Re Baden (No 2) [1973] Ch 9
Re Baden (No 2) applies the certainty test for discretionary trusts established in McPhail v Doulton. The Court of Appeal upheld a trust for employees, relatives and dependants, but its three judges explained certainty in materially different ways.
Facts
Bertram Baden created a fund for the staff and former staff of Matthew Hall & Co Ltd and their relatives and dependants. The trustees were directed to apply the income at their absolute discretion among members of that class. In McPhail v Doulton, the House of Lords rejected the complete-list test for discretionary trusts and remitted the case to determine whether the stated objects satisfied the new requirement that it be possible to say of any given person whether he or she was or was not within the class. On the remitted appeal, the Court of Appeal considered whether terms such as relatives and dependants were conceptually certain and how evidential doubts about particular claimants should be handled.
Legal Issue
Were the objects of the discretionary trust conceptually certain under the is-or-is-not test, and what degree of evidential certainty did that test require?
Held
The Court of Appeal unanimously held that the trust was valid, but the judges took different routes. Sachs LJ treated conceptual clarity as essential and placed the evidential burden on a claimant to show membership; failure of proof meant that person was outside the class, not that the trust failed. Megaw LJ considered the test satisfied if a substantial number of people could certainly be identified as objects. Stamp LJ adopted a stricter view, requiring the description to permit a yes-or-no answer for any individual, but construed relatives as next of kin and dependants as persons financially dependent on an employee. These distinct approaches do not produce a single, wholly settled test for evidential uncertainty.
⭐ Legal Principle
A discretionary trust requires conceptually certain objects under the is-or-is-not test. Mere evidential difficulty in proving whether a particular person qualifies need not invalidate the trust. The judgments differ on the degree of certainty required, so Sachs, Megaw and Stamp LJJ should be identified separately rather than combined into one formula.
Significance
The case is indispensable for understanding the practical effect of McPhail v Doulton and the distinction between conceptual and evidential uncertainty. Sachs LJ's burden-of-proof approach is often treated as influential, while Megaw LJ's substantial-number formulation and Stamp LJ's stricter construction remain examinable alternatives. A trust can also fail for administrative unworkability even if its class description is conceptually clear. Students should contrast discretionary trusts with fixed trusts, which continue to require a complete list under IRC v Broadway Cottages, and with mere powers governed by Re Gulbenkian's Settlements.
Common exam questions about this case
How did Sachs LJ distinguish conceptual from evidential uncertainty?
Conceptual uncertainty concerns whether the words defining the class have a clear legal meaning. That defect is fatal. Evidential uncertainty concerns whether a particular claimant can prove the facts needed to fall within a conceptually clear class. Sachs LJ treated that as a burden-of-proof problem: an unsuccessful claimant is excluded, but the entire discretionary trust does not fail.
What different approach did Megaw LJ take in Re Baden (No 2)?
Megaw LJ considered a discretionary trust sufficiently certain if it could be said with certainty that a substantial number of people fell within the class, even if difficult cases remained at the margins. The meaning of substantial number was not defined precisely. His approach is more permissive than requiring a conclusive answer about every conceivable individual.
Did Re Baden (No 2) produce one clear majority test for all uncertainty questions?
No. All three judges upheld the trust, but their reasoning differed. Sachs LJ relied on conceptual certainty and the claimant's evidential burden, Megaw LJ used a substantial-number approach, and Stamp LJ required a yes-or-no answer for any person while construing the disputed words narrowly. A strong answer states the shared outcome and then explains the competing analyses rather than inventing a single ratio.