Summary Express Trusts and 3 Certainties - Equity & Trusts Law (LLB)

3 CERTAINTIES AND CREATION OF EXPRESS TRUSTS

3 CERTAINTIES REQUIRED FOR A VALID EXPRESS TRUST – need 3 certainties for express trust
1) CERTAINTY OF INTENTION: settlor intends impose legal obligation on trustee not moral
obligation, create trust + not anything else e.g. loan or gift, court infer intention circumstances
2) CERTAINTY OF SUBJECT MATTER: segregate trust property from other property and
identifiable, exceptionally intangible property made up of identical units (e.g. ordinary shares of
same class) may not be necessary to segregate that property from other
 Insolvent bank (Lehman Brothers) held huge mixed fund may be considered held on terms of
single trust, all bank’s customers beneficiaries for specific financial regulations (not separate
trust for each customer)Lehman Brother triggered financial crash of 2008
3) CERTAINTY OF OBJECTS: who beneficiaries are, any person claiming to be a beneficiary need to
decide if that person is a member of class of beneficiaries

Settlor
 Expresses trust with sufficient certainty; trust instrument (with all terms) makes intention clear
 Paul v Constance: ‘I intend this money to be as much yours as mine’ create trust
 Once trust created, settlor no further role, trustees responsible for management of trust property
 Settlor can appoint themselves as one of the trustees
 Fails to create valid trust=trust property passes back to settlor on resulting trust, settlor fails to
create trust satisfying 3 certainties= never comes into existencelegal title not pass to trustee

Trustee
 Settlor can declare themselves as one of the trustees
 E.g. uncle to son ‘use money to buy gift for nephews son trustee, nephews beneficiaries
 Well drafted instrument states trustee’s obligations in circumstances, informal (usually oral) leave
matters to court’s interpretation

Beneficiary
Control use of trust fund by trustee, getting proprietary rights in trust property + control trustee

CERTAINTY OF INTENTION
 Settlor must intend to create a trust as opposed to creating merely a gift
 Form: trust instrument (deed easy to prove there trust, verbal expression of intention sufficient)
 Courts infer: circumstances court consider trust created if intentions not in trust instrument

Paul v Constance [1977]:* Dennis Constance left his wife to live with Mrs Paul, did not divorce his
wife, Constance received £950 for injury at work which Dennis and Paul set up joint bank account,
£950 deposited, added joint bingo winnings into account, used for holiday, he died and his wife
sought to be sole beneficiary he said ‘this money is as much yours as mine’held trust created,
Dennis hold property on trust for both himself and Paul, express trust from conduct

Re Kayford [1975]*: mail-order company received money from customers buying from their
catalogues before those items sent to customer, company in danger of insolvency and segregated all
its prepayments into another bank accountheld company’s intention to create trust over
prepayments by transferring into separate account protects beneficiary

Jones v Lock [1865]: father returned home from business trip, wife scolded him for not bringing gift
for infant son, went upstairs wrote a cheque in favour of himself as payee, and shouted ‘look here, I
give this to the baby’ and put it in the baby’s hand – issue if trust was created over cheque held
imperfect gift (father’s name as payee without endorsed in favour of baby) and nothing to indicate a
gift and no intention to create a trust

1

, Richards v Delbridge [1874]: businessmen decided to transfer his business outright to a member of
family and sought to demonstrate this intention by an endorsement on lease of business premises,
gift not perfected and thus treated as having been held on trust held intention make a gift, not a
trust judge stated: ‘if intended to make gift not be trust, as every imperfect gift become a trust

Re Nanwa Gold Mines Ltd [1955]: money sent on promise to keep it in a separate account (trust
account) moneys remained in beneficial ownership of those who sent them held trust, but need to
take ‘reasonable steps on or before receiving the money’ to establish trust

Re Farepak Food [2006]*: low-income families contributed to Christmas fund put several pounds
each month to save a large amount to spend on presents, pool of shared moneys by various
customers, company into insolvency, create bank account to keep contributions separate from
assets held no trust found contrary to Re Kayford

Don King Productions*: 2 famous boxing promoters formed partnership, issue whether partners
held benefit of their management agreements on trust for their partnershipheld any benefit
received from them is subject matter and partnership agreement showed sufficient intention to
create trust even complex commercial court infer intention create trust

Principle to certainty of intention applies to commercial and non-commercial situations
 Court will infer a trust, which would be an express trust even if parties did not know what they
were creating – for both everyday and commercial situations
Lack of certainty of intention= absolute gift

Annabel’s Ltd v Revenue Commissioners
Tronc system operated where all cash tips taken by a member of staff held all cash tips before
distributing, held tips held on trust, for the benefit of other staff

Brazzill v Willoughby [2009]
Regulated bank Kaupthing Singer and Friedlander (KSF) in financial difficulties, Bank of England
required KSF to credit to a trust account all future deposits, some deposits credited to trust account
but not all Held: trust account for all those deposits should have been made under direction,
operated as class trust intention create a separate account for benefit of customers= trust

Trusts over bank accounts
 Issue in banking law that when a bank receives money into the customer’s account, bank receives
an outright transfer of that money and does not hold deposited money on trust
 Banker owes only personal, non-trust obligations to its customers when its receives deposits,
otherwise would require a express agreement with bank and customer to be understood to be
acting as a trustee (banks do often act as trustees but in special circumstances)

Intention to create a trust over shares in financial transactions
Mills v Sportsdirect: before KSF in insolvency, Sports Direct entered into a repo (borrowing facility)
transaction with KSF where transferred shares in exchange for cash would be transferred back to SD
a few days later, SD concerned for creditworthiness and thus provided shares held by Sinjul
Nominees Ltd until transferred to SD held parties intended create trust over shares which claimant
transferred in a separate account, when D went into insolvency claimant got equitable proprietary
rights in those sharesprotected against insolvency
Moral obligations or trusts
 Moral obligation who is recipient of property a trust is not created, and imposes fiduciary
obligations on that person so that they will become a trustee over that property

2