Certainty of Subject Matter

Certainty of Subject Matter Essay

For a trust to be valid it must satisfy the three certainties: one of these being certainty of subject matter. The trust property must be described in such a way that it becomes certain and ascertainable. The justification for this is that a trustee can only perform his duty if he knows what property he is trustee of. Problems are experienced when we look at parts of the bulk of property. The nature of the property is decisive. If the property is tangible, then certainty of subject matter will be satisfied where the trust property is separated out. However, where the property is intangible, such separation is not necessarily required. The aim of this answer is to critically assess the law in relation to certainty of subject matter.

The starting point is Re London Wine Company [1986] a case which held that bottles of wine could not form a trust for customers, as the exact bottles for each customer had not been segregated out and identified. The bottles of wine therefore were assets of the company, and as such, could be used to satisfy debts to creditors. The decision was applied in Re Goldcorp Exchange [1995] where it was held that gold bullion which had not been segregated out and identified for individual customers could not form the subject matter of a trust.

In Hunter v Moss the property in this case was intangible property i.e. shares. Intangible property is property that cannot be touched e.g. debts, money in bank accounts. Hunter was entitled to claim 50 of 950 shares by his contract of employment. Although there was intention to create a trust, Moss did not identify which shares were subject to this arrangement. Moss later sold the 950 shares and kept the proceeds. Hunter then claimed his portion of the 950 shares. The key material question for the court was whether Mr Hunter could claim a right to the 50 shares under the trust.

The Court of Appeal held that there was a valid trust – as all of the shares were equal, a trust could be formed from any 50 of the 950 shares. The exact 50 forming the subject matter of the trust did not have to be ascertained. The outcome was surprising as it departed from established principles in relation to the certainty of subject matter for tangible property as shown in London Wine. Therefore, looking at the principles from the cases on tangible property, it could be said that the court did depart from established principles.

However, the decision has been justified as London Wine and Goldcorp are cases restricted to tangible property. As Hunter v Moss involved intangible property i.e. shares, there is an argument that it can be distinguished. Furthermore, the court attempted to rationalise their decision by drawing an analogy between the trust in this case and a testamentary disposition on death. However, such dispositions do not involve the creation of an immediate interest whereas a trust does involve an immediate interest (Hayton 2010). Furthermore, if the settlor had intended to give Hunter the shares he could have established himself as trustee of all 950 shares with himself and Hunter as tenants in common in specified proportions (Hayton 2010). He did not do this, therefore there are questions over whether this is what he intended. Hayton suggests that the court failed in applying normal legal principle, perhaps because they were blinded by the ‘merits of the donee’ (Hayton 2010). In Lehman Brothers International (Europe) [2010] the court suggested that Hunter v Moss might be difficult to apply and may remain a case decided on its facts. Nevertheless, the court accepted that Hunter represented the law and had not been overruled.

Martin (1996), argues that the case was “fair, sensible and workable” and describe it as a guide to the court to prevent an intended trust from failing. Alison Jones (1993) in the same journal stated that “logically the decision in Hunter v Moss appears a sensible one”, but noted that it did create “difficult questions”. Despite, this support for the principle, other problems persist. There are three issues that arise with the approach in Hunter v Moss.  First, Hunter v Moss ignores the manner in which the logic of English property law requires that there be specific and identifiable property, which is the subject of the property rights as it was stated in Westdeutsche Landesbank Girozentrale v Islington LBC (1996). Secondly, the court of appeal had to decide whether there were sufficient shares to satisfy the claim. The court of appeal could not have decided the same way on the facts of Goldcorp because there were more claims than property to satisfy them. If there is a distinction to be made between cases in which it would be valid to hold one trust valid despite insufficient segregation and another trust invalid on grounds of insufficient segregation, that distinction would be between cases where the legal owner of that property is solvent or insolvent, and not between tangible and intangible property. Thirdly, it is difficult to see why there ought to be a specific rule for intangible property as mentioned in the US case of Caswell v Putnam.

Finally, it should be noted that statutory intervention has had an impact in this context in the field of commercial law. Section 20A of the Sale of Goods Act 1979 offers protection to purchasers of an unsegregated part of a larger bulk of property. As soon as a buyer has paid for goods, they will be considered tenants in common of the whole property. This has the effect of protecting their purchases from creditors in the event of liquidation or receivership.

To conclude, the statement is partially true. English law development on equity and trusts states that the subject matter of a trust should be separated from a larger bulk to be valid. This applies to tangible property. A trust would still be valid if the subject matter is not separated from a larger bulk of property that is intangible. The validity of a trust is therefore based on whether the subject matter is tangible or intangible. The case of Hunter v Moss supports this view. The decision in Hunter v Moss received mixed responses. Some professionals welcomed the decision as being fair and leading to certainty while some academics, including Hudson criticised the decision