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her assets being held on trust, as a general rule of trust law a trust will arise by virtue of the intermediary’s intention only.

The requirement for certainty of intention needs to be satisfied irrespective of whether securities are held on an allocated basis or in a pooled account.

Concerning the requirement for certainty of intention, there exists a parallel between English and German law. The issue of certainty of intention also arose in German law, albeit at an earlier stage. Prior to the implementation of the current statutory regime the relationship between clients and intermediaries was analysed purely in terms of the law of contract. In order for a proprietary interest to arise, the client and the intermediary needed to provide for a special type of bailment contract in their documentation. There are two types of bailment contracts in German law, regular deposits and irregular deposits.7 A proprietary interests of the bailee existed only in cases of regular deposits. In order to determine if the client had a proprietary interest it was necessary for the court to determine which of the two types of contract was intended by the parties. This also involved an examination as to whether there was an intention to create a property right. In German law, however, the necessary intention needs to be contained in an agreement to which both parties gave their consent. In England, it is sufficient if the intermediary has formed the intention to hold the securities on trust for the investor.

7.3 Certainty of subject matter

A property right creates a relationship between the owner and an asset and for a property interest to arise we need to be able to determine the asset to which the interest relates. Any legal system that has rules on property law needs to have rules governing the identification of assets. In English law, the identification problem is analysed path-consistently within the law of trusts: a trust can arise only if the subject matter of the trust is certain.

In England, the requirement for certainty is easily met when the trust concerns individual items of particular specification – for example, a plot of land or a certain piece of antique furniture. It is also easy to satisfy when a fluctuating class of assets is held on trust for one particular beneficiary.8 Difficulties arise, however, when the trust concerns

7See section 12.1.1.

8For an analysis of property rights in a fund, see R. C. Nolan, ‘Property in a Fund’, 120 (2004) LQR 108–136.

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fungible assets held on behalf of multiple clients. The problem is that English law has traditionally adopted an onerous requirement for certainty. In the following subsection, the requirement for certainty in the context of fungibles will be examined; tangible goods will be analysed first followed by an analysis of intangibles.

7.3.1 Tangible goods

The rule that the subject matter of a trust must be certain was first established in cases involving tangible assets. The courts held,9 prior to the Sale of Goods Act 1979, that if goods were sold that were not physically separated but were part of a larger stock a trust would not arise and the buyer would not acquire equitable title in part of the stock.

The rule that, special arrangements aside, a trust does not exist for the benefit of the buyer of a part of an identifiable bulk goes back to the decision in Re Wait.10 The parties, in that case, agreed to buy and sell 500 tons of wheat out of a bulk of 1,000 tons of a designated cargo whereby the seller was not entitled to supply the wheat from another source. The Court of Appeal held that the 500 tons were not specific or ascertained goods. This was because there was no appropriation or identification as to effect an equitable assignment giving the purchaser an equitable interest in the 500 tons or a lien in respect thereof. Atkin LJ wrote that a ‘seller or a purchaser may, of course, create any equity he pleases by way of charge, equitable assignment or any other dealing with or disposition of goods . . . But the mere sale or agreement to sell or the acts in pursuance of such a contract . . . will only produce legal effects which the Code states.’11

Sargant LJ gave a dissenting opinion. He said that the agreement for the sale of specific goods amounted to an equitable assignment enforceable against the particular parcel of goods in the vendor’s hands. The purchaser of the 500 tons, having paid part of the purchase money, was entitled, according to Sargant LJ, to have the 500 tons made over to him on payment of the remainder of the purchase price. He could not see ‘any real difference in the equitable position of the respondents, because they agreed to buy not the whole 1,000 tons parcel but 500 tons’.12

9 Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 90 (PC).

10[1927] 1 Ch 606 (CA).

11[1927] 1 Ch 606 (CA) at 636 per Atkin LJ; the reference to ‘Code’ is a reference to the Sale of Goods Act 1893 (56 & 67 Vict c 71).

12[1927] 1 Ch 606 (CA) at 645 per Sargant LJ.

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The decision in Re Wait was considered by the Privy Council in Re Goldcorp Exchange Ltd.13 Goldcorp, in that case, undertook to hold gold bullion on trust for customers. Goldcorp stored the gold it its vault but did not keep the gold of individual customers separately. In the company’s insolvency the customers tried to establish a proprietary claim over the gold. Their claims competed with the claim of a bank, whose interests were secured by a floating charge. The customers failed to establish a proprietary claim because Goldcorp had not allocated gold bullion specifically to individual customers; they essentially failed because there was no customer name tag on the gold bullion.

The Privy Council took the view that the dissenting opinion in Re Wait was prompted by the fact that the purchaser could point out the bulk and say that her goods were definitely there although she could not tell which part they were. The Board agreed with the majority in Re Wait in rejecting this view. The Board advised that under a simple contract for the sale of unascertained goods no equitable title could pass merely by virtue of the sale.14

A similar claim had been rejected some years earlier in Re London Wine Company, (Shippers) Ltd.15 A wine importing company sold wine to individuals who left the wine in possession of the company’s warehouse agent. There was no segregation of any wine cases in favour of any particular individual. In the vendor’s insolvency, the individual purchasers tried to assert a proprietary interest in the wine. Oliver J held that the purchasers did not have a proprietary interests because there had been no allocation and, accordingly, the certainty of the subject matter necessary to create an equitable interest was not present.16 He compared that case to that of a farmer who declares himself to be a trustee of two sheep out of his flock without identifying them. The farmer, according to Oliver J, cannot be said to have created a perfect and complete trust whatever right he might confer by such declaration as a matter of contract.

Oliver J continued:17 ‘And it would seem to me to be immaterial that at the time he had a flock of sheep out of which he could satisfy the

13[1995] 1 AC 74 (PC) at 90–91.

14Re Goldcorp Exchange Ltd [1995] 1 AC 74 (PC) at 91; Re Goldcorp is a New Zealand case. In England, the law in Re Wait was changed by SGA 1995, s. 20A by which on payment of the purchase price the purchaser acquires property in an undivided share of the bulk, thereby becoming an owner in common of the bulk.

15[1986] PCC 121.

16Re London Wine Company, (Shippers) Ltd [1986] PCC 121 at 137 per Oliver J.

17At 137 (italics in the original).

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interest. Of course, he could by appropriate words, declare himself to be a trustee of a specified proportion of his whole flock and thus create an equitable tenancy in common between himself and the named beneficiary, so that a proprietary interest would arise in the beneficiary in an undivided share of the flock and its produce. But the mere declaration that a given number of animals would be held on trust could not, I should have thought, without very clear words pointing to such intention, result in the creation of an interest in common in the proportion which that number bears to the number of the whole at the time of the declaration.’

A trust arises and equitable ownership passes, however, when the seller, after having signed the contract, purchases goods answering the contractual description and puts them into his own stock. The seller in Holroyd v. Marshall purchased the machinery he had promised to deliver to the buyer from a third party after he had entered into the sales contract with the buyer.18 The buyer acquired equitable title in the machinery on acquisition of the machinery by the seller because the machinery could be unequivocally attributed to the sales contract. In Holroyd v. Marshall the court held that at:

law property, non-existing, but to be acquired at a future time, is not assignable; in equity it is so. At law . . . although a power is given in the deed of assignment to take possession of after-acquired property, no interest is transferred, even as between the parties themselves, unless possession is actually taken; in equity it is not disputed that the moment property comes into existence the agreement operates upon it.’19

The court continued:

if it should still be thought that the deed, together with the act of bringing the machinery on the premises, were not sufficient to complete the mortgagee’s title, it may be asked what more could have been done for this purpose. The trustee could not take possession of the new machinery, for that would have been contrary to the provision of the deed under which Taylor was to remain in possession until default in payment of the mortgage money after a demand in writing, . . . And if the intervenient act to perfect the title in trust be one proceeding from the mortgagor, what stronger one could be done by him than fixing and placing the new machinery in the mill, by which it came, to his knowledge immediately subject to the operation of the deed?20

18(1862) 10 HLCas 191, 11 ER 999.

19(1862) 10 HLCas 191 at 220, 11 ER 999 at 1010 per Lord Wensleydale.

20Holroyd v. Marshall (1862) 10 HLCas 191 at 225, 11 ER 999 at 1112 per Lord Wensleydale.