LAW OF TRUSTS A Content S INTRODUCTION............................................ 2 EQUITABLE MAXIMS........................................ 8 EQUITABLE INTERESTS IN PROPERTY........................13 ASSIGNMENTS OF PROPERTY................................22 NATURE AND CLASSIFICATION OF TRUSTS....................35 CREATING AN EXPRESS TRUST..............................42 THE THREE CERTAINTIES..................................43 CHARITABLE TRUSTS...................................... 54 FORMALITIES............................................ 63 TESTAMENTARY TRUSTS.................................... 69 INVALIDATING FACTORS...................................77 VARIATION AND TERMINATION OF TRUSTS....................83 COMPLETE CONSTITUTION OF TRUSTS........................88 1
VARIATION AND TERMINATION OF TRUSTS..........................................................83
COMPLETE CONSTITUTION OF TRUSTS..................................................................88
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INTRODUCTION
INTRODUCTION Equity is part of the private law Equity is not just a collection of rules rather, is better understood as a jurisdiction
in which certain types of claims are heard and in which certain types of relief are granted
Equity operates in conjunction with the common law equity can ameliorate any injustices resulting from the strict application of the common law
o Equity does not operate to undermine the common law Equity is rule based; however, application of the rules involves discretion (unlike
the strict application of common law rules) a court exercising equity jurisdiction will examine the conduct of the parties more than a court exercising common law would
o Rules should be: Predictable (predictability allows people to know what their
obligations are and allows for the earlier resolution of disputes) Coherent (the rules must fit together) Economically efficient (a rule is good if it increases the public’s
welfare) Fair (what ought to be done?)
o The problem with having a distinct set of rules is that there will be cases that fall outside of the rules there needs to be some discretion
While the common law recognises a distinct category of primary rights, equity recognises supplementary primary rights which the common law does not recognise
o E.g. equity will recognise interests in property rather than just strict legal title and will enforce obligations in relation to these interests; equity will recognise and enforce trusts
Equity possesses a distinct ethical quality
DEVELOPMENT OF EQUITY Common law and equity developed at the same time in England Common law and equity matters were heard in separate courts There were many restrictions on what type of cases could be heard in common law
courts in cases where common law courts would not provide a remedy, one could petition to the Crown for justice
o The Lord Chancellor would read the petition and advise the Crown on what action was appropriate
The Lord Chancellor – was advisor to the Crown and head of the exchequer or treasury, would consider all petitions to the crown and had jurisdiction over 'uses' (trusts)
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A jurisdiction of equity emerged to correct defects in the law, including:o Provision of remedies that were unavailable at common law (such as
injunctions and specific performance)o Recognition and enforcement of contracts unenforceable at common law o Prevention of the enforcement of legal rights where it would be
unconscionable to do so The Court of Chancery emerged as a distinct court to formalise the process of
petitioning the Crown for justice Equity had three distinct jurisdictions:
o Auxiliary jurisdiction – equity can be seen as helping the common lawo Exclusive Jurisdiction – some matters were exclusively equitable (e.g. trusts
and ‘uses’) o Concurrent Jurisdiction – equity could deal with matters that the common
law also dealt with (e.g. fraud, misrepresentation and estoppel); however, equity had often developed beyond that of the common law
Earl of Oxford's Case [1615] o The plaintiff obtained judgment in the common law court for ejectment off
property. The defendant sought an equitable injunction from the Chancery to prevent the plaintiff from enforcing the judgment on the basis that it as obtained by fraud. The Chancery issued an injunction, preventing the plaintiff from enforcing the judgment
o This case involved a dispute between the Lord Chief Justice of England and the Lord Chancellor
The Chief Justice argued that the common law had supremacy over equity, while the Chancellor argued the opposite
o King James held that the Court of Chancery had priority over common law courts.
King James stated that the Court of Chancery could set aside judgments at common law where they were against conscience and affirmed the principle that when principles of equity came into conflict with some rules of the common law, equity should prevail
This rule only applies when there is actual conflict between the principles of equity and the common law
“Men's actions are so diverse and infinite that it is importable to make any general law which may aptly meet every particular act.”
o This was a seminal case - no one challenged the Court of Chancery again The Court of Chancery was viewed as a court of conscience: Westdeutsche
Landesbank v Islington LBC (1996) – “Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the legal owner requires him to carry out the purposes for which the property was vested in him [express or implied trust] or which the law imposes on him by reason of his unconscionable conduct (constructive trust)”, per Lord Browne-Wilkinson
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COMMON LAW VS EQUITABLE CLAIMS The distinction between common law and equity is not so important anymore Common law – tort (negligence, trespass, defamation, etc), contracts (breach) Equitable - always a matter of discretion (e.g. specific performance - are damages
an adequate remedy? Damages will only be awarded if it is adequate in the case) Common law remedies - damages, ejectment Equitable remedies - compensation, specific performance, injunction, rectification,
account of profits, declaration (can only be granted by courts with equitable jurisdiction)
THE JUDICATURE SYSTEM There was once a big risk of bringing an action in the wrong court (the Chancellor
was busy – minor claims would not be heard by the Chancery) Change occurred with the introduction of the Judicature Act 1873 (Eng)
o The Act created a new court – the Supreme Court of Judicature (Court of Appeal and High Court of Justice)
o The Act abolished the Court of Chancery - all claims were heard in one court (in the Supreme Court)
When equity and law were administered by separate courts, the only way to resolve a conflict in a case where the defendant had a good equitable defence to the claim but could not raise it in the common law proceedings, was the common injunction which stopped the proceedings at common law so that a claim could be brought in equity
o This was replaced by s24 Judicature Act 1873 – provided that every common law or equity mater would be heard by the Supreme Court according to the following rules:
ss24(5)(1) and 24(5)(4) gave the Supreme Court the powers of the Court of Chancery
s24(5)(11) provided that where there was a conflict between common law and equity, equity should prevail
“(11) Generally in all matters not hereinbefore particularly mentioned in which there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter the rules of equity shall prevail.”
The main features of the judicature system were:o All branches of the court had the power to administer equitable remedieso Equitable defences can be pleaded in all branches of the court and the
appropriate relief giveno All branches of the court must recognise equitable rights, titles and
interestso All branches of the court have a general power to determine legal rights and
titles
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o The common injunction was abolishedo Where the rules of equity and common law conflicted, equity prevailed
THE JUDICATURE SYSTEM IN AUSTRALIA There was statutory basis for the reception of equity jurisdiction in Australia – New
South Wales Act 1823 (UK) ensured that the Supreme Court of NSW would have the power to administer the equity powers of the Chancellor; Australian Courts Act 1828 (UK)
The judicature system was adopted in all Australian states – Judicature Act 1876 (Qld)
Prior to the Judicature Acts and unification of common law and equity: o The common law would not recognise equitable rights, titles and interests
At common law, the trustee, not the beneficiary, was regarded as the owner of trust property
e.g. Castlereagh Motels v Davies-Roe (1967) – a company brought an action against one of its directors seeking damages for breach of his duty to act in the interests of the company. The court rejected the companies claim and stated that “we do not think that . . . all those principles which must govern the conduct of directors as fiduciaries which have been developed in equity have become in some manner transposed into the common law”
Exceptions – the common law recognised the validity of a devise by will of an equitable interest (Pawlett v A-G (1667) ) and recognised equitable claimed in interpleader cases (Gourlay v Lindsay (1879) ). The common law would sometimes take into account the interests of a third party in contract law cases (Roberston v Wait (1853) )
o Equity had no power to decide disputed legal rights and titles A plaintiff seeking an equitable remedy to enforce a legal right
would not be able to do so unless the common law right was admitted
o Equity had no power to award damages There was power to award monetary remedies by way of
restitutionary relied, but not damages s they were known at law o Common law courts lacked power to give interlocutory relief
The Chancery had inherent power to order discovery and interrogatories, to award interim injunctions and to appoint receivers – the common law courts lacked these powers (statute later conferred these powers)
o The common law courts did not have power to decree specific performance or grant injunctions
Exceptions – a power to grant injunctions in addition to damages, given to the common law courts by ss48-51 Common Law Procedure
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Act 1854 (Imp); a limited power to award injunctions in commercial causes
o Common law courts lacked power to make declarations The Chancery had an inherent power to make declarations
o No power existed to transfer cases from one jurisdiction to the other Risk of commencing proceedings in the wrong court
FUSION FALLACY The unification of the administration of common law and equity caused some
judicial confusion in England Early cases involved the erroneous assumption that the Acts had unified the
common law and equity into one bundle of principleso E.g. Redgrave v Hurd (1881 ) – Sir George Jessel MR suggested that the
difference between equity and the common law had disappeared with the passing of the Judicature Acts
o E.g. Walsh v Lonsdale (1882) – Sir George Jessel MR stated that there was only one court and equity rules prevailed in it. If this judgment was followed, all distinctions between equitable and common law would vanish. The continued existence of trusts indicates that this has not happened.
It is incorrect to say that equity prevails generally equity rules only prevail when there is a conflict between those rules and some common law rules
Australian lawyers reject fusion – equity is a distinct body of lawo Harris v Digital Pulse Pty Ltd [2003] – Mason P stated that it is impossible to
have a fused law
INTRODUCTION TO TRUSTS There are many definitions of ‘trusts’ – focus on definition on of a trust in The Hague
Convention on the Law of Trusts Trusts (Hague Convention) Act 1991, Article 2 -
o "For the purpose of this Convention, the term 'trust' refers to the legal relationships created - intervivos or on death - by a person, the settlor, when assets gave been placed under the control of a trustee for the benefit of the beneficiary or for a specified purpose."
o "A trust has the following characteristics - a) the assets constitute a separate fund and are not a part of the trustee's own estate; b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee; c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law."
o "The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily
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inconsistent with the existence of a trust." (E.g. A settlor may have the right to revoke a trust - not often in Australia)
CONTEMPORARY USE OF TRUSTS Family trusts – transferal of family wealth (i.e. income from trading will go to a
manufacturing company and then will pass on to a family trust – there are two separate entitles so that if the trading company goes into liquidation, the assets of the family trust are not affected)
Estates and Wills – most trusts are formed as a will Superannuation – many superannuation funds are drafted in the form of a trust (in
law) Public unit trusts – Corporations Act 2001, s601FC(2) (allows small investors can
pool their money together) Debenture trust – Corporations Act 2001, s238AA(1)
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EQUITABLE MAXIMS
EQUITABLE MAXIMS General statements of equitable principles that are applied at the discretion of the
courts Maxims are not binding just an indication of the approach by which a court of
equity will decide a case
1. EQUITY WILL NOT SUFFER A WRONG TO BE WITHOUT A REMEDY This maxim is mainly of historical relevance (equity provided relief of a nature which
was unavailable in common law courts, e.g. specific performance and an injunction) Demonstrates flexible nature of equity Warman International v Dwyer (1982) – A man worked for a company which
distributed Italian pumps. He left the company to open his own business. The company said that they would give him their company and started dealing with him exclusively. The original company sued for all the profits the man earned. The court of equity considered that Dwyer spent time and effort building up the business. The court awarded Warman a fair amount of compensation based on the circumstances of the case.
2. EQUITY FOLLOWS THE LAW Equity must comply with the law of the land (any statutes)
o Equity recognises and accepts the common law (but will not always follow the common law’s strict rulings)
Equity will recognise legal rights such as legal title (e.g. even where a declaration for a constructive trust is made, the legal title of the constructive trustee is recognised)
Equity does not follow the law blindly - if there is some form of unconscionability, there is scope for equitable discretion
Many remedies in equity were developed to correct defects in the law o Delehunt v Carmody (1986) – equity develops its own doctrines by analogy
to those of the common law
3. EQUITY WILL NOT ASSIST A VOLUNTEER Volunteer = someone who has not provided consideration This maxim is not strictly applied
o E.g. Beneficiaries under an express trust are mostly volunteers, but they can still enforce their rights under the trust (Corin v Patton (1990) )
Why? Beneficiaries under an express trust can be distinguished from other situations as beneficiaries under an express right have some property rights; thus, have an equitable interest
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This maxim is generally applied in cases where someone makes a promise to make a gratuitous gift of property
o If the person to whom the promise is made does not provide consideration for the promise, equity will not interfere
This maxim applied to deeds at common law, a court will enforce a deed. In equity, the court may not enforce the deed if no consideration has been provided
Corin v Patton (1990) - McHugh J provides that it would be a mistake to set too much store in the above maxim. Like other maxims of equity, it is not a specific rule or principle of law and its precise scope is necessarily ill defined and uncertain, it is subject to various exceptions
4. HE (OR SHE) WHO SEEKS EQUITY MUST DO EQUITY A party seeking relief must be prepared to fulfill their own legal and equitable
obligations of the relevant matter o E.g. if one is seeking specific performance of the enforcement of a contract
for the sale of land, they must be ready and willing to fulfill their obligations under the contract such as payments
The plaintiff must act fairly to the defendant At common law, the conduct of the plaintiff is not that important (just need to prove
your case) King v Peggioli (1923) – Held that one must be ready and willing to perform their
obligations in order to receive an equitable relief. Specific performance was not awarded in this case. The question was whether the plaintiff could be awarded damages in lieu of that remedy (equitable damages, not common law damages). The court held that if specific performance was not available, the plaintiff must start another proceeding in the common law side of the NSWSC. The court only had limited scope to award damages under The Lord Cairn's Act. The court could only award equitable damages if the plaintiff established a right to specific performance.
5. HE (OR SHE) WHO COMES TO EQUITY MUST COME WITH CLEAN HANDS A person who seeks equitable relief in relation to a matter must not have engaged
in improper conduct, whether legal or moral, in relation to that mattero The court will not consider whether the plaintiff is a rogue, vagabond or
disreputable person – will just consider the conduct of the plaintiff in relation to the matter in front of the court
Even if the plaintiff has engaged in improper conduct, the court may still be prepared to grant relief where the plaintiff will disgorge themselves of a benefit which was wrongly obtained
o The position in Australia and England is different in England, if a person has performed some improper conduct, the court will immediately reject the claim
o Nelson v Nelson (1995) – The plaintiff received a Cth defence allowance and a social security benefit via deceptive means. The court recognised that the
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infected transaction may still be enforceable, provided that the relevant illegality can be addressed by other means. The plaintiff was allowed to keep the home loan if she refunded the money
Propositions: The court will look at the conduct of the applicant rather
than the defendant – it is past conduct that is relevant There is a limitation on the conduct that will matter The conduct must be aimed towards the defendant The conduct must have an immediate and necessary
relation to the equity sued for There is no general rule in equity that where there has been
impropriety, equity will refused relief and allow the loss to lie where it falls
Even where there has been some impropriety, equity may not refuse relief but may grant relief conditioned to ensure the wrongdoer does not have the benefit of his or her wrongdoing
o Rhodes v Badenach [2000] – A person was wrongly paid unemployment benefit. The court said that the remedy would be given if they repaid the benefit wrongfully claimed.
Maxim will not be applied in some cases (e.g. suits for purely statutory remedies, suits for cancellation and delivery up and cases where to refuse relief would lead to a multiplicity of actions)
6. EQUITY ACTS IN PERSONAM Equity will make orders against an individual (not the property of an individual) The Court of Chancery held that they had the power to make an order against a
person who was present in the jurisdiction in relation to matters outside the jurisdiction (e.g. land outside jurisdiction)
o E.g. Penn v Lord Baltimore (1750) – William Penn was given permission by the Crown to found Pennsylvania. Lord Baltimore was given permission to found Maryland. Penn was given land on the Delmarva Peninsula. The boundaries in America were not very clear at the time. The boundary between Pennsylvania and Maryland was uncertain. The Court of Chancery held that they could enforce an agreement between the parties even though the land was outside of the court's jurisdiction as they had entered into an agreement to resolve the dispute. Penn was granted specific performance.
7. EQUITY LOOKS TO THE INTENT RATHER THAN THE FORM Equity will consider the substance of the transaction and not the form Sometimes equity may decide that a trust exists even if the word trust has not been
used by either party
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Formalities must be observed in some caseso Milroy v Lord (1862) - it was very clear that a gift of shares was to be given.
The shares could only be legally transferred to the beneficiaries if certain formalities were observed (e.g. need to have a share transfer form, produce share certificate, etc). These formalities never occurred in this case. Held that the court cannot override any contractual provisions that were in the memorandum of transfer. All shareholders were bound by the Constitution of the company in the memorandum, which required the formalities to be observed.
Unnecessary formalities - if the defendant can be adequately compensated for the failure to perform formalities, equity can grant specific performance of the contract despite some formalities being unobserved (Raineri v Miles [1980] )
8. EQUITY LOOKS ON THAT AS DONE WHICH OUGHT TO BE In certain cases, equity will grant relief on the assumption that a legal or equitable
obligation which is required to be completed has already been completed Walsh v Lonsdale (1882) – a tenant entered into a lease agreement for a mill. Under
the lease, rent was to be paid in arrears. However, there was a clause that allowed the lessor to demand rent in advance. The landlord demanded rent in advance. The tenant did not pay. The key issue was whether the landlord could exercise self-help remedies and seize and sell the chattels of the tenant. Under statute, leases had to be in a certain form to be proper. The tenants argued that there was not a proper lease as it did not comply with the relevant property law act, which required a lease to be signed, sealed and delivered. The lease in question had not been delivered. Held that the lease could be held to be notionally executed and proper.
o In cases where equitable relief is conditional upon the execution of a lease, that lease may be regarded as having been notionally executed
9. DELAY DEFEATS EQUITY Equity will have regard to any delay of a plaintiff seeking relief delay itself is not a
bar to recovery but undue delay will prejudice a claim Equity involves discretionary justice the conduct of the plaintiff is most relevant
(as opposed to statutes of limitations at common law) Generally, if one is seeking an interim injunction, you must act promptly and
properly Cases on this can be contradictory – one case allowed specific performance after 20
years Lies at the very root of certain defences in equity (acquiescence, laches) Notice to the defendant of the concerns of the plaintiff Is important
10. EQUITY IS EQUALITY Equity looks to an equal distribution of profits and losses proportionate to the
claims or liabilities in question
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Maxim is sometimes used where a decision has been made to share property or losses equally
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EQUITABLE INTERESTS IN PROPERTY
EQUITABLE INTERESTS Equitable interests are those which confer on the holder a right to obtain certain
remedies but which do not extend to specific rights of property; although, proprietary remedies may come into existence upon the exercise of the original rights
Equitable estates = the tem used to describe equitable interests that are proprietary in nature (rights ‘in rem’)
There does not have to be both a legal and equitable interest in relation to every item of property (Livingston v Commissioner for Stamp Duties [1965] )
Equity developed new notions of property o Debt – a system where debts could be assigned and transferred from one
person to another (at common law, only the parties could enforce the debt) o Interests in property – if someone has possession of property, equity
recognises that somebody could have an interest in that land Legal interest vs Equitable interest
o Legal interest = an interest that will bind the entire worldo Equitable interest = an interest that will bind a party to a transaction who
has notice of that interest
STATUTORY RECOGNITION OF EQUITABLE INTERESTS IN PROPERTY Equitable mortgages – created by leaving a certificate of title with the mortgagee
(s75 Land Title Act 1994) Equitable estates – an interest that is proprietary in nature and is capable of being
transferred, sold or left by will (s7 Civil Proceedings Act 2011)
CLASSIFICATION OF EQUITABLE INTERESTS Equitable interest must be classified in order to determine:
o Whether a particular remedy will be awarded o Whether the interest is capable of being assigned or transferred (or whether
it is a personal interest that is only capable of being exercised by the person who holds that interest
There are three types of equitable interests:o Equitable interest = an interest that will be recognised by a court that has
equitable jurisdiction One is entitled to exercise a remedy against the person or property
in question (equitable right ‘in rem’ – the interest is enforceable against an indefinite class of persons)
Interest is capable of being transferred, sold or alienated in some way
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E.g. the interest of a beneficiary under a fixed trust – the beneficiary does not have legal title of the property, the trustee does)
o Mere equity = a right to seek an equitable remedy to acquire a proprietary interest
An equitable interest that is less than an equitable estate but more than a personal right of action against a person
Can be defeated by a bona fide purchaser for value of an equitable estate without notice
Right in personam – a right against a specific individual which, when vindicate in court, can create an equitable right in rem
A mere equity can be transferred to another person The right to seek equitable relief to set aside a transfer relating to
property obtained through unconscionable behavior Latec Investments v Hotel Terrigal (1965) FACTS: This case concerned the right to set aside a transfer
relating to property because of unconscionable behavior. Latec Investments (LI) was a financier and Hotel Terrigal (HT) was the owner of a hotel that was being mortgaged. HT defaulted under the mortgage. LI exercised their right under the mortgage to take possession and sell the property. Latec sold the property to Southern Hotels (SH) (a wholly owned subsidiary of LI). The sale was fraudulent. Later, SH obtained finance from MLC. MLC was a trustee holder and had no notice of the fraudulent sale. SH gave security to MLC in the form of a floating charge. SH defaulted. HT sought to have the transfer to Southern Hotels set aside.
HELD: NSWSC: At first instance, HT won the hotel back, despite being in debt, as they were prepared to pay the mortgage debt and outstanding interest. They were seeking equity and thus had to do equity. HT was able to sue as they had an equity of redemption, recognised by the Supreme Court of NSW as the purported ‘sale’ was merely an internal transfer to a subsidiary and thus there were no rights of a bona fide purchaser for value without notice to overcome the equity of redemption.
HCA: The HCA amended the order by subjecting it to the rights of MLC as they were an innocent party who had received a charge over the hotel and had thus provided finance to LI. The rights of MLC were similar to those of a bona fide purchaser for value without as they had performed due diligence in checking the records of the hotel and there was no evidence of Hotel Terrigal’s equity of redemption (they had provided value and had no notice that Hotel Terrigal retained a mere equity over the property).
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This case is one of a priority dispute – the mere equity of HT was usurped by the equitable proprietary interest of MLC.
o Kitto J applied Phillips v Phillips: What the trustee (MLC) had acquired was an equitable estate. That equitable estate would take priority over the earlier equity even though that equity, when exercised would grant HT an equitable estate.
o Taylor J applied Stump v Gaber: A group such as HT is entitled to have the conveyance set aside for fraud as they were the equitable owners of the property (they could thus devise that interest as an equitable estate). Taylor J did not follow the reasoning of Kitto J but denied HT on the basis that, despite holding the prior equity, they refused to lodge a caveat and did not undertake proceedings early enough.
o Menzies J attempted to reconcile the lines of authority providing that the precedent focuses on two different things. Held that Phillip v Phillip looks at the equity of a defrauded mortgagor as a right which had to be exercised before the equitable estate that it gave could be established. Stump v Gaber concerned the advisability of the interest which focussed on the effect of the exercise of the equity ab initio so that at the event of an effective suit, the mortgagor had an effective interest.
o Personal equity = the right to seek equitable relief but it cannot lead to acquiring a proprietary right
A personal equity must be exercised by the holder of the personal equity the right cannot be assigned
Bare right in personam Legislation may apply to the assignment of equitable interests
o Taxation – taxation legislation will often apply to those who not only have a legal interest but also to those with an equitable interest; otherwise, tax avoidance would become an issue (Livingston v Commissioner for Stamp Duties [1965] )
o Bankruptcy – the bankruptcy agent will recognise both legal and equitable interests in property. Both legal and equitable assets of the bankrupted individual will be taken away (Official Receiver v Schultz (1990) )
o Property law statutes – property law statutes often refer to someone having an interest. The court will have to determine whether the statute refers to legal interests only or to equitable interests as well (Halloran v Minister [2006])
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RIGHTS OF A BENEFICIARY UNDER A TRUST A beneficiary under a discretionary trust has no proprietary interest in the assets
of the trust; rather, only a mere expectancy or hope that one day the power will be exercised in their favour (Kennon v Spry (2008) )
A beneficiary has the right to due administration of the trusts; moreover, the fiduciary owes a fiduciary duty to the objects to consider where and in what way he should exercise the power
During the process of administration of the trust, the beneficiary has the right to go to court and have the terms of the trust followed by the executor
o A court of equity will make an order requiring a trustee to make a decision whether to make a distribution to the beneficiary or not
Interests of a residual beneficiary in an unadministered estate:o Livingston v Commissioner for Stamp Duties [1965] o FACTS: Livingstone was the executor of the estate of the widow, Ms Colson.
Ms Colson died during the administration of the estate. Under the will, Ms Colson was a beneficiary of one third of the property under the will. The Commissioner of Taxation tried to charge a succession duty on the basis that the residue of the estate was a personal interest (a beneficiary does not have a property right in the estate).
o HELD: Dixon J: At the time of her death, the widow had a beneficial
interest in the property. He argued that the estate of the deceased must be vested somewhere prior to administration; thus, an equitable interest was vested in Ms Colson. Thus, upon her death, that land became subject to fees under the probate act. While the beneficial interest resided with Ms Colson, the legal interest resided with the executors of the will as they are the only ones that have a right to possession of the estate prior to administration.
The Privy Council (per Viscount Radcliffe) rejected the notion that the beneficial interest of the estate had to be somewhere during the period of administration. It was stated that it is a fallacy that the law requires the separation of two interests in property – the legal and the equitable (rejection of the notion of duality of interests). During administration, all of the property was vested in the executor. There was no need to distinguish possessory and equitable interests to identify some duty that the executors owed to future beneficiaries as the court would control the executor in the conduct of their administration. Ms Colson had a right to enforce due administration of the estate via a personal equity; however, this did not grant her a proprietary interest and thus she held no interest in the property at the time of her death and thus her estate was not liable for succession and probate duties.
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CREATION OF EQUITABLE INTERESTS Equity recognises interests in property in many cases in which the common law
refuses to recognise a transaction on account of a lack of proper form o This concept involves two equitable maxims – ‘equity looks to intent rather
than to form’ and ‘equity looks upon that as done which ought to be done’ o Walsh v Lonsdale (1882) – Lonsdale agreed to lease Walsh a corn shed.
Walsh had to pay rent. The agreement allowed the landlord to demand rent on advance if they wanted to. Walsh sought to have the contract set aside on the basis that it was only signed and sealed but it delivered. The court recognised an equitable lease.
Creation by implicationo Equitable interests sometimes arise by implication (i.e. they are premised on
the existence of a particular set of facts)o E.g. Vendor’s equitable lien – equity will regard that the vendor has a lien
over the property until the full purchase price has been paid. This is done to protect the interests of the vendor (Hewett v Court (1938) )
o E.g. Purchaser’s equitable lien – a purchaser has a lien over the deposit, which is exercisable in the event that the contract is terminated for reasons other than the purchaser’s breach of contract
Equitable interest of purchasero When a purchaser has paid a deposit under the contract for the sale of land,
the purchaser has given consideration; thus, the purchaser is not a volunteer. The vendor becomes a constructive trustee for the purchaser (i.e. the purchaser is the equitable owner) and the contract is then capable of being subject to specific performance. Equity will restrain the vendor from dealing with the land contrary to the purchaser’s interests.
The purchaser has an equitable interest in the land (Lysagth v Edwards (1876) ; Bunny Industries v FSW Enterprises (1982) )
KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) Pty Ltd (1984) FACTS: KLDE contracted to purchase land for $800, 000.
KLDE paid a deposit of $80, 000. The completion date was to be within 60 days of execution of the contract. KLDE wound up and its assets were distributed to shareholders. To determine the amount of stamp duty payable, it was necessary to ascertain rights
HELD: Applied Lysaght – as soon as there is a valid contract, the vendor becomes in equity a trustee for the purchase of the estate sold. The vendor can retain possession until the whole price is paid, subject to the contract
PRIORITY BETWEEN INTERESTS If two different people claim they have an interest in property, whose interest will
prevail?
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General rule: In a competition between equitable interests, where the interests hold equal merit, the earlier interest (interest created first) will prevail (Rice v Rice (1853))
o However, in many cases, there is not equal merit between interests o There are also a number of exceptions to this rule
Four categories:o 1. Prior legal interest vs subsequent legal interest apply the nemo dat
rule (to give an object, you must have the object) E.g. if A owns a bicycle which B steals and sells to C. If B cannot be
found, would A’s or C’ interest in the bicycle prevail? A’s interest would prevail as for B to sell the bicycle to C, he must lawfully have the bicycle, which he did not.
o 2. Prior legal interest vs subsequent equitable interest the prior legal interest will always prevail unless the subsequent equitable interest was created by fraud or gross negligence on the part of the legal owner
Mere carelessness or imprudence will not suffice Examples:
The legal titleholder creates the later interest through some declaration of trust, agreement or other assurance
The legal titleholder fraudulently connives at the creation of the later interest
A purchaser of a legal title fails to get the deeds from the vendor (the previous titleholder), thereby enabling the vendor to hold itself out as the legal owner or the authorised agent for the legal owner. Mere carelessness or want of prudence will not satisfy this rule (Saltoon v Lake [1978])
The legal owner has given another person authority to deal with the property and that authority has been exceeded (Barry v Heider (1914) )
E.g. Northern Counties Insurance v Whipp (1884) – the legal owner was grossly negligent by failing to procure the title deed from a third party with the result that the third party was able to create an equitable mortgage without the legal owner’s consent. It was held that the subsequent equitable interest prevailed
If a legal owner is negligent, a third party might be given that title as security for a loan and rely on that title when they grant a loan
o 3. Prior equitable interest vs subsequent legal interest apply the doctrine of bona fide purchaser
Doctrine of bona fide purchaser = if you acquire a legal estate, you will be bound by prior equitable interests unless you are a bona fide purchaser for value without notice of the equitable interest (Pilcher v Rawlins (1872) )
Notice may be:
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o Actual notice = the party actually knows (Lapin v Abigail (1930) )
o Constructive notice = someone could have had knowledge if they conducted all diligent searching (e.g. searching land title registry)
o Imputed notice = actual or constructive knowledge received by an agent of the purchaser
o 4. Prior equitable interest vs subsequent equitable interest apply Rice v Rice: When there is a competition between two equitable interests, you must first evaluate the quality of the equities by looking at the circumstances of their creation and the conduct of the parties. Only if the equities are equal, you will apply the first in time rule.
o Competing authorities suggest that the first in time rule will automatically apply unless there is some reason why it should not
o Certain conduct may postpone an equitable interest Latec – delay will postpone an equitable interest Heid v Reliance Finance Corporation (1983) – parting with
transfer documents will postpone an equitable interest FACTS: This was a case of real property under the
Torrens system whereby the vendor of land registered under the system signed a contract of sale and a memorandum of transfer and handed the documents over to the employer of the purchaser. Heid trusted the purchasing company and used their in house lawyer. The memorandum of transfer was signed by Heid and stipulated that he had received payment despite the fact that he had not. This document was then used to prove ownership of the property and gain a mortgage using the property as security.
HELD: the priority of Reliance Finance (the grantor of the mortgage) prevailed due to Heid’s negligent conduct (parting with transfer documents)
Need to consider whether the holder of an earlier equitable interest has, by either act or omission, allowed the creation of a later equitable interest
o If the holder of the earlier equitable interest has done so, their interest may be postponed and the later equitable interest will take priority (AG (CQ) v A & T Promotions [2010] )
Ten exceptions to the general rule in Rice v Rice:o 1. Where the holder of the prior interest vests the property in someone else,
enabling that other person to deal with it as his or her agent, regardless of any parallel relationship of trust thus created (Abigail v Lapin (1934))
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o 2. Where the holder of the prior interest vests the property in a trustee for sale who sells to a third party, giving the usual receipt but neglecting to obtain the price. Any subsequent purchaser from that third party, without notice of the wrong, will obtain an equitable interest having priority over that of the vendor’s lien of the original cestui que trust (Lloyds Bank v Bullock [1896])
o 3. Where the holder of the prior interest has been guilty of some negligence which has led a subsequent taker to assume the non-existence of prior equity (Heid v Reliance FInance)
o 4. Where the holder of the prior interest has a mere equity, albeit one which could flower into a full equitable estate if exercised, while the subsequent holder has an equitable proprietary interest, in the form of a security interest or an equitable estate, which has been acquired for value an without notice of the previous equity (Latec Investments v Hotel Terrigal)
o 5 Where the holder of the prior interest has waived his or her priority, thereby postponing the holder’s interest to that of the subsequent taker (Fung v Tong [1918])
o 6. Where the prior interest is in the form of a floating charge, such as a bill of sale, which gives the grantor a licence to create further legal or equitable interests in the property in the course of its business until the happening to some agreed event, such as defaults. Equitable interests created pursuant to such a licence will take priority over that of the grantee’s initial charge (Taylor v Bank of NSW)
o 7. Priority is given to the later of two or more equitable interests created in sequence if the holder of the later interest can obtain a declaration of trust from the older of the legal title in his or her favour (Wilkes v Bodington (1707))
o 8. The equitable interest of a volunteer is postponed where the holder of a later interest has paid value and taken without notice (Taylor v London and County Banking Co [1901])
o 9. Legislative exception (s184G Conveyancing Act 1919 (NSW)) – section gives priority in order of registration in respect of all instruments other than wills affecting land or interests in land which are made bona fide and for valuable consideration
o 10. s43A Real Property Act 1906 (NSW) – provides protection against notice for the purchaser of an interest in Torrens title land between settlement and registration
PRIORITY DISPUTES IN RELATION TO EQUITABLE ASSIGNEES OF PERSONALTY Priorities between competing equitable assignees of personalty are not determined
by the rules outlines above governed by the rule in Dearle v Hall The rule gives priority to the assignee who first gives notice to the trustee or fund-
holder, provided that the assignee took the interest for value and without notice of any earlier assignment
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Dearle v Hall (1828) o Facts: Brown was entitled to income of £93 per annum from the residue of
his father’s estate. In 1808, he assigned that income as security for a covenant to pay certain moneys to Dearle. In 1809, he assigned that money again as security for an annuity which he had covenanted to pay Shering in consideration of an advancement by the latter. Brown sold his share of the income to Hall as ‘an unencumbered fund’. Neither Dearle nor Shering had given notice to the trustees of the estate. Hall did and was held to have priority.
Possible exception – where an assignee gives notice to less than all of the trustees and those with notice die or retire without communicating their knowledge to the others, with notice of a subsequent assignment later being given to the surviving, ignorant trustees. In this case, the later assignment will have priority (Timson v Ramsbottom (1837) )
The conduct of the parties is irrelevant to the application of the rule United Bank of Kuwait Plc v Sahib [1995] – “The rule is based upon the inequity of
allowing an assignee, who has taken no steps (by giving notice to the trustees to whom inquiry might be made) to protect subsequent assignees against the possibility of fraud on the part of the assignor, from setting up his prior assignment against those who have been deceived. The rule may be anomalous, in that it appears unnecessary for the subsequent assignee to show that he did make inquiry of the trustees before parting with his money, but that is no reason for extending it to the advantage of those who would have no reason to make inquiry.”
Notice does not have to take a particular form and does not have to be in writing (Lloyd v Banks (1868))
Notice must be given when the subject matter of the trust or fund is present property (notice of an assignment of future property has no effect under the rule
Notice to a prospective trustee has no effect and is not cured by the later appointment of that person as trustee without fresh notice being given (Re Dallas [1904])
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ASSIGNMENTS OF PROPERTY
GENERAL The assignment of property is often of significance in the commercial context
o Examples of when assignments occur in a modern commercial context: Factoring of Debts
Occurs where debts are sold from an institution to a finance company (e.g. from a department store where they sell the store account) (most common)
This arises as a form of liquidity transformation and is a form of securitisation whereby the store will assign its rights to pursue the debt to the financial institution in exchange for money immediately
Sale of Loan Portfolio An investor may have made a number of loans to a number
of individuals. They may want to cash in again as a method of liquidity transformation. The investor can sell the benefit of these loans to a third party.
ADI – Authorised Depository Institute These are usually banks or credit unions that are involved in
securitisation transactions whereby the ADI will transfer the debt to a special purpose vehicle and off sell parts of that debt through the SPV (usually a trust) to a number of smaller investors (under the APRA)
Definition of Assignment: o “Assignment is an immediate transfer of a proprietary right, vested or
contingent, from the assignor to the assignee.” – Norman v FCT (1965) , per Windeyer J (this definition is followed in a number of Australian cases)
o Elements: Immediate transfer – a transfer which takes effect when the
assignment is made (if the purported transfer allows for some deferral then on its true construction, it is not an assignment)
Of a proprietary right – the documentation must identify, with certainty the property being transferred (the property right can be vested or contingent)
From the assignor – does the assignor confirm that he is divesting himself of the relevant property
To the assignee – there must be an assignee in existence to receive the property; sometimes, what we call an assignment is in fact a disclaimer of property
Some common issues regarding assignment:o Is the property capable of being assigned?o Is it presently existing property or future property?o Is it an equitable interest or a legal interest in property?
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o Are there any special requirements relating to the property?o Sometimes, there are special legislative rules e.g. for intellectual property
rights
CHARACTERISING THE ASSIGNED PROPERTY Is the thing being assigned a pre-existing right or an expectancy
o Does the thing being assigned Actually exists in the common law sense (a pre-existing right); or Does not yet exist in the common law sense (an expectancy)
o Expectancies – Neither the common law nor equity will recognise any purported voluntary disposition of property that is not presently held by the assignor, but which will or may be acquired by the assignor in the future.
However, equity will recognise an assignment of such ‘future property’ if it is made for value. The purported assignment of a mere expectancy has no effect unless it is made for valuable consideration per Norman v FCT (1965)
o Norman v FCT (1965) FACTS: An individual sought to transfer his entitlements to dividends
from shares and interest from a loan (repayable at will) to his wife, in an effort to avoid the high rate of tax he was facing. Norman did this via deed, which was comprehensive regarding the divestment of his dividends but slightly more ambiguous regarding the loan. The deed did not provide for any payment of consideration from his wife. Dividends are paid only out of the profits of a company in order to protect company creditors; even where a profit is declared, the company has no obligation that they must pay a dividend. Thus dividends are regarded by the HCA as an expectancy (this is different where a company is bound to pay an annuity).
HELD: Re: Dividends – The dividends were an expectancy and
could not be assigned in the eyes of equity Re: Loan – This aspect is difficult due to the terms that the
loan could be repaid at any time. The majority held that the interest from the loan was an expectancy as there was no certainty as to whether it would be paid or not. This is because at the time the assignment was made, it was possible for the borrower to repay all moneys owing.
Windeyer J dissented: He approved the minority in Anning v Anning (1907) and Re Rose (1952 ), which stated that what was being assigned was a present right to be paid interest at a future date. These views have later been enshrined in statute. Thus it was a substantial factor here, that no interest accrued under the contract on an ongoing basis.
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o Re Rose (1952) FACTS: Rose executed a transfer of shares and handed the transfer
documents to the transferees. However, to become a shareholder, both transfer documents and share certificates had to be registered with the company clerk. Rose died prior to this; thus, the transfer did not technically take effect. Certain dividends were then declared before the transfer was registered. The IRS sought to assess the dividends paid to Rose and regard them for notional death duty.
HELD: Rose had done all he could do, and all he needed to do, in order to divest himself of the shares.
o Shepherd v FCT (1965) FACTS: Shepherd was an Australian inventor who sought to assign
90% of his right to receive royalties for 3 years from one of his inventions where the license had been purchased by a manufacturer; royalties were assessed as 5% of the gross sale price of the casters (the invention). The assignment was made by deed and was absolute and unconditional, but was made for no common law consideration. The federal tax commissioner (FCT) sought to assess him for tax from the income on all of the royalties. The FCT argued that what was being assigned was part of an expectancy, as the agreement with the manufacturer did not commit them to make any products at all; thus, royalties may never accrue.
HELD: The majority distinguished Norman – What was being assigned was not an expectancy but was a present right that Shepherd had under contract; thus, the deed constituted a valid assignment of 90% of his present right and the assignment was therefore effective. Kitto J used a tree analogy whereby the contractual right to receive royalties was already in existence (the tree), and it was only the payments that were conditional (the fruit). Kitto J distinguished Norman on the basis that the contractual relationship with the manufacturer would endure for three years and it was this that gave right to the royalties. Thus, it was immaterial that the manufacturer may never sell the invention, the assignment involved the transfer of contractual rights to receive royalties.
o Distinction between Norman and Shepherd: Shepherd assigned the right to an expectancy while Norman
assigned the expectancy itself Distinguished on the grounds that in Norman, the loan could have
been repaid at any time, making the right to receive interest an expectancy, whereas in Shepherd, even though the manufacturer might not sell or even produce any castors, the contractual relationship would endure for three years, along with the right to receive any royalties
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o Williams v Commissioner of Inland Revenue (1965) (NZ) FACTS: The assignor was entitled to income from a trust fund (he
was a beneficiary under the trust). He attempted to assign the first £500 of the income of the trust fund.
HELD: This was an ineffective assignment as this was an expectancy (in any particular year, the trust may not accrue any income at all). Williams could have validly assigned the whole of his interest in the trust or a proportion as it was the monetary figure that was stipulated that was critical to the failure of the assignment.
STATUTORY ASSIGNMENT Property Law Act 1974, section 199: This stems from s25(6) of the Judicature Act
1873 (UK) and provides the first legal recognition of the assignment of debt or other legal chose in action.
o Where there is sufficient consideration accompanying the assignment of debt, the courts of equity would allow specific performance. E.g. A owes debt to B and B wants to assign that debt to C. Prior to the Judicature Act, this debt was not recognised and C could not sue A for it as there was no privity of contract between C and A. Instead, C had to compel B to sue A on its behalf. Under this section, C has validly acquired the debt and may seek specific performance to enforce payment of the debt from A in a court of equity.
s199 provides: “Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action; and (b) all legal and other remedies for the same; and(c) the power to give a good discharge for the same without the concurrence of
the assignor.” Elements:
o Irrevocable requirement – ‘Absolute assignment” The assignment must be absolute – cannot be revocable or
conditional (Australian Litigation Fund v Mearns (2005) ) The assignment must take effect immediately The assignment must not be made as a security by way of charge
(once the debt is paid, the charge is removed)
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o ‘Debt or other legal chose in action’ The thing assigned must be a debt or other legal chose in action
o Writing requirement – ‘Writing signed by the assignor’ The assignment must be in writing and must be signed Oral assignment does not satisfy s199 PLA, which requires that the
assignment be “under the hand of the assignor”o Notice Requirement – ‘Notice to be given to the debtor’
Notice must also be given to the debtor or the trustee (e.g. If B wants to assign a debt he has with A to C, B must give notice to A. It is only after receipt of that notice, that A will change payments to C
There is no requirement for the actual assignment to be shown to the debtor (these matters can thus be dealt with in commercial confidence – e.g. regarding a credit card with a department store, the store may sell their books to a financier, your notice of that assignment of debt may simply be in the regular monthly notice or bill; this is sufficient to constitute notice for the purposes of s199)
Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) – A statutory demand for payment issued under s459E of the Corporations Act may constitute sufficient notice where the particulars of the assignment are also disclosed.
Leveraged Equities Ltd v Goodridge (2011) FACTS: Goodridge (G) approached Macquarie Bank (MB) and
obtained a marginal lending facility which had two parts: a loan agreement and a security agreement over shares that were purchased as part of the facility. Leveraged Equities (LE) then purchased the marginal loan book from MB; thus, acquired G’s marginal loan. Following the share-market collapse, LE made several margin calls on G (this arises where the existing value of the shares covered by the facilities is insufficient to cover the loan and interest payments); thus, LE called for additional collateral to satisfy the debt. G failed to lodge this collateral and LE enforced the security attaining property in the shares which were security for the loan. G sued both LE and MB on a number of bases, one basis being whether the marginal loan agreement contained advance agreement from G for MB to transfer G’s loan obligations to a third party.
HELD (at trial): The Cout upheld G’s claim providing that MB, as the lender could not exercise the rights to sell the marginal loan until they had exercised the marginal call. Held that LE therefore made no valid marginal calls and had no right to sell the securities. Held that the NSW equivalent of the QLD PLA required actual notice. Raries J, on the basis of Gs character, was satisfied that no such letter had been seen by Goodridge and thus no valid assignment occurred.
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HELD (Full Federal Court): The FCA set aside the trial judge’s ruling on the basis that there was incontrovertible facts and testimony indicating the trial judge was in error. The court applied the postal rule – there is a prima facie presumption that a notice that is posted will be received by the recipient (this is an evidentiary presumption). Thus a notice that complies with the postal rule sufficiently satisfies the requirement of ‘express notice in writing’. Therefore, a valid assignment occurred and the marginal call and subsequent sale of securities under the marginal loan was valid conduct from LE. (Note: an appeal has been lodged to the HCA).
Advantages of Legal Assignmento There is no requirement under s199 PLA that the assignment needs to be
supported by consideration (no need to prove consideration generally)o The assignee can sue in his or her own name, without joining the assignor
as a party Disadvantages of Legal Assignment
o Shepherd establishes that s199 PLA cannot be used to assign part of debt (it must be an absolute assignment)
o The actual document of assignment will be subject to duties under duties acts
o Cannot be used as security for payment of a debt as the assignment must be absolute 9when you make an assignment as a security, there is always provision for any property to be transferred back)
o The identity of the assignee is not kept confidential Where there is no effective assignment under the PLA an equitable assignment is
the next alternative
EQUITABLE ASSIGNMENTS The assignment of legal interests, expectancies and equitable interests An ‘equitable assignment’ is simply the recognition in equity of the transfer of
property (a recognition that may be granted even though some prescribed method of assignment at law, such as registration, has not been completed)
o The assignor will continue to be regarded as the legal owner of the debt or property
Relevant maxims:o Equity will not assist a volunteer (often raise in relation to gifts)o Equity will not perfect an imperfect gift
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Elements – To establish a valid equitable assignment there must be:o A clear intention from the assignor to assign the relevant property,o Evidence that the assignor has made a clear declaration to assigno Sufficient certainty as to the subject matter of the assignment
‘Everything necessary to be done’ o Milroy v Lord (1862) (prior to the Judicature Acts)
FACTS: Medley purported to voluntarily assign, by deed, fifty shares in a company to Lord, to be held by Lord as trustee for the Milroy’s. For this transfer to be effective at law, the shares had to be registered into the books of the bank – this never occurred. Medley lived for three years after signing the deed, during which time the dividends were received by Lord and paid to the Miroy’s. Lord also had share certificates and power of attorney over Medley’s affairs which gave him authority to issue the transfer of the shares and thus, during Medley’s lifetime, he could have issued the requisite execution forms. Who owned the shares upon Medley’s death – did they form part of his estate or did they belong to the Milroy’s?
HELD: The shares formed part of the estate of Medley as he had not divested the shares in equity as he had not produced a share transfer form tp the clerk of the company. This case looks to whether the assignment was valid in equity not at common law.
Turner LJ – Two Principles:o To render a voluntary assignment valid and
effectual in equity, the settlor must have done everything which, according to the nature of the property, was necessary to be done in order to transfer the property and render the assignment effectual
o If a settlement is intended to be effected by a particular mode or form (e.g. direct assignment, declaration of trust), the court will not give effect to it by applying another form.
o The phrase ‘everything necessary to be done’ has been interpreted in different ways as to what Turner LJ intended by his phrase.
Must all legal steps be taken where there is a method of assignment available at law? Who must perform these steps?
o Anning v Anning (1907) FACTS: Mr Anning executed a deed of gift to Mrs Anning and their
children of all his property some days before he died. Nothing further was done to transfer the property prior to his death. Was this deed effective to transfer the property.
HELD: The deed of gift was not effective to transfer all property including the bank account. Isaacs and Higgins JJ (majority) stated
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that there was no effective gift. Applied the maxim that equity will not assist a volunteer. Provided that a transfer will be ineffective unless the strict assignments are adhered to; a gift can be assigned in equity but a donor must complete all steps that must be completed to transfer the gift.
Griffith CJ dissented (approved in Norman v FCT by Windeyer J and Re Rose): Held there was an effective gift. Held that everything to be done means done by the donor. Focussed on what steps could only be completed by the assignor alone. To satisfy Milroy v Lord, the assignor must only complete those steps, the remaining steps to perfect the assignment can be carried out by the assignee. Here, all that remained was for notice to be given, the notice did not have to come from the assignor but could come from the assignee and thus the assignment was valid. s200 PLA statutorily enshrines this approach.
o Corin v Patton (1990) FACTS: Mr and Mrs Patton were joint proprietors of Torrens land in
NSW. Mrs Patton was terminally ill and did not want Mr Patton to take the land as the surviving joint tenant. She sought to sever the joint tenancy by executing a transfer document in favour of her brother (C) to reduce the relationship to tenants in common. The deed stated that C owned the land as tenant in common with Mr Patton, and that C was trustee for Mr Patton. The transfer was not registered prior to Mrs Patton’s death. Mr Patton claimed that he was entitled to the house as sole surviving joint owner, on the basis that the assignment was invalid. Was the joint tenancy severed prior to Mrs P’s death?
HELD: That Mrs Patton had not done ‘all necessary to be done’. There was aInvalid assignment; Mrs Patton had not sufficiently transferred the land. The mere fact that she had produced the transfer document was not sufficient; in order to complete the transfer, both the transfer document and the certificate of title had to be produced. Prior to her death, Mrs Paton had not contacted the bank to authorise them to release the certificate of title. C was a volunteer (provided no consideration).
Relevant Principle: If an intending donor of property has done everything
which it is necessary for him to have done to effect a transfer of legal title, then equity will recognise the gift.
So long as the donee has been equipped to achieve the transfer of legal ownership, the gift is complete in equity.
From the viewpoint of the intending donor – the question is whether what has been done is sufficient to enable the
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legal transfer to be effected without further action on the donor’s part
The donee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete
o Re Rose states that this means the donor cannot recall the gift or invoke the court to prevent it
o Must establish that the donor has parted with the interest irrevocably.
o S200 PLA: (1) A voluntary assignment of property shall in equity be effective and complete when, and as soon as, the assignor has done everything to be done by the assignor that is necessary in order to transfer the property to the assignee –
(a) even though anything remains to be done in order to transfer to the assignee complete and perfect title to the property; and
(b) provided that anything so remaining to be done is such as may afterwards be done without intervention of or assistance from the assignor.
(2) This section is without prejudice to any other mode of disposing of property, but applies subject to the provisions of this and of any other Act. This section relates to a voluntary assignment of a gift in equity and
reflects the test laid down in Anning v Anning by Griffith CJ who considered that everything to be done meant everything to be done by the donor
This reflects the decision of the Court of Appeal in Re Rose (1952) where it was held that a gift of shares was complete upon the execution of the transfer together with the delivery of the necessary certificates for registration.
However, this section cannot apply where, under statute, responsibility for a specific act falls on the donor.
Expectancieso Generally, an expectancy cannot be assigned in law or equity as it does not
yet exist and there is no certainty that it will existo However, if there is consideration, then there is consideration for a contract
to be assigned. Thus, such an assignment may be the subject of a contract to be performed in the future.
Holroyd v Marshall (1862) FACTS: Taylor sold machinery to the appellants on terms
allowing Taylor to repurchase the equipment for $5000. The equipment was then transferred to trustees to hold it on trust provided he pay the $5000 sum, otherwise, it was held on trust to sell it with the proceeds to go to the appellants. The agreement purported to include all machinery lying in or around the property. Taylor required more machinery
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and the creditors sought to levy their judgement over the new machinery. Who has rights over the property
HELD: The title of the owner was held superior. Because there was consideration, a court of equity would grant specific performance and under an order for specific performance, the court would order that the beneficial interest be transferred to the assignee.
Talby v Official Receiver (1888) FACTS: There was a contractual assignment of future book
debts. An ssignment of all book debts due and owing was issued to the mortgagor.
HELD: Where valuable consideration has passed, the assignment of an expectancy will be recognised by a court of equity. Lord McNaughten stated that classes of equitable assignments or specific lien, where (valuable) consideration has passed, depend on the real meaning of the agreement between parties. The difficulty, generally speaking, is to ascertain the real meaning of the agreement between the parties. When that is ascertained, you only have to apply the principle that equity considers that done which ought to be done. What we are really looking at is whether there is an actual intention to assign. Is there an intention on the part of the assignor to the assignee. Once that is clear, and valuable consideration is paid, equity will enforce it and offer things such as specific performance as a remedy.
Rights assignable in equityo ‘Equitable property’ means property recognised, or rights only enforceable
in equity.o Requirements:
That everything that is necessary to be done is done That the assignment is in writing when dealing with certain types of
property (s11(1)(c) PLA)o Part of a Debt:
Shepherd v FCT (1965) – Establishes that under equity, you can assign part of a debt (in contrast to s199 PLA). Further, there is no requirement of consideration for the assignment of debt in equity. Consideration is, however, required when transferring expectancies.
o Interest of a Beneficiary Controller of Stamps v Howard-Smith (1936)
FACTS: Concerned whether the transaction was an assignment, or whether it was a revocable mandate (an order capable of revocation). Howard-Smith (H-S) was a beneficial residuary of his wife’s will whereby he would be entitled to all of the estate following the payment of royalties. H-S wrote a letter to his executor requesting
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certain bills to be paid from out of the estate. The IRS tried to establish that this was an assignment as if the authorisation to the executor was deemed an assignment, it would be subject to stamp duties.
HELD: Dixon LJ established that this was a mere revocable mandate (it was not an assignment). The letter could be revoked at any time. The letter was absent the ‘absolute’ and ‘immediate transfer’ requirement of Norman v FCT. The letter was not binding on the executor of the will.
Notice of equitable assignments o Relevant for determining when the assignment takes effecto Thomas v National Australia Ltd (2000) – establishes that the mere fact that
notice has not been given does not mean it will not take effect. Once the assignment is made, it will be binding on the debtor, even if the debtor has no notice of the assignment (difference between English and Australian equity law). However, notice is required to enforce this assignment under s199 that is, if you seek statutory or legal enforcement of the assignment; equitable assignment does not require notice
Advantages of Equitable Assignmentso Part of debt may be assignedo Writing is not required if the assignment is supported by consideration
(however, this will depend on s11(1)(c) PLA)o May not be subject to duty depending on the nature of the transactiono Assignment may be made for security.
Disadvantages of Equitable Assignmentso Need for assignor to be party to any actiono Assignment is subject to any equities which arise after assignment, but
before the debtor has notice of assignment Priority Between Successive Equitable Assignments
o Dearle v Hall (1828) establishes the general rule: that priority will be given to the assignee who first gives notice of the assignment to the trustee
FACTS: The holder of an annuity sought to assign that annuity twice. It was the last holder of that interest who first gave notice to a trustee of the assignment.
HELD: Failure to give notice of an equitable assignment was held to postpone the priority. Establishes that negligence, and postponing conduct will amount to a failure to give notice and a postponement of priority.
o Notice need not take any particular form and need not be in writing, but it must be given when the subject matter of the trust or fund is present property
United Bank of Kuwait v Saheeb provides that Dearle is really to prevent fraud. The rule is based upon the inequity of the assignee
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who has taken no steps to protect subsequent assignees from the fraud on the part of the assignor. The rule is really based on the need of the assignee to contact the trustee before actually parting with money. Strictly speaking, it is necessary for the assignee to go to the trustee and ask if there are any previous assignments.
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Stephen Carius’ notes:
Assignment = a voluntary, inter vivos transfer of property o Voluntary = the assignors wants to and intends to transfer the property (not
involuntary, such as a compulsory acquisition of land or a sequestration order)
o Inter vivos = during the assignor’s life (not post mortem – on death) Different rules regulate the transfer of different types of property
o More stringent rules apply to the transfer of interests in land (as opposed to the transfer of chattels)
Structure: Determine what category the assignment falls into o 1. Legal assignment of a legal interest assignable at law
Land – in order to effect a transfer of a legal interest in land at law, you must register that interest (ss181, 182 PLA)
Choses in possession (tangible property) – there must be an intention to transfer legal title and an act of actual or constructive delivery
Choses in action (intangible property) – choses in action are unassignable at common law, one must look to statute (s199 PLA states four requirements: 1. Absolute assignment; 2. The intention to assign must be in writing; 3. Must be signed; 4. Express notice must be given to those who are to be bound.)
Note: company shares are regulated by the Corporations Act – in order to effect the transfer of a company share at law, the transfer must be registered
o 2. Equitable assignment of a legal interest assignable at law If category 1 has been engaged but holds that the assignment is not
effective, the court will consider category 2 (this is the only situation that cateogy 2 will be considered)
Category 2 is effective in two scenarios: Consideration scenario – if the purported assignmetn is
supported by consideration, the assgnment is effective in equity
s200 PLA – if the assignor has done everything necessary for the assignor to do in order to effect the transfer (such that any further steps that are necessary can be performed by another party), then the assignor is bound by the purported transfer
o s200 – (1) A voluntary assignment of property shall in equity be effective and complete when, and as soon as, the assignor has done everything to be
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done by the assignor that is necessary in order to transfer the property to the assignee:
(a) even though anything remains to be done in order to transfer to the assignee complete and perfect title to the property; and
(b) provided that anything so remaining to be done is such as may afterwards be done without intervention of or assistance from the assignor.
o 3. Equitable assignment of a legal interest unassignable at law This category concerns cases where the assignor purports to assign
something legal in character (e.g. a debt); however, the thing is unassignable at law (e.g. if the transfer is only for a part of the debt, and not an absolute assignment)
The assignor must evince an intention to make an immediate and irrevocable transfer (Shepherd v FCT)
o 4. Equitable assignment of a future interest assignable in equity Firstly, the court must determine whether the thing being assigned
is a present interest or a future interest (i.e. a mere expectancy) E.g. If A assigns B the dividends of some shares, has A
assigned the right to receive dividends (present interest) or the dividends, independent of any right to receive (future interest)
This is a matter of construction – the court will look at the language used and the surrounding circumstances
If the thing does come into existence, the assignor will immediately hold that thing in a constructive trust for the assigneee
For an assignment of a future interest to be effective: 1. The assignment must be supproted by consideration 2. The subject matter of the future interest must be
sufficiently identifiable that it can be the subject of a decree of specific performance (Tailby)
o 5. Equitable assignment of an equitable interest assignable in equity Two elements: (Controller of Stamps v Howard-Smith)
1. Intention to make an immediate and irrevocable transfer 2. Must company with s11(1)c PLA – intention must be
evidenced in writing and signed
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NATURE AND CLASSIFICATION OF TRUST
CIRCUMSTANCES WHERE A TRUST CAN COME INTO EXISTENCE Where a trust is established by a settlor (express trust)
o Can be established by signing a trust deed or under a will By operation of law to resolve a property dispute where an express trust has failed
(resulting trust) To recognise the proprietary rights of one who has contributed to property
(constructive trust) To prevent the legal owner of land from unconscionably denying the rights of
holders of equitable interests in land (constructive trust) By statute
DEFINITION A trust is descriptive of a legal relationship Trusts are obligations:
o The trustee (obligor) and the beneficiary (obligee) are connected by an obligation
o Trusts are actually an aggregate of obligations o The fundamental obligation is a fiduciary obligation a fiduciary obligation
places no positive obligations on the trustee; rather, it only imposes negative obligations on the trustee (i.e. states what the trustee cannot do – e.g. must not misappropriate the property?
o There are often non-fiduciary obligations (i.e. states what the trustee must do – e.g. equitable duty of care and skill)
A trust is an equitable obligation whereby a trustee holds property for the benefit of beneficiaries or for a charitable purpose
Trusts are enforceable in the exclusive jurisdiction of equity Distinction between legal and equitable (or beneficial) ownership: a trust is “a
relationship where the legal title is in [one person – the trustee] and the equitable title is in [another person – the beneficiary]” – Hardoon v Belilios [1901]
o Hardoon v Belilios [1901] FACTS: The defendant purchased shares and registered them in the
name of the plaintiff. There was no contractual relationship between the two and the defendant was not registered as having an interest in the shares anywhere. The shares were only partially paid for by the defendant. A contractual obligation was imposed upon the plaintiff, as the registered owner, to pay the remaining sum. Could the plaintiff recoup the remaining sum from the defendant?
HELD: This was a trust as, despite legal title being vested in the plaintiff, equitable title was vested in the defendant. The plaintiff was bound to forward the dividends to the defendant.
Elements:
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o Trustee o Beneficiary (or object)o Trust property
Must be identifiable to ensure that beneficiaries know what rights they have over what property (a trust can fail due to lack of certainty)
Must be capable of being held on trust A trust does not have a legal personality/is not a separate legal entity the trust
cannot hold property (the property is vested in the trustee, not the trust itself) and the trust cannot sue or be sued
PARTIES TO A TRUST Settlor – the person who creates the trust
o The settlor transfers property to a trustee o The settlor will generally relinquish all rights over that property o The transfer is usually by deed (thus, there is a contract between the settlor
and the trustee, allowing the settlor to bing an action against the trustee) Trustee – the person who holds legal title of the trust property
o The trustee must have the capacity to hold property (e.g. a minor may not be able to hold land)
o A company can be a trustee (legislation provides for this) Advantage: a company has perpetual succession; thus, do not need
to worry about the situation in which the trustee dies before administering the trust
o The trustee has a personable obligation to administer the trust and act for the benefit of the beneficiaries
This obligation can be enforced by a court of equity (DKLR Holdings) This obligation is a fiduciary obligation – an obligation of good faith
(e.g. if the trust property is a unit, the trustee cannot rent the unit out and keep the rent for themselves. They must put the money back into the trust fund)
o The trustee must look after the trust property, be liable for any taxes or expenses incident of the property and only deal with the property in accordance with the trust (equitable personal obligation)
The duties of the trustee are found in the trust deed or, if the deed is very simple (e.g. ‘A is the trustee of Blackacre’), the Trusts Act 1973 (Qld)
o A trustee can be a beneficiary of the trust which he or she is trustee of, providing that they are not the only beneficiary
o Note: at common law, the court will regard the trustee as having the right to utilise the property in any way they see fit. Only courts of equity will recognise rights possessed by beneficiaries
Beneficiary – the person/s who has an equitable title in the property
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o Rights: The beneficiary has a right to seek a court order for the due
administration of the trust (Kennon v Spry [2008] ) The beneficiary has the right to seek an injunction to prevent the
trustee acting contrary to their interest These rights are only recognised in equity
o A beneficiary does not have to be born at the time the trust is created o A charitable purpose can be a beneficiary (the Attorney-General of the State
has standing to enforce a trust on behalf of a charity)
CLASSIFICATION OF TRUSTS Trusts can be classified in many ways:
o Private trusts vs public trusts o Fixed trusts vs discretionary trusto Bare trusts (no management responsibilities) vs managed trusts
The most common classification is based on the intention of the settlor and the manner in which the trust came into existence
Classification is important for legislative and taxation purposes Express trust – the settlor expresses an actual intention to create a trust
o Intention can be ascertained from a written declaration (preferred method) or be expressed orally
o The trust must specify the trust property and the beneficiaries o An express trust may be fixed or discretionary:
Fixed trust – the trust instrument will fix the entitlements of the beneficiaries
The trustee must follow the trust – they have no discretion as to who benefits from the trust
The beneficiaries will have a proprietary interest in the property (Saunders v Vautier (1841) )
Discretionary trust – the trustee has absolute discretion as to who will benefit under the trust (most common form of trust)
The trustee is obliged to exercise their power In private trusts, the trustee will usually have discretion to
choose from a specific class of individuals Potential beneficiaries do not have a proprietary interest in
the property until the trustee allocates property to them o However, potential beneficiaries have a right to
compel the proper administration of the trust (Gartside v IRC [1968] )
Resulting trust – arises where there is a failure to create an express trust but there is a presumed intention to create a trust
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o A settlor vests legal title in another person whilst retaining beneficial ownership of the property
o May arise when a trust is created for a specific purpose and it is impossible to fulfill that purpose
Quistclose Investments [1968] FACTS: A trust was given to a financier, requiring dividends
to be paid to the beneficiary. The specific purpose of the express trust was defeated as the company went into liquidation.
HELD: There was a resulting trust and the property was reverted back to the settlor.
o Resulting trusts are either automatic or presumed: Automatic resulting trust – when the beneficiary dies before
receiving legal title of the trust property (e.g. where A vests property in B for the benefit of C, who later dies. The beneficial interest results to or reverts to A as there was no intention for a beneficial interest to be transferred to the trustee)
Presumed resulting trust – where a trustee purchases property with the settlor’s funds (e.g. where A provides B with funds to purchase property in both A and B’s name but B purchases the property in his or her own name. The court will declare that B holds the property on trust for A)
This presumption has been upheld in a number of cases (e.g. Calverley v Green (1984) ); however, can be rebutted (e.g. when B is a person who A is obliged to support, such as wife or child – presumption of advancement)
Constructive trust – arises where the court holds that it would be unconscionable for a person to hold property without recognising another person’s beneficial interest (deemed intention)
o Often declared by courts irrespective of the intention of the parties o Called a ‘constructive’ trust as the court will construe the circumstance as
giving rise to a particular obligation of trust (Giumelli v Giumelli [1999] )
TRUSTS AND TAXATION Livingstone established that a proprietary interest held by a beneficiary under a trust
is subject to taxation Examples:
o Income Tax Assessment Act 1997 (Cth) s995.1 – definition of fixed trust which reflects the general property law concept whereby a beneficiary has a fixed entitlement to either the income or the property of a trust
o Income Tax Assessment Act 1936 (Cth) Schedule 2F – the trust losses and other deductions provision establishes that there will be a concessional trust
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treatment where there is a fixed trust – more specifically, where it is a family trust
o Land Tax Management Act 1956 (NSW) s3A – If property is held under a fixed trust there is concessional treatment in terms of land tax – this is a significant source of revenue for the NSW government. To avoid significant land tax on say a second property, families will often hold it under a fixed trust.
o Social Security Act 1991 (Cth) s1207P – The Cth govt. has been concerned with people whom are beneficiaries of a trust also claiming social security benefits. Under the social security act, part 3.18 establishes the scheme of attribution of income to force people who receive income from some private trust to declare that income
OTHER Inter vivos trust – where the settlor creates a trust and the trust property is
transferred to the trustee during the settlor’s lifetime Testamentary trust – trusts created under will
o The executor of the will is the trustee Unit trusts – property is purchased by a ‘manager’ (usually a company) and vested in
a trustee under the terms of a trust deed in which the beneficial interest is divided into a number of units that can be sold or granted to investors. The unit entitles the holders to specific shares of the income of the trust and usually to a return of a proportion of capital investment. The manager will usually be able to repurchase the shares at a price determined by the terms of the trust.
o Unit trusts are different from shares Trading trusts – a trust in which the trustee carries on a business for the benefit of
the beneficiary. The trust deed should provide the trustee with the necessary powers to conduct a business (e.g. wide powers of investment)
Family trusts – trusts for the benefit of a family group in which the trustee will often be one or more of the family members (or a company in which family members are shareholders and directors). A family trust has a taxation advantage by allowing the splitting of income earned by the trust among the family members.
Superannuation trusts – a trust established for the purpose of providing superannuation benefits (retirement benefits), either by way of lump sum or pensions
o Superannuation Industry (Superannuation) Act 1993 (Cth) Mandates the use of a trust structure for superannuation funds Trusts structure ensures the strict fiduciary obligations of trusts will
be used in the administration of pension funds Fixes many problems of pension funds overseas funds under the
trust structure means that funds are identifiable and money cannot be used for purposes other than the benefit of members (the beneficiaries of the trust)
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POWERS OF APPOINTMENT Power of appointment = a power or authority vested in a person (donee) to deal
with or dispose of property not his or her own o The power is usually found in a legal instrument (e.g. power of attorney)
Types of powers:o Administrative powers – power to sell, invest and manage propertyo Power to dispose – power to dispose of property in a way that affects the
ownership of some person The traditional view is that a power is distinct from ownership (Fonu v Merril Lynch
Bank and Trust Company [2011] ) this is not an absolute rule Distinction between trusts and powers of appointment:
o A trust is imperative the terms of the trust instrument are mandatory; the trustee is under a duty to carry out the terms of the trust; the terms of the trust is in the trust deed or trust legislation and failure to carry out the terms of the trust is a breach of trust
o A power of appointment is permissive the power is discretionary (the donee does not have to exercise the power at all if desired)
o A trustee will have legal title of the property while a donee does not o A donee is not necessarily subject to any fiduciary duty o The objects of a power of appointment do not necessarily have any
beneficial interest in the property subject to the power nor do they have any right to compel the holder to make an appointment
Classifications:o General – a power to appoint the property to anybody in the world ,
including the holder of the power himself or herself (Melville v IRC [2000] )o Special – a power to appoint the property to third persons (the donee
cannot appoint the property to themselves)o Hybrid - a power to appoint the property to anybody in the world with the
exception of some excluded class or group (most common) The donor of the power may want to exclude a certain person (e.g. a
child who is frivolous with money) Example – ‘for such of my children as you shall appoint in your absolute discretion’ .
The settlor has given the donee the power to decide what children will benefit. This is not a discretionary trust, as the power does not have to be exercised . If the power is not exercised, the property will result back to the settlor under a resulting trust.
DISTINCTION BETWEEEN TRUSTS AND OTHER AREAS OF LAW Contract:
o Contract is recognised at common law, whereas trusts are only recognised is equity
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o Consideration is not required in trust law the beneficiary does not need to provide consideration
o Contracts create personal rights between parties to the contract a trust creates an entitlement or an expectancy interest (not based on agreements)
Bailment: o Bailment involves the transfer of possession but not title a trust transfers
both possession and title.
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CREATING AN EXPRESS TRUST
METHOD There are two methods of creating an express trust:
o Declaration of trust A settlor will declare that certain property is henceforth to be used
for trust purposes (held on trust) A declaration can be in writing or oral
o For trusts concerning land, the PLA imposes an ‘in writing’ requirement
The settlor will retain legal title but the objects of the trust will have beneficial/equitable ownership of the trust property
o Transfer of trust property to trustee A settlor will transfer trust property to the trustee. This arrangement
will be recorded in a deed. The deed will be executed by both the settlor and the trustee
REQUIREMENTS In order for a valid trust to be created, these five questions must be asked:
o 1. Is there actual intention to create a trust (express trust) or presumed intention (resulting trust) or deemed intention (constructive trust)?
o 2. Are the terms of the trust certain with respect to: (a) subject matter; (b) objects?
o 3. Is the trust completely constituted?o 4.Have the formalities been observed?o 5. Are there any invalidating factors that would render the trust:
(a) voidable; or (b) void?
Note: The first question and the second question are merged together when discussing the three certainties
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THE THREE CERTAINTIES
THE THREE CERTAINTIES In order for an express trust to be valid, it must satisfy the three certainties The three certainties are:
o 1. Certainty of intentiono 2. Certainty of subject mattero 3. Certainty of object
The three certainties were developed in Knight v Knight (1840) o Applied recently in Pascoe v Boensch [2007]
CERTAINTY OF INTENTION Does the settlor intend to create a trust relationship?
o There mere fact that A transfers property to B does not mean that a trust has been created this transfer could be a gift and even if there are obligation attached, the obligations may b moral obligations rather than trust obligations
There is a distinction between verbal (words, either written or oral) and non-verbal (conduct) intention in law, words always speak louder than actions
o Focus on words – Do the words of the trust have an imperative or binding force? (rather than just optional)
o If words are excessively ambiguous (or if there are no words at all), the court will look to the non-verbal evidence (there will be a much harder hurdle to overcome
o A court may favour verbal evidence that contradicts verbal evidence but is unlikely to favour non-verbal evidence that contradicts verbal evidence
The test for ascertaining intention is an objective test (Twinsecrta v Yardley [2002] – it does not matter whether the settlor subjectively intends to create a trust, if the things they do objectively indicate the creation of a trust, the court will hold that there was intention to create a trust)
Precatory words (words of expression, hope or desire) are no longer sufficient to impose a trust (e.g. ‘in full confidence that’, ‘on the understanding’, etc)
o Such words generally indicate a moral obligation rather than a trust obligation
o The court will consider the nature and context of the wordso Re Adams and Kensington Vestry (1884)
FACTS: The testator gave all of his real and personal estate unto and for the personal use of his wife. The property was given to his wife ‘in full confidence that’ she would go what is right when distributing the property to their children. The issue was whether the wife was the trustee of the property and had a trust obligation or whether
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she received the property as a gift and did not have a trust obligation.
HELD: The wife did not have a trust obligation. The Court considered the entire document and concluded that the grant of property was a gift and for the absolute benefit of the wife
o Hayes v National Heart Foundation FACTS: The testator left the balance of his estate to his daughter ‘on
the understanding’ that she would bequeath certain shares to three specific charities
HELD: These precatory words (‘on the understanding’) were sufficient to create a trust obligation in this case as the court construed the will as a whole and determined that the testator had in fact placed a limitation on ownership. The daughter had a life interest in the shares but was required to bequeath the shares to the charities in her own will.
It is not necessary that the settlor use the words ‘trust’ or ‘trustee’ a trust has been held to exist in some cases where these words do not appeal in any of the documents (if these words do appear, it is still possible that there is no trust)
o Words are presumptuous, not conclusive need to look at the facts of each case
o Dean v Cole (1921) FACTS: The testator left his estate to his wife, ‘trusting to her that
she will divide in fair just and equal share between [their] children’. The key issue was whether the wife was the trustee of the property or whether the property was a gift
HELD: Even though the word ‘trusting’ was used in the will, there was no intention to impose a trust obligation on the wife. The court constructed the will as a whole and concluded that it indicated that the wife was to have full beneficial ownership of the property. Earlier in the will, the testator had made it clear that certain parts of his will would be at the absolute disposal of his wife. Thus, there would be an inconsistency if a trust obligation was to be imposed.
Examples:o Bahr v Nicolay (No 2) (1988)
FACTS: The appellants sold land to the first respondent with a buy-back provision. The first respondent sold the land to the second respondent. The second respondent acknowledged the buy-back provision both orally and in the contract. The second respondent refused to sell the property back to the appellants when they exercised their option.
HELD: that the appellants could recover the property as the appellant intended to create a trust. The second respondents had notice; thus, were not bona fide purchasers for value without notice
o Barclays Bank Ltd v Quistclose Investments (1970)
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FACTS: A razor company, Rolls Razor, went into significant financial difficulties. Quistclose advances a loan to the company for the express purpose of paying dividends to shareholders. The loan was paid into a separate account with Barclays Bank, who had full knowledge of the purpose of the loan. Before the company could declare the dividends, they went into liquidation. Barclays Bank contended that as the mutual intention of dividend payment was defeated, the loan should revert back to them rather than being amalgamated into the pool of assets available to other creditors of the company through the bankruptcy process.
HELD: The arrangement was a primary trust for payment to shareholders with a secondary trust in favour of Quistclose if the investment was not paid. The mutual intention of Quistclose and Rolls Razor was that the sum advances should not become part of the assets of Rolls Razor but should be used exclusively for a particular purpose. The word ‘trust’ was not used, but the intention to create a trust was clear.
PRINCIPLE: Where one party advances money to another with the mutual intention that it should not become part of the assets of the borrower but should be used for some specific purpose, then a trust of the moneys will be implied if the purpose fails.
o Australian Elizabethan Theatre Trust Co FACTS: The AETT received gifts on behalf of other arts bodies.
Donations were made to the AETT in which a ‘preference’ had been made in favour of three artistic organisations.
HELD: The gifts were unconditional; thus, did not create a trust. The words expressing any preference were merely precatory. There was no clear intention to form a trust.
o Re Kayford [1975] FACTS: A mail-order company placed their customers’ payments in a
separate bank account, called a trust account. The company went into liquidation.
HELD: It was held that the funds held in the separate account were held in trust for the customers. The company manifested a clear intention to create a trust through the act of creating a separate account for the customers’ payments and labeling it a ‘trust account’.
There must be some evidence of intentiono Express intentiono Inferred intentiono Extrinsic intention
Evidence of a settlor’s intention can be used to interpret a trust (e.g. s33C Succession Act 1981 – evidence of a testator’s intention is admissible if the will is ambiguous on the face of the will)
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CERTAINTY OF SUBJECT MATTER The trust property must be certain and identifiable if not, the trust will be
regarded as void for uncertainty o The amount of property must also be clearly established
Any property can be the subject matter of a trust Examples:
o Hunter v Moss [1994] FACTS: The settlor held 950 shares in a company. The settlor made a
declaration that 50 of those shares were to be given to an employee of the company.
HELD: This was a valid trust. There was no uncertainty as to the subject matter as all shares were of the same class and type (difficulties would arise if the shares were of different classes)
o Re Golay [1965] FACTS: A trust of ‘reasonable income’ was established by a will for
the beneficiary from the income of the settlor’s property. Did the trust fail for uncertainty due to lack of clarification of ‘reasonable income’?
HELD: The gift was upheld as the court deemed that they could determine what is objectively reasonable.
o Associated Alloys v CAN [2000] FACTS: There was a retention of ownership clause in a contract for
the sale of goods. Under the clause, the ownership of the foods remained with the seller until payment had been made.
HELD: It is not an objection to the effective creation of a trust that the property to be subjected to it is identified to be a proportion of the proceeds received by the buyer. The phrase ‘bulk of an estate’ was ambiguous.
CERTAINTY OF OBJECTS Object = the beneficiary or the beneficial purpose Beneficiary principle = every trust must have beneficiaries or be for a charitable
purposeo There must be some person who can enforce the trust (the beneficiary or
the Attorney-general in the case of a trust for a charitable purpose) and who the court can decree performance of the trust in favour of
The objects of a private trust must be identified with sufficient certaintyo If this does not occur, the trust will be invalid and the estate will revert back
to the settlor (resulting trust in favour of the settlor) o If a trust created under a will is invalid for lack of certainty, the next of kin
will be entitled to the estate
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Morice v Bishop of Durham [1805] – a gift of residue was left to the Bishop of Durham to be applied by him “for such objects of benevolence and liberality as [he] in his own discretion shall most approve of”. This trust was challenged on the grounds of uncertainty as to objects. The gift was held to be invalid as the Bishop of Durham has an uncontrolled power of disposition, which was effectively ownership. This could not have been the intention of the testatrix. On appeal, it was stated that the court had to be a position where it could enforce a trust if the trustees had failed in their duty to execute the trust. There was a lack of enforceability here.
A trust is not uncertain merely because the actual persons to whom the distribution will be made cannot be known in advance of the date of distribution it is sufficient that the provisions of the trust ensure that upon the date of distribution, the beneficiaries can be ascertain with certainty
Trust Power vs Mere Powero Trust power = a power that the donee is required to exercise by choosing
which object from a class of beneficiaries should benefit The court can oblige the donee to exercise that power
o Mere power = a power in which the donee has a complete discretion whether or not to exercise the power
The court cannot oblige the donee to exercise that powero Whether or not the power is a trust power or a mere power is a matter of
construction. The court will look at: Whether the language is mandatory (trust power) or discretionary
(mere power) The document as a whole and ascertain the meaning of the settlor If there is a gift over clause, a clause which states what happens if
the power is not exercised (mere power), or not (trust power) o Re Gulbenkian [1970] – the settlor established a trust under which a fund
was held for the benefit of his son, Norbar, and “any person or person in whose house or apartment or in whose company the said Norbar may from time to time be residing”. Held that this was a mere power.
This case developed new rules for certainty of objects in relation to trust powers and mere powers:
Mere power – provided that there is a gift over or trusts in default of appointment, a mere power or bare power of appointment amongst a class is valid if you can with certainty say whether any given individual is or is not a member of the class, you do not have to be able to ascertain every member of the class
Trust power – the settlor must have sufficiently defined the class of beneficiaries as to enable the trustee to consider it for the purpose of exercising the power of appointment. The mere fact that it is difficult to ascertain the whereabouts or continued existence of some of the members of the class does not matter.
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o McPhail v Doulton [1970] – the settlor wished to establish a trust for the benefit of the employees of a company and their relatives. He did this by way of a discretionary trust for the benefit of any of the employees of the company. There was a distinction between employees and it was to be on such conditions as the trustee thinks fit. The relatives of Bardon challenged the trust on the basis that it was impossible to make a complete list of all employees, ex-employees and all of their relatives and dependents and thus, the trust should be held invalid on the basis of uncertainty of objects. The Court rejected these arguments.
Held that when there is a trust power, there would be a wider and more comprehensive range of inquiry than in the case of a mere power. However, the difference between the tests is not substantial and only one of degree. It is not necessary that the trustee be able to compile a complete list of names of potential beneficiaries.
Held that the duty of a trustee with a discretionary power is to select those who are to receive the benefit from amongst the class of beneficiaries and this did not require the compilation of a complete list of possible beneficiaries
Purpose Trusts:o Purpose trusts are trusts in cases where the trust is not a charitable trust but
the court thinks that a trust should still be enforced o Problems regarding purpose trusts include:
The trust or will might infringe the rule against perpetuities There is no one to enforce the trust and non who’s favour the trust
can be exercised in o General rule = a trust for a non-charitable purpose is not valid because
there is no person who has standing to enforce the terms of the trust o Possible exception to the general principle fall into four recognizable
categories: Trusts for the upkeep of specific animals
A trust for the maintenance of a specific animal can be valid Re Dean (1889) – a trust was held to be valid where a
testator bequeathed by his will his horses, ponies and hounds to his trustees together with an annual sum for the maintenance of his animals for fifty years, should they live so long
Pettingall v Pettingall (1842) – a trust was held to be valid where a testator bequeathed £50 per year for the maintenance of his favourite black mare
Trusts for the erection or maintenance of graves and monuments If a trust is merely for the erection of a monument, it is likely
to be within the perpetuity period; however, a trust for the maintenance of a monument may extend beyond the perpetuity period
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Pooley v Royal Alexandra Hospital for Children – held that a gift to erect a monument in a certain cemetery in memory of the donor’s son was invalid
Re Hamilton Grey – held that a trust established for the purposes of applying money towards a memorial to perpetuate the memory of Henry Kendall was invalid
Re Boning – it was held that a trust which stated that the trustees were to retain the testator’s property for a period of twenty years fro the date of the testator’s death on various conditions that all the animals and birds on the property were not be disturbed and that the house be secured for that period was invalid
Trusts for the purposes of unincorporated non-charitable associations
Unincorporated association = a body of persons who usually have common aims (not a separate legal entity; thus, cannot hold property) (e.g. a club or society)
A gift to an unincorporated association can be considered valid if it is construed as:
o A gift to individual members;o A gift for the members subject to the rules of he
association; oro A gift for the continuing purposes of the
association Leahy v Attorney-General for NSW [1959] –A testator had
provided by their will that “as to my property “Elmslea” … upon trust for such order of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select …” and in relation to the residue of the estate upon trust to use the capital and income by way of building a new convent or the alteration of or addition to existing buildings occupied as a convent. Held that firstly, the gift was to the selected order and not to the members of the order itself; secondly, that the members of the selected order may be very numerous and spread all over the world (thus, it is not expected that the gift was to be an immediate beneficial gift to all of the members of the order; and thirdly, the nature of the gift (land) could not indicate that the gift was intended to be a beneficial gift to the members of the order. Held that the trust was invalid.
o The prima facie rule is that where there is a gift to an unincorporated association for the attainment of its purposes it is upheld as an absolute gift to its members. However, this rule only applies to the extent to which the words of donation can be
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properly construed as a gift to the individual members.
Bacon v Pianta (1966) – Mr Pianta provided by his will “I give, devise and bequeath the whole of my estate both real and personal of whatsoever nature and wheresoever situate (after payment of my just debts, funeral and testamentary expenses) to the Communist Party of Australia for its sole use and benefit”. The Communist Party of Australia was an unincroproated voluntary association. The gift failed as it appeared to be a gift for the benefit of both present and future members, which offende the rule against pepetuities.
o “[A] gift to an unincorporated association operates, prima facie, as a gift to the individual members at the time when the bequest becomes operative. However, circumstances may appear which preclude this conclusion; it may appear that the disposition amounts to a trust for the benefit of both present and future members, or, that it is not for the benefit of individuals at all but stands revealed as a trust for some purpose or purposes disclosed by the terms of the bequest. In the former of these two cases the gift may well fail as infringing the rule against perpetuities and, in the latter case, it will fail unless the purpose is, in the legal sense, charitable.”
Factors to consider: (not exhaustive) o The form which the gift takeso The number and disposition of the members of the
associationo The subject matter of the gifto The capacity of the members to put an end to their
association and distribute its assets s33Q Succession Act: Dispositions to unincorporated
associations of personso (1) Each of the following dispositions of property
has effect as a disposition in augmentation of the general funds of the association to which the disposition is made—
(a) a disposition to an unincorporated association of persons that is not a charity;
(b) a disposition to or on trust for the aims, objects or purposes of an unincorporated association of persons that is not a charity;
(c) a disposition to or on trust for the present and future members of an
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unincorporated association of persons that is not a charity.
o (2) Property, a disposition of which is, or has effect under subsection (1) as, a disposition in augmentation of the general funds of an unincorporated association, must be—
(a) paid into the general fund of the association; or
(b) transferred to the association; or (c) sold or otherwise disposed of on behalf
of the association, with the proceeds being paid into the general fund of the association.
o (6) It is not an objection to the validity of a disposition to an unincorporated association of persons that—
(a) a list of persons who were members of the association at the time of the testator’s death can not be compiled; or
(b) the members of the association may not divide assets of the association beneficially among themselves.
Miscellaneous cases
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Stephen Carius’ notes:
Certainty of Intentiono There is no such thing as literal meaning – words take on their meaning by
virtue of the intention of the speaker o In the course of working out what the intention of a trust is, the court does
not just rely on common definitions from dictionaries but also a range of commonly understood features about how the world works
o The test is objective (Byrnes v Kendle) o Always look at verbal evidence (written or oral) first and then non-verbal
(conduct) Certainty of Subject Matter
o Subject matter = the assets subject to the trust o Test: The subject matter and the quantity of that matter must be certain
(e.g. 500 BHP shares) Certainty of Objects
o Two types of objects – beneficiaries and purposeso Common test that applies to both beneficiaries from Morice v Bishop of
Durham – two elements: 1. Enforceability - someone must have standing in order to enforce
the trust Private trusts – beneficiaries have standing to enforce
private trusts Charitable purpose trusts – the Attorney-General has
standing to enforce a trust for a charitable purpose Other purpose trusts (e.g. animals, monuments, etc) – no
one has standing to enforce these trusts; however, if the trustee exercises their power under the trust, this exercise will be valid
2. Controllability – the court must be able to take control of the trusts and execute it in order with the intention of the settlor
o Other cases have provided a different test – there are different tests for fixed trusts and discretionary trusts
Fixed trusts – ‘list certainty’ is required you must be able to list all of the beneficiaries
List certainty is required at the time that the trust is to be distributed, not at the time it is made (Kinsela v Caldwell)
Discretionary trusts – the type of certainty required depends on the type of power given under the trust
Mere power = the donor gives the donee a power of appointment (a power to make an appointment of certain subject matter among a class of objects) that the donee is not compelled to exercise
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o I.e. the donee can do nothing however, a mere power will lapse (either after a time stipulated in the trust or after a reasonable time imputed by the courts)
If the power lapses, there is a gift over in default the takers in default will get the property (takers in default can be, but do not have to be, the class of objects)
o If the donee appoints the property to someone who is not within the class of objects, the takers in default have standing to challenge that appointment (the class of objects have no right to the property or even the right to be considered; thus, they do not have standing to challenge the appointment)
o In order to enforce the rights, the takers in default must satisfy ‘criterion certainty’ can you frame a question, the answer which tells you whether or not the purported beneficiary is within the class of objects
Trust power = the donee is compelled to exercise their power of appointment
o As the class of objects have a right to be considered, they have standing to challenge an appointment
o In order to enforce their rights, the objects must satisfy ‘criterion certainty’ + administrative workability (i.e. ‘controllability’ as from Morice v Bishop of Durham)
How to distinguish between a mere power and a trust power (McPhail v Doulton)
o The court must discern the intention of the donor (objective)
o Relevant considerations: Nature of the language used – mandatory
language (e.g. ‘shall’, ‘must’, etc) indicates a trust power
Identification of takers in default indicates a mere power (as trust powers do not involve takers in default)
Time limitation claueses (when the power lapses) indicates a mere power (a trust power does not lapse as the donee must exercise it)
Overview:Fixed trust – list certaintyDiscretionary trust/mere power – criterion certaintyDiscretionary trust/trust power – criterion certainty + administrative workability
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CHARITABLE TRUSTS
NATURE A charitable trust is an expressed trust for a charitable purpose
o No beneficiary; rather, a charitable purpose There must be certainty of intention and certainty of subject matter
o If the trust is for a purpose other than a charitable purpose, the trust will be void for lack of certainty
The Attorney-General has standing to enforce a charitable trust There are many important consequences of classifying a trust as charitable
o Extensive taxation concessions – e.g. income tax is exempt, concessions for FBT, payroll tax, stamp duty and local government rates
o Charitable trusts are not subject to the rule against perpetuities
TEST FOR BEING CHARITABLE For a trust to be charitable, it must come within the ‘spirit and intendment’ of the
Statute of Charitable Uses 1601o The preamble of the statute lists a number of charitable uses:
Relief of aged, impotent or poor people Maintenance of sick and maimed soldiers and mariners Schools of learning, free schools and scholars in universities Repair of bridges, ports, havens, causeways, churches, sea-banks
and highway Education and preferment of orphans Maintenance of houses of correction Marriages of poor maids
There are four broad categories of charitable trusts: (Commissioner for Special Purposes of Income Tax v Pemsel (1891) )
o Trusts for the relief of poverty o Trusts for the advancement of educationo Trusts for the advancement of religiono Trust for other purposes beneficial to the community
The categories from Pemsel have been regarded as authoritative in Australia:o Central Bayside General Practice Association v Commissioner of State
Revenue of the State of Victoria – A non-profit company, officers of which were doctors, were funded largely by the Cth. The object of the company was to improve patient care in the locale. The issue was whether the company was charitable and could be exempt from payroll tax. There was exemption if people were engaged in work exclusively of a charitable nature. In Australia, there is an assumption that if a body is associated with the government, they are not a charity. This assumption was adopted by VCAT, VSC and CoA. The HCA rejected this view. The fact that the applicant
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and the government both had the goal of improving patient care and that the government sourced those funds did not prevent the organisation from being charitable. An organisation will cease to be charitable when the government controls the organisation’s management and funding.
Relief of Povertyo Poverty does not require destitution, shortage of funds is sufficient
Downing v Federal Commissioner of Taxation (1971) – a trust for “the amelioration of the condition” of the families of ex-servicemen was held to be a valid trust for the relief of poverty
Held that the term ‘poverty’ does not necessarily refer to those in abject poverty, but can be broadened to include people subject to some degree of financial necessity
Re Gwyon (1930) – a trust was to provide clothing for boys that were not supported by a charitable institution was held to be invalid as there was no indication that need (poverty) was required for someone to benefit from the trust
o A trust for the aged has been held to be a trust for the relief of poverty Aged people (as a class) have certain needs by reason of their age
alone. Trusts may provide assistance to the elderly to assist them in dealing with the difficulties and maladies of advanced age. Therefore, a trust for the relief of age need not exclude people whom are wealthy and in good health, in order to be charitable
The courts have not set an age limit at which being ‘aged’ commences; although, gifts for the benefit of a class of persons over 60, or over the retirement age of 65, have been upheld to be gifts for the aged
Hilder v C of e Deaconess’ Institution [1973] – there was a gift of a house and land to be used as a home for retired deaconesses, nurses or elderly women. Held that a trust to provide homes for aged persons can be accepted, without more, as a valid charitable trust. The addition of some element as poverty, need or adversity is not necessary.
o A trust for sickness has been held to be a trust for the relief of poverty Resch’s Will Trusts [1969] – the testator left two-thirds of the
residue of his estate to the Sisters of Charity for the purposes of St Vincent’s Hospitals. Held that this was a valid trust as any profits made from the fees charged in the private section of the hospital were used in the public part of the hospital and no profits were ever distributed to individuals. The mere fact that the hospital charges admission fees does not necessarily deprive it of charitable character.
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Advancement of Educationo The establishment or maintenance of a school or university, or the
provision of additional facilities for the same, falls within the scope of advancement of education
o Education is not confined to schools Education refers to ‘learning’ Trusts for the promotion of the arts
Perpetual Trustee v Groth (1985) – a trust for the establishment of the Archibald prize, a prize given for the best portrait, was held to be valid
Re Municipal Orchestra Endowment Fund (1999) – a trust for the benefit of the Queensland Symphony Orchestra was held to be valid. It was stated that the appreciation of music has a public benefit
Trusts for research Re Hopkins’ Will Trusts [1964] - testatrix left one-third of her
residuary estate to the Francis Bacon Society. The society aimed to find Bacon-Shakespeare manuscripts. Held that this trust was valid. Held that genuine research will be for the advancement of education as long as it is published
Trust for sport Re Nottage [1895] – held that trusts for the promotion of
sports are considered to be outside the legal definition of charity
o There is an argument that the promotion of sport or training in an educational system may e held to be a valid charitable object
o Political purposes are not charitable A trust that has a main or dominant purpose of effecting a change
in the law will not be valid Bowman v Secular Society (1917) - the court has no means of
judging whether a proposed change in the law will or will not be for the public benefit and therefore cannot say that the gift to secure the change is a charitable gift
Bacon v Pianta (1966) – the Communist Party of Australia was not a charitable purpose
National Anti-Vivisection Society v IRC [1948] – the society wanted to abolish animal experimentation. The House of Lords were not prepared to rule that this would be for the public benefit.
Re Shaw’s Will Trusts [1957] – held that a trust for the advancement of replacing the view that the 26 letter English alphabet should be relaced with a 40 letter phonetic alphabet was not a charitable trust as there would have to be a change in the law to make the 40 letter phonetic alphabet legal and to prevent the use of the 26 letter alphabet.
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Aid/Watch v Commissioner of Taxation [2010] – Aid/Watch claimed to be a charity. The Cmr of Taxation took the view that it ceased to be a charitable body because it engaged in advocacy in regards to how Cth funds could be effectively spent. The Cmr regarded this as a political purpose. It was argued that Aid/Watch was a trust for the relief of poverty, for the advancement of education and for other purposes beneficial to the community. Held that Aid/Watch was a charitable purpose as the generation of public debate in relation to the relief of poverty was a charitable purpose. Stated that there is no general doctrine excluding political purposes from the scope of a charitable intention; rather, each situation must be examined on its facts. The mere fact that an agency engages in advocacy does not preclude it from being charitable.
Advancement of Religiono Religion requires: (Church of the New Faith v Commissioner of Pay-roll Tax
(1983)) A belief in a super-natural being, thing or principle; and The acceptance of canons of conduct in order to give effect to that
beliefo The court will not pass judgment on the truth or falsity of a religion o To be for the advancement of religion, the trust must actually advance
religion Roman Catholic Archbishop of Melbourne v Lawlor (1934) – held
that a gift for a “Catholic daily newspaper” was not for the advancement of religion as the newspaper was not confined to teaching Catholic doctrine
Dunne v Byrne [1912] – a bequest to the Roman Catholic Archbishop of Brisbane for the “most conducive to the good of religion in this diocese” was not for the advancement of religion as it was possible for funds to be advanced for other purposes than the advancement of religion
o Private religious ceremonies have been denied charitable statute (Gilmour v Coats (1949) ; Leahy v Attorney-General (1959) )
Modern approach is to hold that private religious ceremonies' are now charitable (Crowther v Brophy [1992] ; Extension of Charitable Purpose Act 2004, s 5)
Other purposes beneficial to the communityo A charitable trust must be for the public benefit
Public benefit is presumed in some trusts for the relief of poverty, the advancement of education and the advancement of religion
o The section of the public who benefits must not be too narrow
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o Re Compton – a trust was set up for members of the Compton, Powell and Montague families. The trust provided for the education of the children of those families. Held that the trust was not for the public benefit as it would not be a trust for a section of the public.
“A gift under which the beneficiaries are defined by reference to a purely personal relationship … cannot on principle be a valid charitable gift”
o Oppenheim v Tobacco Securities Trust [1951] – a trust to provide for the education of children of the employees of British-American Tobacco Co Ltd and subsidiaries (of which there were more than 110,000 employees) was held to be invalid as it was not regarded as a section of the public.
Applied in Australia in Thompson v FCT (1959) o Oppenheim stated that for a trust to be valid, the section of the
public must have the following characteristics: The potential beneficiaries must not be numerically
negligible; The point of distinction between the potential beneficiaries
and the rest of the community must not be their relationship to a particular individual; and
Even if the group of potential beneficiaries is large, the group will not be a section of the public if the nexus between them is a particular relationship (e.g. employment)
o Other benevolent purposes include:o Bathurst City Council v PWC – provision for a car park for the public
in the Bathhurst CBD was regarded as charitableo Incorporated Council of Law Reporting v FCT (1971) – held that the
production of law reports was beneficial to the public due to the universal importance of maintaining the social fabric of the law
o AG v Bray (1964) – held that a trust for the care of the homeless, stray and unwanted animals was regarded as charitable
MIXED CHARITABLE AND NON-CHARITABLE PURPOSES A trust for both charitable and non-charitable purposes is regarded as non-
charitable (Chichester Diocesan Fund v Simpson [1944] )o The general rule is that if any part of the property held on trust may be
applied to a non-charitable purpose, the trust will fail for lack of certainty of objects
Two exceptions – a mixed trust may be saved if:o It is possible to interpret the trust so that the non-charitable purpose is
regarded as merely incidental to the main charitable purpose
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E.g. Congregational Union v Thistlethwaite (1952) – a trust for the Congregational Union, which had as objects “the preservation of civil and religious liberty” and the “maintenance of philanthropic agencies” was held to be valid. The objects were non-charitable but were construed as ancillary to the religious objects of the Union.
o It is possible to sever the non-charitable purpose under statute s 104 Trusts Act 1973 –
o (1) A trust is not invalid merely because its terms extend to both charitable and non-charitable purposes
o (2) The trust shall be construed as if no application of the trust property for a non-charitable purpose shall be allowed.
E.g. Leahy v Attorney General (1959) – A gift for the charitable purposes of a religious order was saved by restricting application of trust funds to charitable purposes. Otherwise funds could have been applied to a contemplative order which was then not regarded as a charitable purpose.
Roman Catholic Archbishop of Melbourne v Lawlor (1934) – a gift for “Catholic daily newspaper” could not be saved as the court stated that the legislation cannot be applied where the charitable and non-charitable purposes were inseparable
FAILURE OF A CHARITABLE PURPOSE If there is a valid charitable trust but it is impossible or impractical to carry out the
charitable purpose, the trust does not need to fail. The trust may be saved under the cy-pres doctrine
o s105 Trusts Act sets out situations that are regarded as matters of impossibility or impracticability (under such situations, it is possible for the trustees to apply to a court for orders that the trust property be applied to another purpose, which is near to the specified purpose (cy pres means something that is near))
(1) The circumstances in which the original purposes of a charitable trust can be altered to allow the property given or part of it to be applied cy pres, shall be as follows:
(a) Where the original purposes, in whole or in parto (i) have been as far as may be fulfilled, oro (ii) cannot be carried out, oro (iii) cannot be carried out according to the
directions given and to the spirit of the trusto Once the court is satisfied that the matter falls within one of the paragraphs
of s105(1), it will then be considered whether the settlor/testator had a general charitable intention, to which the trustee might be able to give effect in some other way
A cy-pres scheme gives effect to this general charitable intention
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Where the owner only had a particular charitable intention and that intention could not be applied in the specified manner, then it should fail
o Re Anzac Cottage Trust [2000] – the Anzac Cottages Trust was formed in 1918 with a purpose of the provision of housing for dependants of homeless widows of Queensland veterans who had died in WWI. By 2000, the dominant function of the trust was fulfilled as there were no more widows of veterans of WWI. The court held that as the dominant purpose of the trust was fulfilled, the trust property was to be applied cy-pres for various charities that benefit dependants of veterans.
Stated that there are two considerations for the cy-pres doctrine to apply:
1. Is the impossible or impractical direction in the trust created by the settlor, an indispensible part of the trust?
2. Did the settlor manifest a general charitable intention? o Attorney General (NSW) v Perpetual Trustee (1940) – a testatrix left her farm
to train ‘orphan lads’. The farm was impracticable for the purpose as there was insufficient income to operate the farm and there was only a small cottage. Held that the testatrix had a general charitable intention to train orphan lads in farming and the use of the property was not essential to her intention. The HCA made an order that the trust be applied cy-pres.
o Re Lysaght [1966] – the testatrix left money to the Royal College of Surgeons to be held on trust to provide scholarships to British-born students who were not of the Jewish or Roman Catholic faith. The College would have disclaimed gift rather than give effect to the discriminatory condition. Was there a general charitable intention that would allow the court to order a scheme to allow the college to administer the funds without any religious discrimination?
o Phillips v Roberts – the testatrix left property “to improve biblical knowledge by establishing a new church”. It was impracticable to commence a new church, but it was found that the testatrix had a general charitable intention. Scheme preferred which advanced biblical knowledge by archaeology without benefiting mainstream churches which the testatrix did not intend to benefit.
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Stephen Carius’ notes:
In regards to purpose trusts, it is necessary to determine whether a trust is charitable because this will mean that the Attorney-General has standing to enforce the trust and certainty of beneficiaries will be met
Whether or not a trust is for a charitable purpose is a question of policy o s3 Trusts Act repeals the Statute of Elizabeth; however, s103(1) Trusts Act
preserves the definition of what is considered charitable under the general law
Aid/Watch v Commissioner of Taxation stated that s103 was intended to pick up the definition of what was a charitable purpose under the general law at the time the statute was enacted but could also be modified from time to time
Structure: In order for a charitable trust to be valid, there are three requirements:
o 1. The trust must fall within one of the four categories listed in Commissioner for Special Purposes of Income Tax v Pemsel
Categories = relief against poverty, advancement of religion, advancement of education, public welfare
o 2. The trust must be for the public benefit The trust must be for the benefit of the public at large and not just a
subsection of the public Oppenheim – A charitable trust can be for a subsection of the
community but that subsection must (1) not be numerically negligible; and (2) not linked by relationship to a particular individual
o 3. The trust must not be for a political purpose A trust for a charitable purpose for the public benefit may be invalid
if it is for a political purpose Aid/Watch v Commissioner of Taxation stated that a trust for a
political purpose may not be disqualified as there is good purpose in generation public debate However, the court will still have an objection to trusts that are clearly political in nature as the Attorney-General will be In a difficult position if the purpose is challenging a law currently in place.
Mixed trusts, trusts that involve both a charitable and a non-charitable purpose, can be saved through statute or a scheme
o s104 Trusts Act – provides that if there is a mixed trust and it is possible to construe the trust in a manner that you can disaggregate the two purposes and the trust can be applied just for the charitable purpose, the trust will be valid.
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o General/Administrative Scheme – so long as there is a general charitable purpose expressed in the trust, the trustee can go to the court and ask for guidance as to how to execute the trust
o Cy-pres scheme – where a charitable object is expressed but it is impossible or impractical to carry out
Initial failure – if the trust is impossible or impractical to carry out as soon as the trust is to be exercised (e.g. if there is a trust for the maintenance of a building and that building burns down before the will is executed), so long as there is a general charitable intention beyond that specified, the trust funds can be applied in a manner as near as possible to the intention of the settlor
Supervening failure – if the trust becomes impossible or impractical to carry out after the trust is exercised (e.g. if there is a trust for the maintenance of a building and that building burns down after the will is executed), there must be a particular charitable purpose.
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FORMALITIES
FORM Generally speaking, a trust may be created in any form
o Deed: Most common way that a discretionary trust is established The settlor and trustee will sign a trust deed (which is professionally
drafted) This means there is privity between the settlor and the
trustee if the trustee does not honour their obligations, the settlor can bring the trustee to account under the terms of the deed.
A deed is a solemn act in the eyes of the law – signing a deed has more force and weight that signing a normal peace of paper
Woodward v Woodward (1992) - stated that despite any imperfections in a document, courts will strive to give effect to the terms of a deed
o Will: A will does not take effect until the death of the testator/testatrix When a trust is established under a will, the word 'trust' is often not
used. A trust under will is precarious as:
Under family maintenance provisions in statutes, wills are often challenged
The testamentary capacity of the testator can be challenged by the next of kin
o Simple writing: Writing indicates that there is certainty of terms
o Parol/Word of mouth A trust can be created orally (some exceptions) Kennon v Spry [2008] – Spry had prepared a trust deed for the
transfer of shares but did not sign the deed as it would have attracted stamp duty. HCA accepted that an oral declaration of a trust was valid and the trust was created from the very moment that the trust deed was drawn up.
Statutory Requirements: o Trusts of Land:
s11(1)(b) PLA – “a declaration of trust respecting any land must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person's will”
Elements: Declaration of trust Proved by writing Signed by a person who is entitled to declare such a trust
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o Assignments or Dispositions of Existing Equitable Interests: s11(1)(c) PLA – “a disposition of an equitable interest or trust
subsisting at the time of the disposition, must be manifested and proved by some writing signed by the person disposing of the same, or by the person's agent lawfully authorised in writing, or by will.”
Elements: Disposition
o ‘Disposition’ has a wide meaning under Sch 6 PLA – includes conveyance, vesting instrument, declared trust, etc
Equitable interest o This section applies to dispositions of equitable
interests in land and personalty Interest must subsist (exist) at the time of the disposition Manifested and proved by some writing
o The disposition does not have to be in writing; rather, must be able to be proved by writing (however, a disposition of land must be in writing under s11(1)(a) PLA)
o A number of connected documents can satisfy the requirement of writing (Danish Bacon Co)
Vandervell v IRC [1967] – Vandervell transferred 100,000 shares of his company to the Royal College of Surgeons, with an option to purchase back the shares. He instructed the company to declare a dividend on the shares. Vandervell hoped that this meant that he would avoid having to pay tax. The IRC made a claim for tax on the transfer. The IRC claimed that Vandervell retained an equitable interest in the shares as he had not signed a share transfer form. Vandervell was liable to pay tax.
o Testamentary trusts – Succession Act A will must be in writing and signed
There are some exemptions from the requirements of writing under s11(2) PLAo The requirement of writing for trusts of land and assignments or dispositions
of existing equitable interests does not apply in cases of resulting trusts, implied trust and constructive trusts
RESULTING TRUSTS A resulting trust is implied by the court in cases where the settlor has failed to
dispose of a beneficial interest in the trust property o E.g. The settlor declares that certain property is held on trust but does not
mention the beneficiaries. In this case, the trustee is not entitled to this property under the presumption of advancement, as it was clear that the settlor never intended for the trustee to benefit. The trust property will revert back to the settlor under a resulting trust.
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Resulting trusts can be either:o Automatic resulting trustso Presumed resulting trusts
Failure of a secret trust – Pugh’s Will Trustso FACTS: The testator appointed his solicitor as the executor of the will as well
as the trustee. Under to a clause of the will, it was clear that the solicitor was not to take any of the property beneficially. The solicitor could dispose of the property in any way. Was there a trust?
o HELD: There was not a trust as the trust did not satisfy certainty of objects. There were no instructions left by the testator indicating how they residuary of the estate should be divided. The trust was void for uncertainty.
Automatic resulting trusts are sometimes imposed where there are surplus assets in a fund (i.e. the trustee has more than sufficient assets to satisfy an express trust)
o Re Trustees of the Abbott Fund [1900] - Dr Abbott collected a sum of money and placed it in a bank account called the 'Abbott Fund'. What would happen to the money in the fund upon Abbott’s death? Should the money go to the next of kin or to the subscribers (donors) of the fund? Held that the money should go to the subscribers due to an automatic resulting trust.
o Re GIllingham Bus Disaster Fund [1958] - Marine cadets were injured in a road accident. Some died and some were injured. A notice was placed in the newspaper stating that the Mayor was establishing a memorial fund for to help pay for funeral services, help the disabled and any other worthy causes. There were many large donations made by known persons. There were smaller donations made by unknown persons (e.g. donations to tins). There were leftover funds. What would happen to the leftover money? Trustees sought the direction of the court. Three possible claimants - 1. Donors. 2. Crown. 3. Attorney-General could intervene to have the funds applied for a charity. Before the court could rule that the Crown could take the money bonavacantia, it had to be shown that the donors had left the money absolutely. This could not be shown. There was an automatic resulting trust back to the known donors as the donors had given their money for a specific purpose.
o Re West Sussex Constabulary Widows (1930) - People subscribed to a fund for the West Sussex Constabulary widows. The West Sussex police formce amalgamated with another police force. There was a meeting and there was a resolution to close the fund. They proposed that the fund be distributed in accordance with a scheme. However, at the time of the meeting, the members were not members of the West Sussex constabulary; rather, were former members. The fund provided that any meeting had to be held by current members. The former members had no standing to pass a resolution for the closing of the fund. The court examined how contributions were made to the fund. They were not paid on any trust basis, they were made as part of a contract of employment. That money that could be traced should go back to the donors. The money that could not be traced, such as money
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held from proceeds of raffles and voluntary collections, went to the Crown bonavacantia.
Presumed resulting trust there is a presumed resulting trust in cases where a person buys property in the name of another that the legal titleholder holds that title on resulting trust for the purchaser
o Calverley v Green (1984) – A man and woman lived together for ten years in a de facto relationship. The man made the mortgage repayments. Upon separation, the issue was who had an interest in the house. Held that the resulting trust would arise in favour of who had made payments (at this time, there was no automatic presumption of advancement in favour of de facto partners)
Equity adopts a policy that if you have provided consideration for property, prima facie you are entitled to it.
It will often depend upon the intention of the purchaser. The court will often have no indication of what the intention of the purchaser was. If there is no discerned intention, there will be a resulting trust in favour of the purchaser.
o Napier v Public Trustee (1980) – A man purchased a house in the name of his de facto wife. On her death, she left the house to a third party. The man claimed an interest in the house. The court stated that in such a case, there is a presumption that the transferee will hold the property. It was not the intention of the purchaser for the wife to hold a beneficial interest in the property. There was evidence of an actual agreement between the parties that the wife would leave the property to the husband. It was held that the house was held on trust for the man.
o This principle applies if purchase money is provided by two or more parties o This presumption can be rebutted:
Credible evidence to the contrary: Russell v Scott (1936) - There was a joint account between a lady and her nephew. All the money in the account was deposited by the aunt. There was credible evidence that the lady had agreed that on her death, the money in the bank account would go to the nephew. Prima facie, the principles of equity would apply that as the lady had provided all the money, the money would revert to her estate upon her death. However, the presumption was rebutted and the nephew was entitled to the money.
Presumption of advancement: Re Bulankoff [1986] – stated that when a gift is made to a child by a parent, it is presumed to be a matter of intended advancement (I.e. it is presumed that the payment or transfer of property is a gift and it was intended for the child to take the property benefiically)
Illegality by statute: Nelson v Nelson (1995) - A woman was entitled to received a defence service loan; however, this was only the case if she did not already own a house. She transferred the house she already owned to her children. One child subsequently did not
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recognise the mother's interest. The court recognised that the mother did have an interest in the house but provided relief on the terms that she would pay any interest that she evaded by transferring the house (she needed to do equity to get equity).
EQUITY WILL NOT PERMIT A STATUTE TO BE USED AS AN INSTRUMENT OF FRAUD Doctrine of Part Performance:
o The Statute of Frauds 1677 was passed to prevent frauds through the admission of fabricated oral evidence
o Despite recognising that it could not deny the binding force of the Statute of Frauds, the Court of Chancery regarded itself as having power to intervene where the strict application of the statute would promote the fraud it was intended to prevent
E.g. Common law stated that if one wanted to claim that there had been a contract for the sale of land, this had to be evidenced in writing. The Court of Chancery stated that this rule did not apply if there was part peformance – e.g. the purchaser had possession of the land or had paid part of the purchase price
Court of Chancery stated that the Parliament did not intend the statute to be of application in cases where there was pert performance
o Requirements of part performance: An agreement/contract of the general nature alleged (McBride v
Sandiland (1918) ) Sufficient acts of part performance – e.g. going into possession,
paying rent, etc (Regent v Millet (1976) ) The acts must be unequivocal and referrable to the contract
or agreement Acts must be induced or allowed by the other party (Caton v Caton)
Rochefoucald v Boustead [1987] – stated that equity considers it to be a fraud on the part of the person to whom land is conveyed as a trustee to deny that trust. The beneficiary of an oral declaration of trust may enforce the trust notwithstanding the lack of written evidence
COMMON INTENTION TRUST In cases such as trusts between spouses and those living together, evidence of a
formal contract (an agreement to create a trust) will usually be lacking courts have tried to deal with this issue in a number of ways, including via the common intention trust
There is no writing requirement in relation to constructive trusts – thus, prior to the de-facto relationship legislation, many co-habitees have relied upon the constructive trust doctrine (as those in domestic relationships rarely reduce their agreement to writing)
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Gissing v Gissing [1970] – the plaintiff contributed to the household but not the mortgage directly. There was no written declaration or agreement regarding who had an interest in the house. The court held that the plaintiff must establish that there was a common intention for the plaintiff to have a beneficial interest in the property. There was no common intention in this case
o Principle: Where there has been no written declaration or agreement, nor any direct provision by the plaintiff of part of the purchase price so as to give rise to a resulting trust, she must establish a common intention between her and the defendant, acted upon her, that she should have a beneficial interest in the property.
The common intention can arise after the property has been acquired (Green v Green)
There are difficulties in advising what the extent of the beneficial interest is in a common intention trust
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TESTAMENTARY TRUSTS
GENERAL Testamentary trusts = trusts found in a will The will takes effect upon the death of the testator/testatrix – all trust property is
still in owned by the testator/testatrix until their death Testamentary trusts are highly vulnerable to attack:
o E.g. Someone could allege that the testator/testatrix did not have testamentary capacity at the time of executing the will; those who do not feel as if they have been adequately provided for (such as a child) may challenge the will
Key definitions (s5 Succession Act 1981 (Qld) ):o Will – includes a codicil (an amendment to a will) and other testamentary
dispositionso Disposition – includes a gift, devise or bequest by a will and the creation or
exercise by will of a power of appointment Note: a nomination under a superannuation or pension scheme is
not a testamentary disposition as the interest of a member in the fund is not assignable (Baird v Baird (1990) )
FORMAILITIES Historically, the requirements have been strict; however, these strict provisions have
been amended s10 Succession Act covers the manner of execution of wills
o (1) This section sets out the way a will must be executed. o (2) A will must be:
(a) in writing; and (b) signed by:
(i) the testator; or (ii) someone else, in the presence of and at
the direction of the testator. o (3) The signature must be made or acknowledged by the testator in the
presence of 2 or more witnesses present at the same time. o (4) At least 2 of the witnesses must attest and sign the will in the presence
of the testator, but not necessarily in the presence of each other. o (5) However, none of the witnesses need to know that the document
attested and signed is a will. o (6) The signatures need not be at the foot of the will. o (7) The signature of the testator must be made with the intention of
executing the will.
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o (8) The signature of a person, other than the testator, made in the presence of and at the direction of the testator must be made with the intention of executing the will.
o (9) A will need not have an attestation clause. o (10) A person who cannot see and attest that a testator has signed a
document may not act as a witness to a will. o (11) If a testator purports to make an appointment by will in the exercise of a
power of appointment by will, the appointment is not valid unless the will is executed under this section.
o (12) If a power is conferred on a person to make an appointment by will and the appointment must be executed in a particular way or with a particular solemnity, the person may make the appointment by a will that is executed under this section but is not executed in the particular way or with the particular solemnity.
o (13) This section does not apply to a will made under an order under section 21.
Hensler v Padget [2008] – the Court will focus on whether the document evidences the real intention of the testator
s18 Succession Act allows the court to dispense with the formal requirements of execution, alteration or revocation of a will
o (1) This section applies to a document, or a part of a document, that (a) purports to state the testamentary intentions of a deceased
person; and (b) has not been executed under this part.
o (2) The document or the part forms a will, an alteration of a will, or a full or partial revocation of a will, of the deceased person if the court is satisfied that the person intended the document or part to form the person's will, an alteration to the person's will or a full or partial revocation of the person's will.
o (3) In making a decision under subsection (2), the court may, in addition to the document or part, have regard to:
(a) any evidence relating to the way in which the document or part was executed; and
(b) any evidence of the person's testamentary intentions, including evidence of statements made by the person.
o (4) Subsection (3) does not limit the matters a court may have regard to in making a decision under subsection (2).
o (5) This section applies to a document, or a part of a document, whether the document came into existence within or outside the State.
s18 shows that the court will adopt a beneficial approach – the court will strive to save a will where possible. If the court is satisfied that the document represents the testamentary intention of the testator, the court will save the will even if some formality has not been carried out (Re Garris)
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o In order to determine the testator’s testamentary intention, the court has a wide discretion to admit evidence regarding how the document was executed, anything that the testator stated before or during the executing of the will and even heresay evidence
REVOCATION OF A WILL There are a number of ways in which a will can be revoked:
o A later will can revoke a previous will (e.g. the phrase ‘this is my last will and testament’ revokes any previous wills)
o Marriage (s14 Succession Act) (1) A will is revoked by the marriage of the testator. (2) However, the following are not revoked by the marriage of the
testator: (a) a disposition to the person to whom the
testator is married at the time of the testator's death;
(b) an appointment as executor, trustee, advisory trustee or guardian of the person to whom the testator is married at the time of the testator's death;
(c) a will, to the extent it exercises a power of appointment, if the property in relation to which the appointment is exercised would not pass to an executor under any other will of the testator or to an administrator of any estate of the testator if the power of appointment were not exercised.
(3) Also: (a) a will made in contemplation of a marriage,
whether or not that contemplation is stated in the will, is not revoked by the solemnisation of the marriage contemplated; and
(b) a will that is stated to be made in contemplation of marriage generally is not revoked by the solemnisation of a marriage of the testator.
o Divorce or annulment (s15 Succession Act) will affect a will: (1) A testator's divorce or the annulment of a testator's marriage
revokes: (a) a disposition to the testator's former spouse
made by a will in existence when the divorce or annulment happens; and
(b) an appointment, made by the will, of the former spouse as an executor, trustee, advisory trustee or guardian; and
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(c) any grant, made by the will, of a power of appointment exercisable by, or in favour of, the testator's former spouse.
(2) However, a testator's divorce or the annulment of a testator's marriage does not revoke:
(a) the appointment of the testator's former spouse as trustee of property left by the will on trust for beneficiaries that include the former spouse's children; or
(b) the grant of a power of appointment exercisable by the testator's former spouse only in favour of children of whom both the testator and the former spouse are parents.
PROPERTY THAT MAY BE DISPOSED OF BY WILL s8 Succession Act deals with what property can be disposed of by will:
o (1) A person may dispose by will of any property to which the person is entitled at the time of the person's death.
o (2) Subsection (1) applies whether or not the entitlement existed at the date of the making of the will. (i.e. property that the testator acquired after the making of the will is subject to the will)
o (3) A person may dispose by will of any property to which the person's personal representative becomes entitled, in the person's capacity as personal representative, after the person's death.
o (4) Subsection (3) applies whether or not the entitlement existed at the time of the person's death.
o (5) A person may not dispose by will of property of which the person is trustee at the time of the person's death.
Example of property that cannot be disposed of by will:o Property held as joint tenants under the right of survivorship, the other
joint tenant/s will inherit the deceased’s interesto Superannuation and insurance policies these policies will often state who
the beneficiary is to be
TESTAMENTARY CAPACITY The testator must have testamentary capacity at the time of making the will There are different tests/requirements in different cases:
o Banks v Goodfellow (1870) – A testator shall: (1) Understand the nature of the act and its effects (2) Understand the extent of the property of which he is disposing (3) Be able to comprehend and appreciate the claims to which he
ought to give effect
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E.g. If someone of importance has been excluded (e.g. a child), the testator must provide cogent reasons as to why they have been excluded
o Timbury v Coffee (1941) – Before a will can be upheld, it must be shown that at the time of making the will, the testator had sufficient mental capacity to:
(1) Comprehend the nature of what he was doing and its effects (2) Realise the extent and character of the property he was dealing
with (3) Weight the claims which naturally ought to press upon him
o McGrath v de Plater [2004] (the currently accepted test in Qld) – In order to show testamentary capacity, it must be shown that the testator:
(1) Knew what he was doing and the effect of his disposition (2) Knew what estate he had to dispose of (3) Knew what persons might have a claim on him
Note: The burden of proof lies on the person claiming that the will is valid to show that the testator had testamentary capacity
MINORS A minor may execute a will only in certain circumstances:
o The minor is married (s9(2)(b) Succession Act) o The will is made in contemplation of marriage(s9(2)(a) Succession Act)o The will is authorised by a court order (s19 Succession Act)
(1) The court may make an order authorising a minor to: (a) make or alter a will in the terms stated by the
court; or (b) revoke a will or part of a will.
(2) A minor, or a person on behalf of a minor, may apply for an order under subsection (1).
(3) The court may make the order only if the court: (a) is satisfied that the minor understands the nature
and effect of the proposed will, alteration or revocation and the extent of any property disposed of under the proposed will or alteration; and
(b) is satisfied that the proposed will, alteration or revocation accurately reflects the intentions of the minor; and
(c) is satisfied that it is reasonable in all the circumstances that the order be made; and
(d) has approved the proposed will, alteration or revocation.
DELEGATION OF TESTAMENTARY POWER
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A testator cannot delegate to others the power to decide how his or her estate is to be disposed of
o Tatham v Huxtable (1950) – Kitto J stated that it was a cardinal rule that a person may not delegate testamentary power
o This rule is in conflict with s33R Succession Act - A power or a trust, created by will, to dispose of property is not void on the ground that it is a delegation of the testator's power to make a will, if the same power or trust would be valid if made by the testator, by instrument, in the testator's lifetime.
A testator is permitted to confer upon executors a power of selection and apportionment amongst a defined class of beneficiaries
o Gregory v Hudson - the trustee had a discretion to distribute the Royce Gregory Family Trust funds to the world at large, excluding himself, his legal personal representation and his family. This was held to be a valid testamentary disposition
SECRET TRUSTS ‘Secret trust’ is the title to particular types of trust created by will Secret trusts = trusts not disclosed on the face of the will, but which, in certain
circumstances, will be upheld o A secret trust will be created where the testator does not want the world
at large to know of the trust (e.g. where the testator wants to give money to a mistress or an ex-nupital child)
Secret trusts may be enforceable despite lack of compliance with the Succession Act Two types of secret trusts:
o Fully secret trusts Where the testator makes an apparently absolute gift but that gift
is encumbered by another trust (Voges v Monahan) E.g. “I give Blackacre to X” – It appears that X will obtain the full
legal and beneficial interest in Blackacre; however, X will not be able to take the property as his or her own if the testator, prior to his or her death, either before or after making the will, tells X that X must hold Blackacre on trust for someone else and X accepts that trust. X will then hold Blackacre on trust for someone else under the terms of the arrangement reached with the testator
If the agreed purpose becomes impossible to perform, or illegal, X will not be entitled to take the property as his or her own. X will hold it on trust for the testator’s next of kin, or other takers on intestacy
o Half secret trusts The will shows that a trust is intended, but the beneficiary is not
identified E.g. “I leave X $50, 000 on the trusts which I have already told her”-
in such a case, the nominated trustee cannot take the property beneficially. The property will either be held on trust for the
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testator’s next of kin or residuary beneficiaries, or for the object of the secret trust, depending on whether the nominated trustee is informed of the secret object before the execution of the will (Re Fleetwood)
Elements of a secret trust:o Intention – there must be an intention to impose a trust obligation on the
primary donee (the party named in the will) in favour of a secondary donee (the party actually intended to benefit)
There is no intention to impose a trust obligation if the donee is to take the property absolutely
There may be no intention if the donee has some discretion regarding whether or not to release the property to certain beneficiaries or nor
o Communication – the terms must be definite and have been communicated to the primary donee before the death of the testator
o Acceptance – the primary donee must agree that they will perform the trust
Acceptance must occur before the death of the testator in a fully secret trust and before the will in the case of a half secret trust
Examples:o Blackwell v Blackwell [1929] – a widow and son objected to a trust for a
mistress and her child. The legatee (donee) was bound to give effect to the trust as it had been communicate to and accepted by the legatee.
o Voges v Monahan (1954) – The testator died leaving substantial funds. The testator had a wife but no children. There were two persons who had moral claims on the estate – a servant who has served the testator during his lifetime and a niece who the testator told he would make provision for in his will. The entire estate was left to Voges. HCA held that a trust was present and Voges had to pay annuities to the widow, niece and servant.
MUTUAL WILLS Mutual wills involve an agreement between parties to make wills in favour of each
other providing reciprocal benefits with some provision in each case that, should the one predecease the other, the survivor will make provision for some third party or parties mutually agreed upon
o E.g. A husband and a wife each make a will that upon the death of one of them, the other will receive the deceased’s property and that once the survivor dies, their property is to go to their children
Mutual wills cannot be revoked without the consent of the other party (Birmingham v Renfrew (1937) )
Bigg v Queensland Trustees [1990] o FACTS: A husband and wife agreed to leave their assets to each other and on
the death of the survivor equally to their respective children from former marriages. The husband made investments in his wife’s name in reliance on
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the agreement. After the death of his wife, the husband learned that his wife had made a will leaving all her assets to her own children. The husband sought a declaration that the children held the assets on trust for him.
o HELD: A constructive trust existed over the assets which were the subject of the agreement. The husband had arranged his affairs on the basis of the agreement; thus, equity would prevent a breach of the agreement.
o Note: This case involved an oral agreement. The Court inferred from the actions of the parties that a non-written mutual will agreement was made.
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INVALIDATING FACTORS
GENERAL Once the three certainties have been satisfied, the court will consider whether there
are any invalidating factors that will render the trust void Invalidating factors include:
o The rule against perpetuitieso Public policyo Illegal purposeso Restraints on alienation
THE RULE AGAINST PERPETUITIES Policy behind the rule – the rule performs a useful social function in limiting the
power of members of past generation from tying up property in such a form as to prevent it from being freely disposed of in the present or future (Re Clark)
o Past generation should not have the right of indefinitely fettering the use of property in the future (preventing the ‘dead hand of the past’)
The rule is not designed to prevent perpetual ownership (e.g. a disposition to a corporation will be perpetual as corporations are perpetual); rather, to prevent perpetual restrictions on the right to use and dispose of property
Rule – “No interest is valid unless it must vest, if it vests at all, within a period of a life in being, the date of the gift plus 21 years” (Air Jamaica v Charlton)
o The rule has evolved over the years. Past rules were that the interest must vest within:
A period of a life in being (Duke of Norfolk’s case) A period of a life in being plus a period of gestation (Stephens v
Stephens) 21 years after the death of a life in being (Cadell v Palmer)
o Vest means someone obtaining beneficial and legal title (does not necessarily mean the person obtains possession)
A gift must vest within the perpetuity period The common law approach to the rule is harsh – if there is a possibility that the
interest would vest outside of the perpetuity period, the rule against perpetuities will be infringed and the interest will be invalid
o It is about ‘possibility’ not ‘probability’ (Air Jamaica v Charlton) Exceptions:
o Where a trust is for a purpose which is non-charitable, the rule against perpetuities has been excluded by statute (s 24, Mt Gravatt Showgrounds Act 1988)
o A gift over from one charity to another charity (s219(2) PLA; Re Spensley’s Will Trusts)
Gift over is a clause whereby if one charity fails, the n the funds will be applied to another charity
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o Options to purchase reversions exercisable by lessee or the lessee’s successors in title within a year following the determination of lease (s219(2) PLA)
o Options for renewal or right of pre-emption contained in will (s218(1) PLA)o Exercise of trustee powers (s220(1)(a)-(c) PLA) o Superannuation trusts (s220(1)(d) PLA; ss14, 343 Superannuation Industry
(Supervision) Act 1993 (Cth)) The perpetuity period – the period relates to the maximum period for which
vesting can be postponed o The period is different under common law and statute:
Common law – the period of a life in being plus 21 years (Cadell v Palmer).
If there is no life in being, a period of 21 years (Re Wood) Statute – a period not exceeding 80 years, if specified in the trust
instrument (s209 PLA) o The period commences at different times depending upon the document in
which the trust is contained: Instrument inter vivos – commences straight away Will – commences upon the death of the testator/testatrix Deed – commences once the deed is signed, sealed delivered
Lives in being – at common law, any life or number of lives in being can be used to mark out the perpetuity period.
o Rules for someone being a life in being: The measuring life must be human (Re Kelly) The person must be living at the date when an interest is created If a group of persons is used, that group cannot be capable of
increasing (s210(5) PLA) Exception: see rule in Andrews v Partington below
The group of persons must be ascertainable (Re Moore) The lives in being do not have to be beneficiaries (Cadell v Palmer) The lives in being may be mentioned expressly or by implication in
the disposition o Rule from Andrews v Partington – in a trust involving the phrase ‘to all
children of A who attain 21 years of age’, if at the time the disposition takes effect at least one child has attained the age of 21 years, the class of beneficiaries is deemed to include only those who are already alive
o Disposition to a class – in the case of a disposition to a class of persons or to one or more members of a class, any person living at the date of the disposition whose life is so expressed to be relevant for any member of the class may be reckoned to a life in being (s210(5) PLA)
o Widowers – If the settlor provides that A has a life interest in an estate, then to the widower of A for his/her life, and then for the children of A then living, the widower is a life in being (s214 PLA)
Assumptions about future parenthood:
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o At common law, the rule is about possibility not probability; thus , if there is a possibility that someone may have a child causing the interest to vest outside of the perpetuity period, the trust will be held void
E.g. E.g. Re Dawson – a gift of property by the testator to his daughter for life, with remainder to such of her children as shall attain the age of 21 was held to be void as there was a possibility that the daughter could have more children, despite the fact that the daughter was aged over 60 and all of her children were over 21
o The common law position is remedied by statute s212 PLA states that it is presumed that:
A male aged 12 years or over can have a child A female aged 12 years or over can have a child but a
female aged 55 years or over cannot have a child These presumptions can be rebutted by evidence to the
contrary o s212(1)(b) – evidence can be provided to show that
a person will not be capable of having a child s212(4) PLA – extends age presumptions to cases of having a child
be adoption, legitimation or other means When is the validity of a gift assessed?
o Common law – the validity of a gift is assessed at the start of the perpetuity period
o Statute law – the court may “wait and see” whether the interest will vest outside of the perpetuity period (s210 PLA)
A disposition will only become void once it is apparent that an interest is bound to best after the expiry of the perpetuity period
Age reduction:o Some trusts involve phrases such as ‘to A’s children to attain the age of 25
years’ – this is an age limitation phrase o If a phrase limits a disposition by reference to a person attaining an age
exceeding 18 years, the age can be reduced as far as necessary, but not further than 18 years, in order to save the disposition (s213 PLA)
This section can only be used if the gift would have been void solely due to the age limitation
Class gifts:o Common law – in order for a gift to be valid, every member of a class must
have satisfied the necessary requirements within the perpetuity period. If it is possible that one member of the class will take a vested interest outside of the perpetuity period, the entire gift will be void
o Statute law – some class members may be excluded in order to save the validity of an interest (s213(3) PLA)
If a subsequent gift is dependent on a previous gift and that previous gift is held to be void, the subsequent gift will also b void
Perpetual trusts:
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o A trust will be void where, under the terms of the trust, the capital will be kept intact so that the income can be used for a period exceeding the perpetuity period. This renders the property inalienable (Re Cain)
PUBLIC POLICY Trusts which are contrary to public policy will not be enforced by the court Trusts which undermine the sanctity of marriage will not be enforced (Trustees of
Church Property of the Diocese of Newcastle v Ebbeck)o E.g. Ellaway v Lawson – a trust which made a gift to an individual provided
that the individual divorced her husband was invalid Trusts which undermine the relationship between parent and child will not be
enforced (Re Boulter; Boulter v Boulter) The attitude of the court towards public policy will be informed by legislation (e.g.
Anti-Discrimination Act 1991; Status of Children Act 1978; PLA – de facto relationships)
o E.g. Cases that restrict marriage to a particular religion (Duggan v Kelly), nationality (Perrin v Lyon) or social class (Jenner v Turner) are unlikely to be authoritative today due to anti-discrimination legislation
ILLEGALITY Trusts may be unenforceable on the basis that enforcing the trust would assist a
party to carry out an illegal purpose After Nelson v Nelson, there is debate whether there are any situations in Australia
that would lead to a trust being held to be unenforceable on the grounds of illegalityo In most cases, the act will be subject to some statutory sanction or penaltyo In some cases, it may be desirable to enforce the trust in order to set in train
other proceedings that may redress the wrongdoing Situation in which trusts will not be effective to avoid creditors or to reduce or avoid
tax liability are now largely governed by statute (e.g. Bankruptcy Act 1996; Corporations Act 2001; Income Tax Assessment Act 1936)
RESTRAINTS ON ALIENATION If property is settled on trust for someone absolutely, any provision restraining the
donee from alienating it or otherwise exercising the normal rights of ownership will be void
o This principle only applies to absolute gifts (will not apply to a determinable interest – i.e. an interest that will determine/terminate on the happening of some specified event which may never occur)
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Stephen Carius’ Notes
Structure: 1. Does the rule against perpetuities apply in the situation?
o The rule against perpetuities will only apply if there is a non-vested interest Non-vested interest = an interest in which a condition must be
satisfied, other than the mere passing of time, in order for the person to qualify for the interest
E.g. ‘To A for life and then remainder to B’ – A’s interest is vested. B’s interest is also vested as there is no condition, other than the passing of time, for B to be entitled to the estate (B takes his interest once A dies, which is inevitable)
E.g. ‘To A for life and then remainder to B if B reaches the age of 21’ – A’s interest is vested. B’s interest is non-vested as B must make it to 21 (a condition other than the mere passing of time) to qualify for the interest
o If there is a non-vested interest, the rule against perpetuities must always be considered.
2. What is the perpetuity period?o The perpetuity period runs from the time the non-vested interest is
created until 21 years after the death of the last surviving life in being (Cadell v Palmer)
A) When is the interest created/comes into effect? In an inter vivos trust, an interest comes into effect
according to the interpretation of when the instrument was intended to come into effect
o s47 PLA – a deed does not come into effect merely when it is executed. A deed is considered to be delivered when the deed was intended to come into effect
In a testamentary trust (will), an interest comes into effect once the testator dies
B) Who are the lives in beings? s210(5) PLA – in the case of a disposition to a class of
persons, any person living at the date of the disposition whose life is so expressed to be relevant for any member of the class may be considered to be a life in being
A life in being must satisfy these conditions: o Must be a natural person (i.e. not a corporation) o Must be alive when the non-vested interest is
createdo If a class is referred to, that class must not be
capable of increasing (e.g. if an interest is granted
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to grandchildren, the grandchildren will not be lives in being if it is possible that more grandchildren will be born)
Presumptions to apply when determining who is a life in being:
o s212(1)(a) PLA – women cannot have children under the age of 12 or over the age of 55; men can have children at any age over 12
o s213(3) PLA – if a husband dies while his wife is pregnant, that child is not taken to increase the class once born
o State the perpetuity period, referring specifically to the names of the parties (e.g. ‘The perpetuity period runs from the date of A’s death until 21 years after the last survivor of B, C and D.’
3. Is the rule offended? o Common law rule: A disposition will be void for perpetuity if it is possible
for an interest to vest, if it vests at all, outside of the perpetuity period (Air Jamaica v Charlton)
This rule is concerned with theoretical possibility – thus; apply the most extreme example (e.g. ‘If all of the lives in beings die the day after the interest is created, is it possible that the interest will vest within 21 years after their death’)
o Note: The statutory modification can be applied now s210 PLA: ‘Wait and See’ rule – the court will now recognise that
while it may be possible for the interest to theoretically best outside of the perpetuity period, this section allows the court to ‘wait and see’ what actually happens. If all interests vest within the perpetuity period, there is no problem.
o Age contingency reduction: s213(1) PLA – if an interest will fail to vest within the perpetuity period for failure to comply with an age contingency, the court can reduce the age contingency by the minimum extent necessary, but not below 18 years, to save the gift
e.g. There is a gift to ‘A, B and C upon them reaching the age of 25’. If A is 26 at the end of the period, his interest is valid. If B is 19 at the end of the period, the court can reduce the age contingency to 19; therefore, his interest is valid. If C is 16 at the end of the period, the court cannot save his interest.
Under the common law, this trust would be invalid; however, s213(3) PLA allows the court to exclude some members of the trust in order to make the trust valid. Therefore, A and B will get their interest but C will not.
o Note: if a person with an interest dies before the end of the perpetuity period, the rule against perpetuities is not offended (the trust may be invalid on another basis, such as lack of certainty of objects)
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VARIATION AND TERMINATION OF TRUSTS
VARIATION OF TRUSTS If a trustee wants to depart from the terms of the trust, a trustee can only do so if
they have the informed consent of all the beneficiarieso The beneficiaries must sign the deed to effect their consent o A beneficiary may not have consent if they are a minor (the court can
consent on their behalf – s95 Trusts Act 1973) Inherent power of the court to allow the variation of trusts:
o A trustee may seek a court order for a variation of a trust if a variation order is granted, the original trust will continue in different terms (there is no need to create a new trust)
o Chapman v Chapman [1954] – the House of Lords recognize that courts with equity jurisdiction had an inherent jurisdiction to allow trustees to act in a manner not authorized by the trust instrument. Traditional practice o varying trusts in chambers was not allowed (with the exception of in emergencies – e.g. if urgent repairs to property was needed)
Stated that there were four situations where the inherent jurisdiction of the court could be relied upon to authorise a variation of a trust:
Changes in the nature of investments on behalf of infants, such as approving investments in realty instead of personalty
Investments in business transaction not strictly authorised by the trust
Payment of maintenance out of income directed to be accumulated
Compromises in favour of unborn infants Note: a fifth situation was stated in Tickle v Tickle (1987) :
Where circumstances have occurred which have tended to thwart the intentions of the creator of the trust and the parties of their guardians consent to a course that will effect such intention cy-pres
o Re Duke of Norfolk’s Settlement Trusts [1982] – this case widened the inherent jurisdiction concerning the administration of a trust. This case concerned the administration of an extensive and complex estate. The trustee would have to spend a considerable amount of time administering the estate. No provision of remuneration was included in the trust deed. The Court of Chancery held that in the case of a complex estate, the court could make a variation of the trust to authorize adequate remuneration for the trustee.
Express powers to vary trusts:o s95 Trusts Act 1973 (Qld) – the Supreme Court has an express power to
provide consent on the part of a beneficiary who cannot consent:
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(1) Where property, whether real or personal, is held on trusts arising, whether before or after the commencement of this Act, under any instrument creating the trust, the court may if it thinks fit by order approve on behalf of--
(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting; or
(b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class (as the case may be) if the said date had fallen or the said event had happened at the date of the application to the court; or
(c) any person unborn; or (d) any person in respect of any discretionary
interest of the person under protective trusts where the interest of the principal beneficiary has not failed or determined;
any arrangement (by whomsoever proposed and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.
Modern trusts often include variation clauses:o A variation clause can state that new beneficiaries can be added,
specify how beneficial interest can be altered or allow for a trust to be altered for new court rulings or legislative changes
o Variation of trusts clauses are needed for various reasons such as: Change in circumstances of beneficiaries (e.g. marriage, divorce) Amendment of taxation laws Variations necessary for powers of administration of trust
o The interpretation of variation clauses is different in Australian and England:
Australia – flexible approach: Kearns v Hill (1990) – a variation clause will be interpreted in such a way as to give it its most ample meaning
England – restrictive approach: Re Ball’s Settlement Trusts [1968] – if a variation would change the whole substratum of the trust, this would be viewed as creating a new trust and not
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merely a variation. The court would need to consider what the settlor intended.
o It is possible for a variation clause to adversely affect the interests of beneficiaries
Graham Australia v Perpetual Trustees WA (1989) – FACTS: There was a unit trust, in which the beneficial
interest was divided into a certain number of units. The 1987 stock market crash affected the trust, causing the value of the units to decrease. There was a clause in the trust which stated that if the unit holders wanted to redeem their interest under the trust, this was to be done based on the value of the unit seven days before the units were redeemed. A number of unit holders sought to redeem their trusts based on the pre-crash value. The trustee suspended the redemptions and varied the trust to state that the redemption price would be based on the value of the units at the time they were redeemed. The variation clause was challenged.
HELD: The variation clause was valid. The court applied a two tier test – 1. Was the amendment done in good faith? 2. Was the amendment for the benefit of the unit holders as a whole? The amendment was done in good faith as this was a financial emergency and if the unit holders were allowed to redeem, they would receive more than the other unit holders. The amendment would protect the interest of the majority of the unit holders.
Superannuation trusts:o A wide power of variation is essential in regards to superannuation
trusts due to the frequency of changes to regulations governing the tax treatment of superannuation funds
o There have been many cases in which the court has issued an injunction to restrain superannuation trustees from exercising a power of amendment to enable the employer to remove trust funds from a superannuation trust
o Wilson v Metro Goldwyn Mayer (1980) FACTS: This case concerned the MGM pension fund. There was
an express provision in the fund that any surplus funds would be paid to members or former members of the pension fund once the fund wound up. There was a power of variation clause, which stated that the trustees had the power to alter or amend the deed ‘in any respect which would in the opinion of the company not prejudice any benefit secured by contributions made on behalf of any member’. The company wanted the
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trustee to exercise a power of amendment to direct surplus funds back to the company.
HELD: This power of amendment in the trust did not confer an absolute discretion on the company and the company could not use this power to benefit themselves. Any amendment of the trust which resulted in any surplus funds at the winding up of the fund to be paid to the company would be prejudicial to the benefits of the members as this prevented the surplus from being used as further benefits for the members. Also, the fiduciary obligations on the company prevented it from using its power of amendment to benefit itself.
o UEB Industries (1980) FACTS: There was a purported amendment to a superannuation
trust deed which would have enabled the company to take surplus moneys in the fund over and above the amount required to pay benefits to members. The deed provided that no amendment that adversely affected the interests of the members could be made without the members consent.
HELD: Such an amendment is clearly adverse to the interest of the members.
o Lock v Westpac Banking Corp (1991) FACTS: A superannuation scheme was amended by a resolution
of the board of the bank. Thus amendment allowed surplus funds to be paid back to the bank. The scheme was a defined benefits scheme, with the rules specifying how much was to be paid to each member, the circumstances in which the benefits were payable and the amount of contributions. The variation clause could be exercised provided that the bank had the written consent of 75% of the members.
HELD: The bank was not precluded from exercising the variation clause as it did. That pension and superannuation trusts are to be interpreted in a more practical way than a traditional trust.
There is controversy regarding this authority – the judge relied on a Canadian authority that is no longer good law in Canada
Family law: o Under s90AC Family Law Act 1975, the Family Court can make an order
despite the express provision of a trust deed o The width of this power was recognized in Simmons v Smmons [2008]
TERMINATION OF TRUSTS A trust may be terminated by:
o A provision in the trust deed conferring an express power of termination on the trustee
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o All of the beneficiaries acting together and giving a direction to the trustee to distribute the trust property; thus, bringing the trust to an end (Saunder v Vautier (1841) )
All of the beneficiaries must be of legal age, legally capable, absolutely entitled and unanimous
o Distribution – once all of the trust property has been distributed, there is no longer a trust
Once the beneficiaries are of full age and capacity, the trustee is obliged to distribute the trust property without any demand made by the beneficiaries (Hawkesley v May [1956] )
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COMPLETE CONSTITUTION OF TRUSTS
LEGAL TRANSFER OF TRUST PROPERTY For a voluntary trust to be enforceable at the suit of the beneficiaries, it must be completely
constituted A trust deed by itself is not evidence of a completely constituted trust in order for a trust
to be completely constituted, it is essential that the trustee is vested with trust property When does a trustee acquire trust property?
o Generally, on the date of execution of the trust deed (even if the registration requirements have not been met)
o Discretionary trust: When the settlor transfers nominal sum of money to the trustee
The trustee will generally open a special bank account that the settled money will be deposited in. Once that is done, there is evidence that the trustee has been given trust property
However, there have been cases where the sum of money in the account is taken up by bank charges. The trust will fail. This cannot be rectified by depositing more money in the account.
The settlor must completely constitute the trusto Milroy v Lord (1862)
FACTS: Medley, the settlor, executed a voluntary deed where he purported to assign 50 shares he had in a bank to Lord. Under the deed, the shares were to be held in certain trusts for the benefits of the plaintiff. Under applicable procedure, the shares could only be transferred by entering them in the register in the bank. A share transfer form had to be presented with the share certificate, No such transfer document was executed. Thus, Lord was not registered as the owner of those shares. Medley lived for three years after the deed was executed. During these three years dividends on those shares were paid to the plaintiff. After the death of Medley, the plaintiffs wanted to know whether they were beneficiaries under the trust.
HELD: As the trust property had never been transferred to Lord, there was no trust
RULE: To render a trust “valid and effectual, the settlor must have done everything, which according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.”
E.g. If the trust property is shares or land, the formalities for transferring shares or land must be met (i.e. registration)
Note: This principle is now in statute under s200 PLA If a trust is not completely constituted, it is regarded as an ‘imperfect trust’
o Milroy v Lord (1862) – “There is no equity to perfect an imperfect trust” If a trust is not completely constituted, beneficiaries will face difficulties in obtaining relief
Why is it necessary to completely constitute a trust?o If there is no property vested in the trustee, there is no trust. Therefore, any court
order against a purported trustee will be ineffective.
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o If the trust is not completely constituted, the beneficiary will not obtain a beneficial interest in the trust property. The settlor will retain the legal and beneficial interest in the property until the trust is completely constituted.
HOW TO COMPLETELY CONSTITUTE A TRUST A trust can be constituted in a number of ways:
o Transfer to the trustees A transfer to trustees can be effected either be settlement inter vivos or by
will Inter vivos trust – the settlor must lose all interest in the property upon
transferring the property to a trustee The trustee will have legal title (thus, can sell, lease or manage the
property in any way they wish) but the beneficial interest is in the beneficiaries
It is sufficient if the settlor does all that he needs to do to transfer the property (Milroy v Lord) e.g. a trust may be considered completely constituted in a case where the legal title has not been vested in the trustees but where the trustees have been put in a position in which that can complete that transfer unaided
o Declaration of trust A voluntary trust created by way of declaration of trust will be fully
constituted and thus enforceable at the suit of the beneficiaries, even if they are volunteers, once the settlor has made an express declaration of trust intended to be binding on himself or herself
o Directions to a trustee Where a beneficiary of an existing trust wishes to create a new trust in
favour of a third party, he or she may do so by directing the trustee to hold the property on trust for the new beneficiary thereafter
Such a disposition must be in writing (Grey v IRC)
ENFORCEABILITY OF INCOMPLETELY CONSTITUTED TRUSTS Where a trust is not completely constituted, the beneficiary will face difficulties in obtaining
relief o A beneficiary is usually a volunteer and “equity does not assist a volunteer”o If a trust is completely constituted, there is no need for a beneficiary to provide
consideration as it would be unconscionable for the trustee to deny the beneficial interest of the beneficiary
If a beneficiary has provided consideration, the beneficiary has rights under equityo The beneficiary can seek:
An equitable remedy to enforce the trust An injunction to prevent property from being transferred to a third party An order of specific performance to compel the settlor to transfer the trust
property to the trustee
PROMISE TO CREATE A TRUST
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Where a settlor makes a promise to create a trust, that promise may be enforceable as a contract
o Where a beneficiary or a trustee has provided consideration for the promise, the beneficiary or trustee may enforce the promise under contract law
Where a beneficiary has not provided consideration, the court will not grant specific performance of the settlor’s promise to create a trust. However, a court may award damages for breach of that promise under a deed
o Cannon v Hartley (1949) FACTS: A husband, wife and daughter signed a deed in which the husband
made a promise that he would provide for his daughter once he became entitled to receive property under the will of either of his parents. He promised that he would settle half of the property on trust for his wife and him and half on trust for his daughter absolutely. This is an ‘after acquired clause’. The husband later became entitled to a remainder of an interest under the will of his father. He refused to settle his entitlement to his daughter. The daughter sued her father upon the deed. The father raised the defence that the daughter was a volunteer as she had provided no consideration.
HELD: Although the daughter could not get relief in equity in the form of specific performance, she could obtain damages for breach of a deed. The common law regards the seal of a deed as providing sufficient consideration.
Marriage consideration (a promise to enter into a marriage) may be regarded in equity as consideration where specific performance is sought of a promise of a settlor to create a trust
o A promise to create a trust may be made in the expectation of the marriage of a child of the settlor. The marriage may be regard as the consideration for the enforcement of a promise
o Pullan v Koe [1913] FACTS: The wife covenanted to settle the property by marriage settlement.
She made this covenant with a trustee. We made a promise that if she acquired property of a certain value, she would put it on trust for the benefit of the children. She received a cash gift from her mother and refused to put it on trust. The trustee wanted to enforce the after acquired property clause.
HELD: That as soon as that money was paid to the wife, it became, in equity, bound and subject to the trust. The wife was bound to put the money on trust. The court applied the maxim that ‘equity regards in equity what is ought to be done as done’.
TRUST OF BENEFIT OF COVENANT Where a settlor has failed to constitute the trust, the trustee may hold the promise that
the trustee made on trust for the beneficiary. The trustee or the beneficiary may enforce such a covenant (even if the beneficiary is not party to that covenant)
Fletcher v Fletcher (1844) o FACTS: Fletcher wanted to provide for his sons that were born out of wedlock
(‘natural sons’). Fletcher promised, by deed, to pay £60, 00 to the trustees on trust for his natural sons who attained the age of 21 years. The trustees did not know of the deed. The trustees did not want to enforce the deed as Fletcher had later
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bequeathed, by will, property to his wife, their children and his natural sons. One of the natural sons turned 21 and sought to enforce the deed. The surviving trustees refused to perform the promised under the deed as they thought that as the will provided for the natural sons, they did not have to enforce the deed.
o HELD: The trustees had to enforce the promise. The fact that the son was volunteer and that the trustee did not hold any sum of money (thus, the trust was not completely constituted) did not matter.
EXCEPTIONS The courts have traditionally noted three main exceptions to the rule that incompletely
constituted trusts are unenforceableo Estoppel – an imperfect transfer may be enforceable where the transferee can
show that there has been a representation made by the transferor which was intended to be relied upon and which was in fact relief upon and the transferee has suffered a detriment (Olsson v Dyson)
o The rule in Strong v Bird – if A expresses a present intention to make a gift of personal estate to B and that intention continues unchanged until A’s death, and B becomes the executor of A’s will, then B is entitled to hold the property for his or her benefit
o Promise to create a trust to a person who has provided consideration (see above)
