Baden: Awakening The Conceptually Moribund Trust1
| Date | 01 November 1974 |
| Published date | 01 November 1974 |
| DOI | http://doi.org/10.1111/j.1468-2230.1974.tb02409.x |
BADEN
:
AWAKENING
THE
CONCEPTUALLY
MORIBUND
TRUST
THE precarious majority decision of the House of Lords in
McPhail
v.
Doulton (Baden
(No.
1)
)
has an evolutionary significance which
has not yet been driven home. This crucial decision has given legiti-
macy to a much wider and more flexible concept of
a
trust. This
new concept went through a long and painful gestation and, while
that was going on, main-line writing on trusts tended to develop
myopically in an outdated conceptual frame of reference.
This article explains the significance of the new look trust. But,
first,
it
clears the ground by explaining the decision in
Baden
and
attacking some of the specific fallacies gathering momentum in the
wake of it.
THE DECIE~ION
IN
BADEN
In
Baden
(No.
1)
a
pension fund was settled
on
trustees, on what
was found to be an exhaustive discretionary trust, to
I‘.
. .
apply
the net income of the fund in making
at
their absolute discretion
grants to
or
for the benefit of
any
of the officers and employees
or
ex-officers
or
ex-employees of the company or to any relatives
or
dependants of any such persons in such amounts at such times and
on such conditions (if any) as they think
fit.
.
. .”
The House of
Lords, unanimously reversing the Court of Appeal,s held that, as
a matter of construction, an obligation was imposed to allocate
the whole discretionary fund (the income each year). But on the
main issue they were sharply divided. By the narrowest majority
they reversed
a
hitherto firm rule, holding that the central test
for determining the validity of trust powers and
exhaustive
discre-
tionary trusts was the definitional certainty rule propounded in
Gul
benkian
for non-exhaustive discretionary trusts. But the
majority did not say the rule was the same.
The matter was remitted back to the High Court to see whether
the definitional certainty test was satisfied. The Court of Appeal,s
affirming Brightman
J.,
held that
it
was and the discretionary trust
1
ThB
article is based
on
material
from
a
dissertation
pn
Discretionary Trusts
awarded a Ph.D. from the London School
of
Economics.
Acknowledgment to
J.
M.
Evans, London
School
of
Economics, who supervised that dissertation
end helped substantially
to
formulate the ideas in it.
2
[1971]
A.C.
424.
3
Re Baden’s Deed Trusts, Baden
v.
Smith
[1969]
2
Ch.
888.
4
A trust power exercisable by a trustee, not to be confused with
E
non-
exhaustive discretionary truet where the trustee holds
a
mere power
to
allocate
the discretionary
fund.
5
Wishaw
v.
Stephens
[lWO]
A.C.
508.
6
Re Baden’s Deed Trusts
(No.
2)
[1978]
Ch.
9.
643
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