McPhail v Doulton, sub nom Re Baden's Deed Trusts (No 1)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HARMAN,LORD JUSTICE RUSSELL,LORD JUSTICE KARMINSKI |
| Judgment Date | 05 February 1969 |
| Judgment citation (vLex) | [1969] EWCA Civ J0205-5 |
| Docket Number | 1963 B. No. 223 |
| Court | Court of Appeal (Civil Division) |
| Date | 05 February 1969 |
[1969] EWCA Civ J0205-5
In The Supreme Court of Judicature
The Court of Appeal
(Civil Division)
From: Mr. Justice Goff
Lord Justice Harman
Lord Justice Russell and
Lord Justice Karminski
In the Matter of the Trusts of a Deed dated 17th July 1941 and made between Bertram Baden of the first part Matthew Hall & Co. Ltd. of the second part and Edwin Baden, Bertram Baden, Peter Duke Doulton, Thomas Leslie Arthur Graham and Sidney Kindler of the third part and of a Deed dated 21st December 1962 and made by Edwin Baden Peter Duke Doulton, Sidney Kindler and Alexander Laing Pearson:
SIR MILNER HOLLAND, Q.C. and Mr. J.E. VINELOTT, Q.C. (instructed by Messrs. Slaughter & May) appeared on behalf of the Appellants (Second, Third and Fourth Defendants).
Mr. V.G.H. HALLETT (instructed by Messrs. Gregory Rowcliffe & Co.) appeared on behalf of the Respondent-Plaintiffs.
Mr. E.I. GOULDING, Q.C. and Mr. A.A. BADEN FULLER (instructed by Messrs. Gregory Rowcliffe & Co.) appeared on behalf of the Respondents the First, Fifth and Sixth Defendants.
This originating summons was concerned with the destination of a very large fund set up in the year 1941 by one Bertram Baden for the benefit of the staff of a company known as Matthew Hall & Co., Ltd. and their relatives and dependants. The settlor started the fund by transferring to certain trustees some shares in the company and the fund thus constituted has been very largely added to at subsequent dates, chiefly I gather by the benefactions of the company itself. The funds so held by the trustees are regulated by a deed of the 17th July, 1941, which directs they shall be held, invested, administered and disposed of as there provided. By clause 6 of the deed money in the trustees' hands not required for the immediate service of the fund may be placed in a deposit or current account with a bank or may be invested in any of the investments specified in the deed. Clause 9 of the deed is in these terms: "The Trustees shall apply the net income of the Fund in making at their absolute discretion grants to or for the benefit of any of the officers or ex-officers or ex-employees of the company or to any relatives or dependents of any such persons in such amounts at such times and on such conditions (if any) as they think fit and any such grant may at their discretion be made by payment to the beneficiary or to any institution or person to be applied for his or her benefit and in the latter case the Trustees shall be under no obligation to see to the application of the money. (b) The Trustees shall not be bound to exhaust the income of any year or other period in making such grants as aforesaid and any income not so applied shall be dealt with as provided by clause 6 (a) hereof". Then (c) is a power for the trustees to realise investments representing accumulations of income and apply the same as if they were income of the fund and to realise capital of the fund if the current income is insufficient.
Clause 10 is in these terms: "All benefits being at the absolute discretion of the Trustees, no person shall have any right title or interest in the Fund otherwise than pursuant tothe exercise of such discretion, and nothing herein contained shall prejudice the right of the Company to determine the employment of any officer or employee".
Clause 11 provides for the duration of the income provisions and clause 12 for the destination of the capital on termination.
The learned judge set himself as his first task the solution of the problem of the ambit of the class eligible to receive income and he decided that the word "employees" there used bore its widest signification and could not be limited to salaried grades or what was called "the staff". This was a question of fact and required the consideration of a deal of evidence and cross-examination, and there is no appeal.
The company has now become a holding company and its present employees number perhaps no more than 200 but it has been very much greater and benefits apply to ex-employees and their relatives and dependants so that the class eligible for benefit may be. very large and seems almost certain to be incapable of exact ascertainment.
The learned judge found himself under the necessity of deciding whether upon the true construction of the deed it amounted to a trust binding the trustees to a distribution of income in accordance with its provisions or to a mere power not imposing any such duty. He decided in the latter sense and on this appeal that is the sole question before this Court.
As the argument proceeded before us I felt an ever greater sense of frustration for it seemed to me that if ever there was an empty question it was this one and that it ought to make no difference to the validity of the provisions of the deed whether upon a minute analysis of the language used in this clause it should be construed as creating a trust or a power and that the Court must come down on one side of the line or the other. It ought to make no difference to the deed's validity and that it does is an absurd and embarrassing result brought about by a line of cases in recent years stemming I am sorry to say from my owndecision in Re Geatetner. The- views there expressed have received very recent confirmation in their Lordships' House in the case of Gulbenkian, which affirmed once again the decision of this Court in Broadway Cottages Trust.
The distinction is as follows. If the provisions of the deed amount to a trust for all the objects of it, then in order that it may he valid the trustees must, to use an expression I have employed before and owe to Alexander Pope, "Survey the world from China to Peru" in search of those objects, and unless they can be satisfied that the whole of them are known to them the trustees cannot properly exercise their discretion and the trust will fail. If, on the other hand, on a true construction of the deed it imposes a mere power, the deed will be good if the trustees can say with reasonable certainty of any applicant for a benefit under their power that he or she is a member of the class intended to be benefited.
Thus, a document which operates by way of power has a very much better chance of being effective than one operating by way of trust. This is a most unfortunate doctrine for, as will be seen here, the distinction between the two is extremely hard to determine and often depends on a few words and mere straws in the wind.
It was pointed out by my brother Russell in the course of the argument that this doctrine about the certainty of the objects of a discretionary trust which has been applied to a number of large quasi-charitable gifts seems never to have been applied to the ordinary case of a family settlement in which there are discretionary trusts expressed to be for the benefit of the members of the family and (say) their wives and issue. It has never, so far as I know, been suggested that such a trust is invalidated because (say) one of the grandchildren had disappeared and it is not known whether he is in existence and has a wife or wives and children or issue. Many discretionary trusts have been and are being administered without complete certainty in this respect, and it does indeed seem strange that the Gestetner rule has grown upround large benevolent funds. In the present case the language of the deed leaves me in the greatest doubt on this question. Clause 9 (a) is expressed in language suitable to a mandatory trust: the trustees "shall apply the net income of the fund". If this stood alone that would be an end of the matter, but of course the whole deed must be looked at. Under clause 9 (a) the trustees are to make grants at their absolute discretion in such amounts at such times and on such conditions as they think fit. That is not all. Clause 9 (b) expressly enjoins on the trustees that they are not bound to exhaust the income "of any...
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