In re Baden’s Deed Trusts (No.2) (1972)

English Equity & Trusts

Baden's Deed Trusts
‘Il Quarto Stato’ by Guiseppe Pellizza da Volpedo

In what was to become an overly protracted and yet hotly debated case, the question of trust instrument validity and the limiting scope of trust powers, fell upon the English courts to answer, when what appeared at the time was judicial wisdom, later proved a confused doctrine that polluted similar cases in the years following its declaration.

Having become the director of a highly successful M&E company first established in 1927, and as a man of inherent providence, the deceased had taken it upon himself to draft a trust deed in 1941, that would allow his current and former employees to benefit from financial gifts on a potentially recurring basis, while in addition to this their immediate relatives were also to enjoy similar windfalls, as was contained in clause 9(a) of the trust, which read that:

“The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit and any such grant may at their discretion be made by payment to the beneficiary or to any institution or person to be applied for his or her benefit and in the latter case the trustees shall be under no obligation to see the application of the money…”

However upon his death in 1960, the appointed executors notified the trustees that the trust was void for uncertainty, as it would be almost impossible to distinguish one employee from another, never mind any relatives known to exist at the time of his passing, which was a position adopted in light of the company’s growth from 110 to 1,300 employees during the preceding years.

Commencing by way of an originating summons in 1967, the trustees argued that clause 9(a) merely represented a power to distribute funds to a class of beneficiaries, while the executors held that the use of the word ‘shall’ created instead, a mandatory trust that once unable to be fully executed, would nullify itself and thus fall within the residual estate.

In the first instance, the Court of Chancery examined the construction of the deed, and found that due to discretionary nature of clause 9(a), the trust conferred a power upon the trustees, and not an immutable instruction that once unfulfilled, rendered the trust void for uncertainty; a statement upon which the executors challenged the findings in the Court of Appeal.

Here, the court referred to In re Gestetner Settlement, in which Harman J had held that when ascertaining the exactness of a trust deed beneficiary class:

“[T]he trustees must worry their heads to survey the world from China to Peru…”

Which was to suggest an immense undertaking for trustees, unless it could be proven that the deed conferred a mere power, in which case, reasonable certainty of the beneficiary class ought then be shown. In light of this precedent, the court subsequently held that as before, the context of clause 9(a) was such that the trustees were afforded discretionary powers, and so held that:

“[C]lause 9 of the deed may properly be construed as the judge did, by holding that it creates a power and not a trust…”

At which point the executors along with the deceased’s widow, pursued their argument before the House of Lords on grounds that clause 9(a) represented a mandatory trust, and that as such, the ruling in the recent Inland Revenue Commissioners v Broadway Cottages directed the decision of the court when it held that:

“[A] trust for such members of a given class of objects as the trustees shall select is void for uncertainty, unless the whole range of objects eligible for selection is ascertained or capable of ascertainment…”

Which it was argued, was now impossible due to the vast number of both former and existing employees, causal employees and extended family members; a contention that left the House allowing the appeal by way of reference back to the Chancery Court for greater clarification, while also holding that in their opinion:

“[T]he trust is valid if it can be said with certainty that any given individual is or is not a member of the class.”

Once again in 1972, the court reviewed the position on the wording, and thereby meaning of trusts and powers, along with the validity of the trust in relation to s.164 of the Law of Property Act 1925, which stipulated that:

“1. No person may by any instrument or otherwise settle or dispose of any property in such manner that the income thereof shall…be wholly or partially accumulated for any longer period than one of the following…(a)the life of the grantor or settlor; or (b) a term of twenty one years from the death of the grantor, settlor or testator…” 

And so with a thoughtful, albeit exhaustible, examination of the deed, the court held that a discretionary trust did exist, and that despite the 31 years since its execution, such an instrument was valid when called into purpose, which echoed the sentiment of the House when the court further held that the trust was valid on the principle that there were sufficient company records to show, and thereby establish, who was reasonably eligible for the benefit of the funds when distributed by the trustees, upon which the executors challenged the judgment before the Court of Appeal one final time.

Here, the executors argued that unless an individual could not be proven as falling outside the scope of the trust, the trust must fail, while the court reasoned that while operating within the bounds of practicality, the trustees had shown that they were equipped to trace staff records back to the inception of the company, and thereby allocate the majority of employees and their immediate relatives, whereupon the court conclusively dismissed the appeal, while simply holding that:

“[A] trust for selection will not fail simply because the whole range of objects cannot be ascertained.”

Burrough v Philcox (1840)

English Succession Law

Burrough v Wilcox
‘The Writing Of The Will’ by Christian Ludwig Bokelmann

The intention to bequeath when drafting a well organised and thoroughly considered will remains the deciding authority of the testator, and so when perhaps vital elements to that redistribution are left wanting, the power falls to the court to compel the wishes of the deceased in as full a manner as possible, as was found in this potentially convoluted suit.

Having given tremendous thought to the lifetime of his estate, and the unavoidable dilemma of untimely deaths, the deceased had made express stipulations as to the execution of his legacy should his immediate  progeny die, while this caveat was made clear by the words:

“[I]n case my son and daughter should both of them die without leaving lawful issue, then for the said estates to be disposed of as shall be hereinafter mentioned (that is to say), the longest liver of my two children shall have power, by a will, properly attested, in writing, 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.”

And so in the sad event that his two children were unable to live long enough to bear children, or oversee the disposition of his estate as he had wished, the matter was presented to the Court of Chancery, so as to establish if when dying, the power to assign to those in vivo was relinquished, or if the estate was to remain in trust for the benefit of those now dead.

After much deliberation, and a reinvestigation of a number of arguable precedents, the court turned to Brown v Higgs, in which it was held that within circumstances where those granted executory powers have passed, the will itself becomes a mere trust, and therefore:

“[T]he trustee having died without executing it, or transgressing it, or refusing to execute it, shall not prevent its being held an absolute benefit for the objects, with a power to give a preference.”

Thus the court held that where a will or codicil is deliberate enough to provide express use of its power, the court is granted proper authority to ensure that its instructions are followed both with judicial impartiality and honest justiciability, therefore the will was enforced and the proper class of beneficiaries shown due privilege, while the court also held that:

“[W]hen there appears a general intention in favour of a class, and a particular intention in favour of individuals of a class to be selected by another person, and the particular intention fails, from that selection not being made, the Court will carry into effect the general intention in favour of the class.”

Charrington v Simons & Co Ltd (1971)

English Property Law

Charrington v Simons & Co Ltd
‘In the Orchard’ by James Guthrie

The conveyance of land with restrictive covenants is not uncommon within property law, however when the safeguard designed to protect the needs of the vendor becomes central to his anguish, it becomes clear that the attached principles have become somewhat misused.

In a matter concerning the part-sale of an orchard by a farmer, the respondent entered into the purchase on the understanding that at no point was the road running between the two plots previously owned, to exceed the height beyond that of the section retained, as to do otherwise would impact upon the farmer’s ability to harvest his remaining plot.

After ignoring the covenant, the respondent began resurfacing the road to a height that did in fact exceed the permissions granted, thus prompting the appellant to protest both orally and by letter. When the work continued and his obvious displeasure went unheard, the appellant issued a writ in pursuit of a mandatory injunction, which would result in the removal of all works undertaken at cost to the respondent.

In the first hearing, the judge adopted the unorthodox position of taking two negatives in order to create a positive. This was executed through an injunction, while explaining that:

(i) The respondent was to modify the road so as to benefit the appellant, rather than to remove it outright, after having spent around £1400 on its construction, before paying the appellant £1062 in special damages for the harm caused to date.

(ii) The mandatory injunction was to remain ineffective for a period of three years, while the respondent set about altering the road’s layout, which itself required agreement by the appellant to trespass onto his land in order to carry out the work.

(iii) That consultation between the two parties would continue throughout this period, and that should the appellant refuse to consent to the needs of the respondent, the respondent would be granted sufficient argument so as to discharge the injunction entirely.

Upon immediate appeal, the appellant argued that the judge had erred in law when creating an injunction that rendered the breach of covenant void, that requirement to consent to the work would result in a trespass and that such an impingement and modification would cause the appellant to suffer both personally and financially, as his own orchard would be compromised during the alterations.

With consideration of the judge’s genuine wish to improve upon an already damaging situation, the Court held that when refusing to enforce the injunction with immediate effect, the court had failed to properly address the purpose of both the covenant and the injunction in favour of an outcome serving only the needs of the breaching party.