McPhail v Doulton [1970]
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McPhail v Doulton [1970] UKHL 1, also known as Re Baden's Deed Trusts (No 1) [1970], is a landmark English trusts law case decided by the House of Lords. The case revolves around the crucial issue of the certainty of beneficiaries in discretionary trusts.
Bertram Baden created a non-charitable trust for the benefit of the staff of Matthew Hall & Co Ltd and their relatives and dependents. The trust granted the trustees absolute discretion in making grants to the beneficiaries. The validity of the trust was challenged on the grounds of insufficient certainty of objects.
Lord Wilberforce, delivering the judgment, asserted that as long as it is clear whether an individual is or is not a beneficiary, the trust is valid. He rejected the notion of applying an equal division principle to such discretionary trusts, emphasising that equal division might not align with the settlor's intentions. Lord Wilberforce highlighted that the court has the flexibility to order different types of execution based on the circumstances.
The case marked a fundamental restatement of the law regarding the certainty of objects for discretionary trusts, one of the essential certainties required for trust formation. It departed from the previous "complete list" test and introduced the "is or is not" test, simplifying the requirement to ascertain beneficiaries for the trust's validity.
Before McPhail, the law stipulated the need for a complete list of beneficiaries for discretionary trusts. However, McPhail abandoned this requirement in favour of a more straightforward "is or is not" test. The new test focused on the certainty of determining whether an individual is or is not a member of the class of beneficiaries, mirroring the test applied to powers.
On the specific facts of the case, Lord Wilberforce found that it was possible to determine whether an individual qualified as an officer, employee, ex-officer, ex-employee, or a relative or dependent of one. Consequently, the trust's validity was upheld.
Two main criticisms of the "in or out" test for discretionary beneficiaries emerged. First, it was argued that a trustee's duty to distribute could only be fulfilled by considering every possible claimant. Second, the court's ability to execute the trust relied on a percentage division of the trust fund if the trustee failed to act.
Lord Wilberforce addressed these concerns by stating that considering every possible claimant was necessary only when fully distributing the fund, which was not always the case. Additionally, he dismissed the practical difficulty of the court executing the trust, arguing that removal and replacement of non-compliant trustees were viable options.
The case was remanded to the Court of Appeal for further consideration under the principles established in McPhail, now known as Re Baden's Deed Trusts (No 2) [1972]. McPhail, though not as widely recognised as some landmark decisions, significantly reshaped trust law, making discretionary trusts more accessible and reducing stringent requirements associated with them.
Bertram Baden created a non-charitable trust for the benefit of the staff of Matthew Hall & Co Ltd and their relatives and dependents. The trust granted the trustees absolute discretion in making grants to the beneficiaries. The validity of the trust was challenged on the grounds of insufficient certainty of objects.
Lord Wilberforce, delivering the judgment, asserted that as long as it is clear whether an individual is or is not a beneficiary, the trust is valid. He rejected the notion of applying an equal division principle to such discretionary trusts, emphasising that equal division might not align with the settlor's intentions. Lord Wilberforce highlighted that the court has the flexibility to order different types of execution based on the circumstances.
The case marked a fundamental restatement of the law regarding the certainty of objects for discretionary trusts, one of the essential certainties required for trust formation. It departed from the previous "complete list" test and introduced the "is or is not" test, simplifying the requirement to ascertain beneficiaries for the trust's validity.
Before McPhail, the law stipulated the need for a complete list of beneficiaries for discretionary trusts. However, McPhail abandoned this requirement in favour of a more straightforward "is or is not" test. The new test focused on the certainty of determining whether an individual is or is not a member of the class of beneficiaries, mirroring the test applied to powers.
On the specific facts of the case, Lord Wilberforce found that it was possible to determine whether an individual qualified as an officer, employee, ex-officer, ex-employee, or a relative or dependent of one. Consequently, the trust's validity was upheld.
Two main criticisms of the "in or out" test for discretionary beneficiaries emerged. First, it was argued that a trustee's duty to distribute could only be fulfilled by considering every possible claimant. Second, the court's ability to execute the trust relied on a percentage division of the trust fund if the trustee failed to act.
Lord Wilberforce addressed these concerns by stating that considering every possible claimant was necessary only when fully distributing the fund, which was not always the case. Additionally, he dismissed the practical difficulty of the court executing the trust, arguing that removal and replacement of non-compliant trustees were viable options.
The case was remanded to the Court of Appeal for further consideration under the principles established in McPhail, now known as Re Baden's Deed Trusts (No 2) [1972]. McPhail, though not as widely recognised as some landmark decisions, significantly reshaped trust law, making discretionary trusts more accessible and reducing stringent requirements associated with them.
