Framjee Part 1: The ‘Three Certainties’ in Practice

Every student of the law of trusts learns early on of the ‘three certainties’ required for the creation of an express trust, which finds its root in Lord Langdale’s judgment in Knight v Knight (1840) 49 ER 58. For a valid trust, there must be certainty of (1) intention (to create a trust), (2) subject matter, and (3) objects (beneficiaries). The recent High Court case of Charity Commission for England and Wales v Framjee [2014] EWHC 2507 (Ch) provides an interesting illustration of the ‘three certainties’ requirement being applied in practice — in particular, how courts determine whether a trust exists in reference to the certainty of intention. It also raises a number of interesting points relating to the law of tracing, which will be discussed in a later post.

The Facts

The Dove Trust was an unincorporated charitable trust. It was run by two trustees, and by the terms of the Trust Deed the trust fund was to be held ‘Upon Trust for such charitable purposes as the Trustees…in their discretion from time to time think fit.’

The Trust established a website for charitable giving, called www.charitygiving.co.uk (the webpage now has information concerning the outcome of this litigation, and a copy of the court’s judgment). Through the website, members of the public could make donations to a charity or charitable cause of their choice. Money paid in through the website was received by Dove Trust, who would then forward the donation to a charity chosen by the particular donor. No fee was charged for this service; however, where a donation qualified for Gift Aid, Dove Trust would reclaim the amount from the HMRC, deduct an administration fee of 3.99%, and forward the balance to the named charity. (Note: ‘Gift Aid’ is a means by which a UK tax-paying donor can increase the amount the charity receives. The HMRC ‘tops up’ the amount donated (say, £10) by a certain percentage, so that the charity in fact receives a higher amount (£12.50 in the example).) Crucially, the ‘terms and conditions’ section of the website was silent as to the nature of the legal relationship between the donors and the Dove Trust.

The Three Certainties

One of the questions that the judge, Henderson J, had to decide upon was whether the donations made via the website gave rise to a trust or trusts. Essentially, how does a court determine if a trust exists? In deciding that the donations did give rise to an express trust relationship, Henderson J set out a number of important guidelines. Among them were:

1. The word ‘trust’ need not be used, so long as the ‘three certainties’ are satisfied;
2. A trust relationship is likely where the ‘settlor’ does not intend his property to be at the recipient (‘trustee’)’s free disposal;
3. It is a strong pointer (though not a pre-requisite) that a trust was intended if the settlor requires the money to be held in a separate account;
4. A trust is more likely found in a charitable, as opposed to a commercial, context.

The judge put great weight on the second of these points in coming to his conclusion. Since the trustees of the Dove Trust could only use each donation for the purpose specified by the donor, they held the monies on trust for the charities chosen by the donors. The fact that each donor intended their donation to be used in a specified manner pointed to a clear intention to create a trust.

One Trust or Many Trusts?

There was some discussion as to whether the state of affairs had created one ‘global’ trust or many individual, separate trusts. Counsel submitted that each donation created a unique, separate express trust, whereby each donor was a settlor, the trustee being the trustees of the Dove Trust, and the beneficiary being the charity nominated by the donor.

On this analysis, there would be ‘literally thousands of wholly separate trusts’ ([40]). Henderson J felt that this analysis was ‘unnecessarily complex’ ([37]). Instead he preferred an analysis he himself suggested during the course of the hearing. On his analysis, each donation was a contribution to the Dove Trust’s single fund for the charitable purposes of the Dove Trust, with a sub-trust arising therefrom which compelled the trustees properly to pass on the donations to the charities nominated by the donors.

However, Henderson J’s analysis is not without difficulties. On the judge’s analysis, presumably the Dove Trust was the original beneficiary, which was taken to have declared a sub-trust for the sub-beneficiaries — the charities nominated by the donors. One might question whether, short of a clear declaration of trust on the part of Dove Trust, there was certainty of intention sufficient to fulfil the ‘three certainties’.

Although Henderson J observed that the difference between the ‘one trust’ and ‘many trusts’ analyses might not make any practical difference, it seems that the ‘many trusts’ approach propose by counsel best observes the ‘three certainties’ requirement, since it is more realistic to attribute an intention to create a trust to each donor instead of the Dove Trust. After all, although well rehearsed, the importance of the ‘three certainties’ requirement cannot be overstated.

It is crucial to remember that a trust relationship imposes onerous duties on the trustee(s) and likewise confers significant rights on the beneficiary(ies), and so unless it is clear that a trust was intended, and that the subject matter and objects are clear enough for the trust to be able to be administered, a trust will not arise.

This blog post was written by Dr Ying Khai Liew, lecturer at University College London. Ying also teaches on the Laws Programme Regional Revision courses.