THREE CERTAINITIES

• An express trust must be certain in three (3) distinct respects ( (1840)): 1) Certainty of intention: settlor must have intended to create a trust of the property as opposed to making a gift or lending it to another; 2) Certainty of subject-matter: property must be specified with reasonable certainty; 3) Certainty of objects: the beneficiaries of trust must be sufficiently identifiable. • Charitable trusts are not required to satisfy the requirement of certainty of objects. • Resulting and constructive trusts will not satisfy the requirement of certainty of intention.

CERTAINTY OF INTENTION • The settlor must’ve intended to create a trust of their property as opposed to making a gift or a loan. • An intention to create a trust is an intention to impose on a property owner an obligation to apply the property for the benefit of identified beneficiaries or for recognised charitable purposes. • The settlor must’ve intended to create a legally binding relationship. • The settlor need not need to use the word “trust” or any particular words: Re Armstrong [1960]. • The intention is determined by reference to the settlor’s objective intention: Byrnes v Kendle [2011], question is whether a reasonable person would consider that in all the circumstances the settlor intended to create the trust? Must consider the settlor’s words and actions to assess whether they manifested a sufficient objective intention to create a trust: [1977]. • A settlor must intend to create a trust which takes effect immediately (unless consideration had been provided to create trust at later time): Harpur v Levy [2007]. • The only circumstances in which a settlor’s subjective intention is relevant is where it is alleged that the trust is a sham, or voidable for mistake, misrepresentation, duress, undue influence or unconscionability, or where rectification of the trust instrument is sought on the ground that it does not represent the parties’ actual intentions. • The term ‘precautionary words’ mean words of prayer or words that express a hope or wish, without intending to impose enforceable obligations on the recipient of property. They tend to be invalid trusts, and more like moral obligations: Harding v Glyn (1793); Re Williams; Dean v Cole (1921).

Shams • A trust is a sham where settlor deals with property otherwise in accordance with terms of the trust created, with the intention of deceiving third parties as to the settlor’s real interest in the property. • The objective appearance is a trust, but subjective intention is to create that appearance to deceive. There is no intention for trust to govern relationship between parties.

CERTAINTY OF SUBJECT MATTER • The subject of the trust must be certain to be enforceable – trust cannot exist without property. • The subject-matter must constitute legally recognised property. • It can be real or personal tangible property, or intangible property. It can be legal or equitable. • The settlor must have present property rights – cannot have future property on trust. o Exception: when consideration paid in exchange for declaration of trust: Tailby v Official Receiver (1888) • The quantum or amount of property to be held must be clearly identified: Boyce v Boyce (1849) – four houses transferred on trust, trustee to allow Maria to choose a house and other three houses to go to Charlotte but Maria died before making a choice. • The amount of property cannot be vague: (1854) – the “bulk of my estate” cannot be clearly defined; Bardswell v Bardswell (1838) – direction to “remember” certain persons; Knight v Knight (1840) – direction to “reward very old servants and tenants according to their deserts”.

o The subject-matter can be certain even if quantum will be determined by trustee, provided that the criteria applied by the trustee can be objectively assessed.

Resolving Uncertainty • There are a number of ways uncertainty can be resolved in respect to subject-matter: 1) Interpretation: courts can interpret what settlors meant in trust: Re Golay’s Will Trust – courts can interpret what “reasonable” to find objective meaning in context and courts are constantly involved in making such objective assessments of what is reasonable. 2) Extrinsic evidence in interpretation: o Evidence of surrounding facts and circumstances (known as armchair principle): Jepson v Bowman [2014] – sitting in armchair of person who created trust and asking what that person would’ve meant. o Direct evidence of settlor’s intention (ie. instructions to lawyer or diary) but only when: i. There is a will: s 36 of Wills Act 1997(Vic) (allows admittance of evidence of subjective intention); ii. The equivocation principle applies: Dec v Oikonomou – settlor left his “house on trust”, but owned two house and was uncertain which house he meant, so court allowed evidence to determine which of the two he meant. 3) Share in larger subject-matter: only applicable where trusts created as part of fungible mass (items that are all the same) – ie. 200 shares held on trust but settlor holds 400 shares, it is presumed that all 400 shares are held on trust for settlor and beneficiary in equal shares: Ellison v Sandini Pty Ltd [2018].

Consequences of Uncertainty • If property remains uncertain or is not included in trust, there is no trust for property to attach to. • If property is identifiable but there are uncertain interests in the property, then trustees cannot execute intended trust which deems it invalid and must return property to the settlor. o If settlor is dead, the property must be returned to deceased estate.

CERTAINTY OF OBJECTS • The beneficiaries of a trust must be identifiable. • The trust must contain beneficiaries as it’s a relationship between trustees and beneficiaries, and if there are no beneficiaries then trustees cannot owe duties to anyone. • The beneficiaries do not need to be named, but trust must have workable definitions of beneficiaries to be able to determine to whom trustees owe duties to (beneficiary principle). • There are two types of uncertainties in terms of objects (Re Gulbenkian): 1) Evidentiary uncertainty: lack of factual information about existence, identity or location of beneficiaries, and instances when it is impossible to have complete factual information about beneficiaries (ie. a person’s siblings – unknown whether person has more siblings). a) Evidentiary uncertainty will not invalidate a trust. 2) Conceptual uncertainty: vague or imprecise definitions (ie. person’s favourite colleagues). b) Has ability to invalidate a trust.

Resolving Uncertainty • There are ways to resolve uncertainty depending on whether trust is a fixed or discretionary trust: 1) Fixed trusts: o List certainties test – trustees must be able to make a complete list of beneficiaries. o Evidentiary uncertainty will not invalidate fixed trust: Kinsela v Caldwell (1975). o The court has a duty to make sense of settlor’s meanings: Re Gulbenkian. o If trustees are not sure whether their list is complete, they can ask the court to approve the distribution to protect them from breach of their duties: Re Benjamin Orders [1902].

o If trustees cannot name all beneficiaries but have taken all reasonable steps to locate them, the court may approve distribution if it is satisfied on the balance of probabilities that the substantial majority of beneficiaries have been ascertained and that no more reasonable inquiries can be made: West v Weston. 2) Discretionary trusts: o Criterion certainty test: whether trustee can decide whether person is within specified class of beneficiaries or not: McPhail v Doulton; Re Baden [No 2]. • Additionally, the courts can resolve uncertainty by engaging in: 1) Interpretation: courts can interpret what settlors meant in trust: Re Golay’s Will Trust – courts can interpret what “reasonable” to find objective meaning in context and courts are constantly involved in making such objective assessments of what is reasonable. 2) Extrinsic evidence in interpretation: o Evidence of surrounding facts and circumstances (known as armchair principle): Jepson v Bowman [2014] – sitting in armchair of person who created trust and asking what that person would’ve meant. o Direct evidence of settlor’s intention (ie. instructions to lawyer or diary) but only when: iii. There is a will: s 36 of Wills Act 1997(Vic) (allows admittance of evidence of subjective intention); or iv. The equivocation principle applies: Dec v Oikonomou – settlor left his “house on trust”, but owned two house and was uncertain which house he meant, so court allowed evidence to determine which of the two he meant.

Consequences of Uncertainty • If the beneficiaries cannot be identified with sufficient precision or the court decides it cannot legitimately approve a distribution that probably leaves out beneficiaries because they cannot be identified then trust is invalid because trustees cannot carry out the intended trust, and trustees must return property to settlors. o If settlors is dead, trustees must return property to deceased estate.

RESULTING TRUSTS

AUTOMATIC RESULTING TRUSTS

• An automatic resulting trust arises upon failure of an express trust – the trustee holds the property on resulting trust for the settlor or the settlor’s estate if they are deceased, or to whomever the trust instrument provides (either expressly or impliedly). The trust returns to the settlor. o Failure can occur for numerous reasons including: c) the failure to comply with legal requirements (ie certainty of objects or interests in subject matter, the perpetuity rule, breach against public policy ect.); or d) the reason for creating the trust no longer exists. • The general principle: there is a gap between the beneficial interests in trust property and there is no mechanism for disturbing the assets. There is not enough fixed interests to cover all the property.

RESULTING TRUST THEORY

Theory of Resulting Use

• The theory of the resulting use – settlor owed legal title and beneficial title, and when use was created, only the legal title was transferred, and settlor would retain beneficial title. • The theory of resulting use is now invalid.

Theory of Resulting Trust

• The theory of resulting trust – when a trust is created, the settlor disposes of their legal title and attains a beneficial title in the trust property which is carved onto the legal title. • In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW): o Company A owned land; Company B agreed to hold land on a bare trust for Company A and to do with it as Company A directed; o Parties did not attain proper advice on stamp duty tax: is applied to any instrument declaring that property is to be vested in trustee as if instrument was a conveyance of that property. o Issue: what property was transferred to the trustee at the creation of the trust? o Co. A argued that the only property vested in Co. B was a bare legal title, Co. B never beneficially owned the property. Commission of Stamp Duties argued the full legal estate in the land vested in Co. B, and therefore, Co. A should be taxed on the full value of land transferred to Co. B. Court accepted Commissioner’s argument and resulting trust created.

Payments for a Purpose • The payment to a person for a particular purpose. • A trust is for people, not for purposes, unless those purposes are charitable (ie. trust for heart foundation whose sole purpose is to assist people with heart conditions, not a trust for benefit of each person with heart condition, but for the general purpose): Morice v Bishop of Durham. • The manners in which a purpose can be fitted into trust law: 1) Bare trust for intended payee: o the person who benefits from the purpose is the absolute beneficial owner; o the purpose is the motivation for granting the interest – doesn’t limit the interest; o beneficiary can demand the money and use it for a different purpose. o example: payment to person for education of another person (bare trust and can use money as receiving person wants). 2) Limited fixed interest for intended payee: o the person who benefits from the purpose has a limited fixed interest;

o the extent of the fixed interest is defined by the purpose. o example: payment to person for education at a specific university for a specific degree which has a specific cost for degree/accommodation/supplies ect. 3) Resulting bare trust for the payer: o no-one associated with the purpose has an interest; o money is held entirely for the benefit of the payer (where the money came from); o payer can tell whoever is holding money what to do with it (and can change mind); 4) Combination of limited fixed interest for intended payee + resulting bare trust for the payer: o limited fixed interests followed by resulting trust to payer; o payer cannot tell trustee what to do until limited fixed interests resolved. 5) Discretionary trust: o person holding money has power to pay money to others (or use for their benefit); o range of people who can benefit (discretionary beneficiaries) defined by purpose. 6) No trust: o person holding money is the absolute owner; o there may be an intention that the money is to be used for a purpose, but no trust.

• In Re Trusts of the Abbott Fund (ie. of combination of limited fixed interest for intended payee + resulting bare trust for the payer): o there is a public appeal for funds for the maintenance of Katherine and Frederica; o the issue: what happened with the left-over funds when both die? o did donors intend that funds were to become the absolute property of Katherine and Frederica? if so, then they could demand the money and money would go to their estate on their death; o held: intention that trustees had discretion to pay funds for maintenance of Katherine and Frederica, but no fixed beneficial right to the funds. o no donation of the leftover funds = resulting trust for donors.

• In Re Denley’s Trust Deed [1969] 1 Ch 373 (ie. discretionary trust): o land to be maintained for recreation of sports ground primarily for benefit of employees of company; o secondarily for benefit of such other people trustees chose to permit to use ground; o Goff J: valid as there are persons who directly or indirectly benefited by trust and trust did not infringe the beneficiary principle – there are person who can enforce the trust.

• In Westdeutsche Landesbank Girozentrale v Islington Borough Council (ie. no trust): o bank paid money to local council as part of interest rate swap (gambling/hedging about interest rate changes); o money paid for the purpose of achieving the interest rate swap outcome; o councils have no authority to engage in this type of contract – purpose of holding the money could not be fulfilled; o did the council hold money on resulting trust for the bank? the court found that it wasn’t being held on resulting trust for the bank – nothing that transferred payment into a trust.

QUISTCLOSE TRUSTS

• A payment for a purpose that is combined with a loan – money loaned for a purpose. • There is a clear intention that the money be repaid from the borrower. • There are restrictions on the manner in which the borrower uses the money.

Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567 Facts:

Rolls Razor Ltd borrowed money from Quistclose Investments Ltd in order to pay a divident to its shareholders. At the time, Rolls Razar was substantially indebted to Barclays Bank. A new account was opened at Barclays to hold the money. The bank had notice of the arranagement between Rolls Razor and Barclays. Rolls Razar went into liquidation before it could pay the dividend. Barclays attempted to exercise its right to combine accounts and set off the money in the Quistclose account against other overdrawn accounts. Quistclose argued that the amounts it had provided for a specific purpose, and that purpose having been frustrated, the amounts were impressed with a trust in its favour.

Decision: House of Lords held that the arranagement between Quistclose and Rolls Razor created a trust in favour of Quistclose when it became impossible to pay the dividend, and that Barclays, having notice of the trust, could not apply the money to reduce Rolls Razor’s indebtedness to the bank. The purpose could not be fulfilled, making Quistclose beneficary of the trust.

Twinsectra v Yardley [2002] 2 AC 164

Facts: Yardley was a property developed who required bridging finance. Two firms of solicitors were involved in arranging a loan of $1 million from Twinsectra to Yardley. Yardley dealt with Paul Leach & Co (Leach) and a second firm, Sim & Roper (Sims), dealt with Twinsectra. Sims received the $1 million on terms that it would be ‘utilised solely for the acquisition of property by our client and no other purpose’, kept by Sims and not released until ‘such time as they applied in the acquisition of property by our client’. Sims released the money in breach of the undertaking. Sims received an assurance by Yardley that the money would so be applied and on this basis Sims paid the funds to Leach. Leach then released the funds on Yardley’s instructions without taking steps to ensure that it was utilised solely for the acquisition of property by Yardley as agreed. Of the total, $357,720 was used for non-property related purchases. The loan was not repaid, and Sims went bankrupt. Twinsectra bought an action against Leach alleging dishonest assistance in breach of trust. Yardley’s companies were in administration.

Decision: House of Lords unanimously held that the money had been held by Sims on trust for Twinsectra subject to a power to apply it by way of loan to Yardley in accordance with the terms of the assurances given, and that this trust had been breached by Sims. By majority, the House allowed an appeal in respect of the accessorial liability of Leach to whom Sims has paid the money.

Satisfying Certainty of Intention • The intention required to create a Quistclose trust – o Is there an intention that loaned money be used exclusively for specific purpose(s)? o Is there an intention that loaned money not be freely available for purposes of the borrower? o Is there an obligation to keep the money separate? (indicates exclusive use for purpose). • There does not need to be a clear intention that money be returned to the lender. o If there is that intention – express trust; o If there is no intention – resulting trust.

PUGACHEV

Facts: Sergie Viktorovixh Pugachev was a Russian oligarch and owner of Mezhprom Bank. Mezhprom Bank goes into liquidation. Mr Pugachev falls out of favour with the ‘Russian ruling elite’. Mr Pugachev fled Russia to London, where he had three children with Ms Tolstoy. Mr Pugachev was under pressure from the Court to provide Ms Tolstoy with financial security. There are criminal and civil claims made against

Mr Pugachev in Russia. Mr Pugachev buys Old Battersea House in London. Mr Pugachev set up five discretionary trusts in New Zealand with the help of Bill Patterson. The trustees were companies with Bill Patterson and other professionals as directors and shareholders. Mr Pugachev, Ms Tolstoy and their children were all beneficiaries. Mr Pugachev was “protector” with power to replace trustees and veto distributions. The trustees owned various properties in London, St Barths, Switzerland and Russia. Eventually, the Russian claims against Mr Pugachev succeeded and were enforced in the UK. There were world-wide freezing orders made over Mr Pugachev’s property. Numerous court proceedings in the UK and New Zealand were initiated – Pugachev committed contempt of court for fleeing the UK and numerous attempts to breach the freezing orders. Mr Pugachev required to disclose position as discretionary beneficiary of trusts. There were successful claims for further information against trustees, followed by this claim against the trust assets.

Argument in relation to Old Battersea House in London: Mr Pugachev argued that it was a standard discretionary trust and the trustees had the choice to distribute the property to any of the beneficiaries – Mr Pugachev was one of discretionary beneficiaries, with not entitlement to receive anything. Mr Pugachev could replace the trustees, but the trustees have a fiduciary duty to make a proper decision about distribution (cannot control the trustees).

Held: Mr Pugachev have extensive powers over the trusts. If Mr Pugachev is subject to fiduciary duties in exercising his powers, then he has given control over his assets to the trustees. Mr Pugachev is not subject to fiduciary duties – the powers are personal in that Mr Pugachev is free to exercise them for his own personal benefit. In substance, the amount of power that Mr Pugachev retains over the trust assets means that he has not intended to divest himself of the beneficial ownership.