McPhail v Doulton [1971] (also known as Re Baden’s Deed Trusts (No. 1)) is a landmark House of Lords decision that fundamentally changed the requirements for certainty of objects in discretionary trusts.

Facts of the Case

In 1941, Bertram Baden executed a trust deed to benefit the staff of Matthew Hall and Co. Ltd, and their relatives and dependants. Clause 9(a) stated that the trustees “shall apply” the net income by making grants to these individuals at their absolute discretion. The arrangement was challenged on the ground that the class of beneficiaries was too uncertain.

Key Legal Issue: Discretionary Trust vs. Power

The case initially turned on whether the deed created a mere power (which need not be exercised) or a discretionary trust (where the trustee is mandated to distribute). The lower courts classified it as a power, then subject to a more lenient certainty test. The House of Lords held that the imperative language (“shall apply”) created a discretionary trust, forcing the court to address whether the strict certainty test for such trusts should remain.

The Shift from the “Complete List” Test

Before this decision, the rule from IRC v Broadway Cottages Trust was the “complete list test”, requiring trustees to compile a comprehensive list of every potential beneficiary; if impossible, the trust was void. Lord Wilberforce, for the majority, discarded this for discretionary trusts:

  • Equal division is often irrational: the old rule assumed that if a trustee failed to act, the court could only execute the trust by dividing the fund equally — but equal division is often “the last thing the settlor ever intended” and benefits no one in a large class.
  • The court’s ability to execute: the court has many ways to execute a trust if a trustee fails (appointing new trustees, directing a scheme of distribution) that do not require a complete list.

The New Test: The “Is or Is Not” Test

The House of Lords assimilated the test for discretionary trusts with that for powers in Re Gulbenkian’s Settlements: the “is or is not” test (or “given postulant” test). A trust is valid if it can be said with certainty whether any given individual who comes forward is or is not a member of the class.

Administrative Unworkability

Lord Wilberforce also introduced administrative unworkability: even a conceptually clear class might be void if the definition is “so hopelessly wide” that it does not form “anything like a class”. He cited “all the residents of Greater London” as a possible example.

Legacy

By replacing the “complete list test” with the “is or is not” test, McPhail v Doulton made it much easier to create large-scale discretionary trusts, such as those for company employees. The case was remitted to determine whether “relatives” and “dependants” satisfied the new test, leading to further debate in Re Baden’s Deed Trusts (No. 2).