residing and the
other person or persons other than the settler for the time being
entitled or interested whether absolutely, contingently or otherwise
to or in the trust fund under the trusts herein contained to take
effect after the death of the said Nubar Sarkis Gulbenkian in such
proportions and manner as the trustees shall in their absolute
discretion at any time or times think proper
 Re Gulbenkian's Settlement Trusts
[1970] AC 508
• Lord Reid – poorly drafted but must be read with commercial sense
• Trust power or bare power?
• In my view it must follow that the trustees are to act in their fiduciary
capacity. They are given an absolute discretion. So if they decide in good
faith at appropriate times to give none of the income to any of the
beneficiaries the court cannot pronounce their reasons to be bad. and
similarly if they decide to give some or all of the income to a particular
beneficiary the court will not review their decision. That was decided by
this House in Gisborne v. Gisborne (1877) 2 App.Cas. 300 . But their
"absolute discretion" must, I think, be subject to two conditions. It may be
true that when a mere power is given to an individual he is under no duty
to exercise it or even to consider whether he should exercise it. But when
a power is given to trustees as such, it appears to me that the situation
must be different. A settler or testator who entrusts a power to his
trustees must be relying on them in their fiduciary capacity so they cannot
simply push aside the power and refuse to consider whether it ought in
their judgment to be exercised. and they cannot give money to a person
who is not within the classes of persons designated by the settlor: the
construction of the power is for the court.
 Lord Reid
• If the classes of beneficiaries are not defined with sufficient particularity to enable
the court to determine whether a particular person is or is not, on the facts at a
particular time, within one of the classes of beneficiaries, then the power must be
bad for uncertainty. If the donee of the power (whether or not he has any duty)
desires to exercise it in favour of a particular person it must be possible to
determine whether that particular person is or is not within the class of objects of
the power. and it must be possible to determine the validity of the power
immediately it comes into operation. It cannot be valid if the person whom the
donee happens to choose is clearly within the objects but void if it is doubtful
whether that is so. So if one can reasonably envisage cases where the court could
not determine the question the power must be bad for uncertainty. But it is not
bad merely because such determination may be difficult in a particular case. The
respondents have inserted in their case at the request of the trustees a statement
that in the view of the trustees "it must be unlikely that they would in practice be
able to exercise the said power or discretion except after obtaining a decision of
the court whether any particular suggested object thereof did or did not fall within
the said description." That in itself is not sufficient to warrant a decision that the
power fails for uncertainty. It may be that there is a class of case where, although
the description of a class of beneficiaries is clear enough, any attempt to apply it
to the facts would lead to such administrative difficulties that it would for that
reason be held to be invalid. But that is not this case.
 Lord Upjohn
• There is no doubt that the first task is to try to ascertain the settlers
intention, so to speak, without regard to the consequences, and then,
having construed the document, apply the test. The court, whose task it is
to discover that intention, starts by applying the usual canons of
construction; words must be given their usual meaning, the clause should
be read literally and in accordance with the ordinary rules of grammar. But
very frequently, whether it be in wills, settlements or commercial
agreements, the application of such fundamental canons leads nowhere,
the draftsman has used words wrongly, his sentences border on the
illiterate and his grammar may be appalling. It is then the duty of the court
by the exercise of its judicial knowledge and experience in the relevant
matter, innate common sense and desire to make sense of the settlers or
parties' expressed intentions, however obscure and ambiguous the
language that may have been used, to give a reasonable meaning to that
language if it can do so without doing complete violence to it. The fact
that the court has to see whether the clause is "certain" for a particular
purpose does not disentitle the court from doing otherwise than, in the
first place, try to make sense of it.
 Lord Upjohn
• …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. It is for this reason that I
find myself unable to accept the broader proposition
advanced by Lord Denning M.R. and Winn L.J.
mentioned earlier, and agree with the proposition as
enunciated in In re Gestetner's Settlement [1953] Ch.
672 and the later cases.
 Problem
• Characterise the following dispositions contained in Jock’s will:
• 1. I give my Rolls Royce to Isaac, and on the condition that Isaac pays
my debts to Christos.

• 2. I give my house in Brewarina to Pauline absolutely, with the hope

that she shall allow my mother to live there until she dies.

• 3. I give $25,000 to David, to be used for the costs of educating Millie

and to be hers absolutely when she attains 21 years.

• 4. I give the residue of my estate to Frances who may, at her absolute

discretion, give such residue to anyone she thinks fit, barring herself, Isaac,
and Pauline. If Frances fails to dispose of the residue in her lifetime, it shall
become the property of Millie.