In the case of Re Baden’s Trust (No. 2)1,
the three law lords Sachs LJ, Stamp LJ and Megaw LJ each outlined different
tests which they believed would help validate the discretionary trust in
relation to the certainty of objects. Through critical analysis and academic
commentary of the law the best way forward for trustees to take in a
discretionary trust will be discussed.
discretionary trusts arise when trustees are obliged to issue trust property
between a particular class of beneficiaries and discretionary trust is usually
exercised as to the way in which such property is issued2. In turn,
it must satisfy the three certainties: of intention (words showing intention to
create obligations), certainty of objects (identification of a person or class
who will benefit) and the certainty of subject matter (identification of a
certain trust property)3 in order
to be enforceable as outlined in Knight v
This was for the trustees to perform their duties based on the settlor’s wishes5. Further
relating to this, Re Baden’s Deed Trust
sought after an appropriate test to apply for the certainty of objects in
relation to a discretionary trust. Three Law Lords proposed different
approaches, Sachs LJ seems to have maintained the most liberal approach of the
three Law Lords contended that a trust would be valid as long as the class of
beneficiaries is conceptually certain 7. Stamp LJ,
takes a more literal approach and suggests the strictest approach in validating
discretionary trust by defining conceptually uncertain words such as
‘relatives’ and ‘dependants’ as ‘next-of-kin’8. Finally,
Megaw LJ, on the other hand, proposed an alternative approach in that the
validity of a trust depends on whether a trustee can say with certainty, that a
substantial number of beneficiaries fell within the class even when a
substantial number could not definitely be said to be within or outside the
test used for the certainty of objects was applied through compiling a complete
list of beneficiaries; ‘the complete list test’10 as
utilised in Inland Revenue Commissioners
v Broadway Cottages Trust11.
A new test had been advanced in the case of McPhail
v Doulton (1970)12, later
known as Re Baden13
after being remitted to the Chancery Division, has in turn, allowed more
discretionary trusts to be upheld. However, flexibility here has been
compromised at the expense uncertainty of objects and the case law within this
area remains confusing and lacks coherence14.
It was recognised
that the settlor purported to create a discretionary trust, but the validity of
this trust depended on whether ‘relatives’ and ‘dependants’ were sufficiently
Lord Wilberforce gave the leading judgement arguing it was sufficient that it
could be said with certainty that any given individual was or was not a member
of the relevant class, also that it was not necessary to ascertain everybody
who was in the class16. On the
other hand, the House of Lords restructured the test and came to the decision
that another test should apply. This is the test used in Re Gulbenkian’s Settlement Trusts (1968)17 case as
Lord Wilberforce stated that one test should apply in validating both trusts
That is to say that, the ‘trust is valid if it can be said with certainty that
any individual is or is not a member of the class’ as whether they are or are
not an object of a trust power19 now known
as the ‘is or is not test’ or the ‘any given postulant test’20.
Therefore, it can be said that the same test is used for fiduciary powers and
cases involving discretionary trusts. The test, however, was interpreted
differently by three Law Lords in three different ways in order to decide how
best to apply the principles set out in McPhail
regarding both conceptual certainty and evidential certainty21.
1 Re Baden’s Deed Trusts (No 2), 1973 Ch 9,
1972 2 All ER 1304.
2 Gary Watt, Trusts
& Equity (7th edn, Oxford University Press, 2016) 91.
3 ibid 74.
4 Knight v Knight (1840) 49 ER 58.
5 Graham Virgo, The
Principles of Equity & Trusts (2nd edn, Oxford University
Press, 2016) 108.
6 ibid (n 1).
7 ibid (n 5) 109.
8 Paul S. Davies and Graham Virgo, Equity & Trusts: Texts, Cases, and Materials (2nd
edn, Oxford University Press 2016) 98.
9 ibid 96.
10 ibid (n 5) 108.
11 Inland Revenue
Commissioners v Broadway Cottages Trust 1954 1 All ER 878
12 McPhail v Doulton 1971 2 All ER 228
13 1973 Ch 9
14 ibid (n 5) 86.
15 ibid (n 2) 92.
16 ibid (n 1) 6 (Lord Wilberforce)
17 Re Gulbenkian’s Settlement Trusts 1970 AC 508
18 ibid (n 1) 4 (Lord Wilberforce)
19 Scott Atkins, Equity
and Trusts (2nd edn, Routledge, 2016) 189.
21 ibid (n 1) 103.