In re Baden’s Deed Trusts (No 2)

A discretionary trust is tested by the same certainty-of-objects standard as a fiduciary power. The trust need not fail because it is difficult to prove the identity or whereabouts of every possible beneficiary. Such evidential difficulties differ from conceptual uncertainty in the description of the class.

The word dependants, in an employee-benefit trust, is conceptually certain. It denotes persons wholly or partly dependent on another’s means, although degree of dependence is a factual question. The court also upheld the use of relatives. The three Lord Justices reached that conclusion by different routes, so the decision did not supply a single common definition of that term.

The settlor created a staff trust fund for grants, at the trustees’ absolute discretion, to present and former officers and employees of the company and to their relatives or dependants. Earlier proceedings had established that clause 9(a) created a discretionary trust rather than a mere power, and that the applicable certainty test was the same in either event.

Brightman J held the trust valid after further evidence: [1971] 3 WLR 475. The executors appealed, contending that relatives and dependants made the class of objects uncertain. The central issue was whether either expression rendered the discretionary trust void for uncertainty.

1. The Court of Appeal dismissed the executors’ appeal. All three Lord Justices concluded that clause 9(a) was valid.

2. The court applied the certainty test derived from In re Gulbenkian’s Settlements, [1970] AC 508, and from the earlier House of Lords decision in this litigation, [1971] AC 424. A discretionary trust does not fail merely because the whole range of possible objects cannot be ascertained.

3. Per Sachs LJ, the material distinction is between conceptual or semantic uncertainty and evidential difficulty. Once a class has a certain meaning, whether a claimant falls within it is a question of fact and proof. Failure to prove membership means that the claimant cannot benefit; it does not invalidate the trust. Trustees need only make a practical survey of the range of potential beneficiaries sufficient to discharge their fiduciary duties.

4. All members of the court held that dependants was sufficiently certain. It connoted financial dependence. Whether dependence was sufficiently substantial in an individual case was a factual issue, not linguistic uncertainty. Sachs LJ accepted that a person wholly or partly dependent on another’s means was a dependant. Stamp LJ reached the same conclusion, following the approach in the authorities on that word.

5. The court also upheld relatives. Sachs LJ treated the widest suggested meaning, persons tracing legal descent from a common ancestor, as conceptually certain despite possible evidential difficulty. Megaw LJ considered it sufficient that a substantial number of persons could certainly be identified as within the class. Stamp LJ would construe the term as referring to nearest blood relations. These differing reasons supported the same disposition, but did not establish one common definition of relatives.

6. The appellants had disclaimed administrative unworkability. The appeal was dismissed, with both sets of respondents’ costs on the party-and-party basis.

• House of Lords: In the prior appeal, [1971] AC 424, the House held unanimously that clause 9(a) created a discretionary trust rather than a mere power. It held that the applicable certainty test remained the same and remitted validity for determination.

• Court of Appeal: This appeal, reported at [1973] Ch 9, dismissed the executors’ challenge to Brightman J’s conclusion that the trust was valid.

• Chancery Division: Brightman J held, after further evidence, that there was no invalidating uncertainty: [1971] 3 WLR 475.

• Earlier proceedings: Goff J held that staff and employees were objects and treated the provision as a mere power: [1967] 1 WLR 1457. The earlier Court of Appeal upheld that characterisation by majority, but remitted the validity issue after Gulbenkian: [1969] 2 Ch 388.