Since Knight v. Knightit has been clear that to create a valid trust three certainties must exist. It must be shown that the settlor intended to create a trust, that the subject-matter of the trust is sufficiently identified, and that the objects of the trust are sufficiently certain. With regard to the certainty of the subject matter, the certainty of the trust property as a whole and certainty of each beneficiary’s share must be identified. With regard to the certainty of the trust property, it must not be unascertained property. There cannot be a trust of chattels which has not been segregated from a mass of similar chattels. Hunter v Mossconcerns with the issue whether it is possible to make a valid declaration of trust over part of property which has not, been ascertained, appropriated or otherwise specifically identified. This case study considers the decision of the Court of Appeal in Hunter v Moss and its impact on subsequent cases in this area of the law.
Facts of the case
The defendant was the registered holder of 950 shares in a company called Moss Electrical Co. Ltd (” MEL”) with an issued share capital of 1, 000 shares. He declared himself as a trustee for the claimant’s benefit in relation to a 5 per cent holding in the issued share capital of MEL. The issue before the trial judge was whether the defendant who owned the 950 shares in MEL had given some of the 950 shares away by constituting himself as trustee of 50 of them when he made an oral declaration of trust in favour of the claimant. He found that despite the defendant’s failure to segregate or to designate which shares out of the 950 were to be subject to the trust, there was an intention on the part of the defendant to create a trust of 50 of his shares in favour of the claimant and, therefore, the requirements of certainty of intention and objects were satisfied.The defendant applied by motion to set aside the judgement on the ground that the purported trust failed due to a lack certainty of subject-matter. The deputy judge refused the application holding that the subject-matter of the trust was defined with sufficient certainty. The defendant appealed to the Court of Appeal on the grounds that the trial judge wrongly held that there was a constitution of a proper voluntary express trust by his oral statement, that the trial judge wrongly found that the fact that the defendant did not realise the legal and tax consequences of the making by him of the trust did not alter the position, and that the damages were too large.
The court of Appeal had to decide on three issues. The first issue was whether the defendant declared himself as a trustee for the claimant of 50 shares in MEL, being 5 per cent of the company’s share capital. The second issue was whether there was sufficient certainty as to what the purported trust property and, therefore, whether any attempt by the defendant to declare a trust was ineffective in law for lack of sufficient certainty as to the trust property. The third issue was whether the calculation of the compensation resulting in the sum of £112, 723. 70 which the judge awarded by his order was too large.
The reasons for the decision
Delivering the leading judgment, Dillon LJ held that in the case of a declaration of trust of personalty, the requirement of certainty of subject matter did not necessarily entail segregation of the property which was to form the subject matter of the trust. A trust made by oral declaration was not void for uncertainty of subject matter simply because it referred to a number of shares in the company, and did not refer to the specific shares. Dillon LJ went on to hold that the declaration of trust by the defendant was sufficiently certain as to subject matter because the shares held by him were of such a nature as to be indistinguishable from each other and were all, thus, capable of satisfying the trust without identifying any particular 50 shares. Dillon LJ referred to the well established principle in Knight v Knightthat a trust must meet the three certainties, one of them being the certainty of subject matter. He said that all the shares were identical in one class: 5 per cent was 50 shares and the defendant held personally more than 50 shares. He further stated that a trust of personalty can be created orally. Dillon LJ referred to the Re London Wine,but distinguished it. He thought that Re London Wine was different from the case on hand because it concerned with the appropriation of chattels and when the property in chattels passes. He said that that the case on hand concerned with a declaration of trust, accepting that the legal title remained in the defendant and was not intended, at the time the trust was declared, to pass immediately to the claimant. On the subject of a possible creation of an equitable charge over a mixed fund rather than a trust Dillon LJ said that the case was not concerned with a mere equitable charge over a mixed fund. He said there was a similarity between giving, by will, a specified number of shares of a certain class in a certain company and the defendant’s declaration of becoming himself a trustee of 50 of ordinary shares in MEL as both are effective to give a beneficial proprietary interest to the beneficiary under the trust. As regard to the issue of whether the compensation awarded by the trial judge was too large, Dillon LJ did not interfere with the financial award by the trial judge serve for minor correction on the compensation the claimant was entitled. Accordingly, Dillon dismissed the appeal, holding that the trust was not void for lack of uncertainty of the subject matter.
The effects of the decision
A principle which can derived from Hunter v Moss is that trust made by oral declaration is not void for uncertainty of subject matter simply because it refers to a number of shares in a company, and does not refer to specific shares. Effectively, Hunter v Moss distinguishes Re London Wine. In Re London Wine, a wine dealer had became insolvent, leading to a contest of priority between purchasers of some of the wine and a bank which had a floating charge over the company’s assets. No title had passed to the purchasers. The issue was whether a trust for a number of bottles of wine would satisfy the certainty of the subject matter if they were kept with many other bottles of the same wine. Oliver J determined that this was not certain as the chattels were not necessarily the same. He stated that if the property is chattels, it must be segregated from the mass because all chattels are not identical. Re Goldcorp Exchange appears to have confirmed the view in Re London Wine. However, these two cases are less important when looking at issues of sales of goods since the Sales of Goods Amendment Act 1995. If a buyer has paid for unascertained goods, s/he is deemed to have property rights in them regardless of the segregation. Hunter v Moss does not dispute the correctness of Re London Wine. However, Hunter v Moss distinguishes Re London Wine on the basis that Re London Wine solely concerned tangible assets. In Hunter v Mosses, the Court of Appeal was concerned with the status of the declaration by the employer as to whether or not he had declared himself as a trustee.In Re London Wines, the aggrieved customers were attempting to use the trust institution to side step the rules for the passing of property contained in the Sales of Goods Act 1979. Therefore, the Court of Appeal made a distinction between the nature of the subject matter (a contract to transfer fungibles) and goods. However, the decision of the Court of Appeal in Hunter v Moss did not explicitly endorse the basis provided by the trial judge to distinguish the case from Re London Wine. The Court of Appeal distinguished Re London Wine stating that the case ” involved the appropriation of chattels and when the property in the chattels passes” and ” was not concerned with a declaration of trust.”In addition, a practical effect of Hunter v Moss is that it prevents the employer from benefiting from his own breach. As a result, a defendant employer cannot pull out of a promise to provide the claimant employee with the shares which are the subject matter of the dispute.As far as the wines were concerned, Re London Wine is logical. Although ostensibly similar or identical, characteristics might in fact distinguish them from other assets in the class. For example, where the property in issue was wine, some cases might contain wine that was corked or that had been stored incorrectly. This reasoning would not necessarily be applicable to all tangible property, or to intangible assets. Hunter v Moss determined that where the property is money, shares or choses in action (intangible assets of identical value), then it does not need to be segregated. In determining so, the Court of Appeal distinguished Re London Wine on the basis that whilst the shares in Hunter v Moss were identical, the wines of bottles in Re London Wine were not identical. Hunter v Moss has received mixed academic reactions. On one hand, some regard Hunter v. Moss as a sensible and workable decision because a person cannot declare him/herself to be a trustee of a sum of money in an account, or a number of shares which is part of a larger whole.The decision upholds the validity of a trust where the problems of certainty of subject matter appeared more conceptual than real.The finding of a trust would not unfairly prejudicial to third parties and conforms to the clear intentions of the parties. On the other hand, it has been argued there is no logical reason which exists to distinguish the test of certainty for trusts of goods and trusts of intangible assets.Hudson has also argued that Hunter and Moss is doctrinally and should not be relied upon because it contradicts with the existing property law and spuriously distinguish between tangible and intangible property.Hunter v Moss has been adopted in subsequent cases relating to a trust of a particular number of shares. In Re Harvard Securities Ltd (In Liquidation),the court reluctantly followed Hunter v Moss in deciding whether clients had proprietary interests in specific shares where licensed security dealer, who acquired shares and held them in nominee name on their behalf, went into liquidation. The court held that although under English law there could not be a valid equitable assignment of inappropriate interests in chattels, there could be such an equitable assignment in shares.Hunter v Moss formed the basis of the decision in Re Lehman Brothers International (Europe) (In Administration),but the reason of Dillon LJ was rejected by the Australian Supreme Court of New South Wales in White v Shortall,though the court reached the same conclusion.
Hunter v Moss concerns with the requirement of the certainty of the subject matter in order to form a trust. In Re London Wine, the court had held that if the property is chattels it must be segregated from the mass as all chattels are identical. However, in Hunter v Moss, the Court of Appeal held that where the subject matter is intangible assets of identical value, it does not need to be segregated. Hunter v Moss distinguished Re London Wine on the basis that in Re London Wine, the bottles of wine were not identical whereas in this case the shares were. Hunter v Moss has received mixed academic reactions. The decision has been reluctantly applied in subsequent cases, such as Re Harvard Securities Ltd (In Liquidation), where it was held that there is no a necessity of segregation when the trust in question is intangible, identical property. Perhaps, the decision in Hunter v Moss should be applied with a caution to trusts with special problems and segregation of the property would be a good indicator of the property subject to trust.