The Importance of Certainty in Trust Creation

Discuss about the Trusts and Agency for Federal Commissioner of Taxation.

In the present case, the issue is concerned with the fact that whether there was sufficient certainty for the creation of a trust. In addressing the issue, it is important to take into consideration the relevant case laws which will be applicable in addressing the present issue. The research methodology that has been selected for the purpose of addressing the issue in the research question is from both primary and secondary sources.

The concept of certainty of intention lies on the part of an individual who alleges the fact that the nature of the trust was intentional. In cases of certainty of intention, if the creator of the trust transfers the property with an express motive along with an expectation that the trust in the property shall be only utilized in the particular way. The requirement of certain intention is not dependent upon the mere intention to create trust. In case of certainty of intention, a trust can be created on the part of the creator without mentioning the words trust and trustee which was observed in Registrar of the Accident Compensation Tribunal (Vic) v Federal Commissioner of Taxation (1993) 178 CLR 145. If the nature of the trust is ambiguous or created by mistake then, it shall not be taken into consideration which was held in the cases of Lutheran Church of Australia v Farmers Cooperative Executors & Trustees Ltd (1970) 121 CLR 628 and Boranga v Flintoff (1997) 19 WAR 1. In the case of Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178, it was observed that a trust shall be held invalid; even if the use of express terms of the trust were made unintentionally.

There are certain requirements referred to as the certainty of subject-matter which states that, there is no existence of express trust without trust property. Therefore, the nature of the trust property must be such that it can be reasonably identified. In case of certainty of subject-matter, issues may arise when the property in trust forms a part of a number of identical items. The nature of the trust shall be uncertain; if the subject-matter is not specifically identified. In the case of Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271, it was observed that Mr. Herdegen was the holder of 59 shares which was duly registered whereas Mrs. Herdegen was holding 41 shares. However, the shares were numbered, but the trust arose when there was a promise on the part of Mr. Herdegen that his wife would be entitled to hold only 37 and 38 shares on the behalf of Mr. Boyden and Mr. Allen respectively. The rest of the shares will be held by the Herdegens however; the nature of the evidence was such that is was confusing, unclear and uncertain. In this case, it was held by the Court that, no express trust was created. This was due to the reason that there was relevant evidence regarding the fact that whether express trust has been created. It was also unclear that whether the trust was intentional. There was ambiguity and uncertainty regarding the shares which were utilized for the creation of the trusts. The evidences provided were also unclear regarding the fact that who was intended to be the beneficiary of which bundle of shares.

Certainty of Intention

The concept of certainty of objects is concerned with the fact that, there shall be failure of trust, if there is no identification of beneficiaries with sufficient certainty. This rule is governed by two important exceptions which can be emphasized as the charitable trusts and the anomalous group of trusts for animals. In case of certainty of objects, the level of certainty that is required is concerned with the fact that whether the nature of the trust is fixed or discretionary as observed in Morice v Bishop of Durham (1804) 32 ER 656.

It is evident from the abovementioned case laws and the represented facts that, for the purpose of creation of an express trust which is intended. There shall be three certainties which are certainty of intention, certainty of subject-matter and certainty of object. However, in the present scenario, it can be observed that Basil declared himself a trustee of 5% shares from the issuance of share capital of Basil Electrical. In the presence of 1000 shares in the name of the company, the rest of the 50 shares were not identified. In this regard, the case of Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 can be applied. This is due to the reason that, the bundle of shares in this case is unclear and there is ambiguity in the part that who was intended to be the beneficiary of such bundle of shares. It is evident that if the subject-matter of trust has not undergone proper identification, then such trust shall not be held as certain.

In this given scenario the issue that can be identified is whether the company in consideration. An agent can be defined as person who is shares a relationship with the principal. In a relationship of agency, the principal delegates the authority to the agent to enter into contracts on behalf of the principal. Therefore it can be stated that in a relation of agency there are specifically two types of contracts involved which are:

• The contract which forms between the principal and the agent and as a reason of which it provides authorization to the agent to act on the behalf of the principal.
• Contracts made between the agents and third parties in which the agents indemnify the principal and act on behalf of the principal. 

Actual authority are mainly divided into two types. Actual authority can be delegated to the agent by the principal expressly and authority may also be implied. It can be mentioned that the agent generally indemnifies the principal only when such agent acts within the limits of his actual authority. In case he exceeds his actual authority, he may be personally liable towards the third party for beach of implied warranty of authority.   

Certainty of Subject-Matter

It can be stated that the principal generally delegates the authority to the Agent to act on his behalf. A principal is generally bound by the acts of the agent. However, if the agents exceed the authority which has been delegated to him by the principals, such principals cannot be held to be liable for the acts of the agents. However, there are several provisions under the common law which extends the limitations of the authority entrusted to an agent for the purpose of protecting the rights of the third parties. The case Ireland v Livingstone (1872) LR 5 HL 395 deals with the subject of express actual authority.

It can be stated that the law implies the creation of an agency when a person in lieu of his conduct or by his words acts as if he has derived the authority to act in the absence of his principal acknowledges the facts that he has delegated such authority to the agent.

Implied authority can be emphasized as that authority which is not expressly delegated by the principal to the agent but assumed to have been implied by the nature of the relationship shared between the principal and when such authority is necessary for the agent to carry out the duties as delegated to him by the principal. Implied authority is generally not expressly mentioned in a contract of agency. The case Chan Yin Tee v William Jacks and Co, deals with the implied authority delegated to agents by the principals. The case Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 also deals with the principals of implied actual authority.

Apparent Authority can also be defined as Ostensible Authority. Apparent or ostensible authority can be defined as the authority which arises when the words of the principal or the conduct of a principal which would lead any reasonable person of prudent nature to reasonable believe that agent was authorized to act on behalf of the principal, even when the principal had not delegated the authority actually.  This ad been illustrated in the notable case of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.  Thus it can be inferred that if the principal gives the impression to the a reasonable third party that such principal delegated the agent to act on his behalf even though he had not actually delegated the authority, the principal would be liable and bound by the actions of the agent.

In the case Watteau v Fenwick, it had been held by the Queen’s Bench that a third party cannot be held liable to the principle because the third party was not aware of the fact that the cigars were sold to the agent who was authorized within the usual authority. The landmark decision gave rise to the concept of usual authority.

By analyzing the facts of the case, it can be stated that Tina who was appointed as the director of the company however; he acted as the managing director with prior of the directors. However, it can be mentioned that the Board never formally appointed her to the position. However, Tina appointed a fir of architects to design plans for the land of the company. Thus in this case it is evident, that Tina acted with Usual Authority or implied authority as per the decision of the Watteau v Fenwick. It can be mentioned that the firm of architects could not have reasonably known that Tina was acting without authority as she was on the board of directors. Therefore the Company is liable to pay the firm of architects.

Thus, to conclude it can be stated that the company shall be held  liable to pay the firm of architects.  

References:

Chan Yin Tee v. William Jacks and Co. (Malaya) Ltd [1964] MLJ 290.

Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178.

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. 

Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271.

Ireland v Livingstone (1872) LR 5 HL 395.

Lutheran Church of Australia v Farmers Cooperative Executors & Trustees Ltd (1970) 121 CLR 628.

Morice v Bishop of Durham (1804) 32 ER 656.

Registrar of the Accident Compensation Tribunal (Vic) v Federal Commissioner of Taxation (1993) 178 CLR 145.

Watteau v Fenwick [1893] 1 QB 346 .