General Principle:
Another type of discretionary trusts is the more modern type of large discretionary trusts, which involve paying out employees or members within a large group such as a company or society.
Name:
McPhail v Doulton [1971] AC 424
Facts:
The settlor transferred a property to trustees to apply to net income, in their absolute discretion, to the officers, ex-officers, employees and ex-employees of a company or their relatives or dependants. The question in issue was whether the trust was valid as satisfying the test for certainty of objects.
Ratio:
Lord Willberforce stated – “First the court will authorise the appointment of new trustees (new trustees would then exercise their discretion). Secondly the court would authorise representatives of the beneficiaries to prepare a scheme of distribution, for approval of the court (the representatives would be the head of department of the company whom could make appropriate suggestions as to beneficiaries). The test that must be applied to discretionary trusts is whether the trustees may say with certainty that any given postulant “is or is not a member of a class of objects”, and there is no need to draw up a list of objects.
Application:
The House of Lords decided that the trust was valid and changed the test for certainty in respect of discretionary trusts, making in line with the test for powers.
Analysis:
For a trust to be valid, the “object” must be sufficiently certain. The required level of certainty of object is based on the nature of the dispositions. Here, Sasha intended to create a discretionary trust (Mettoy v Evans [1990]), so the appropriate test is the “given postulant test” (McPhail v Doulton [1971]). To satisfy the test, the object must be, in “conceptual” term, precisely defined. So that any given individual can be classified as “is or is not” a member of the class with certainty. In this case, while “students at University of Loronto law school (ULLS)” is a well-defined class, but the ambiguous description showing “promise and talent (P&T)” renders the object conceptually uncertain. The reason is there are varying degrees of P&T, so it is unclear what degree would satisfy the settlor’s standard (Re Barlow [1979]). Therefore, it fails the “given postulant test” and the object is conceptually uncertain. It is vague. But is it uncertain conceptually. It means the students that have talent at law school.
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