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English Law of Equity and Trusts

Introduction
This essay aims to critically assess the statement Once certainty of intention has been established, the
courts should be more prepared to find a certainty of subject matter. In order to thoroughly discuss the
topic, this essay will consider the creation of a trust, the current approach to establishing the certainty of
subject matter, the distinction between tangible and intangible property and finally the prevalent issue of
insolvency in this area. This essay will ultimately conclude that once certainty of intention has been
established, the courts should not be more prepared to find a certainty of subject matter.
Establishing the certainty of intention
This essay will begin by discussing the three certainties within the English Law of Equity and Trusts. The
establishment of these three conditions is needed in order to form a valid trust. If any one of these three
certainties is absent, the trust will automatically fail.1 Hudson explains that in order to establish a valid
trust; it must be certain that the settlor intended to create a trust rather than to impose a merely moral
obligation or to make a gift or do some other act which was not a trust.2 The vital importance of
distinguishing settlors intention to create a valid trust from a mere gift will be discussed briefly further
on in this essay.
When discussing the settlors intention, it is important to discuss one of the maxims of equity that states
looks to the intent rather than the form. This maxim indicates that equity will look to the intention of
parties, not necessarily to the words used. This principle is reflected in the judgement of Re Kayford Ltd3
as it was found that neither the word trust nor confidence were needed to be expressly used in order to
establish intention. Lord Justice Megarry observed that the question is whether in substance a sufficient
intention to create a trust has been manifested.4 However, it could be argued that in disregarding the
actual wording of the deed, the courts of equity are departing from the principle behind the certainty of
1 The principle of the three certainties is taken from Lord Langdale in the case Knight v Knight. [1840] 3 Beav 148
but the principle was first established in Wright v Atkyns (1823) 37 ER 1051
2 Alistair Hudson, Equity and Trusts (7th edn, Routledge 2013) 92
3 [1975] 1 WLR 279
4 Ibid, 282
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intention by imputing an artificial intention which was not originally intended. This essay disregards this
view however, and suggests that the courts of equity are simply more lenient in establishing intention by
considering the general intent of the settlor.
The current approach to establishing the certainty of subject matter
There are many cases regarding the certainty of subject matter, but due to time constraints this essay will
discuss the leading cases. In the case of Re London Wine Co (Shippers) Ltd 5 customers had purchased
bottles of wine however the company subsequently became insolvent before the wine bottles were
delivered to the customers. The dispute arose when the purchasers of the wine claimed they had legal title
to the bottles of wine. Oliver J held that the individual cases of wine were never physically segregated nor
allocated to indicate which purchasers owned which bottles and therefore it was not possible to establish
certainty of intention. Oliver J felt a great sympathy for the customers who had paid for their wine and
were guaranteed that they had ownership, however he re-iterated that in order to create a trust it must be
possible to ascertain with certainty not only what the interest of the beneficiary is but to what property it
is to attach.6
The case of Re Goldcorp Ltd7 was concerned with the purchase of precious metals that were then stored
on the behalf of customers. When the company became insolvent, they argued that the gold stocks were
never isolated; meaning that the gold customers were all simply unsecured creditors and its security
interest took priority. The conduct of the company was wrongful in the sense of being a breach of
contract, but it did not involve any injurious dealing with the subject matter of the alleged trust.8
The traditional approach to the certainty of subject matter is found is MacJordan Construction Ltd v
Brookmount Erostin Ltd9 whereby it was held that money in a general bank account must be segregated
for the purposes of forming a trust in order by establishing the certainty of subject matter, otherwise it
was simply a general account with no identifiable assets. However, this approach is contradicted in
Hunter v Moss10 as it follows the idea that is not necessary for shares to be segregated in order to form the
5 [1986] PCC 121
6 Ibid
7 [1995] 1 AC 74
8 Ibid, 99
9 [1992] BCLC 350
10 [1994] 1 WLR 452
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subject matter of a valid trust. The court held that the shares in Hunter v Moss were regarded as having
identical rights which therefore meant it didnt matter which particular shares were held on trust for the
plaintiff. The indistinguishable nature of the shares meant that the subject matter was sufficiently certain.
Lord Justice Dillon additionally distinguished Re London Wine on the basis that it deals with chattels, as
Hunter v Moss deals with the issue of shares and a declaration of a trust. Lord Justice Dillon considered
that it was not necessary to segregate 50 shares from a general holding of 950 shares to establish a trust
over those 50 shares.11 He continued by describing Re London Wine as being a long way from the
present. It could be argued that the case law prior to Hunter v Moss appeared to portray a strict approach
of finding the certainty of subject matter but the decision of recognizing the indistinguishable nature
suggests that the courts are more prepared to find the certainty of subject matter once the certainty of
intention was established. Harvard Securities12 subsequently followed the decision that was decided in
Hunter v Moss by concluding that the shares13 are held beneficially for Harvard's former clients. This
essay submits that the progression of the Law of Equity is sufficient as the courts are recognizing that
identical assets can be mutually interchangeable and therefore do not need to be segregated in order to
form a certainty of subject matter.
The issue with tangibles and intangibles
Having discussed Re Goldcorp Ltd and Re London Wine, it is clear that there is sufficient legal authority
concerning the failure of trusts where tangible assets have not been sufficiently segregated. It is noted that
there is not an abundance of precedent regarding intangible assets. This lack of precedent subsequently
led to Hunter v Moss facing considerable academic criticism. It is worth discussing that some critics see
no basis in the Law of Equity for treating trusts of intangible assets differently from trusts of tangible
assets and it is for this reason this essay suggests that it is unsafe to make the distinction between tangible
and intangible assets. Accordingly, it has been discussed by Hudson that when deciding if the courts
should be more prepared to find a certainty of subject, the distinction should be between cases of
solvency and insolvency.14

11 Ibid, 135
12 [1998] BCC 567
13 This refers to both the US shares and the Australian shares sold after 14 July 1986.
14 Alastair Hudson, Certainty of Subject Matter: Commentary (Accessed october 2014)
<http://www.alastairhudson.com/podcasts/E&T%20Mixed%20Podcasts/Hudson-Equity&Trusts-PodcastsList.htm>
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Insolvency/solvency:
It is important to note that when dealing with insolvency cases, it appears that the courts of equity will
adhere to the insolvency law principle known as pari-passu which essentially means everyone in equal
step. In cases of insolvency, this principle ensures that unsecured creditors are all treated equally. One
unsecured creditor cannot be favoured over another. In Re London Wine Co15 the claimants tried to claim
that they were secured creditors, despite the fact that the individual cases of wine had not been
ascertained in line with the Sale of Goods Act 1893. It appears that when faced with insolvency cases; the
courts have no alternative than to adhere strictly to the principle of finding certainty of subject matter. The
courts are careful not to allow trusts to be inferred on only slight evidence because that would segregate
assets away from satisfying the claims of other unsecured creditors.16
The current law: have we shot the wrong beast?
When establishing a certainty of subject matter, the same principles apply to the ordinary, noncommercial cases and the complex cases involving failure of huge investment banks. When dealing with
cases where insolvency is not the context of the trust, the courts should be more prepared to find a
certainty of subject matter. The court accommodated the intention of the ordinary person in Paul v
Constance17 whereas the courts have not acted to accommodate the ordinary person in cases regarding
subject matter. The court here followed the fundamental principle of equity being able to provide an
outcome to a case which is equitable. This essay will consider that it appears that the courts have shot the
wrong beast when the settlors intentions are not carried out due to an issue with subject matter.
It was identified in Parkin v Thorold that the courts of equity do not disregard the words used in
a written document, but they do seek to give effect to what was the intention of the parties.18 If this is
true, surely the courts should not contradict the intention of the ordinary persons trust by failing the trust
due to an uncertainty of subject matter, but rather they should aim to protect the settlors intention. The
basis of equity aiming to assist the law whilst retaining legal fairness contradicts the many failed trusts
which are, in reality, sufficiently certain. The equity system of law was developed as a measure to address

15 [1986] PCC 121

16 Ibid, 132
17 [1977] 1 WLR 527
18 (1852) 16 Beav 59
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the rigidity of the common law system, yet in many cases the Law of Equity does not appear to mitigate
the rigour of the law at all.
Accordingly, in the case Boyce v Boyce19 the trust property consisted of two houses, one of which the
beneficiary was to choose which house she wanted. However, as she died before the testator without
making a selection, subsequently this meant that the trust failed for uncertainty of beneficial shares. The
testator had arranged a seemingly sufficient certainty of subject matter and I contend that there was
sufficient evidence to manifest a trust which the courts of equity could have upheld.
Furthermore, in Palmer v Simmonds20 when residue was left to a friend subject to the condition that, if he
died childless the bulk of the said residuary estate would have been left to four named persons. However,
the reference to bulk was subsequently held as being uncertain and subsequently ineffective to create a
trust as the testatrix failed to identify a definite, clear, certain part of her estate. Another case regarding
the residue of an estate is Sprange v Barnard,21 where it was held that the remaining part of what is left
did not constitute a certainty of subject matter as it would be uncertain what would be left after the
husbands death. Given that the Law of Equity aims to ensure adherence to the idea of conscionability, the
idea must be raised that it is simply inequitable for a trust to fail based on minor technicalities, when the
settlor clearly has a valid intention of creating a trust for the benefit of another person. When discussing
Hunter v Moss, Jill Martin states that the Unlike the other cases, it did not involve a claim by unsecured
creditors to gain priority on insolvency. Having discussed cases that are not in any way related to
insolvency or the attempt to place oneself as a secured creditor, I submit that the courts should be more
prepared to find a certainty of subject matter.22Thinking again of Hudsons explanation that it must be
certain that the settlor intended to create a trust rather than to impose a merely moral obligation or to
make a gift or do some other act which was not a trust.23 This essay submits that it appears that the courts
have shot the wrong beast as the settlors intentions are not carried out due to an issue with subject
matter.
The fundamental principles of Equity

19 [1849] 16 Sim 476

20 [1854] 2 Drew 221
21 (1789) 2 Bro CC 585
22 Jill Martin, Certainty of subject matter: a defence of Hunter v. Moss (1996) Conv
23 Ibid n2
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As the English Law of Equity operates on the conscience of the owner of the legal interest,24 it could be
argued that the courts should be lenient in their approach to finding the certainty of subject matter. It has
been remarked by Worthington that,
Equity is seen as able to demand good faith and deliver justice where the common law finds it
impossible to do so. It can achieve these ends by modifying procedural rules, refashioning
obligations, and reshaping remedies - perhaps all at the whim of the judge deciding the case.
Equity is then seen as a jurisdiction which is context-specific, situational, personal-capricious
even. 25
Worthington aptly remarks that the courts are well within their competences to be relatively fluid in their
approach to delivering equitable justice. This essay agrees with Worthingtons view and furthermore
submits that the courts of equity, undoubtedly, should take a more activist approach in their central role in
order to adhere to the fundamental maxims and basic principles of equity. It seems unequitable that the
courts have allowed clearly intended trusts to fail, when Equity is seen at the situational jurisdiction. The
common law, on the other hand, is perceived as rational, analytical, objective and universal.26 It is vitally
important to distinguish a settlors intention to create a valid trust from a mere gift. I submit that some
relatively minor technical issues, such as the phrasing of a trust document should not, under the fluid Law
of Equity, prevent the formation of a valid trust.

Conclusion:
This essay discussed the creation of a trust, the current approach to establishing the certainty of subject
matter, the distinction between tangible and intangible property, the issue of insolvency and finally the
maxims of equity. Essentially, the current approach to establishing the certainty of subject matter is
problematic. In cases that are not in any way related to insolvency or the attempt to place oneself as a
secured creditor, the courts should be more prepared to find a certainty of subject matter. However, the
current approach in cases concerning insolvency is relatively adequate. Having considered both
perspectives, this essay concludes that once the certainty of intention has been established, the courts
should be more prepared to find a certainty of subject matter.
24 Ibid n23, 8
25 Sarah Worthington, Integrating equity and the common law. (2002) CLP 55 (1) 236
26 Ibid
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