Law of Property Act 1925

In order to advise Henry as to his entitlement to the diamonds and the shares, a relationship must be established between Henry and Smarkov Investment. A trust must have arisen to allow Henry any allocation of the diamonds and the shares.

A trust is constituted if the words of the settler are enough to establish an intention that one person shall be a trustee for the beneficiary. Smarkov must be established as the trustee holding the diamonds and the shares, (the property), on trust for Henry, the beneficiary. The legal and the beneficial interests must be separated.There are two ways to create en express trust; these are declaration of self as a trustee and the transfer of property to trustees1.

Here, Smarkov have affirmed themselves to be trustees on behalf on Henry's beneficial interest.Under s53 (1) (b) Law of Property Act 1925, a declaration of trust must be made and signed in writing by a person who can declare such a trust and thus the trust has been wholly created.To create an express trust the three certainties2 must always be present; certainty of intention, objects and subject-matter. If any of these are doubtful, the trust will be rendered invalid and Henry will be entitled to nothing.

Henry does show a genuine intention because he agreed to the document which said the items would continually be held by Smarkov, in their name, until he paid the amount due and Smarkov acquired a receipt. This clearly shows intention to create a trust relationship.Lord Denning said, "It is clear that a trust must be for ascertainable beneficiaries." It must be obvious who the trust is going to benefit (who the object is); looking at the agreement between the parties, it's clear that Henry is the intended beneficiary.Having established two certainties, it is the third which provides an obstacle for Henry.

The subject matter must be certain and if there's any ambiguity a trust won't be constituted.Firstly, looking at the shares, the leading case is Hunter v Moss. Mr Moss owned 950 shares in a private company and he orally declared himself trustee for Mr Hunter of 50 shares, 5% of the share capital. The Court of Appeal upheld the trust because the shares were identical and any 50 were capable of satisfying the trust; the subject matter was clear enough and a trust was adequately created.

It is submitted that this case is fair as it didn't involve a claim by unsecured creditors to gain priority in insolvency. The claimant didn't have a tenancy in common interest in the whole but was equitable owner of 50 shares. Shares can be defined as intangible goods, which give rise to a trust whether ascertained or not.In Re Harvard Securities Ltd, the court confirmed the judgement given in Hunter that, in English law, despite the fact the shares weren't numbered the clients had a beneficial interest the number of shares recorded as being sold to them.

Following Hunter v Moss, Henry is almost certainly entitled to his shares because Hunter applied the concept that 'intangible goods may give rise to a trust, whether being ascertained or not.' (There was an effective declaration of trust therefore there is no need to transfer legal title.)However, there can sometimes be a remedy in equity as well if the law doesn't provide one. "Equity will not assist a volunteer; equity will not perfect an imperfect gift." If the shares weren't transferred, the trust would be incompletely constituted, but if Henry had provided consideration, equity would enforce in his favour.

There would also be a remedy through the doctrine of every effort. Henry returned the agreement with the money by 30th July 2003 and had done everything within his power' to complete the transfer of the shares as in Re Rose. If Henry couldn't claim the shares in law, he could resort to the remedies available in equity.In relation to the diamonds, the subject matter is again uncertain- '4 uncut Transvaal diamonds to the value of �40 000' is not sufficient. Looking at case law when advising Henry it is likely that he won't be entitled to the diamonds as a result of this uncertainty.

Where purchasers have paid for goods but haven't taken delivery before the seller's insolvency, they may seek to gain priority over general creditors by claiming a trust of the goods in their favour. Where the goods aren't segregated but form part of a bulk, claims will fail as seen in Re London Wine (shippers) Co (LWC)LWC were a company dealing in wine that had significant stocks in many warehouses. Purchasers, who could buy wine that would remain in the warehouse as bulk, were provided with a document of title confirming them to be the beneficial owner of the wine. It wasn't possible to specify which particular cases of wine in the bulk stored were attributable to any beneficiary.Oliver J held that the wine remained the property of LWC. 'The bulk wine as a whole on trust in undivided shares for each purchaser failed.

For the trust to have been created, it must have been possible to ascertain what the interest of the beneficiary is and to what property to attach it to." The purchasers had no right to specific performance exercisable against LWC under Sale of Goods Act 1995. The fact that LWC sold quantities of wine that exhausted its stock didn't have the effect of passing a proprietary interest in those sticks to various purchasers.This is very similar to Henry's situation, in that the diamonds were part of a larger holding of identical items which were unsegregated. Following this, Henry isn't entitled to the diamonds as it isn't possible to determine which diamonds were his.This was later confirmed in Re Goldcorp Exchange, where a company(Goldcorp) dealing with gold and other bullion, held gold, which was undivided, for customers who had paid in advance.

Once the company went into liquidation, the customers claimed to have a proprietary interest in the bullion and/or a proprietary remedy against the bullion. It was held that legal title had not passed, nor was there a trust because there wasn't any identifiable property to which a trust could attach.3 Goldcorp falsely promised to keep separate bulk stocks for each customer; and their contract was for the sale of unascertained goods.In Goldcorp no legal title passed until specific bullion for a specific customer had been ascertained. This is identical to Henry's situation.

No diamonds could be allocated to Henry due to uncertainty of the subject matter, therefore no legal title had passed, this leaving Henry with no entitlement to the diamonds.In conclusion, my advice to Henry is that he has a fair and just claim to the shares following Hunter v Moss, as mentioned above. But he cannot claim the diamonds following the judgement in Goldcorp and London Wine because the subject matter is far too uncertain and so a trust cannot be constituted.