1.b) Fiona is the company director of Polari PLC. She wishes to leave money in trust in order to build tennis courts to be used by the employees of Polari PLC and their children. Advise Fiona. (10 marks)

Introduction

It is not uncommon practice for people to want to create a trust for the benefit of their employees and their families. However, in such cases, it is important that the rules relating to certainty of intention, object and subject matter are complied with.

Advice for Fiona

The three essentials of constituting a trust are also called as the rules of certainty, where the certainty of intention, subject matter and object are seen to go on to constitute a valid trust. The intention of the testator must be certain in giving the property in trust, as in this case the intention of Fiona is certain.

The subject matter must also be ascertained, therefore certain. The object of the trust must also be certain. It must be to benefit a natural or legal person (‘beneficiaries’) and for the advancement of public purposes or in certain cases, private purposes. The maxim certum estquod certum reddi potest is used to justify the rule relating to the certainty of the object of the trust. The maxim stands for the principle that if something is capable of being made certain it should be treated as certain. Therefore, if the names of the beneficiaries are capable of ascertainment, they should be ascertained. This ensures the certainty of object of the trust. The beneficiary principle is used to ensure that trust has ascertainable beneficiary. A trust where the beneficiaries are not ascertainable will fail because that would mean that there is no natural or legal person with locus standi to enforce the trust conditions in a court of law. This principle was also laid down in Re Astor’s Settlement Trusts.⁸ In the present situation, Fiona must identify the beneficiaries to not be merely ‘employees and their children’, but ‘present employees and their children’ or employees for the next ascertainable number of years (so as to not beat the rule of perpetuity).

The purpose of the trust should be lawful and not defeated by impossibility or illegality. In the present case, Fiona wants to constitute the trust for lawful purposes, therefore there is no problem in this area.

In Re Denley’s Trust Deed,⁹ the court had to decide whether the trust made for the benefit of the employees and ‘other persons’, whereby the land was allotted for the construction of a swimming pool for the employees benefit, was validly constituted. The court considered that because the beneficiaries were clearly identified in case of employees, therefore the case would not fall foul of the beneficiary principle.

There is one point here in the Re Denley case that distinguishes it from the present case. In Re Denley the trust was not for perpetuity because the gift was to take effect within 21 years of death of named persons. In the present case, gift is for the use of the employees and their children. But it is not specified if these are present employees. If these are employees in general, then company being a perpetual entity, it would make the trust defeat the perpetuity rule and be declared invalid on that account.

In Re St Andrews (Cheam) Lawn Tennis Club Trust,¹⁰ the trust failed because it attempted to create a non charitable purpose trust for perpetuity.¹¹ In Re Leahy, Viscount Simonds observed:

if a gift is made to individuals whether under their own names or in the name of their society and the conclusion is reached that they are not intended to take beneficially, then they take as trustees. If so, it must be ascertained who are the beneficiaries. If at the death of the testator the class of beneficiaries is fixed and ascertained or ascertainable within the limit of the rule against perpetuities, all is well. If it is not so fixed and not so ascertainable the trust must fail.¹²

It is also pertinent to mention here the case of Leahy v AG of New South Wales,¹³ in which it was held that even where the trust is made for a particular purpose, it would be valid where the beneficiaries are clearly ascertainable and the purpose is to their benefit. Here in this case, the class of beneficiaries is not fixed because the words ‘present employees’ is not used, rather only the words ‘employees and their children’ are used to identify the beneficiaries, which defeats the perpetuity rule.

In McPhail v Doulton,¹⁴ the testator made a trust deed providing that the net income from his shares be used for the benefit of the company employees. The problem was that the executors were to draw a list of employees and their relatives and dependants. The executors contested the trust deed. But the court held that the trust was valid because it could be said with certainty which individuals would be the beneficiaries under the trust deed. The basic principle with respect to certainty for beneficiaries is that the trustee should be able to ascertain who the beneficiaries of the trust are. As long as the beneficiaries are ascertainable,the trust is valid. So the basic idea is as laid down in OT Computers Ltd. v First National Trinity Financial Ltd.,¹⁵ the trustees must be able to draw up a list of beneficiaries. It is pertinent to note here that the rule that the trustees be able to draw out a list of beneficiaries in fixed trusts was also laid down earlier in Inland Revenue Commissioners v Broadway Cottages Trust.¹⁶

One of the problems in this trust is that Fiona also wants the trust to benefit the children of the employees. This makes the beneficiary class too wide and administratively difficult. The position of the courts in such cases is to not allow the trust to succeed on ground of it being too wide in its object.¹⁷

Conclusion

In the present case, the trustees can draw up a list of the present employees of the company and their children. But in order to ensure that the trust deed is completed with the certain object, Fiona is advised to draft her trust deed with certain object, that is ascertainable beneficiaries. Fiona is also advised that the trust fund should not beat the principle of perpetuity.