IRC v Broadway Cottages [1955]
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IRC v Broadway Cottages [1955] Ch 20 marked a pivotal moment in the evolution of trusts law, specifically in the realm of discretionary trusts. In this case, the settlor settled a substantial sum of £80,000 upon trust, with the directive that the trustees were to apply the income to individuals who had been employed by the settlor or his family during a specified period. The critical aspect of this trust arrangement was the discretionary power granted to the trustees to select beneficiaries from this particular class.
The central issue before the court was whether a valid trust had been created. The Court of Appeal, in its decision, held that the trust was void for uncertainty. Jenkins LJ, in delivering the reasoning, referenced the principle articulated in Morice v Bishop of Durham [1805]. According to Jenkins LJ, for a trust to be considered valid, it must be one that the court can control and execute. He further explained that if the class of beneficiaries were ascertainable, the court could imply a trust in default of distribution, making it enforceable. However, given that the class in question was unascertainable, no such trust could be implied, rendering the trust void for uncertainty.
Jenkins LJ's reasoning in IRC v Broadway Cottages was based on the assumption that the court could only enforce a discretionary trust by ordering distribution in equal shares. However, this assumption was later challenged and overruled in the case of McPhail v Doulton [1971]. In this later case, Lord Wilberforce rejected the strict requirement set in IRC v Broadway Cottages. He clarified that the court could enforce discretionary trusts without necessitating distribution in equal shares. Lord Wilberforce introduced the "complete list test," asserting that discretionary trusts are valid as long as it is possible to ascertain the identity of every potential beneficiary, forming a complete list. This overruling provided greater flexibility for discretionary trusts, departing from the rigid constraints established by IRC v Broadway Cottages.
The central issue before the court was whether a valid trust had been created. The Court of Appeal, in its decision, held that the trust was void for uncertainty. Jenkins LJ, in delivering the reasoning, referenced the principle articulated in Morice v Bishop of Durham [1805]. According to Jenkins LJ, for a trust to be considered valid, it must be one that the court can control and execute. He further explained that if the class of beneficiaries were ascertainable, the court could imply a trust in default of distribution, making it enforceable. However, given that the class in question was unascertainable, no such trust could be implied, rendering the trust void for uncertainty.
Jenkins LJ's reasoning in IRC v Broadway Cottages was based on the assumption that the court could only enforce a discretionary trust by ordering distribution in equal shares. However, this assumption was later challenged and overruled in the case of McPhail v Doulton [1971]. In this later case, Lord Wilberforce rejected the strict requirement set in IRC v Broadway Cottages. He clarified that the court could enforce discretionary trusts without necessitating distribution in equal shares. Lord Wilberforce introduced the "complete list test," asserting that discretionary trusts are valid as long as it is possible to ascertain the identity of every potential beneficiary, forming a complete list. This overruling provided greater flexibility for discretionary trusts, departing from the rigid constraints established by IRC v Broadway Cottages.