LECTURE 4: TUESDAY, 27 February 2018.

(some of this material is also found in Lectures 2 and 3)

DISCRETIONARY TRUSTS AND POWERS of APPOINTMENT OF

BENEFICIARIES by the trustee

In an express private trust, the settlor selects the beneficiary and the beneficial
entitlement. Sometimes, the settlor delegates this power to the trustee and the trustee
has to select the beneficiaries and their beneficial entitlement (allocation of amount).
We have to look for the intention of the donor from the words used in the instrument
or will or indenture creating the power.

A in her will states: “I leave all my property, real and personal to my husband B for
life and after his death for such of our children C, D, and E, as he may by will
appoint.” In this case, husband B has the power to dispose of the reversionary interest
in the property to any of the children he chooses.

In Burrough v Philcox (1840) , the relevant portion of the testator’s will read:

“to dispose of all my real and personal estates amongst my nephews and nieces, or
their children, either all to one of them or to as many of them, as my surviving child
shall think proper.”

The children died without issue and the survivor of them did not make any
appointments. The Court held that a trust was created in favour of the testator’s
nephew and nieces and their children. The trust was simply subject to a power of
selection vested in the surviving child. So there was a trust in favour of the class of
nieces and nephews and their children and for equal distribution in default of
appointment.

1
In Re Weeke’s Settlement, the testatrix by her will gave a gift to her husband for life
in certain real property with “power to dispose of all such property by will amongst
our children.” There was no gift over to someone else in default of appointment and
the husband did not exercise the power of appointment in favour of the children. The
Court held there was no trust since the power given to the husband was a mere power
and not coupled with a trust and there was no gift to the children by implication.

In Re Combe, the Court said there was no gift over in default of appointment as the
words used created a mere power and not a trust.

In Re Perowne, the testatrix gave all her estate to her husband for life and also added
the following: “knowing that he will make arrangements for the disposal of my
estate, according to my wishes, for the benefit of my family.” The husband made an
appointment but it was void. The question arose as to whether a mere power or a
trust had been created. The court said there was no trust out of the words used and
held they gave a mere power to distribute among the large and indefinite class in
question.

Q: has the settlor shown an intention to confer an equitable benefit on the

beneficiaries. The beneficiaries are the objects of the power. A trust always needs an
imperative direction from the donor. Sometimes a settlement provides for two sets
of beneficiaries, the first set from which the trustee or donee of a power may choose
from and if that does not happen, to a confirmed and named recipient of the gift. The
latter is called “a gift over in default of appointment.” Where there is a gift over in
default of appointment, there is generally no trust.

Difficulties of the Court: When a court of law has to interpret a settlement and the
nature of enforceability of that settlement coupled with the nature of powers given

2
to the trustee, three questions on the certainty of beneficiary have arisen in the minds
of the courts:

1. Is this a fixed trust?

If so, Court will compel the trustee to make the trust income payment to the
beneficiary.
2. Is this a discretionary power?
Here there are two potential receivers of the gift: the first set are the B1
beneficiaries and the second is a recipient who is given a gift over in default
of appointment. In a discretionary power, the settlement usually carries a gift
over in default of appointment, sort of a final recipient of the property, if the
trustee does not choose from a given set of ‘first’ beneficiaries. If for some
reason, the trustee (or another person called the donee), did not exercise the
power of selection from the first set of beneficiaries, the court cannot compel
such a trustee to enforce the distribution. Instead, the trustee can give the gift
to the last recipient “as a gift over in default of appointment.”
3. Is this a discretionary trust? If so, there is fiduciary duty to follow the trust
settlement. Court can compel the trustee to do his fiduciary job.

Discretionary power:

In a discretionary power, the settlement carries a gift over in default of appointment

as in Re Gestetner [1953] 1 Ch 672 and in Re Gulbenkian [1970] AC 508

In Re Gestetner’s Settlement, Harman J had to consider the validity of a power given

to trustees to distribute among a very wide class, including directors and employees
or former employees of a large number of companies, with a gift over in default.
Since membership of the class constantly fluctuated, it was impossible to draw up a

3
list of the entire class at any one time. He held it was not necessary to know all the
objects in order to appoint, and that it was not fatal that the entire class could not be
ascertained.

In Re Gulbenkian’s Settlement, trustees were given a power to apply income from

the trust fund to maintain anyone who was looking after Gulbenkian: that is, “among
others, any person in whose house or in whose company or in whose care Gulbenkian
may from time to time be residing,” and there was a gift over in default of
appointment. In upholding the power, the House of Lords held that the individual
ascertainbility test was the applicable test for powers: a power would be valid if it
could said with certainty whether any given individual was or was not a member of
the class, and would not fail simply because it was impossible to ascertain every
member of the class. HOL rejected Lord Denning’s test in the Court of Appeal in Re
Gulbenkian [1968] Ch 126 (Give the income to the first single beneficiary who could
be identified in the class. HOL rejected this approach because it did not address the
trustees’ duty to carry out that power in a fiduciary manner)

In Re Gulbenkian ST, the HL held that the test for certainty of objects of a mere
power was the test of criterion certainty. It is not necessary to be able to draw up a
list of all members of the class. If there is conceptual certainty, then mere difficulty
in finding evidence to determine whether or not particular persons are within the
class, known as evidential uncertainty, will not invalidate the power, because the
donee can apply to the court for assistance.

Discretionary trusts: Income plus capital; Exhaustive and Non-exhaustive DT

Used by settlors who wish to confer the benefit of either distributing income or
capital to beneficiaries who form a very large class according to the discretion of the
4
trustee. Settlors confers this discretion upon the trustee so that the trustee has to
choose the beneficiary and the amount to be given to the beneficiary. Trustee to
know the income of the beneficiaries so that he can make a wise decision to give a
deserving beneficiary who will not pay unnecessary tax on that income received. In
England, discretionary trusts are good trusts meant to handle estate duty issues as
the beneficiaries only had a right to be considered. So no need to pay estate duty.
However, estate duty is now abolished in England.

Characteristics:

Large class of beneficiaries;

The class of beneficiaries must be conceptually certain, (the criterion certainty);

Conceptually uncertain – ‘my old friends’; more certain - ‘all those who will use the
DASH Highway’ on the day of its launch

A court of law is not defeated by evidential uncertainty;

Re Gartside [1961] – the beneficiaries only have a right to be considered, therefore,

unlike fixed trusts, the beneficiaries have no proprietary equitable interest:

In Gartside v IRC, the House of Lords held that the beneficiaries in a non-
exhaustive and exhaustive discretionary trust were in competition with each
other and had individual rights as anything given to an individual beneficiary
was his and his alone. All a beneficiary has is a right to be considered and the
right to seek the assistance of the court in the event of the trustee’s
maladministration of the trust. Or if the trustees refuse to exercise their
discretion or the discretion is exercised improperly. It is very difficult to see

5
 where the equitable interest in the trust property is pending the trustees
exercising their discretion and passing it to one of the beneficiaries. No single
beneficiary has an equitable interest pending allocation to him nor have the
beneficiaries collectively won the beneficial interest. It is simply in suspense
pending the trustees exercising their discretion.

It is a good trust to handle wasteful / spendthrift beneficiaries.

These are of two types: exhaustible and non-exhaustible.

Exhaustible DT denotes that a trustee must exhaust the income and capital amongst
the beneficiaries that he selects.

A Non-Exhaustible DT denotes that the trustee can decide to accumulate the income
and principal of the trust.

In both types, the beneficiaries only have a right to be considered.

In a discretionary trust, the beneficiary may sue trustee if he exercises his power of
appointment capriciously or in bad faith.

In a discretionary trust, the trustee has

(1) a duty to either distribute the income from the trust property to beneficiaries
selected from a class of beneficiaries or to accumulate the income subject to
the rule on accummulations.
Test: Originally, in England, they used the whole class ascertainability list test as
stated in the case of IRC v Broadway Cottages [1955] Ch 20 which required a
complete list of the beneficiaries to be drawn up as they were largely family
settlements. The law changed in 1970 when the Court had to consider a very large
class of beneficiaries as in Mc Phail v Doulton.

6
(2) A duty to accumulate the capital of the trust property and divide it amongst a
class of persons.
Test: is a given person a member of the class or not. Re Gestetner

Note: The test to determine the beneficiary for discretionary income and
capital were different.
Now the test to determine the beneficiary of discretionary trust income and
capital are the same: is the beneficiary a member of the class or not.
Mc Phail v Doulton [1971] AC 424, is also known as Re Baden’s Deed Trusts
(No 1).
In McPhail v Doulton the trustees were given absolute discretion in making
grants of income to the following beneficiaries;

 The officers or employees; or

 Ex-officers or ex-employees of a company; or
 Their relatives or dependants.

Question is: should this cause the settlement/ trust to fail? The problem is to
find a test that is a little more relaxed as the discretionary trusts vest a lot
of discretion in the trustees and the list test is too strict being used for
fixed trusts.

The HOL decisively rejected the principle of equality of distribution in a case

where equal distribution would have made a nonsense of the settlor’s
intention.

7
The House accepted that even in the final analysis, the court could exercise
the necessary discretion itself.

Therefore, the reasoning in the IRC v Broadway Cottages was inapplicable

and that case was overruled.

All that is required is, for it to be possible to tell, with certainty, whether any
individual coming to court to enforce a trust or power has sufficient interest
to do so: in other words, whether or not, he is with within the class of objects.
This requirement is satisfied by the individual ascertainability test. The ratio
for Re Baden’s DT No 1 is that the test for certainty for discretionary trusts is
essentially the same as that for powers, the individual ascertainability test, not
the class ascertainability test.

Lord Wilberforce pointed out that the courts were concerned with conceptual
uncertainty as a court of law is never defeated by evidential uncertainty.

Lord Wilberforce introduced the individual ascertainability test instead of the

complete list test.

Based on Lord Wilberforce’s judgement on the individual ascertainability

test: is an individual a member or not of the class, this settlement was given
another chance. Lord Wilberforce applied Re Gulbenkian.

This settlement / trust would have failed as the last phrase “relatives or
dependants” would not have been drawn up under the class test mentioned in
IRC v Broadway Cottages used for fixed trusts. But Lord Wilbeforce saved it.

Now with Mc Phail v Doulton (Re Baden’s Deed Trust No 1) using Re

Gulbenkian the mere powers test, the test for certainty of objects is the same

8
 for trust powers and mere powers: this is the conceptual certainty test. Upheld
by Lord Wilberforce, concurred in by Lord Reid and Viscount Dilhorne.

Re Baden’s Deed Trusts No 2 [1973] Ch 9

The disposition in Re Badens’ Deed Trusts No 1 was remitted to the Chancery
Division as Re Baden’s Deed Trusts No 2 [1973] Ch 9 so that the HOL test
could be applied. Again to the Court of Appeal and by now 12 years passed
since Mr Baden died. Much of the fund was lost in legal costs. Sachs LJ
observed that the situation “lacks attraction.” Basically approved the points
on conceptual and evidential certainty etc… Megaw LJ said that it is now vital
to show that a ‘substantial number of the objects’ fall within the class. Trustees
need to feel the width of the class. Megaw LJ said that the “individual
ascertainability test was satisfied if ‘as regards a substantial number of objects
it can be said with certainty that they fall within the trust” even though it
cannot be proved whether others fall within it or not. If it is impossible to
ascertain whether any individual is within the class of possible beneficiaries,
the trust fails even though other persons are clearly within the class: Re
Baden’s Deed trusts No 2 [ 1972 ] 1 Ch 607. While this test has merit it is not
the same thing as Lord Wilberforce said.

Stamp LJ make as comprehensive a list as you possibly can and it was not
fatal if at the end of the survey, it was impossible to draw up a list of every
single beneficiary. (No need to go from China to Peru, there are deserving
residents in Greater London itself).

(3) IRC v Broadway Cottages is law in Malaysia. Take a look at Halsbury laws!
McPhail v Doulton applicable in Malaysia.

9
Note: The test of conceptual certainty is the criterion certainty test: The class of
objects must be defined with sufficient certainty and clarity such that a court may
determine with sufficient certainty whether any person is or is not a member of that
class: Mc Phail v Doulton. If there is conceptual certainty then any evidential
uncertainty will not invalidate the power as this can be resolved by directions from
the court, see Re Gulbenkian Settlements. Where in a power, the definition of objects
is so hopelessly wide there is said to be a “loose class” requirement of administrative
workability of the power as not to form anything like a class, it will not invalidate a
mere power but a trust power may be adversely affected. For Meaning of “Loose
class” or administratively workable requirement, see:In Mc Phail v Doulton, Lord
Wilberforce at p 457, gave the example of “a power to appoint among all the
residents of Greater London” as perhaps being administratively unworkable. In Re
Blyth, [1997] 2 Qd R 567 Thomas J gave another example of administratively
unworkability: “a trust power to an organisation formed for the purpose of raising
the standard of life throughout the world.”

Checklist to understand the concept as referred to in textbooks:

1. The nature of a power

2. The distinction and similarities between trusts and powers
3. The primary classifications of powers - general, special and hybrid
4. The sub-classification of special and hybrid powers – trust powers and mere
powers
5. The rules of construction to distinguish between trust powers and mere
powers;
6. The tests of certainty for trust powers (always enforceable) and mere powers
(sometimes enforceable, sometimes not)

10
 7. The rights of objects and the obligations of donees of trust powers and mere
powers
8. The nature of a discretionary trust
9. The rights of objects and the obligations of trustees of discretionary trusts

PROTECTIVE TRUSTS:

SEE SECTION 38, Trustee Act 1949.

This section uses an express private trust with a determining event to terminate it
and as a second layer introduces the discretionary trust.

Very good for spendthrift beneficiaries who become bankrupt and to support
spouse and children in case of determination of the first trust for the principal
beneficiary.

The principle here is that the life interest will determine, that is come to an end on
the principal beneficiary’s bankruptcy or where an attempt is made to alienate his
interest. Note the use of the determining event.

Words such as “until’ and “so long as” are good to show the determining event
which will end the first trust.

For example, until the beneficiary becomes bankrupt is a good determining event.

In Re Goujru’s WT, the effect of legislation was held to be good determining event.

In Re Baring’s Settlement Trust. A sequestration order was held to be a good

determining event. If the determining event does not end the first trust
successfully, there could be a forfeiture of the trust asset by the Official Assignee.

11
Re Burroughs –Fowler: a settlor cannot settle property on a protective trust for his
own benefit to determine on his own bankruptcy.

In Re Detmold, (1889) 40 ChD 585 the principle is that a settlor is not permitted to
settle his own property on a protective trust on himself until bankruptcy but could
do so on the occurrence of other events. North J at pp 587-588 held that where a
settlement is to defeat one’s own creditors as it is fraud on bankruptcy laws, that
would be invalid. Alienation as a result of some other reason does not render a
protective trust invalid.

AVOID: Condition precedent: “on condition that”

SECRET TRUSTS – arise through wills, may be half-secret and fully secret
trusts.
Blackwell v Blackwell – a secret trust exist independently of the will. The legatee
who receives a benefit from the testator has a duty to disclose the fully secret trust
that he holds the will upon. If half-secret, it is exposed on the face of the will. The
executor of the will, might be the trustee, has to wait until the beneficiary approaches
him. If not, the property will fall back into residuary property under the residuary
clause (if any).

NON-CHARITABLE PURPOSE TRUSTS/ ANOMALOUS CASES:

Non-human beneficiaries-who will enforce the trust?
Meaning of NCPTs:
Trusts for non-charitable purposes and not being charities are generally void. So they
are generally unenforceable. But two possible ways to enforce them are considered.
The first is to construe them as mere powers. The enforceability of such a transaction
does not matter. A power is discretionary and does not necessarily have to be carried

12
out. In IRC v Broadway Cottages it was held that an invalid purpose trust cannot
take effect as a power. This position is also adopted in Canada, Ontario. The second
approach is to consider the introduction of an interested adversary principle, that is
an alternative to the beneficiary principle. Contra-argument: it is possible that such
NCPTS will be used for shady deals as there is no human beneficiary here even if it
satisfies the perpetuities and accumulations rules. Exceptions ; horses and hounds;
monuments and graves ; fox-hunting ; sports ground for particular company and
employee ; unincorporated recreational association..

1. Morice v Bishop of Durham: This case concerned a gift upon trust for
“Such objects of benevolence and liberality as the Bishop of Durham shall
most approve of”. There were no ascertainable beneficiaries. Sir William
Grant held that the trust failed and observed: “There can be no trust which
this court will not assume control; from uncontrollable power of
disposition would be ownership and not a trust.” – for every trust, the court
must be capable of enforcing it.
2. Re Astor’s Settlement: Lord Astor in 1945 made an inter-vivos settlement
for a number of non-charitable objects including: (a) the maintenance of
good understanding, sympathy and cooperation between nations; (b) the
preservation of the independence and integrity of newspapers; and (c ) the
protection of newspapers from being absorbed or controlled by combines.
The Court held that the trusts failed as the objects were void for
uncertainty. Roxburg J ruled that the general principle was that gifts on
trust must have a cestui que trust (beneficiary) and the only exceptions
were found in the cases of horses and hounds and graves and monuments
as they represent a concession to human weakness. No Court of Equity

13
 would recognize non-charitable purposes in a manner that it could not
control.
3. In Musset v Bingle, a gift for the building of a monument to the testator’s
widow’s first husband was uphleld as a trust of imperfect obligation.
4. In Re Hooper [1932] 1 Ch 38, a gift to trustees for the upkeep of graves
and monuments for a period of 21 years was held to be valid.
5. In Re Dean, the Court upheld as valid a bequest of an annual sum for the
maintenance of the testator’s horses and hounds for a period of 50 years
if any of the horses and hounds should live so long. No attention was
paid to the perpetuity period.
6. In Re Thompson, [1930] 1 Ch 203, fox-hunting was upheld.
7. In Re Lipinsky’s Will Trusts, the testator left his residuary estate to
trustees for an unincorporated recreational association. The Court held
it was valid as the beneficiaries were ascertainable.
8. In Re Denley’s Trust Deed, the Court found that a valid private trust came
into existence when land was given to be used as a sports field primarily
for the benefit of employees of a specified company.
9. In Re Endacott, the court held that: the proposition that if these trusts
should fail as trusts they may survive as powers, is not one which can be
accepted in English law.”
10.In Hong Kong Bank Trustee (Singapore) Ltd v Farrer Tan and 5 Ors,
the testatrix set aside large amounts of her property which covered a
plantation in Holland Road which was used as a burial ground with a
temple and other buildings erected on it. There was also $10,000 in cash.
The perpetuity period was that these properties were to be held “on trust
for and during the lives of all the descendants of His majesty King George
the Fifth living at the date of her death and a further period of 20 years

14
 from the date of the death of the last survivor of all such descendants. All
income received from the investments of these properties were to be used
for the upkeep of the plantation etc…But the property was compulsorily
acquired (nationalised) by the Govt on 14 Feb 1980. And the purposes of
the trust could not be carried out. In clause 11 of her will provided that
should any legacy fail, then such property should fall into and form part of
her residuary estate. Trustees asked the Court on directions as to how to
carry out the terms of the trust. The High Court found that the trust declared
in this will were purpose trusts which according to clause 11 of the will
failed and the income which had accrued from the date of such failure fell
into the residuary estate under clause 21 of the will for distribution. The
trustees held the capital of the trust fund until the expiry of the trust period
when the said capital would be divided into two halves and distributed one
half each equally among the male descendants (from both the male and
female lines of descent then living.
11.In Phan Kin Thin and Khoo Cheng Teow, trusts for Chinese ancestral
worship were upheld.
12.In Koh Cheng Sean v Syed Hassan [1930] 1 MC 180, wakafs were
upheld as valid as the English Rule Against Perpetuities which would have
prevented the creation of a wakaf was not part of the law of Johore and
accordingly the deed of wakaf was not invalid or against public policy.

RESULTING TRUSTS OR IMPLIED TRUSTS

Resulting trust: is one where all or part of the beneficial interest in the property
returns to (or perhaps never leaves) the transferor as the attempted express trust fails
. In case of a part of the trust property, the undisposed of part returns to the settlor.
There are many situations where a resulting trust arises.

15
A resulting trust arises under the following circumstances:

1. where a trust does not have beneficiaries, the property reverts back to the
settler or in the case of a testator to the next-of-kin;
2. where the identity of the beneficiary is uncertain;
3. where there is uncertainty as to the ascertainable interest or share of
property that each beneficiary is entitled to receive;
4. where the beneficial interests under the trust infringe the rule against
perpetuities;
5. where a trust infringes the rule against inalienability the result is the same;
6. where the trust is a void trust because it contravenes public policy or aims
to defraud creditors;
7. based upon the presumed intention1 of the settler;
8. where the wife purchases property in her husband’s name;2
9. where a mother purchases property in the name of her child. In Re De
Visme3 it was held that the mother was under no liability to maintain her
children, because the father alone was under a moral obligation to make
provision for his child.
10.A resulting trust arose in Dyer v Dyer when a property was purchased by
x (settler) in y’s (trustee’s) name. It was held that there was a resulting
trust and the trustee, y, held the trust property for the benefit of the settler,

1
Savage v Dunningham [1974] Ch 181 cf. Dewar v Dewar [1975] 1 WLR 1532 where facts are different.
2
Bennet v Bennet (1819) 10 ChD 474. For a detailed discussion on matrimonial home property see Parker & Mellows,
op.cit., p. 130. For lesbian couples, see Tinsley (A.P.) v Milligan (A.P.) [1993] 4 CLJ 397 HL.
3
(1863) 2 DE GJ & S 17. Presumption of advancement does not arise between mother and son. See Tiah Juan Kim
v Goh Swee Fang & Ors [1993] MD para 1342.

16
 x. A resulting trust is not a bare trust and should not be confused with
one.4

4
Bare trusts are usually concerned with sale and purchase of land. What is important in a bare trust is the registration
of the property or execution of all that is necessary to be done between vendor and purchaser in the case of a sale of
land. In a bare trust the purchaser has to pay the vendor in full. Payment has to be on time and the property has to be
registered in the name of the purchaser. In short, a purchaser of property has to do the needful to divest the vendor of
ownership over the property and to invest ownership in himself. If the vendor tries to abort the sale or frustrate the
sale in any way, the court could be asked to order specific performance of the contract.

17
Extra on Discretionary Trusts and Discretionary Powers:

The test whether any given individual can be said with certainty is or is not a
member of the class is problematic. It was not mentioned in Re Gestetner and it first
appeared in Lord Upjohn LC in Re Gulbenkian. If we omit this phrase then we arrive
at the one person test Lord Denning proposed in Re Gulbenkian that was rejected by
the House of Lords because it could be argued that only one person may be said with
certainty as being a member of that class. There is no other satisfactory test for
determining the certainty of beneficiary in a discretionary trust so we are left with
Mc Phail v Doulton. (Remember the rules for fixed trusts – a fixed trust is one where
the trust instrument specifies the share which each beneficiary is to take, and thus
they have rights of ownership in equity of this share. That is, each beneficiary must
be ascertained which is IRC v Broadway Cottages.)

What is a power? Meaning of power of appointment:

A power of appointment is the right or authority (or power) given to a person (the
donee) by the absolute owner (the donor), to dispose of (or appoint) the beneficial
ownership of property, belonging to the donor, to person (or objects). Powers of
appointment are distinguishable from fixed trusts.

A power is permissive and discretionary – the donee of a power has the discretion,
in some cases, whether to exercise the power at all, or if they do exercise it, in whose
favour.

In contrast, a fixed trust is imperative because it must be carried out according to its
terms and the beneficiaries interests are determined by the settlor, not at the trustee’s
discretion.

18
Further, the donee of a power may not have title to the property to which the
authority attaches, whereas a trustee must have title to the trust property.

A power of appointment can be classified, according to the range of objects, as

general, hybrid and special. (Tatham v Huxtable (1950) 81 CLR 639)

A general power is to appoint to anyone at all including the donee.

A special power is a power to appoint to some or all in a specified class of persons

defined by inclusion.

A hybrid (intermediate) power is the power to appoint among a class defined by

exclusion - for example, a bequest of the rest and residue of my estate to my trustees
to transfer to such person as they shall decide, other than my wife and two sons
(Horan v James [1982] 2 NSWLR 376.

Special and hybrid powers can be classified as mere powers or trust powers,
according to whether the donor intended that the donee be under a duty to exercise
the power.

What is a mere power and what is a trust power

A donee of a mere power has no obligation to exercise the power (appoint) and
there is no duty to even consider whether to exercise it [Re Gulbenkian’s Settlement
Trusts 1970 AC 508]. If the donee does exercise the power, he or she must appoint
within the class designated and must not commit a fraud on the power (Vatcher v
Paul [1915] AC 372. If the donee does not exercise the power, the property will pass
pursuant to any “gift over in default of appointment” or clause providing that the
property is to go to a named beneficiary should the power not be exercised. If there
is no gift over clause, the property will return on resulting trust to the donor or his
or her estate. This was held in the Australian case of Lutheran Church of Australia

19
v Farmers Cooperative Executors and Trustees Ltd [1970] 121 CLR 628 at 653-4.
The objects of a mere power have no proprietary interest in, or right to, the property
subject to the power: Schmidt v Rosewood Trust Ltd [2003] UKPC 26. They only
have a right to apply to the court: to ensure that the power, if exercised, is exercised
properly; and in the case of a donee who is also a trustee (or fiduciary) to require the
donee to consider.

A donee of a trust power has an obligation to appoint: Mc Phail v Doulton [1971]

AC 424. If the power is not exercised, the court may do so, usually favouring equal
division in the case of family settlements: Burrough v Philcox (1840) 41 ER 299.
The objects of a trust power can apply to the court if the done does not exercise the
discretion at all, or exercises it improperly, but cannot demand any part of the fund:
Mc Phail v Doulton and Gartside v IRC [1968] AC 553 at 617 – 18.

Whether a power is a trust power or a mere power is a question of construction: did

the donor intend (or could he or she be presumed to intend) that there was to be a
duty, or obligation, on the done to make a selection? See Scarisbrick’s WT. The
power will be trust power if it was intended that the donee was required to exercise
it and that some or all of the objects were to benefit in any event: Re Weekes
Settlement. Conversely, the power will be a mere power if it was intended that that
the donee could choose not to exercise it. The court has to interpret the instrument
conferring the power as a whole, focussing on the intention of the donor. The
following factors are relevant:

 The use of imperative language which evidences an intention that some or all
of the objects are to benefit in any event {Re Weekes Settlement [1897] 1 Ch
289}. For example, language such as “must’ or “shall” may indicate a trust

20
 power or that an obligation is being imposed, but it is not conclusive: [Re
Gulbenkian ST; Re Combe [1925] Ch 210.
 An express gift over in default of appointment is evidence that the donor did
not intend that there was a duty to exercise the power of appointment
[Breadner v v Granville-Grossman [2001] Ch 523. However, the absence of
such a clause is not conclusive of a trust power [ Re Combe and Re Weekes
Settlement ] and
 The use of the word ‘trust’ does not conclusively establish that a trust power
was intended (Re Combe) & (Re Scarisbrick’s WT, 1951 Ch 622).

Re Combe also illustrates the fact that the lack of ‘a gift over in default of
appointment’ does not necessarily indicate that a power will be trust power as well
as the proposition that the use of the word “trust” or “shall” is not conclusive. It is
the intention of the donor which is paramount.

The similarities between mere powers and trust powers: the validity tests/ the
test for certainty of objects.

Historically, the requirement for certainty of objects of trust power was more
stringent that that required for the objects of mere powers. As the donee of a trust
power is under a duty to make a selection, list certainty was required, [IRC v
Broadway Cottages 1955 Ch 20] primarily so that if the court was required to
exercise the power, equal distribution to all the beneficiaries could be made. List
certainty requires that the trustee must be able to compile a list of all the members
of the class of objects. However, in the case of mere powers, criterion certainty was
required. This means that the class of objects must be defined with sufficient
certainty and clarity, so that the court could determine, in respect of any given

21
individual, whether or not they are a member of the class of objects also known as
the ‘in-out’ test.

For differences between mere powers and trust powers see obligation of donees in
relation to the exercise of power and the corresponding rights of objects, Lord
Wilberforce in Mc Phail v Doulton.

Note Q & A:

 A power of appointment may be exercised by trustees, other fiduciaries and

non-fiduciaries.
 Trusts are obligatory whereas powers are discretionary.
 A trust has a mandatory nature. A power of appointment is optional not
mandatory.
 A non-fiduciary who is given such a power need not exercise it.
 When a trustee or a fiduciary is given such a power of appointment, he is not
obliged to exercise the power BUT he must consider from time to time
whether to exercise it.
 Whether a trust or a power of appointment has been created is a matter of
construction for the courts.
 This is a technical phrase referring to the discretion of the transferee to decide
on the destination and future of the property.
 It is usually given to a donee of a power as in a donor-donee-object transaction
and
 It may also be given to a settlor - trustee – beneficiary situation in a
discretionary trust or to fiduciaries.

22
  In the case of trustees, where there is a power of appointment, the courts will
not intervene unless there is evidence that the trustee have acted capriciously
or in bad faith.
 The trustees should be able to say of anyone if they are or are not within the
scope of the power. This principle was applied to discretionary trusts in
McPhail v Doulton.
Megarry VC in Re Hay’s Settlement trust [1981] 3 All ER 786 said:

“Normally the trustee is not bound to exercise a mere power and the court will not
compel him to do so. That, however, does not mean that, he can simply fold his arms
and ignore it, for normally he must from time to time consider whether or not to
exercise the power and the court may direct him to do this.”

In an exhaustive discretionary trust, the intention is to benefit the beneficiaries in

any event. Where this mandatory element is missing it suggests that a trust has not
been created or intended. If there is an express gift over in default of appointment
there is no trust.

Discretionary trust: Capital plus income

A discretionary trust arises where the donee of a power is a trustee, that is, he or she
has title to the property over which the power may be exercised. While the trustee
has discretion in relation to the beneficiaries or objects of the trust, and / or their
entitlements to the trust property, the property is vested in the trustee who is under
an obligation to perform the trust by exercising his or her discretions in accordance
with the provisions of the trust deed. It has been suggested that where the trustee’s
power of appointment is a mere power a double discretion arises: in that the trustee
also has the discretion whether to exercise the power at all. The rules of certainty of
objects for powers apply. The beneficiaries under a discretionary trust have a mere

23
expectancy: there is no proprietary interest in the assets or income of the trust unless
and until the trustee exercises his or her discretion, or makes an appointment in a
beneficiary’s favour. The only right is an equitable chose in action, a right to be
considered: Gartside v IRC

Discretionary trusts:

Exhaustible DT- finish both capital and income over a certain period of time

Non-exhaustible DT – need not exhaust the trust fund

24
25