Hunter v Moss

Dillon LJ delivered the leading judgment, with which Mann and Hirst LJJ agreed. His Lordship approached the problem by reference to the well-established requirements for a valid express trust: certainty of intention, certainty of subject matter, and certainty of objects. It was common ground that the first and third requirements were satisfied; the dispute turned entirely on whether the subject matter was sufficiently certain when the 50 shares had never been distinguished from the remaining 900 shares held by Moss.

Dillon LJ began his analysis by drawing a close analogy with the law of testamentary gifts. It is well settled that a testator may validly bequeath a specified number of shares of a particular class in a particular company, even where that number forms only part of a larger holding and even where no specific shares are identified in the will itself. The validity of such a bequest has never been doubted: the legatee takes a beneficial entitlement to the specified number of shares, and the executor holds the appropriate portion of the estate on trust accordingly.

His Lordship reasoned that the logic underlying the testamentary analogy applies with equal force to an immediate declaration of trust. If a person can by will give 50 of his 950 ordinary shares in a company to a legatee, there is no intelligible reason why the same person cannot, during his lifetime, declare himself trustee of 50 of those same shares for a beneficiary. The nature of the property — fungible, intangible, and legally uniform across the entire class — means that there is nothing to distinguish one share from another. Accordingly, the declaration of trust of 50 shares from a holding of 950 identical shares is just as capable of taking effect as a valid equitable disposition as the equivalent testamentary gift.

A crucial element of the court's reasoning was the nature of shares as intangible property. Unlike tangible chattels — bottles of wine, bales of cotton, or sacks of grain — shares of the same class in the same company are legally indistinguishable from one another. Each share carries precisely the same bundle of rights as every other share of the same class. There is therefore no juridical significance to the selection of any particular 50 shares from the 950: whichever 50 are treated as subject to the trust, the beneficiary receives the same proprietary entitlement. This characteristic of fungibility renders the identification problem that would arise with chattels entirely irrelevant in the context of shares.

The court then turned to consider Moss's reliance on Re London Wine Co (Shippers) Ltd [1986] PCC 121. In that case, Oliver J held that customers who had purchased wine from a company that had become insolvent could not establish proprietary claims to specific bottles because the wine had not been segregated or appropriated to individual purchase contracts. The customers could not identify which specific bottles were theirs and accordingly had no proprietary claim superior to the general body of creditors.

Dillon LJ declined to apply Re London Wine Co to the facts before him, describing it as a long way from the present case. His Lordship pointed out that Re London Wine Co was concerned with an entirely different legal question: the circumstances in which property in chattels passes under contracts of sale, and in particular whether bulk goods must be appropriated to a specific contract before the buyer acquires a proprietary interest. That question is governed by rules relating to the passing of property in tangible goods, rules that have no application to declarations of trust. The instant case involved a declaration of trust, not a contract of sale, and it concerned shares, not tangible chattels.

Further, Dillon LJ emphasised that the problems that arise with tangible property — the risk that the chattel in question might be consumed, destroyed, or damaged before appropriation; the difficulty of identifying which particular items belong to which claimant; the possibility that the vendor or bailee might prefer one claimant over another — simply do not arise in the same way with fungible intangible assets held in a uniform class. There is no equivalent problem of physical identification when all the shares in question are legally identical units.

Moss further argued that, even accepting the testamentary analogy, a will operates only after death, at which point the testator's entire estate passes to the executor, and the question of appropriation from a mixed mass does not arise in the same way. Dillon LJ rejected this line of reasoning as failing to identify any principled distinction that would render an inter vivos declaration of trust less capable of certainty than a testamentary gift. The argument from timing did not go to the validity of the trust itself but at most to questions of enforcement, and no sufficient reason was advanced for treating the two situations differently as a matter of equitable principle.

The court also had regard to the practical and commercial consequences of Moss's argument. If a declaration of trust of part of a holding of identical shares necessarily failed for uncertainty unless and until specific shares were appropriated, the result would be highly inconvenient in commercial practice and would impose a formalistic requirement devoid of substantive purpose. The beneficiary's rights would be the same however the 50 shares were selected from the 950; requiring segregation would merely add a procedural step without altering the substance of what the beneficiary received.

It is notable that the broader theoretical rationalisation of the decision — that segregation is unnecessary for intangible property because any 50 shares of the same class are legally identical to any other 50, so that the subject matter is defined with complete precision even without appropriation — was articulated most fully not in the Court of Appeal judgment itself but subsequently by Neuberger J in Re Harvard Securities Ltd [1997] 2 BCLC 369. In that case, Neuberger J followed and applied Hunter v Moss, explaining that where assets are fungible and legally indistinguishable, the entire rationale for requiring segregation falls away, because the identity of the subject matter is established by the description of the class and the specified quantity rather than by physical or documentary separation.

The Court of Appeal held that the oral declaration by Moss that he held 50 of his 950 shares on trust for Hunter created a valid express trust. The trust did not fail for uncertainty of subject matter merely because the specific 50 shares were never segregated or appropriated from the larger holding of 950 identical shares.

The appeal by Moss was accordingly dismissed, and Hunter was confirmed as the beneficiary of an equitable proprietary interest in 50 shares in the company, to be satisfied from Moss's holding of 950 shares of the same class.

The court declined to follow or extend Re London Wine Co (Shippers) Ltd [1986] PCC 121 to trusts of intangible property, confining that decision to its proper context of the passing of property in tangible chattels under contracts of sale.

Hunter v Moss [1994] 1 WLR 452 is now a leading authority in the law of trusts for the proposition that the certainty of subject matter requirement operates differently as between tangible and intangible property. Where the purported trust property consists of tangible chattels, equity generally requires that the specific items be separated or ascertained from any larger bulk before a valid trust can be constituted: uncertainty as to which physical items are subject to the trust will cause it to fail. Where, however, the property is intangible and fungible — most importantly, shares of the same class in the same company — no such segregation is necessary, because each unit is legally identical to every other unit within the class.

The decision carries substantial practical importance in commercial and financial law. It enables those dealing in securities, financial instruments, and other fungible intangible assets to constitute trusts over specified quantities without the need for the cumbersome and sometimes impracticable step of appropriating specific assets to the trust. This is of particular significance in contexts such as nominee shareholding arrangements, employee share schemes, and the holding of client assets by financial intermediaries.

The decision was followed and its underlying rationale elaborated by Neuberger J in Re Harvard Securities Ltd [1997] 2 BCLC 369, where the same principle was applied to a stockbroker's holding of client shares. Neuberger J's fuller articulation of the fungibility principle — that intangible assets of the same class are legally indistinguishable, so that a specified quantity is identified with complete precision by description alone — has come to be regarded as the most satisfactory doctrinal explanation for the outcome in Hunter v Moss and is routinely relied upon by courts and commentators.

Academic commentary has not been uniformly favourable. Some scholars have questioned whether the distinction between tangible and intangible property is entirely principled, pointing out that problems of pro-rata reduction — for example, if Moss had dissipated some of the 950 shares before constituting a valid trust — are not obviously resolved by the fungibility rationale. Others have noted the tension with the general rule that equity will not perfect an imperfect gift, and have questioned whether the declaration of trust in Hunter v Moss was truly fully constituted without some act of appropriation. Nevertheless, the case remains good law and continues to be applied in English courts as the authoritative statement of the subject matter certainty requirements for trusts of intangible property.