North & Anor v Wilkinson & Ors

A trust of an undivided share in a sole trader’s business is not necessarily void for uncertainty of subject matter. Each class of asset must be considered separately. A share in an indivisible asset, securities or a fluctuating bank balance may be capable of being held on trust, although particular chattels may require identification. Clear objective evidence of an intention to create a trust remains essential. Documents framed as investments in company shares, without addressing liabilities, management, withdrawal rights or timing, more naturally create personal or contractual rights. Later admissions cannot establish the settlor’s intention at the time of creation. The requirement of clear evidence was stated in Paul v Constance [1977] 1 WLR 527.

The respondents claimed beneficial shares in a business venture developed and operated by John North as a sole trader. Their claims relied on an agreement, later letters and oral discussions under which investments were said to carry equity positions. They alleged that proceeds of a settlement with Electrolux were trust property and sought declarations concerning a residential property bought with repaid funds.

The High Court held that trusts had been created. The appeal concerned whether the business assets were sufficiently certain trust property and whether the documents and discussions objectively manifested an intention to create trusts rather than contractual or personal obligations.

Appeal allowed. No trusts over the business or its assets were created in favour of the respondents.

1. Certainty of subject matter. A trust of an undivided share in a sole trader’s business is not necessarily uncertain. The court must examine each class of asset. Shares in indivisible assets, securities and a fluctuating bank balance may be capable of forming trust property. Particular chattels may require identification. The difficulty of operating such a trust may bear on intention rather than certainty. The court considered Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, In re Rhagg (Deceased) [1938] Ch 828, In re Lehman Brothers International (Europe) [2011] EWCA Civ 1554, Hunter v Moss [1994] 1 WLR 452, and In re London Wine Co (Shippers) Ltd [1986] PCC 121.
2. Intention to create a trust. No particular form of words is required, but there must be clear objective evidence of an intention to create a trust. The Wilkinson Agreement was principally concerned with providing a shareholding in a company. A shareholding gives contractual and statutory rights against the company, not a direct proprietary interest in its assets. The reference to an equity position covering a sole-trader business was more naturally understood as creating a personal obligation to pay a share of profits or sale proceeds.
3. The documents did not address obvious consequences of a trust over a sole-trader business, including liability for business debts, management, trustee duties, restrictions on withdrawal and the time when the trust would take effect. Net assets were an accounting entry and could not themselves be trust property. The management issue was particularly significant because company directors’ duties under sections 170 et seq of the Companies Act 2006 differed materially from trustee duties.
4. The later letters plainly referred to investments in a company and an equity position in that company. The failure to form the company did not convert those promises into declarations of trust. The oral arrangements relied on by the other respondents did not justify a different conclusion.
5. Later lists and admissions could not establish the settlor’s subjective intention when the alleged trusts were created. The appeal was therefore allowed against all respondents.

• High Court of Justice, Chancery Division: HH Judge Pelling QC held, with some hesitation, that trusts had been validly created in favour of the respondents.
• Court of Appeal (Civil Division): the appeal was allowed against all respondents. The alleged trusts over the business and its assets were held not to have been created.