EQUITY: Introduction What is Equity? Why do We Need it? Equity is a body of legal principles, which exists to make the common law operate more fairly and to assist parties to attain better justice through the law. Trusts The trust is
where equity and property law intersect. the nature of various types of trust; the rules relating to the creation of express trusts; and the rules relating to the administration of express trusts.
What is ‘Equity’? Commonly, ‘equity’ = ‘fairness’ and / or ‘justice’ The Legal Definition ‘Equity is ‘the body of law developed by the Court of Chancery in England before 1873. Its justification was that it corrected, supplemented and amended the common law. It softened and modified many of the injustices at common law, and provided remedies where, at law, they were either inadequate or nonexistent.’ (Meagher, Gummow and Lehane’s para 101)
Equity: Doctrines and Remedies p3,
Operation of Equity Equity and the Common Law Relationship between Equity and the Common Law Before the Judicature System
Equity and common law were administered in two entirely separate court systems: Equity in the Court of Chancery Common law in the common law courts (Kings Bench, Common Pleas and Exchequer) Common law courts would not recognise equitable rights, titles and interests. E.g. Coroneo v Australian Provincial Assurance Asn Ltd (1935) 35 SR (NSW) 391. Castlereagh Motels v Davies-Roe [1966] 2 NSWLR 79. Before the Judicature Act
Chancery had no power to award damages. Conversely, the common law courts lacked power to: give interlocutory relief. award specific performance, or injunctions. make declarations. 1
No power existed to transfer cases from one jurisdiction to the other.
The need for reform … By early in the 19th century, the urgent need for reform was clear The Court of Chancery no longer enjoyed a good reputation Technical procedures and ‘too many lawyers’. Judicature System Implemented by the English Judicature Acts of 1873 and 1875. *Judicature system: set up one court (venue), one Judge but different jurisdictions. To overcome problems caused by the separate administration of Common Law and Equity. Abolished the court of Chancery and the Common Law Courts Replaced them with one court – the High Court of England of which Kings Bench and Chancery were divisions. This court was given jurisdiction to dispense both Equity and the Common Law. Main Features of the System
All branches of the court can administer equitable remedies. Equitable defences may be pleaded in all branches of the court. All branches of the court must recognise equitable rights, titles and interests. All branches of the court have a general power to determine legal rights and titles. The common injunction to the Chancery to stop what was happening in the other court was abolished. NB However, its effect was preserved, because the Act expressly provided that in cases of conflict, the laws of equity prevail.
Equity in Australia States other than NSW Judicature legislation was introduced in most States in the 19 th or early 20th centuries … QLD SA 1878; Vic 1883 1876, WA 1880, Tas 1932. NSW- The Judicature system was not implemented until the mid-1970s Judicature system wasn’t popular with equity lawyers A lot of different equitable principles in Australia compared to Britain etc.
Result …
This created a unique environment in which for Equity to flourish. NSW Equity judges were well represented on the High Court. Australia has a robust and fertile Equity jurisdiction.
Western Australia 2
Supreme Court Act 1935 (WA). Part III - Jurisdiction and law Section 16(1) General Jurisdiction This gives the Supreme Court its jurisdiction.
s 16(1) Supreme Court Act 1935 (WA)
The Supreme Court (a) is invested with and shall exercise … the … jurisdiction, powers, and authority within Western Australia … as the Courts of Queen's Bench, Common Pleas, and Exchequer … had and exercised in England at the commencement of the Supreme Court Section 16(1) Ordinance 1861; In other words … the Supreme Court of WA has a common law jurisdiction that is commensurate with the jurisdiction of the English common law courts before the Judicature System. AND (d) shall be a court of equity, with power and authority within Western Australia … (i) to administer justice, and to do … all … things necessary for the due execution of such equitable jurisdiction as, at the commencement of the Supreme Court Ordinance 1861, the Lord Chancellor of England could or lawfully might have done within the realm of England in the exercise of the jurisdiction to him belonging;’ In other words … the Supreme Court of WA has an equitable jurisdiction that is commensurate with the jurisdiction of the English Court of Chancery before the Judicature System.
Was implemented in WA by enacting in the Supreme Court Act 1880 (WA) provisions equivalent to those of the Judicature Act 1873 (UK)). The relevant provisions are now found in Supreme Court Act 1935 (WA): s 24 – headed ‘Law and equity to be concurrently administered ’ and s 25.
The Judicature system in WA
The Judicature system in WA- s 24(1) Enforcing Equitable Rights and Interests
The Court must recognise equitable rights, titles and interests 3
If any plaintiff … claims to be entitled to any equitable estate … right, or to relief upon any equitable ground … the Court … shall give to such plaintiff … such and the same relief as ought to have been given by the Court in its equitable jurisdiction in a suit … for the same or the like purpose … instituted before the commencement of the said Act.
As well as legal rights titles and interests, see s 24(6).
Section 24(4) Recognition of Equitable Rights and Interests
The Court must recognise all equitable rights, proprietary interests, duties and liabilities
The Court, and every Judge thereof, shall recognize and take notice of all equitable estates, titles, and rights, and all equitable duties and liabilities appearing incidentally in the course of any cause or matter, in the same manner in which the Court in its equitable jurisdiction would have recognized and taken notice of the same in any suit or proceeding duly instituted therein before the commencement of the Supreme Court Act 1880.
Equitable defences may be pleaded in all branches of the court.
If any defendant … alleges any ground of equitable defence to any claim … every judge thereof, shall give to every … equitable defence so alleged, such and the same effect, … as the Court in its equitable jurisdiction ought to have given if the same or the like matters had been relied on by way of defence in any suit or proceeding instituted by the Court for the same or the like purpose before the commencement of the Supreme Court Act 1880.
Section 24(2) Equitable Defences
Jurisdiction with respect to Equitable and Legal Remedies
The court may award equitable and / or legal remedies in the same action. See s 24(7). With respect to equitable remedies, see s 25. Especially, s 25(10) with respect to injunctions.
s 24(7) - avoiding ‘multiplicity of legal proceedings’
The Court is to administer equity and the common law simultaneously, so as to avoid multiplicity.
2 separate jurisdictions, with one judge and one court to avoid ‘running around’.
The Court, in the exercise of the jurisdiction vested in it by this Act, … shall have power to grant, … either absolutely or on such reasonable terms and conditions as shall seem just, all such remedies whatsoever as any of the parties thereto may appear to 4
be entitled to in respect of any and every legal or equitable claim properly brought forward by them in such cause or matter; so that, as far as possible, all matters so in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings … avoided.’
The common injunction was abolished. No cause or proceeding at any time pending in the Supreme Court shall be restrained by prohibition or injunction; but every matter of equity on which an injunction against the prosecution of any such cause or proceeding might have been obtained, … may be relied on by way of defence thereto;
s 25(12) – Equity Rules
NB However, in cases of conflict, the laws of equity prevail. Generally … in all matters not hereinbefore particularly mentioned, in which here was, before the passing of the Supreme Court Act 1880, 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.
s 24(5) – abolition of the common injunction
Equity in the lower courts - District Court
District Court of Western Australia Act 1969 (WA): s 55. Court has powers of Supreme Court
District Court has essentially the same equitable jurisdiction as the Supreme Court, only limited to matters within the $750, 000 jurisdictional limit. The Magistrates Court also has jurisdiction to hear equitable claims. However, this jurisdiction is limited by more than the jurisdictional limit. For instance, only if the only relief claimed = a monetary payment (damages liquidated / otherwise). May not relate to title to land or a settlement made in a will. We will focus on cases of the Supreme Court level.
Summary - Equitable Jurisdiction of Lower Courts
The Result …
In WA today, the Common Law and Equity are complementary, but distinct, bodies of legal principle. Each is dispensed simultaneously by the Supreme Court. And … to a limited extent, by the District and Magistrates Courts.
Equity and the Common Law: Fusion?
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In theory, the Judicature System merely amalgamated the administration of Equity and the Common Law. It did not merge the principles / fuse the jurisdictions themselves. Argued common law and equity were separate and needed to be practiced separately. But … in practice, this has become a matter of contention and controversy.
From time to time … It has been asserted that: Law and Equity were themselves ‘fused’ in 1875. ‘The waters of the confluent streams of law and equity’ are now ‘mingled’. More tolerance for fusion in the English courts as opposed to Australian courts. See United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904, 924 - 5, Lord Diplock.
Fusion Fallacies
The fusion fallacy = the mistaken view that the effect of the Judicature Acts was to fuse / amalgamate the jurisdictions of common law and equity. Coined by Meagher, Gummow and Lehane. Equity: Doctrines and Remedies, p 52. The term is often used with respect to judgments in which the courts confuse the joint administration of common law and equity in the one court with the idea that the two sets of principles were fused or amalgamated in some way. i.e. the outcome couldn’t have happened before the Judicature system was implemented. The Judicature system essentially didn’t change the law, it changed the venue.
Fusion Fallacy
The Fusion Fallacy
But the contrary view has its proponents. See Andrew Burrows, We Do This At Common Law But That In Equity (2002) 22 Oxford Journal of Legal Studies 1. Some say that they ought to merge. Others assert that this has already occurred. Some famous examples of the fusion fallacy in action: The ‘blended jurisdiction variety’ Example: Deane J in Walton’s Stores (Interstate) v Maher (1988) 164 CLR 387 and, Mason CJ and Deane J in C’wealth v Verwayen (1990) 170 CLR 394 In this case it mattered what estoppel was used. The common law estoppel couldn’t be used as a cause of action in these circumstances. I.e. common law cause of actions would generally only bring a common law remedy. You can only get an equitable remedy where a common law remedy doesn’t suffice to do justice. 6
An example of this is a defamation situation as at common law you can get damages but if the damages are not sufficient to do damages then you may be able to obtain an equitable remedy at the court’s discretion. You cannot get a common law remedy for an equitable cause of action
The ‘Mix and match’ approach to remedies. Examples:
Denning LJ in Seager v Copydex [No 1] [1967] 1 [WLR] 923; and [No 2] [1969] 1 WLR 809. equitable cause of action. Here it was a fusion fallacy as Lord Denning said common law damages could apply but it was an equitable cause of action. Sir George Jessell in Walsh v Lonsdale (1882) 21 Ch D 9: Property law case relating to leases. It was an equitable lease and here the judge said payment needed to be done yearly and in advance for rent. Principle of Walsh v Lonsdale Palmer J in Digital Pulse P/L v Harris (2002) NSWSC 33: Breach of judiciary obligation and breach of confidence. It was a purely equitable cause of action. Damages for the loss that had acutally occurred was too little. The judge said here that the breach was so serious that stronger damages needed to be awarded. It was a common law damage that was awarded The correct approach is to allow the equitable remedy to develop and change not to lean over to another jurisdiction and pick a remedy, i.e. in this case use a common law remedy.
How can there be two branches of case law? ‘Equity follows the Law’ Equity cannot exist without the common law. It is a gloss / overlay on the common law. Map / overlay Examples What if they conflict? In cases of conflict, equity prevails.
How does it work?
Categories of Equitable jurisdiction
Traditionally, there are three categories of equitable jurisdiction: Exclusive Jurisdiction Only equity recognises the ‘cause of action’ and Common Law does not provide any remedy at all. For example, breach of trust, breach of fiduciary obligations, and breach of confidence. Concurrent Jurisdiction 7
Where the facts give rise to a claim to remedies BOTH at common law and Equity. So that equitable principles supplement the common law For example, doctrines of undue influence, and Unconscionable bargain. Auxiliary Jurisdiction
Distinctive Features of Equity
Some of Equity’s Distinctive Features
Equity is a settled body of legal principles But it is different from the common law.
Equity acts in a supplementary/complementary role
Principles not rules
Flexibility v certainty
Facts all important, watch out when using cases as precedent
Discretionary, all equitable remedies are discretionary.
It comprises of doctrines and you must bring your case in one of these causes of actions.
The common law is the basic ‘map’ if you overlay equity on top of it, there are more causes of actions and remedies that complement the common law. Equity without common law makes no sense.
Principles not Rules
Equity consists of principles, rather than rules.
These principles guide the development of Equity. They ensure that Equity develops along settled lines, so that it is no longer a series of ad hoc decrees.
Yet, as these principles serve as guidelines, rather than rules, so that an acceptable degree of flexibility is retained.
Equitable Maxims
Equitable Maxims are a collection of mottoes, which describe (rather than prescribe) Equity’s general attitude / approach on particular matters. They are very general.
Examples of maxims
If you want Equity to assist you, you must first fulfil your own obligations. 8
Equity may refuse to assist you, if you have acted improperly. Equity may refuse to help you, if you delay too long. E.g. Allcard v Skinner (1887) 31 Ch D 145. Equity will not allow formalities to obscure the parties’ true intent. Equity acts by compelling individuals to do particular things (or to refrain from doing them) E.g. Chellaram v Chellarem [1985] Ch 409. In personam Generally speaking, only those who have given valuable consideration in a transaction can seek Equity’s assistance in relation to it. Related maxim = Equity will not perfect an imperfect gift. E.g. Milroy v Lord [186-73] All ER 783 and Corin v Patton (1990) 169 CLR 540. NB Important exception for beneficiaries of a trust. Equity will treat parties as if they have already done all the things that they are obliged to do. E.g. It will treat parties to a specifically enforceable contract as if they have already executed that contract. See Lysaght v Edwards (1876) 2 Ch D 499; Walsh v Lonsdale (1882) 21 Ch D 9.
Equitable Estoppel
Estoppel is more of a consideration. It is generally about precluding someone.
Key Words = Preclude + Prevent
Estoppel
‘The doctrine designed to protect a party from the detriment which would flow from that party’s change of position if the assumption or expectation that led to it were to be rendered groundless by another.’ (Butterworths Australian Legal Dictionary 431).
The Purpose of Estoppel
To prevent injustice that would result from the repudiation of a belief or assumption for which the estopped party is in some way responsible and where such repudiation would cause harm to the person who holds that belief or has acted on that assumption.
From Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand at 191, citing McHugh JA in Coghlan v SH Lock (Australia) Ltd (1985) 4 NSWR 158 at 176.
In a nutshell … The basic purpose of most doctrines of estoppel today (or at least estoppel by conduct) … to prevent or reverse harm caused by detrimental reliance. Operation … A person might seek estoppel to:
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Prevent insistence on strict rights under a contract / other binding transaction; Preclude a party from pleading certain facts/claim in litigation; Prevent the bringing of a claim or cause of action; Restrain another from asserting proprietary rights. Estoppel can be brought in these circumstances by the defendant. It acts as a shield as a defence to preclude or stop someone from doing something. (Evans, 273)
Three essential features
1. The claimant has made an assumption, 2. such that she/he will suffer detriment if the estopped is permitted to assert the truth and defeat the assumption; and 3. The estopped has played a part in causing the claimant to make this assumption, such that it would be unfair or unjust to allow her/ him to deny the assumption and assert the truth in the circumstances. See Grundt v Great Boulder Mines PL per Dixon J. [1933] 49 CLR 507 at547.
Comprises: Estoppel by conduct Proprietary Estoppel Estoppel by acquiescence Estoppel by encouragement Promissory Estoppel and NB Equitable Estoppel by Representation
CL v Equitable estoppel- key differences
Representation of fact: CL estoppel ONLY governs representations of existing FACT. Shield not a sword: CL estoppel can only be used as a shield, i.e. defensively – only to stop someone from denying their representation. Not a cause of action. Remedy: Cf Equitable estoppel – grants relief proportional to the loss suffered.
Equitable Estoppel
Equitable Estoppel - Proprietary Estoppel
Comprises: Estoppel by encouragement Dillwyn v Llewellyn (1862) 45 ER 1285. Formal requirements of transferring property. Estoppel by acquiescence 10
Ramsden v Dyson (1866) LR 1 HL 129 . Crabb v Arun District Council [1976] Ch 179. i.e. transferred property with an invalid document because it wasn’t registered. There would be no legal interest in the property. Equity began to grant estoppel in situations which may have been different to the common law understanding.
Proprietary Estoppel
Where … the owner of property by words or conduct induces another to believe that he or she either has, or will be granted (future), an interest in that property. Such a belief might be induced: by an encouragement to build on land (Dillwyn v Llewelyn), or by acquiescence of the owner to acts that would otherwise be detrimental to the claimant e.g. mistaken building on the land (as in Ramsden v Dyson) or acting detrimentally in relation to one’s own land (as in Crabb v Arun District Council). Equity offers a defence and not a cause fo action. The person who as made the mistake ought to be able to sue the other party. i.e. Crabb believed he had an easement that he didn’t have, this ended up being detrimental to his land.
Estoppel by encouragement
If a person encourages another to believe that they have or will receive a proprietary interest and to act upon that belief, and that the other does so act, then that person will be estopped from denying that the facts are other than in accordance with that belief and may even be compelled to make good the expectation. Where the defendant actively encouraged someone to believe they would have an interest or eventually gain an interest. The encourager will be estopped here. Promises are only enforceable at common law where they are backed up by consideration. This goes further than common law estoppel Difference to saying ‘no’ then changing your mind and between actually checking something and agreeing to it. (Owing money example). Proprietary= enforcing the promise relating to property. Dillwyn v Llewelyn (1862) Chancery Father executed an (ineffective) instrument of conveyance in favour of son and allowed son into possession of land. 11
With father’s knowledge and approval, the son built a house on the land. After father’s death, son sought a declaration that he was the equitable owner of the property. I.e. When acted on by the son, the father’s encouragement gave rise to an equity in favour of the son which bound the father to make good the son’s expectation. So, the father’s executors were required to transfer the property into the son’s name.
Where a person mistakenly improves land, believing it to be his own, and the true owner, knowing of the mistake, stands by and deliberately fails to do anything to undeceive the other. Eg Crabb v Arun District Council and Ramsden v Dyson. Active encouragement. Relates to property.
Crabb v Arun District Council – (1976) Chancery
Held: The combination of: the representations made to Crabb at the meeting, erecting the gates and standing by while Crabb sold off the first part of his land Constituted encouragement to the plaintiff to act to his detriment. Proprietary estoppel The court indicated that the proper course for the court was ‘the minimum equity necessary to do justice’. It ordered that a right of access and right of way be granted along the defendants’ road as originally contemplated. I.e. It ordered the Council to ‘make good the expectation’.
Estoppel by Acquiescence
Proprietary Estoppel v Common Law Estoppel
Proprietary estoppel may be used to enforce promises where no consideration is evident. In direct conflict with Jorden v Money (1854) 10 ER 856 . Proprietary estoppel is a cause of action, the end result of which could to transfer of property from the defendant to the plaintiff. Proprietary estoppel was not confined to cases in which the parties were in a pre-existing contractual relationship. Radical departure from common law. Need to enforce promises and act upon them. But it only related to promises in relation to property/ land etc. BUT they were confined to cases in which force a promisee to fulfil its promise, it would only do so where that appeared the only appropriate way to prevent detriment to the promisor. AND they were confined to cases in which the claimant had believed either that he had or that he would receive an interest in property.
Promissory Estoppel: Central London Property Trust v High Trees House Ltd (1947) KB 130 12
Facts: In 1945, the plaintiff offered to accept half of the proper rent for the duration of the War and promised that it would not pursue the defendant for the remainder. The defendant paid the reduced rent from the date of the new arrangement until after the war was ended and the flats were fully tenanted. They hadn't assumed the rent would be halved it had been promised. Lord Denning enforced promissory estoppel here, but there were limitations. Held: This was not a variation to the original contract, because there was no new supporting consideration. Nor could it give rise to a common law estoppel by representation, because the representation made by the plaintiff was that it would not enforce the rent at the full rate but only at the reduced rate. So it was a representation as to the future. Following Jordan v Money, Lord Denning said such a representation could not give rise to an estoppel at common law. BUT Lord Denning went on to state that where a person makes a promise, intending it to be binding, intending it to be acted on, and it is so acted on, then the promisor will not be allowed to act inconsistently with that promise. This principle did not create new causes of action.
In 1983 in the case of Legione v Hately (1983) 152 CLR 406 the equitable doctrine of promissory estoppel was accepted into Australian law. BUT only as a shield - not as a sword. And, even then, only as between parties to a pre-existing contractual relationship. However, 5 years later, in Walton’s Stores v Maher, both of these limitations were removed
Promissory Estoppel in Australia
Proprietary estoppel v Promissory estoppel
Similarities: Assumption/representation is created/generated. Representation may be as to future conduct as well as present(cf CL estoppel). Reliance on the assumption/representation. Detriment will be suffered if the representor departs from the representation. Differences Promissory estoppel could be invoked as a defence but NOT as a cause of action: Combe v Combe [1951] 2 KB 215. Proprietary estoppel CAN be invoked as a cause of action: Dillwyn v Llewelyn [1861-73] All ER 384 (June 4, July 12, 1862) CA in Chancery. See also Giumelli v Giumelli (1999) 196 CLR 10. 13
Estoppel by conduct exists both at common law and in Equity. The sub-categories of estoppel by conduct include: B. In Equity i. Promissory Estoppel ii. Proprietary Estoppel
Summary of Estoppel by Conduct
The category of estoppel that is appropriate depends primarily upon the manner in which the estopped induced the claimant to make the assumption in question. E.g. mutual assumption forming the basis of dealings (estoppel by convention), representation of existing fact (estoppel by representation), representation of future fact / intention (promissory estoppel) and representation (or silent acquiescence to a mistaken belief) that the ‘estoppee’ has a certain proprietary interest (proprietary estoppel). Put another way, the category of estoppel depends on the nature of the assumption made by the claimant.
Summary of Estoppel by Conduct
Walton’s Stores v Maher (1988) 164 CLR 387
Walton’s Stores had been negotiating with the Maher’s to lease their land. There was no legal lease here. It was to stop or preclude Walton for denying the existence of the lease/ documents. The Maher’s wanted to enforce the lease but Walton’s changed their mind, Maher’s wanted a cause of action to enforce the lease. 6 elements in Walton’s Powerful doctrine but limited in scope. Case of High trees – estoppel only applies in certain circumstances i.e. where the parties are already in a contractual relationship. The Maher’s sued, claiming amongst other things, specific performance. They won (although they got payment in lieu of specific performance).
The doctrine of equitable estoppel
Emergence - Walton's Stores v Maher
Elements - Walton's Stores v Maher
Detriment and remedy – Verwayen and Clark
Traditional view of Walton’s.
Split in Walton regarding the estoppel. Dean J ‘pointless distinction’. Fusion Fallacy
Collapsed common law and equity.
3 Judges discussed when estoppel would apply and elements etc. 14
Elements of Equitable Estoppel
Brennan J (at 428 – 429) The object of the estoppel is the reversal of unconscionability. (In equity) here it was unconscionable for them to assert the truth) Elements of equitable estoppel =
1. The claimant assumed that a particular legal relationship existed between the claimant and the estopped party or expected that a particular legal relationship would exist between them (and in the latter case that the defendant would not be free to withdraw from the expected legal relationship); (Assumption) 2. The defendant has induced the plaintiff to adopt that assumption / expectation; (Inducement) it is a little stronger than estoppel buy acquiescence 3. The plaintiff acts / abstains from acting in reliance on the assumption / expectation; (reliance) 4. The defendant knew / intended him to do so; (Know about the reliance but not necessarily the detriment) 5. The plaintiff’s action / inaction will occasion detriment if the assumption / expectation is not fulfilled; (detriment if not fulfilled) and 6. The defendant has failed to act to avoid that detriment whether by fulfilling that assumption / expectation / otherwise. I.e. what the defendant could have done to prevent the detriment Found in favour of the Maher’s, payment in lieu
Mason and Wilson JJ (at 404)
Equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. There essentially isn't much difference between Mason and Wilson and Brennan Brennan J’s are used more frequently, but legally, there is no reason that Brennan’s is more binding than Mason and Wilsons. In a problem question, examine both approaches. The question of unconscionability before we advise.
Unconscionability
Brennan J The object of the Equity is not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the
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assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or abstain from acting thereon.” (at 423) Mason CJ and Wilson J ‘Equitable estoppel has its basis in unconscionable conduct’. (at 405)
Walton's was adjudged to be not free to withdraw. Equity was satisfied by treating Walton's as though it had done what it induced M to think that it would do, i.e. by treating Walton's as if it had executed and delivered the original deed. So Maher was entitled to specific performance. However, ultimately the court ordered Walton's to pay compensation in place of specific performance.
Post Walton’s Stores - Giumelli v Giumelli (1999) High Court
A son was promised land if he worked on the family farm. (farming family) In reliance on this promise, he worked on the farm for several years. Several promises involved He sued his parents, seeking to enforce the promise. He won Gleeson, McHugh, Gummow and Callinan JJ held that it was a straightforward proprietary estoppel case. Could have been proprietary or promissary they didn’t use just equitable estoppel, they went back to its old context. NB On the facts, compensation was more appropriate than specific performance. This doctrine is still evolving Since Bell in WA there is a ? As to how we can still treat equitable estoppel as one doctrine following Walton's. This case was very important following Walton’s (Giumelli)
Significance
So the significance of this case is: it established the doctrine of equitable estoppel and two judgments outlined its elements. established that equitable estoppel (not only proprietary estoppel) can be used as a ‘sword’. Deane J introduced his notion of a fused doctrine of estoppel (by conduct).
Outcome
A novel application – W v G [1996] Fam LR 49
One party to a lesbian relationship encouraged the other to become pregnant On the understanding that she would act as co-parent and contribute to the cost and burden of maintaining and supporting the child. When the relationship broke down, she sought to resile. She was held to her promise on the basis of equitable estoppel. Brennan J’s six elements were applied here.
The remedial response to equitable estoppel 16
The remedial basis of equitable estoppel is “the minimum equity to do justice.” - Lord Scarman in Crabb v Arun DC. It is generally agreed that ‘Justice here means reversing the detriment’. In other words, ‘do no more than to reverse the detriment’. But which detriment? The minimum equity needed to do justice that is not unconscionable. It is not there to make good promises. Defendant is seeking to assert to truth and enforce their legal rights. You ought to not automatically get equity. Equity= just enough to reverse the detriment and no more. But what detriment?
Reliance detriment = the detriment suffered specifically as a result of acts done in reliance on the assumption. Expectation detriment = includes as part of ‘the detriment’ the value of the promise lost. The value of that which the claimant expected to receive. It needs to be just enough to revert the detriment I.e. Crabb the minimum amount was to be given an equitable easement In Walton’s it was a lease (monetary) Giumelli has been said to ‘put cold water’ on these detriments
Commonwealth v Verwayen (1990) 170 CLR 394
Straight promissory estoppel. At the time of the case military personnel were not allowed to sue the state but that later changed and by this time Verwayen wanted to sue but the case was out of date. Reliance detriment= just the amount he is suing for he could have also included costs for bringing about the action as well as mental and physical damage. Later… the Cth made application to change its defence, so as to: Contest liability; and Raise the statute of limitations as a defence. Verwayen argued, inter alia, that the Commonwealth was estopped from raising these defences. Issue: for the HC – whether the Cth was allowed to resile from its promise, or should be held to its representation that it wouldn’t rely on the defence and deny liability? Mr Verwayen won
Expectation detriment v reliance detriment
Held Cth v Verwayen
4:3 split. 17
Majority – (Deane, Dawson, Toohey and Gaudron JJ) Cth could not now resile from its promise. BUT only 2 of the majority judges used estoppel as the basis for their decision – Deane and Dawson JJ. Toohey and Gaudron JJ (other majority judges) found on basis of waiver. Mason CJ, Brennan and McHugh JJ dissented.
Mason J - the purpose of the estoppel is to reverse the detriment suffered by the claimant. Not to make good the assumption. Deane J - prima facie the appropriate remedy for estoppel by conduct was to preclude departure from the assumed state of affairs.
Mason CJ
Supported idea of a single ‘overarching doctrine of estoppel by conduct’ (CL and equitable) The remedy is only that which is required to prevent the detriment. No prima facie obligation to make good the promise. NB Gaudron J agreed with that view.
Deane J
Reiterated his view that there is a single doctrine of estoppel by conduct, incorporating both CL and equitable estoppel. I.e. the merged doctrine acts like common law estoppel by conduct.
Mason CJ v Deane J
Commonwealth of Australia v Clark (1994) 2 VR 333
Clark – didn’t issue proceedings until after Cth had promised that in his particular case, it wouldn’t rely on the defence of the limitation period. Another case involving a man from the same accident as Verwayen Result: All 3 Judges There is an estoppel, And the remedy is to hold the Cth to its promise. See Marks and Ormiston JJ Shows difficulty other courts have with applying Verwayen. Marks J Expressed difficulty with the concept of the minimum equity. Talks instead about giving the necessary relief to prevent unconscionable conduct, and do justice b/w the parties. I.e. relief should be “that which is necessary to prevent unconscionable conduct and do justice between the parties.” On the facts: it was clear that over the years, C suffered psychological problems when he thought he had no COA against Cth. I.e. here, C’s reliance detriment was bound up with his psychological condition. 18
Ormiston J
Preferred the view of Deane J in Verwayen, that should always enforce the assumption. But accepted that that’s not the majority view => therefore he accepts that the remedy is to reverse the reliance detriment. He applied the minimum necessary test, BUT will take a generous view of the application of the test where necessary to prevent unconscionability. Here – on the facts – Clark proved that substantial detriment would occur, and therefore Commonwealth must be held to its representation. They agreed with what they were going to do i.e. minimum equity to do justice, detriment, they want the same outcome but were in odds regarding their outcome.
Giumelli v Giumelli 1999 High Court
Illustration: Remedial response is very difficult to predict. All the Courts agreed that Mr and Mrs Giumelli ought to be estopped from breaking their promises, BUT each court took a different view as to the appropriate remedy. Just do one doctrine of estoppel= Mason J agreed with this in Walton. But this causes problems relating to the remedial response The court makes good promise unless it is found they shouldn’t Difference in equity- minimum to reverse the reliance detriment, i.e. minimum equity to do justice. Collapse common law and equity into one Responses and conclusions relating to the consequences were different Sounds like a good thing to fuse common law and equity but it can be difficult in determining the way in which it would act i.e. closer to equity or common law or even somewhere in between. I.e. minimum equity to do justice may be the promise itself. In Giumelli the HC didn’t embrace and run with the minimum equity needed to do justice view Sometimes making them do the promise is an appropriate action. The courts these days look more to proportionality. English law on estoppel is very different to Australia. This is because we had the important case of Walton. Matters were complicated by the fact that despite being faced with the same evidence, each of these courts came to very different conclusions. Nicholson J - Robert compensated only for the house and the land upon which it stood.
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The High Court ordered them to compensate their son for the loss of all of the land, including that in the third promise, and would impose a charge upon the land to secure that debt. The Full Court went furthest of all. It would have compelled Mr Giumelli actually to subdivide his farm, so as to create the block referred to in the third promise, and then transfer it to Robert. Summary The core elements of estoppel
The making of an assumption Detrimental reliance Encouragement, inducement or acquiescence Remedy Note: Touchstone question – would it be unconscionable for the def to assert the truth? There isn't a WA response for equitable remedies due to the failure of making out estoppel in Bell 2012 The assumption Present / future, fact / law Detrimental reliance Reliance; and Detriment (possibly including stress, anxiety etc). Encouragement, acquiescence, inducement Including, in some circumstances, silence. Remedy Minimum necessary to satisfy equity; “the minimum equity to do justice”. I.e. reversing the detriment (Lord Scarman in Crabb v Arun DC). Reverse the detriment / unconscionability; In moulding its decree the court as a court of conscience goes no further than is necessary to prevent unconscionable conduct. Brennan J Walton’s Stores at 419. But what does that mean? Unpredictable. See Verwayen Mason J – purpose of the estoppel is to reverse the detriment suffered. Not to make good the assumption. Deane J - prima facie the appropriate remedy is to preclude departure from the assumed state of affairs.
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Fiduciary obligations
This doctrine forms part of Equity’s exclusive jurisdiction. It complements the common law. It fills a gap left by the common law. What is that gap? The nature of a Fiduciary Relationship Is it a Fiduciary Relationship? Status–based fiduciary relationships Fact-based fiduciary relationships The Scope and Context of Fiduciary Obligations Breach of fiduciary obligations The Conflict Rule The Profit Rule Defences Remedies Third Party Liability I.e. what is wrong when a property is sold for a fair price the person is happy with but it is sold to the real estate agents relative? Law aside, why would their interest be against you? Loyalty may not be with you, now it is with their relative. What if the K says nothing about having a conflict of interest? I.e. nothing in the K about them being loyal to you. You have to do your job as a solicitor with loyalty. The law of contract says that the person needs to do the things they promised to do and cannot do anything they didn’t promise to do. The nature of the job means there needs to be a duty of loyalty. It will always be unconscionable to go against the K even if there is nothing in the K about conflict of interests etc. Fiduciary Principles “[A] person will be a fiduciary in his relationship with another when and insofar as that other is entitled to expect that he will act in that other’s or in their joint interest to the exclusion of his own several interest” 21
(Finn, P D, “The Fiduciary principle” in Youdan, T G, Equity, Fiduciaries and trusts, Carswell, Toronto, 1989, 1, 54). Bona fide, faith, where you place your faith in someone. It is a relationship of trust and confidence. When you owe a duty of loyalty, then you are a fiduciary. You would expect the person to be loyal as it is the nature of the job. “The distinguishing obligation of a fiduciary is the obligation of loyalty. (Bristol and West Building Society v Mothew [1998] Ch 1 at 18) per Lord Millett).“ Fiduciary Principle
These descriptions define a fiduciary relationship by reference to the existence of fiduciary obligations. And the primary obligation may be identified as ‘loyalty’. But in order to ascertain the existence of fiduciary obligations, there must first be a relationship of a fiduciary character. So … how do we ascertain a fiduciary relationship? When deciding what it is, many refer to the consequences or obligation and the primary one is loyalty. This puts you in the middle of fiduciary obligation. How do you go about solving a PQ? Start by determining if it is a fiduciary obligation.
The nature of a Fiduciary Relationship
What is a fiduciary relationship?
Commonly referred to as relationships ‘of trust and confidence’. ‘A relationship in which one party reposes confidence in another who is expected to act in the first interests of the first party, rather than in his own interests.’ Heydon and Loughlan, Cases and Materials on Equity and Trusts, 227. A fiduciary is ‘someone who undertakes to act for or on behalf of another in some particular matter or matters …’ P Finn, Fiduciary Obligations, 201.
Definition of agency- Not everyone who is fiduciary is principally in an agency relationship. Solicitors, go to court on your behalf, write letters, respond on your behalf, they act on your behalf and it is not a principle agency. You are reposing trust in them of your best interest. But not necessarily, acting fully on your behalf. The definition above is more of an indicator as opposed to a definition. There is no legally binding definition of fiduciary duty in Australia but there are good indicators 22
1. Looking for a relationship of trust and confidence- interplay between common law and equity. 2. There is often a representative element involved.
In a nutshell …
The indicia of a fiduciary relationship are : – –
A relationship of trust and confidence and Arises where someone ‘… undertakes to act for and on behalf of another in some particular matter …’
Fiduciary Principles
Why is fiduciary law necessary?
It is a relationship protecting doctrine that we need in our society. Loyalty is intrinsic. This doctrine protects loyalty
Main Theories Trust & confidence (traditional) Vulnerability (Canadian, see Mason J in USSC v Hospital Products) - to constrain the power to exercise discretions. i.e. vulnerable to the fact they may betray the trust. Equity’s manifestation to protect the vulnerable. Don’t get too caught up when judges reject the concept of vulnerability. This doesn’t seem to be the main rationale. It is not the motivating force, it is about protecting the relationships. I.e. child trusts the parent and may be vulnerable to abuse which inherently makes it a fiduciary relationship. i.e. same with doctor/ patient. This is the law in Canada but has been rejected in Australia.
Vulnerability
LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR 14 at 61 per Sopinka J, said that one of the indicators of a fiduciary relationship is: – the ‘exercise of a power or discretion which will affect the interests of another person in a legal or practical sense so that that other person is correspondingly vulnerable to abuse by the fiduciary of his position.’ This point was echoed by Mason J in USSC v Hospital Products.
But why did you expect the person to be loyal?
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Reasonable expectation because of the relationship? Unconscionability? Both? Why is it wrong and why does the duty exist? The modern Australian law is that it starts with the relationship. Gulliver, Boardman cases Even when what the fiduciary has done on the face doesn’t seem immoral, they need to be held to a higher standard. It is strongly policy based. It is about preventing breaches in the future. Distinctive feature of these relationships that they can cheat you and you may not even know it. It can be a breach without being unconscionable.
Why do you think they are not able to do that i.e. it was unconscionable.
Established categories
Is it a fiduciary duty? Is it a relationship of trust and confidence? Is there vulnerability? You may not even know if they are abusing the privilege. Trustee / beneficiary (original) Solicitor / client Agent / principal The main trust and confidence is that you send them out to act on your behalf, under your colours. You are vulnerable to them abusing it Director / company Not shareholders, the company itself. The company cannot feel the emotion of trust. Here we are not talking about the emotion of trust. It is not that you ‘feel’ trust it is the nature of the relationship. Partner / fellow partner It is mutually fiduciary. You are each liable for one another’s mistake. i.e. partner of a law firm etc. each is a fiduciary and each is a principle. Employee / employer Where holding and managing money occurs, consulting with clients. This can lead to an employee being a fiduciary. Essentially here, the employee is the fiduciary because the employer is trusting the employee with clients. E.g. a hairdresser, setting up their own business and telling customers about it that they can move to them. This is a detriment to the employer i.e. they will lose customers etc. Investment advisor / client Similar to solicitor and client Promoter / company
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Tracy case. It is not an advertiser etc. it is someone who gets the company up and running. i.e. opening a chain of shops. Owe a duty to the company, not to the directors themselves etc. These are essentially about business, money and property. They are not about the trust and confidence we saw earlier. i.e. in the Canadian cases of sexual abuse in parent/ child, doctor/ patient etc. The HC has said the business etc. is the limit in Australia.
Establishing a Fiduciary Relationship
These are i.e. ‘relationships of’ trust and confidence Not subjective / emotive ‘trust’. The category of ‘established’ fiduciary relationships is not closed. It is possible to prove that a relationship was not fiduciary notwithstanding that it fell within one of these ‘established’ varieties e.g. a bare trustee. Furthermore, a relationship may be fiduciary notwithstanding that it does not fall within this list, if ‘the indicia’ of a fiduciary relationship are present.
United Dominion Corp v Brian P/L
When does a fiduciary relationship arise? Difference between contractual obligations and fiduciary obligations. If someone is your solicitor and you have a K, you have a K obligation and a fiduciary, at what point does it become fiduciary? Joint venture to develop land into a shopping centre. Are not always fiduciary but they can be. They are when parties come together and work a bit like partners but usually in a once of venture. Three participants: UDC, SPL and Brian. – UDC contributed the land. – SPL contributed finance. – Brian contributed expertise.
Sell it for a profit= nature of arrangement.
UDC owed $$$ to SPL from a previous transaction. Before the joint venture agreement had been signed, SPL mortgaged the land to UDC. Unbeknown to Brian, the mortgage contained a collateralisation clause – which meant that when the land was sold, the entire debt to UDC must be paid before any other. At the conclusion of the venture – not enough left to pay Brian its due under the JV. It diminished the amount of money owed to the parties. Brian claimed this was a breach of fiduciary duty by UDC. But was it a FD and at what point had it become a FD? The mortgage came about before the JV But this was a JV? 25
And anyway, the ’wrong’ was done, before the joint venture agreement was signed. HC didn’t accept UDC’s argument and Brian won. The fiduciary obligations begin when the trust and confidence begins, this may be before the onset of contractual obligations. When parties first repose trust and confidence in one another, be aware of this. They don’t want to wait around for lawyers to draw up paperwork, i.e. contracts. The court is saying if the JV is up and going etc. then you are already reposing trust and confidence in one another and equity doesn’t wait for there to be a signing of a K etc. Substance not form. What is actually happening, not what the paperwork says. The relationship of trust & confidence had commenced well before the K was signed.
Chan v Zacharia (1984) 154 CLR 178
When do fiduciary obligations cease to be owed? Doctors, no longer carrying on business together Partnership agreement terminated Held see Deane J This was a breach of fiduciary duty HC said it is fiduciary until the last vestige of trust and confidence is gone. I.e. here they had a property interest together. In relation to the property they were still fiduciary, even if it was the last strand of interest; they were still jointly owners of the option to renew. Still owed one another loyalty. It was a breach of Dr Chan’s loyalty. Remedy was that Dr Chan held the new lease on constructive trust for himself and Dr. Z meaning he owed an amount to Dr. Z of the lease i.e. a % at the time of the K. It was a proprietary remedy granted. The existence of a fiduciary relationship … So we can see that, even if the relationship does fall within one of the established categories, it might not be a simple matter to ascertain” – When fiduciary obligations commence … – And when they finish. Courts don’t readily imply terms into the K. They begin when you repose trust and confidence in one another. Equity is not what you agreed or what you expected to happen when you agreed because of what you thought was in the K. it is about what ought to have happened. Knowing why the obligation is there is helpful to determine when it starts and finishes The scope of the fiduciary principle Furthermore, fiduciary obligations can arise in relationships outside the established categories. 26
BUT, in Australia the High Court seems to have limited fiduciary obligations to relationships of trust and confidence in matters of business / property. CBA v Smith- banker an client, not usually a fiduciary relationship but because of the nature of advice in this case it was said to be a fiduciary relationship. If a relationship can be argued by analogy then it may be a fiduciary duty. i.e. liken it to a certain category. On the other hand there are relationships which may not fall into a certain category but still may be fiduciary.
Hospital Products Pty Ltd v US Surgical Corporation (1984) 156 CLR 1
Outside the established categories, it may be a matter of some difficulty to predict whether or not a particular relationship is fiduciary. Especially where parties are dealing with one another in the commercial arena. HPI (later HPL) was the exclusive distributor of USSC’s product in Australia. Not an agent. It manufactured and sold competing products. Mr Blackman was an employee. The executives of the USSC’s were on good terms with him. The K between Mr B and his company was just telephone conversations and letters. Thus it was hard to see the terms of the K. this was because they were all friends. Promised he wouldn’t compete with them or sell competing lines, they knew he might have sold other products but nothing that competed and interfered with the ability to sell their products. The K was not at all clear The promise In negotiations for the exclusive distributorship contract, B had said that ‘after he had got the Autosuture business ‘rolling’, he might take on other non-competing lines and build up a broad based surgical distributorship – but not so as to interfere with giving proper attention to the USSC products. Sued in breach of K and Fiduciary Obligations He had made promises to them but it wasn’t clear if they were in the K But was this part of the contract? Was there a fiduciary relationship? Hospital Products 5 of the 9 judges who looked at these facts thought that there was a fiduciary relationship. Unfortunately for USSC, the 4 who didn’t were all on the High Court. Result = no fiduciary relationship.
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If you were USSC what remedy would you want? All the profits would be ideal An equitable doctrine was the path to follow. Is a constructive trust appropriate here or not? There would be no issue if Mr B started his own company and didn’t use USSC clients. But here he has ‘spring boarded’ the company to his success from taking clients etc. the remedy was to take into this account of his benefit i.e. using the company and not having to do the hard work. Ultimately, it was held that there was no fiduciary relationship in this case, because: Gibbs CJ- looks to C/L first, takes seriously the relationship between C/L and equity. –
The arrangement was a commercial one entered into at arm’s length and on equal footing; and
–
It was integral to the arrangement that HPI was entitled to make a profit on its own behalf. It had been contemplated that a conflict of interest might arise and there was no obligation on HPI to resolve any such conflict arrangement in USSC’s favour.
Why the judges decided what they did.
Cf Mason J took a different view who considered that there could be a fiduciary relationship here consistent with the contractual relationship. His Honour considered that the critical feature of a fiduciary relationship to be the principal’s vulnerability to abuse. In so far as the relationship was exclusive, this rendered HPI the custodian and made USSC vulnerable to abuse. HPI was a fiduciary in so far as it was ‘custodian of USSC’s product goodwill in Australia’. He was in minority and this wasn’t an easy call to make. May be hard to say it was fiduciary or not. Trust and confidence must be reposed. It will sometimes be difficult to call if it is fiduciary. The majority of the HCA followed the more binary approach of Gibbs CJ. This is the approach that has been followed by the courts ever since. See for example: Paul Dainty Corporation Ltd v National Tennis Centre Trust [1990] 22 FCR 495 One element of the argument was that they had been forced into a fiduciary arrangement. Inherently contractual and not fiduciary
Paul Dainty Corporation Ltd v National Tennis Centre Trust
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Paul Dainty argued that it was in a fiduciary relationship with Bass - the Ticket vendor that the NTCT obliged it to use. Bass sold tickets and held ticket moneys on behalf of Paul Dainty. In rejecting this argument the Full Court of the FC observed: ‘the authorities make it clear that equity will not impose fiduciary obligations on parties who have entered into ordinary and arm's length commercial relationships, which fully prescribe the respective powers and duties of the parties. This is particularly so when the parties involved are substantial corporations, having equal bargaining power.
Vulnerability
Has found little support in Australian case law. Indeed, in C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd (1996) 37 IPR 315, Lehane J expressly rejected vulnerability as a touchstone of fiduciary obligation. So, although it may be present in many cases, vulnerability is probably not an indicator of the existence of a fiduciary relationship in Australia.
Result: Contra-indicators of a fiduciary relationship
As a result of USSC v Hospital Products, there are now 2 contra indicators of a fiduciary relationship:
1. The existence of a contract between parties in a commercial relationship at arm’s length and on equal footing tends to indicate that there is no fiduciary relationship and that the parties should look to their contract to define their rights and obligations vis a vis one another. 2. If the parties countenance the possibility of conflict between their various interests, then unless one party is to act solely in the interests of the other, this will probably be fatal to any argument that a fiduciary interest exists.
Trust and confidence and acting for and on behalf of.
Expanding the Role of the Doctrine
In Norberg v Wynrib (1992) 92 DLR (4th) 449, two judges of the SC of Canada held that a doctor owed fiduciary obligations his patient. Doctor sexually abused a drug adicted client in return for drugs. Civil suit was statute barred – outside the limitation period. Sued in equity (Statute of Limitations n/a equity). Doctor held liable to compensate for breach of fiduciary duty. Cf Breen v Williams Breen v Williams (1996) CLR 71 29
B wanted access to ‘her’ medical records held and owned by W so she could take part in a class action in the US against the manufacturer of the implants. Argued that Williams owed her a fiduciary obligation to provide access to the records. Held: Totally for the doctor. Some members of the HCA reject outright the notion that a doctor owes fiduciary obligations to a patient. Others (e.g. Gummow J, Dawson and Toohey JJ) accept a doctor might be a fiduciary in some contexts, e.g. diagnosis, advice and medical treatment. Remember that the duty = loyalty. So still would not require a doctor to hand over medical records.
Expanding the Role of the Doctrine
In M(K) v M(H) (1992) 96 DLR (4th) 289, it was held that the parent child relationship was fiduciary. In Bennett v Minister of Community Welfare (1992) 176 CLR 408, McHugh J was prepared to accept that the Minister for Community welfare (as guardian) owed fiduciary obligations to one of his wards (i.e. ward of the State). Paramasivam v Flynn (1998) 160 ALR 203. Sexual assault by guardian, Civil assault statute barred. Sued for (inter alia) breach of fiduciary duty. In Mabo v Queensland (No 2) (1992) 175 CLR 1 at 203, Toohey J considered that the power of the Crown to extinguish native Title gave rise to a fiduciary duty. So that any act done by the Crown which interfered with that title or failed to take into account the title holders’ interests would constitute a breach of duty. Only Dawson J expressly disagreed. Cases will not be turned over due to an error of law. This is in relation to the fusion fallacy
Facts:
The obligation for FD’s begin when the trust and confidence begins and may not necessarily end when the K does.
The scope of the relationship A relationship may be fiduciary in some of its aspects and not others. Example = NZ Netherlands Society v Kuys [1973] 2 All ER 1222. There will be contractual obligations alongside fiduciary obligations We are looking at them in isolation but you will hardly see fiduciary obligations in isolation
NZ Netherlands Society v Kuys 30
Mr Kuys = the secretary of the NZ Netherlands Soc. It was agreed that K would run and own a newspaper – The Windmill Post. Privy Council Held: K was a fiduciary to the extent of his role as secretary. BUT the facts of the case – particularly the fact that the success / failure of the paper was at K’s financial risk – meant that there was no fiduciary relationship with the paper. Injunction granted as it wasn't the Society's risk. – –
Scope To determine whether or not fiduciary obligations exist ascertain: Whether a fiduciary relationship exists; And Whether the matter in question falls within the scope of the relationship. I.e. if you are a solicitor and you happen to find a car belonging to your client, this isn't a breach because they're not related I.e. to the advice you are giving Will the conduct be within the scope of the duty or not? Equity emphasises substance not form. Dixon in Birtchnell v Equity Trustees (1929) 42 CLR 384 said to ascertain the scope of the fiduciary relationship: Any docs or express arguments which established the relationship; and The actual course of dealing between the parties. Focus is on substance not form. Context
Fiduciary Obligations will frequently be only some of various obligations owed. For example the defendant may also be liable for: – Breach of contract; – Breach of duty of care (negligence); – Breach of statutory duty (esp. co-directors); and – Breach of industry standards (e.g. solicitors, real estate agents etc.). Context and Remedial Response It is not the case that ‘if there is any fiduciary relation whatsoever, any of the available types of interference is warranted. The nature of the fiduciary relation must be such that it justifies the interference. – Re Coomber [1911] 1 Ch 723, 728-9 (Lord Fletcher Moulton). – Cited with approval in McKenzie v McDonald, 144-145 (Dixon A.J.). Fiduciary Obligations: Keech v Sandford (1726) 25 ER 223
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Facts: Fiduciary here was a trustee. Legal title was a lease. Lease came up for renewal. Trustee applied to renew lease to hold for beneficiary. Landlord refused to grant lease to trustee. – So trustee applied for lease on own behalf and was granted the lease. – Ben then claimed the trustee acted in breach of fiduciary duty. – This is an old doctrine. The principle here is as true today as it was back in the 18th century. Held: Trustee had acted in breach of duty. Even though the beneficiary wasn’t going to be able to take the lease, trustee was still not entitled to take the lease. This clearly describes the fiduciary principle You can breach the fiduciary duty without actually being dishonest It is of the nature if fiduciary obligations that the I.e. client, beneficiary etc. may not know if they are always doing what they are supposed to do. This is where there may be a conflict. There is a strong public policy issue here. Purpose: of these rules – is to protect the vulnerable. They operate as a deterrent / disincentive. Remedy: court required trustee to: – Transfer title of lease to beneficiary. – Account for profits/income generated by the lease.
Chan v Zacharia
The fundamental rule in Keech v Sanford that a fiduciary must account for any personal gain or profit made by virtue of a breach of fiduciary obligations was explained by Deane J in Chan v Zacharia (at 198 – 199) as embodying 2 themes: – The first is that the fiduciary must give to his or her principal any benefit obtained where there was a conflict between the fiduciary’s personal interest and his or fiduciary duty or significant possibility of such conflict … – The second is that which requires the fiduciary to account for any benefit or gain obtained by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it …’ The principle in Keech is similar to Chan v Z In so far as you are a co-owner or co- tenant you have to do the right thing by your partner even if the connection is ever so minimal as in Chan v Z. 32
A fiduciary may not
1. Enter into a transaction in circumstances where a conflict (or a significant possibility of conflict) exists between his or her fiduciary duty and his/her own personal interest; or 2. Take any profit or gain obtained by use of or by reason of his/her position (or by reason of opportunity or knowledge arising from that position) Without making full disclosure to and receiving the informed consent of his / her principal.
Two basic rules derived from Keech The first one is the no conflict rule The second is the no profit rule Unless you make full disclosure and you retain the full consent of your principle Consider consent or disclosure= before you give advice you need to check this
The Conflict Rule Some applications or sub-rules:
The fiduciary may not carry on business in competition with the principal (Hospital Products v USSC); The fiduciary may not purchase from or sell to the principal (McKenzie v McDonald [1927] VLR 124); Mrs McDonald wanted to sell a farm and McKenzie was not a trust worthy real estate agent. He undervalued the farm and inflated the price of the property he wanted to sell to her, this created the rule that there was to be no selling of goods The fiduciary may not ‘serve two masters at the same time’(Farrington v Rowe McBride [1985] 1 NZLR 83, Commonwealth Bank of Australia v Smith (1991) 102 ALR 453); The principle in Hospital Supplies was rejected here. The fiduciary may not do for his own benefit that which he ought to have done for his principal (Boardman v Phipps [1967] 2 AC 46; Green & Clara P/Lv Bestobell Industries [1982] WAR 1; Bailey v Namol (1994) 53 FCR 102); and Bestobell sued and claimed breach of obligation against Green and Clara. They won. You cannot do something for your own benefit that you should have done for the client. The fiduciary may not accept bribes, gifts or commissions from third parties in connection with his duties to the principal (Lister v Stubbs (1890) 45 Ch D 1, Reading v R [1949] 2KB 232 (CA)).
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Most of these relate to breaches of good faith as opposed to trust and dishonesty Reading v R, where he wore a soldier uniform to sneak alcohol in, he had a breach of duty while being in the uniform, I.e. he shouldn't have taken the bribe in the first place. Lister v Stubbs is older but still relates to bribes. What conflict? The standard by which conflict is judged is that of a reasonable man. It is not enough that by some stretch of the imagination a possible conflict of interest could occur. There must be what a reasonable person would say was a ‘real, sensible possibility of conflict’ Boardman v Phipps per Lord Upjohn at 124. The rule is that you are not to make a conflict arise. Trusts cases relating to family. I.e. you may not do anything wrong but there may be a conflict arises. It is because of the existence of conflict. e.g. if your solicitor is the trustee and they marry one of the beneficiaries then this may be a conflict and you may want to remove them as a trustee.
More like the ‘no profit rule’! The fiduciary may not obtain any profit or gain by use of her / his fiduciary position or of opportunity or knowledge arising from it. In other words, a fiduciary may not use her / his fiduciary position for personal advantage. Be careful of serving the two masters at the same time. One case said you need to disclose it to the client etc. Consent may not be fully reliable in dealing with parties where there is a conflict. I.e. hairdressing example where one hairdresser is working for a salon but then sets up their own salon and tells the clients whilst she is still working there about her new business plans
The Profit Rule
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Facts: Regal Hastings owned cinema and wanted to acquire leases of 2 other cinemas. A defence is full disclosure to the P by the D and consent from the P to the D. Later, after securing the leases, it was decided to sell all shares in Regal Hastings and A to a third party, at great profit.
House of Lords: Trust law should be applied strictly – liability arises not from harm to the beneficiary, but from profit being made only by virtue of acting for the co. 34
Directors in breach. Conclusion: liability to account does not depend on fraud or detriment to the beneficiary, but arises from the mere fact of a profit having been made by reason of the opportunity and knowledge flowing from the F position.
Boardman v Phipps [1967] 2 AC 46
Illustrates both obligation not to profit from ones fiduciary position and (semble) the obligation not to permit the possibility of conflict between interest and duty. Shows how onerous these obligations are and how strictly they may be enforced. Illustrates that a fiduciary may be in breach of his / her obligations notwithstanding that he / she acted in good faith. (See also the speech by Lord Haldane in Nocton v Ashburton). Shows that the liability to account is not affected or diminished by the fact that the breach has caused the principal no loss. You will be guilty of equitable fraud even if you were acting above the law and tried to do the right thing.
Nocton v Lord Ashburton (1914) AC 932 Equitable fraud is broader than ‘moral fraud’. Per Lord Haldane at 954 This case can be benefits for a remedial perspective. Nocton’s security was further down the line and didn't directly affect Nocton’s interest. Nocton was sued for deceit. But there was no evidence of deceit here however there was a breach of the fiduciary duty. If you take a benefit in a fiduciary situation you run the risk of being fraudulent.
Why are the no-profit and no-conflict rules so strictly applied? ‘Because the fiduciary has superior information concerning his or her acts, it would be difficult to detect and prove breach of these wide obligations; and because the fiduciary has control based upon the notion of implicit trust, there is substantial potential for gain through such wrongdoing.’McLaughlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129. I.e. It’s prophylactic.
Green v Bestobell Industries Pty Ltd (1982) WA If a fiduciary takes for himself a profit sought by the principal, it doesn’t matter that this was not something that fell within the scope of the fiduciary’s duties. 35
The principal does not have to prove that the information or opportunity was in fact used to acquire the profit. This is often very difficult. Nor is it necessary to show that ‘but for’ the fiduciaries breach, the principal would have made a profit. In this case, the director was not responsible for bids. Nor was the principal’s bid the next highest bid. The defence of consent The only way that a fiduciary may escape liability on the basis of a breach of the conflict rule or the profit rule is by proving that the principal has given its informed consent. The fiduciary must disclose all info pertinent to the transaction and must provide any necessary explanation of the disclosed information. The fiduciary’s duty to make full disclosure extends to all material information known to the fiduciary. This includes any information that the fiduciary has deliberately refrained from acquiring. Raise this even if there is no evidence of it in the question. It is the only way they can escape liability, but it doesn’t include constructive notice Queensland Mines Ltd v Hudson (1978) 18 ALR 1 Hudson = chairman of and managing director of Australian Oil Exploration. On behalf of that company, H set up Queensland Mines. Hudson also = managing director of Queensland Mines. Then QM was ‘moth-balled’. Sometime later, H resigned as director of QM and took up mining iron ore in Tasmania via his own personal company. Mr Hudson put before the mines the possibility of going into mining for iron ore. QLD said no, he asked for consent to do it on his own and they said that was fine, so he went ahead and was successful. The mines raised a case but Mr Hudson had done everything he needed to do.
The defence of consent
BUT the duty to make full disclosure does not extend to information of which the fiduciary was not aware, even if prudent enquiry would have revealed its existence. BLB v Jacobsen (1974) 48 ALJR 372 Jacobson = the manager of BLB’s business in Australia (supplying yarn). He was also the director of one of BLB’s customers – Bel Knit. If Jacobsen took more steps then he would have discovered what he needed to know that- the company wasn't solvent. He had not failed to disclose here. 36
BLB v Jacobsen (1974) HC In response to a claim by J for wrongful dismissal of J, BLB argued that J had breached his fiduciary duties to BLB by supplying a large quantity of yarn to Bel Knit, when that company was not solvent. At the time of his actions, J had not seen the accounts of Bel Knit, that indicated that it was had it had incurred a substantial trading loss. All that he knew was that Bel Knit ‘was not going too well that year’. He had disclosed Bel Knit’s debts and the fact that it was ‘struggling to establish itself’. It was held by the High Court that J’s disclosure was sufficient.
Consent Summary: There must be proof (balance of probabilities) that: Full disclosure by F to principal of all material facts BEFORE the breach occurs Unanimous consent by all the principals, if there’s >1. Where the principal is a co – normally need shareholders’ consent Regal Hastings (cf Queensland Mines v Hudson – where cons by other board members was sufficient). Context and Remedial Response It is not the case that ‘if there is any fiduciary relation whatsoever, any of the available types of interference is warranted. The nature of the fiduciary relation must be such that it justifies the interference. – Re Coomber [1911] 1 Ch 723, 728-9 (Lord Fletcher Moulton). – Cited with approval in McKenzie v McDonald, 144-145 (Dixon A.J.). Remedies Injunction e.g. Hospital Products v USSC. Equitable compensation e.g. McKenzie v McDonald, Bailey v Namol and Nocton v Lord Ashburton. NB Not punitive (disciplinary) damages Bailey v Namol. But see Digital Pulse Pty Ltd v Harris [2002] NSWSC 33 and Harris v Digital Pulse Pty Ltd [2003] NSWCA 10. What remedies may you use? Ongoing loss may need an injunction like Hospital Products to stop the person from selling goods based on your company. 37
Equitable compensation, in the cases above recession wasn’t a possibility, so for e.g. Mrs McDonald (McDonald Case) couldn't get her property back, the courts look to what they lost monetarily as a result of the breach. You can get punitive damages but only for intellectual property rights as under the Act, but it doesn't apply to equity.
The judge who wanted a remedial response to 'sting' I.e. to get the message across, but on appeal it was overturned somewhat on the basis there was fusion fallacy. Equitable damages are not to 'punish' but to simply compensate for the loss. But there are ways of making the remedies harsher. You do not get exemplary damages.
Account of Profits Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378, Warman International v Dwyer. Constructive Trust e.g. Keech v Sandford, Chan v Zacharia and Boardman v Phipps. NB Re bribes and secret commissions see Lister v Stubbs. But cf AG (Hong Kong) v Reid [1994] 1 NZLR 1. 252525And Grimaldi v Chameleon Mining NL [2012] NSWCA 30.
Powerfully: constructive trust. You may get it in fiduciary obligations so far as the shares are concerned. In Phipps they were in breach when they purchased the shares. Whether the item is an item of property will be a good argument for constructive trust. Bribes and secret commissions is an area of somewhat confusion, it was not clear after the Hong Kong case what would happen in Australia because it was a NZ case. Constructive trusts haven’t been explored in Australia as of yet and it is for the HC to decide. Constructive Trust
Kearney J in ‘Accounting for Fiduciaries gains in a Commercial Context’ in P. Finn, ‘Equity in Commercial Relationships’. The task is to – – Identify and measure the extent of the fiduciaries gains; and – Determine whether or not, in the circumstances, a constructive trust is the appropriate formula for relief. When may you get a constructive trust? If a constructive trust is established and there is a bankruptcy the trustee cannot touch it essentially. If the profit is the form of property you should try and get a constructive trust.
Breach of Confidence
Confidential Information
Protection in equity – the elements of the doctrine 38
Confidential Information Imparted in Circumstances of Confidence Unauthorised Use Detriment?? Remedies Defences
Rationale
The rationale of this doctrine: Is to prevent the unconscionable act / conduct of making unauthorised use of information that has been imparted in confidence. Also there is a public policy advantage to assuring the respect of confidences. BUT note that there is the important countervailing public policy ... Freedom of speech Protecting the ability to confide in one another. It is sensitive to public policy. There is also the freedom of speech to be considered. We still need the ability to speak freely. If we protect confidence too much then we impede on the freedom of speech
Breach of confidence is not about protecting your privacy, it is to prevent unconscionable behaviour (breach of fiduciary information) such as disclosing the information. But the confusion can lead in through the question of why it is unconscionable. Essentially it is unconscionable when someone says it is confidential and you betray this and let the information out. Society aspects- trust.
Jurisdictional Basis
Equity has an original, inherent and independent jurisdiction to prevent the violation of a confidence and will grant relief. Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39, 50-52 (Mason J) So it doesn’t matter if there is no contract, no tort, no copyright or patent. Equity will enforce an obligation of confidentiality and will restrain breach. This is not a case of Equity enforcing a legal obligation. It falls within Equity’s exclusive jurisdiction. Equity has always had an inherent jurisdiction. This is a cause of action which is equitable and a P is entitled here to ask for an equitable remedy. AG (UK) v Heinemann Publishers
In an employment situation there will be contractual obligations of confidence. A breach of confidence is essentially true information and this is where there is a gap/ distinction in the law with defamation. Equity may step in and grant a remedy at its discretion.
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Other sources of obligations Contracts: express and implied terms; Statutory provisions, e.g. Corporations Act 2001, s 183. Torts (a) Inducing a breach of contract (Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37); (b) Interference with a right to property (Lamb v Evans [1893] 1 Ch 218).
Confidentiality v Privacy
Take from Theakston case – equitable doctrine of breach of confidence is not necessarily suited to protecting expectations of privacy. – Ieaked private info may not be confidential. Privacy – protection of personal autonomy – is different from protection of confidences where confidence is expected. – Some argue we need an American-style privacy tort, to protect personal autonomy as in Theakston. Breach of confidence v Privacy. Misleading and deceptive conduct has differed to how it was supposed to be. Confidentiality v Privacy: Australia In Aust – no such legislation yet. Arguments against view that this doctrine should protect privacy – are that privacy is different from confidentiality and the two should be kept separate. Arguably tort law is the better way to protect privacy. This is the approach New Zealand has taken. Breach of confidence v a right to privacy International News Service v Associated Press 248 US 215 (1918) – there is no property in facts. Victoria Park Racing Ground v Taylor (1937) 58 CLR 479 – there is no common law right to privacy. BUT ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 (Gleeson CJ at [40]) ‘the law should be more astute than in the past to identify and protect interests of a kind which fall within the concept of privacy.’ ABC Case- possum case. A reporter snuck in and filmed how the company made their 'game meat'. There is no reason why we shouldn't protect privacy was in this case. Jane Doe v ABC in the County Court of Victoria per Hampel J (3 April 2007).
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Held (obiter, there was also a breach of statutory duty) that the ABC had, in publishing the plaintiff’s name breached the equitable obligation of confidence AND was liable under a new tort ‘invasion of privacy’. Accepted the invitation in ABC v Lenah Game Meats Pty Ltd 208 CLR 199. Drew analogy with Campbell v MGM Ltd (2004) 2 AC 457 and Douglas v Hello! Ltd (2001) QB 967. Jane Doe case: Newspapers cannot without permission of the victim, publish the name of a rape victim in the paper. This is information in the public domain, but the ABC made it publically available. It was already known. This is a good example of why we need laws to protect invasions of privacy. The Campbell case however is not good law in Australia. There is a question mark over the doctrine of breach of confidence and how it will develop. Drawn in two directions of property rights and breach of privacy Seager v Copydex [1967] 2 All ER 415 Mr Seager invented, manufactured and sold carpet grips. He was looking for someone to market one of his products. It did not infringe the Mr Seager’s patent. There was no contractual relationship between Mr Seager and Copydex. Relates to the fusion fallacy. Held: Lord Denning Copydex had infringed Mr Seager’s equitable rights and had to compensate him. It didn't infringe Mr Seager but clearly used information given from him. Lord Denning quote. The appropriate remedy here was compensation as they were in the exclusive jurisdiction. Confidential Information A person who receives: information of a confidential nature in circumstances of confidence may not make unauthorised use of the information. Equity will restrain abuse of the confidence and will render the confidant accountable for profits obtained by improper use. 3 elements of confidential information which gives rise to the duty.
3 Requirements 1. Information must have the necessary quality of confidence about it. 2. Must have been imparted in circumstances importing an obligation of confidence. 3. Unauthorised use made of the information (to the detriment of the confiding party). Per Megarry JA in Coco v AN Clark (Engineers) Ltd [1969] RPC 41 41
Detriment may be a 4th element or part and parcel of element 3. Detriment is not required by law.
1. Nature of Information General Rule – The information must be of a confidential nature, not be ‘public property and public knowledge’ per Lord Greene in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203. No recognised standard by which confidentiality is assessed. Therefore, there are no formal standards as to how to express something to ensure confidentiality. Three types of confidential information: – Commercial and technical; – Personal confidences; and – Government secrets. The court looks to assess if it is private information, you need to convince the court it was private. Writing confidential etc. on something doesn't make it confidential it needs to be confidential at nature. The 3 types of confidential information are not the only types, something may not fit into these categories. These are the 3 main types. If information is publically available it is not confidential. I.e. in the public domain. Not in the public domain Johns v ASC (1993) 116 ALR 567 Johns was the managing director of a company, Tricontinental. He gave evidence to the ASC. The ASC tendered transcripts of his evidence in a public hearing of a Royal Commission into the affairs of Tricontinental. Subsequently, the ASC made the transcripts available to certain members of the media. Was the information in the transcripts still confidential or had the information entered the public domain? Information that wasn't public becoming public is the issue.
Held (Gaudron J) ‘The term “public domain” in relation to the law of confidence … is not an expression with a constant meaning … it has two distinct aspects: the first is concerned with the question whether any duty of confidence arises; the second is whether a duty of confidence has come to an end … Was it always public available information or was it always confidential and if it was confidential has it remained confidential? Public domain In this context, the question whether the information is in the public domain is largely one of fact. 42
It may be that info has (‘passed into the public domain’ in that it has) ceased to be confidential’… if, for example, the information is published by or with the consent of the person to whom the obligation is owed … in which event the person … is released from (the duty of confidence) … In this context whether the information is in the public domain is a question of law. There is an issue whether an obligation of confidence is extinguished because of subsequent publication of the world at large by third parties or even by the party who owed the duty in the first place. … The info has passed into the public domain. Again, the question is whether the info has lost its confidential quality. And (for same reasons as in the first case) is … largely a question of fact.’ Look initially and at the time of the breach.
Common Knowledge Info is confidential if “it is available to one person (or a group of people) and not generally available to others, provided that the person (or group) who possess the information does not intend that it should become available to others”. Douglas v Hello! Ltd (No.3) [2006] QB 125 at [55] The point was here that they had control over the group who had access to their wedding photos
Particular issues: Assembly Assembly: May be protection in the way info is assembled, even if the info contained in the doc is public knowledge. – E.g. an address book listing customer names and addresses – usually regarded as confidential, even though it’s a conglomeration of public info. Information has to be a discreet piece which is able to be identified. Information can be photos etc. The contact list i.e. is not about the 'addresses' it is about the composition of the list. Particular Issues: Reverse Engineering If a defendant obtains info by reverse engineering P’s product – that info isn’t confidential, because it can then be said to be the product of the def’s own endeavours. E.g. one company invents new technology, and places a product on the market. Then a competitor can examine the technology and reproduce it, solely through own endeavours. Competitor won’t be in breach of confidence: Saltman Engineering Co ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 So if going to copy a supplier’s product, reverse engineer it – don’t try to steal their designs!! Reverse engineering is not private or confidential. 43
Loss of Confidentiality Info which was confidential may lose its confidential character. – E.g. if govt secrets have been published, e.g. 71 copies of a book sold, then no longer confidential: Commonwealth v Walsh (1980) 147 CLR 61 Government secrets case, court said once it's released, it's released and there is no point in giving an injunction. Publication But the mere fact of some publication isn’t enough to remove the quality of confidentiality. Trade Secrets If information can be termed a ‘trade secret’, then it will necessarily involve the necessary degree of confidence and will automatically obtain protection. When is something a ‘trade secret’? The answer will also tell us something about the requirements used to establish confidentiality generally. See Ansell Rubber v Allied Rubber Industries (1967) VR 37 (Gowans J). Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203. Cases where the money is.
Ansell Rubber v Allied Rubber Industries Secrecy is necessary, novelty is not. Factors in assessing secrecy of a trade secret: Extent to which known outside his business; Extent to which known to employees of the business; Extent of measures taken to guard secrecy; Value of the info (including to competitors); Amount of money or effort expended in developing; Ease with which it could be acquired or duplicated by others. How to determine if information can be a 'trade secret'? It is a difference between secrecy and novelty. Confidential information and trade secrets. This is valuable information, developed over time and care has been taken to protect it. Confidentiality in the employment relationship
Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317.
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Samuels JA accepted the classification of information by Goulding J in Faccenda Chicken v Fowler [1987] Ch 117. Three categories of information: First that which because of its triviality or public availability, cannot reasonably be regarded as confidential at all. Second, information that the employee must regard as confidential (either because he is expressly told that it is confidential or because of its character it is obviously so), but which he is free to use after his employment is terminated. Thirdly, specific trade secrets ‘so confidential that even though they may necessarily have been learned by heart and even though the servant may have left the service, they cannot lawfully be used for anyone’s benefit but the master’s’. Kirby J gives some factors by which degree of confidentiality can be assessed. Needed to know all of the reliable suppliers. This information was argued to be 'trade secret' confidentially. The employee argued it was 'know- how'. The court here came up with the 3 categories of information. Here it was the 3rd aspect. 1= know how, you can take it with you and if they don't want you to take it they need to put it in the K 2= K obligation not to disclose it, but may be used once they have left 3= Trade secret, cannot be disclosed whatsoever. Personal Information Whether personal information is protected depends upon the nature of the relationship between the parties and the nature of the relationship. Argyll v Argyll [1967] 1 Ch 302 Duchess of Argyll sought an injunction restraining the Duke from publishing information about her personal life and private conduct, which had been disclosed to him in confidence during their marriage. Held per Ungoed-Thomas J granting the injunction that the protection of confidential communications between husband and wife is designed to encourage, protect and preserve the trusting and confidential relationship between spouses. Personal confidences are protected. We are able to see the public policy aspect here of the institution of marriage. Is there still a public policy aspect of preserving confidence of spouses as opposed to friendships etc.? Possibly that certain relationships i.e. spousal are worth protecting. But … On the other hand, not all sensitive personal information is confidential;
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The relationship b/w a prostitute in a brothel and the customer was found to be not confidential in nature. Theakston v MGN Ltd [2002] EWHC 137 Rather characterised as “a fleeting transaction for money when there is no reason to suppose that at the time the other party would have considered the relationship or the activity confidential for one moment”. Information must be specifically identifiable The information must be specific and identifiable. The court must be able to specifically identify what the defendant is restrained from using. – The injunction issued must specify. – Defendant ought to have a clear case to answer. A ‘general idea’ is not enough to be protected. Needs to be very clear and specific what they cannot disclose.
But … Talbot v General Television Corporation Pty Ltd [1980] VR 224 Later he saw commercial on Channel 9 advertising A Current Affairs series on millionaires. Sought injunction restraining broadcast. Argued breach of confidence GTC said - nothing confidential or secret about it - no original ideas, and this kind of thing had been done before. Held: Injunction granted. Talbot’s concept was sufficiently developed to be capable of protection as confidential info. The confidential info was the core idea was sufficiently novel to remove the info from the public domain. Plus Talbot also proved he hadn’t given his ideas to anyone else. The core idea of his program had been developed contrasted with O’Brien v Komesaroff O’Brien v Komesaroff (1982) 150 CLR 310 Komesaroff = a solicitor, argued he had provided confidential info to O’Brien in the course of advising him as a client. Held: K failed to identify what was confidential about the doc he drafted. – The contents of the trust deed were info that was already common knowledge in the industry. – Couldn’t point to any particular part of his doc that was confidential info. The description of the information in question was too general to allow the info to be identified as confidential. 46
2. Imparted in Circumstances Importing a Duty of Confidence The circumstances under which the information is imparted must be confidential. Role of confidential circumstances: May create the element of confidentiality; May dictate the permissible use of that information. So … The info must be given or obtained in circs of confidence. And The defendant must know that restrictions have been placed on use of the information. It doesn't matter if you didn’t say it was confidential, they either knew or ought to have known it was confidential.
Objective standard If … the circumstances are such that any reasonable man standing in the shoes of the recipient of the information was being given to him in confidence … then … this will impose an equitable obligation of confidentiality. Coco v AN Clark (Engineers) Ltd [1969] RPC 41 Would have realised the information given to them on a confidential basis, equity imposes the obligation. There are sorts of information you may not realise is confidential or other parts which are obviously confidential, therefore you do not necessarily need to say this is confidential. This is where elements 1 & 2 are linked. Nature of the information … Overlap with element one. Sometimes, the very nature of the information, together with the identity of the parties and the circumstances under which it was confided combine to make it obvious that the information was confided in confidence. Example. Selling unauthorised photos of celebrity wedding, when magazine knew the couple had attempted to prevent unauthorised photography Douglas v Hello! Ltd (No 3) [2003] 3 All ER 996. Ordinarily… In the ordinary case, without more, a person given access to material is entitled to presume he/she is not restricted in the use of that material. Trevorrow v State of SA (No.4) (2006) 94 SASR 64. State archive allowed Trevorrow to copy docs referring to legislative advice regarding scope of Aborigine Protection Board’s power to remove Aboriginal children. Court – nothing in the circumstances to suggest to a 47
reasonable person that Crown wanted to maintain confidential of the advice. Therefore no remedy for Crown in passing the info on to others.
Unilateral obligation of confidence Supplier can’t unilaterally impose restrictions on use of information, if: – to do so is unreasonable at the time; or – Becomes unreasonable to enforce. Contractual obligations of confidentiality. Needs to be confidential in the first place and imparted in a way that it applies unconscionability. Receipt of info for limited purpose – illustration Castrol Australia P/L v Emtech Associates Held Rath J The information had been supplied for a limited purpose and this purpose did not extend to investigation of the feasibility of a prosecution of Castrol. The Commission had received the information with the knowledge and acceptance of those limitations. Therefore, the injunction was granted. Cf Re Smith Kline and French Laboratories Ltd Smith Kline = a pharmaceutical company. Other companies sought licences to market the same drug as SK, the authority proposed to use Smith Kline’s information for the purpose of assessing those applications. Smith Kline sought to restrain it from doing so on the basis that this was not within the limited purpose for which the information was supplied. Used the information for another purpose different to the purpose it was given to them for. Held Lord Templeman The principal duty of the licensing authority is to protect the public. It also has a secondary obligation to treat all applicants fairly and equally. I.e. public policy over-rides the right to confidentiality. See also Smith Kline & French v Secretary, Dept Community Services and Health (1990) 95 ALR 87 in which Gummow J considered an equivalent application in Australia. He too rejected it. Reason = confidence is not to be determined solely by the purpose of the confider, but depends on all the circumstances. Court: Refused the injunction. Appeal also dismissed. Reason: Smith Kline didn’t make known the restricted purposes for which the info was supplied. Dept. staff were aware that info couldn’t be disclosed to third parties. But there was nothing to make them aware they couldn’t use it internally for another purpose. 48
Smith Kline might have intended the info to be used only to evaluate its own applications; but hadn’t made this known. Court – need to take into act all the circumstances, not just what the confider (i.e. Smith Kline) wanted. So – if acting for client giving info to government agency – make sure you draft a strong confidentiality rider.
Information obtained by wrongful means What about where information is not disclosed, but ‘stolen’? Equity will restrain the publication or use of confidential info improperly or surreptitiously used (Dal P & Ch p198). Franklin v Giddins [1978] Qd R 72 Pl had bred a unique type of nectarine. D stole plaintiffs’ budwood and grafted it onto their trees. Held Dunn J The defendants were prevented from selling any of the produce and were compelled to deliver up the stolen budwood for destruction. Doesn't matter if the information was given, stolen or stumbled upon, the result will still be the same You may 'accidently' come across something but the nature of the information or circumstances will suggest it is confidential information. This is different to asserting it is confidential but will arise an opinion that it is to be confidential Another Example: Selling unauthorised photos of celebrity wedding, when magazine knew the couple had attempted to prevent unauthorised photography Douglas v Hello! Ltd (No 3) [2003] So situation: Equity makes an exception for info obtained by reprehensible means – on basis of unconscionability. Some have also said, fact that you steal it means that you know that it was confidential. Result = is if info obtained by dishonest, unlawful or surreptitious means, we relax the requirement that the info be imparted in circs of confidence. Only need to show the info is confidential, and used to detriment of plaintiff. 3. Breach – Unauthorised use Coco v AN Clark (Engineers) Ltd (1969) RPC 41 Megarry J 3rd element = ‘there must be an unauthorised use of that information to the detriment of the party communicating it’. Cf In Smith Kline v Secretary, Dept Community Services and Health (1991) 99 ALR 679 the Court held that there can be no breach of the equitable obligation unless the court concludes that a confidence reposed has been abused, that unconscientious use has been made of the information.’ 49
If information is not going to harm you in anyway but you are still hurt by the betrayal and didn't want the information disclosed, equity may or may not step in, depending on the circumstances.
F Gurry (P D Finn, Essays in Equity (1985) 110): Use or disclosure (Saltman; Lamb v Evans); Directly or indirectly obtained from the plaintiff; Inconsistent use or disclosure; Comment on the third test: Smith Kline. It is not clear yet if equity will step in if the P sues in principle i.e. betrayal as opposed to pain, misery, suffering caused by disclosing the information i.e. where the release of info doesn't harm you in anyway, equity doesn't have the place to essentially step in where the common law is adequate, it is not there to address every problem that doesn't have a common law remedy also. Unauthorised Use The use of the information by the confidante must not be authorised under an arrangement with the confider or otherwise. Detriment? Unclear whether detriment is a necessary element of this cause of action. Dominant view at the moment = detriment not necessary. Examples: – Talbot v GTC. – Castrol case. Examples: Talbot v GTC case – case of millionaires programme on TV. Castrol case – ran add past TPC for one reason, and then got sued for another. Breach and third parties ‘A third party who comes by information innocently may be restrained from making use of it once he or she learns that it was obtained in circumstances involving a breach of confidence. However, the question whether there is or should be a duty on third parties must depend, at least in part, on the extent to which the information is generally known.’ Should a third party who is unaware of the breach of confidence be prevented from using it?
Extends: Obligation of confidence extends to any third party to whom info is conveyed and who knows or becomes aware of its confidentiality Regardless of whether the 3rd party acted innocently in acquiring the info will usually be a 3rd party i.e. Zeta Jones' wedding, the 50
photographer who took the photos was in breach but the magazine company would be the 3rd party. 4. Defences: The Public Interest Defence The private interests of the plaintiff and the public interest in the maintenance of confidences may be outweighed by a public interest in disclosure. The defendant bears the onus of proving that an overriding public interest favours disclosure. Public interest: Def may be justified disclosing info where it’s in the public interest to do so, e.g. disclosure of info about criminal activity. In Aust, courts more reluctant to make it out. Note comments in Croft doubting whether any general public interest defence exists. TPC in Castrol tried to argue this defence. But court found it wasn’t made out, as court found a reason for breaking confidence must be more weighty and precise than a public interest in the truth being told. Examples where defence made out in Aust – breaches of Part IV and V of TPA Allied Milles Industries Pty Ltd v TPC; HC held in A v Hayden (1984) 156 CLR 532 that express contractual stipulation for confidentiality would not be enforced where to do so would obstruct the administration of justice. Is this a defence at all? Or merely: – Defence to breach of contract? – a matter going to discretion ‘clean hands’? Not talking about ‘interest’ here in the sense of mere curiosity. Public policy basis Two important examples: Public interest in disclosure of crimes frauds and misdeeds e.g. A v Hayden; and – Where disclosure is in the interests of public health and welfare e.g. W v Edgell. A v Hayden ‘There is no confidence as to the disclosure of iniquity.’ Gartside v Outram (1856) 26 LJ Ch 113 at 114. What is ‘iniquity’? A v Hayden example of what is not an iniquity. There would be no defence available to ASIO for disclosing identities. This is based on public policy and interest to disclose crimes which outweighs the duty of confidence Gibbs CJ Considered the concept of iniquity. ‘The concept of ‘iniquity’ … has been expanded to include misconduct generally.’. –
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He backed this up using the example of the case before him – saying that, if the only possible criminal offence had been that the pl and the hotel manager had ‘jostled one another’, then this would not be enough to outweigh the prejudice to public security and the potential for serious harm to the plaintiff and others. Matters relevant to public health and welfare The court must balance the public interest in confidentiality against the: – likelihood and – severity Of danger to the public if the information is not disclosed (Dal P & Ch p203). Illustration: W v Edgell [1990] 1 All ER 385 W v Edgell W withdrew the application. Dr Edgell sent a copy of the report on W to the review panel anyway and W's lawyers sued in breach of confidentiality CA per Bingham LJ ‘ the crucial question … (is) how the balance should be struck between maintaining professional confidences and the public interest in protecting the public against possible violence’. There was a risk to public safety, it was reasonable to disclose the information to the responsible authority. X v Y [1988] 2 All ER 648 In X v Y the employees of a health authority supplied the 1st defendant, a reporter with a national newspaper owned and published by the 2nd defendant with names of 2 doctors who were carrying on general practice despite having AIDS. Rose J said that while there was some public interest in knowing what the D wanted to print, it was outweighed by ‘pub interest in loyalty and confidentiality generally and particularly with respect to the hospital records of patients with AIDS.’ So can see the sensitivity of this doctrine to public policy considerations. Government Info and public interest 52
Governments often seek to restrain breaches of their confidence on the basis of ‘national security’. See Brennan J considered this in AG (UK) v Heinemann Publishers (Spycatcher case). It is a job for parliament, not the court, to balance the interests of foreign government with the interests of our own. The duty is to refrain from enforcing an obligation of confidence owed to a foreign govenment unless Australian security and foreign relations is threatened. Injunction denied. Comparison: Breach of confidence v fiduciary duties The two types of obligation are conceptually distinct, however, historically linked. Several similarities remain. These all developed alongside breach of trust. Similarities See S Barkehall, Equity, pp 211-3. No requirement of mens rea; breach can be unintentional. No requirement that property be held. The obligations forbid the oblige making an unauthorised profit. The obligations can, to some extent, survive termination of the underlying relationship. Third parties who have knowledge of the obligations can be fixed with liability for participation in their breach. You can accidentally breach confidence
Differences See S Barkehall, Equity, pp 211-3. The duties can protect different interests. – In Australia, fiduciary obligations only protect economic interests. – Confidentiality can protect economic interests, and also some personal or privacy interests: Duchess of Argyll v Duke of Argyll [1967] Ch 302. Breaches of fiduciary obligations are invariably transactional, damage in breach of confidence cases is not. Remedies may differ. The same genesis and share a lot in common. The core rationale is the betrayal of trust. Breach of confidence is broader and softer
TRUSTS- Creating a Valid Express Trust
Essential elements of a trust Three elements common to all trusts: · The trustee(s); · The beneficiary(ies); and 53
·
The trust property. Plus, in the case of express trusts, the creator of the trust is called the settlor.
The trustee(s) There must be at least one trustee. The trustee is the person in whom legal ownership of the trust property is vested. The trustee may be a natural person or a corporation The trustee is obliged to deal with the trust property in accordance with the terms of the trust. A trust will not be allowed to fail for want of a trustee’. Ie the owner of the trust property will be deemed to be a trustee unless she / he is a bona fide purchaser for value without notice. If the trustee dies suddenly, the executor of your will can then stand in as owner of your land including the trust property will be included but subject to the trust, they will act as owner until the matter is settled. The beneficiary(ies) The beneficiary is the person for whose benefit the trustee is holding the trust property. OR The person who holds the equitable interest in the property pursuant to the trust. This emphasises the property and who owns what, it is used more often these days. It is of the essence of any trust that there is a ‘duality’ of interests in the property. Therefore, a trust without a beneficiary is void.
Case of DKLR Holdings of when equitable interests come into play. Circumstances that trigger a trust have come into existence whereby the legal and equitable interests of the property have been split. DKLR Holdings, a person cannot have legal and equitable interests in the property. If you have both legal and equitable the trust will cease to exist because the trust is a split in the legal and equitable interests in the property. The trustee may be one of the beneficiaries. Or there may be one beneficiary who is one of several trustees. A sole trustee cannot be the sole beneficiary. The duality would lost and no trust could exist. The beneficiary may be: – a natural person or a corporation; or – a class of persons, the exact identities of whom are unascertained at the time of the trust.
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In the case of charitable trusts, the charity itself is regarded as the beneficiary. Trust Property There must be property to form the subject matter of a trust. Any form of property can be held on trust, unless the law says otherwise. So trust property may be: Real or personal; chose in action or chose in possession; Legal or equitable (it is possible to hold an equitable interest on trust).
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If the trust was a painting and it was burnt and destroyed then the trust would cease to exist as there is no property as trust property. Money in a bank account is chose in action and can be considered as property for trust.
Characteristics of a trust i. Dual ownership of trust property. the essence of a trust lies in the fact that the equitable ownership of the trust property lies in someone other than the legal owner. ii. A fiduciary relationship between trustee and beneficiary. - As we saw last time a trust gives rise to a (traditional category of) fiduciary relationship. - A trustee does owe fiduciary obligations to the beneficiary. Equitable interest lies in someone other than the legal owner unless the interest is equitable to begin with.
Classification of Trusts Trusts are primarily divided into two categories: 1. Those created by the express declaration of a settlor i.e. Express Trusts; and 2. Those created by application of law: Resulting trusts; and Constructive trusts.
Classification of trusts – Express trusts Express trusts may be classified in several ways: Private v public / charitable; Inter vivos v testamentary;
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Fixed trusts v discretionary trusts; and Executed v executory trusts.
Public trusts do not have a beneficiary it has a purpose. Public policy waives the need to have a human beneficiary here so long as the purpose is charitable and if not it will be invalid. Fixed trust: stipulates the beneficiaries and their specific shares. Discretionary trust: i.e. get a year’s profit and give an amount to the children at their own discretion i.e. split it between the children or to give it to one etc. It is discretion of the trustee; the beneficiaries therefore cannot say they are entitled to a certain %. They own nothing in equity they only have an equitable right. You may go to the court if the trustee is doing an improper purpose and seek to appoint a new trustee. You cannot state what money you should be getting, i.e. one third etc.
Private v public / charitable Private trusts are trusts created for the purpose of benefiting private individuals. Public or charitable trusts have the primary purpose of promoting the public good in some way (or some other such purpose). They may incidentally have the effect of benefiting private individuals. Inter vivos v testamentary trusts A trust declared during the lifetime of the settlor is an inter vivos trust; A testamentary trust is a trust declared in the settlor’s will, coming into effect after death. Fixed trusts v discretionary trusts Fixed trusts are trusts in which the beneficiary or beneficiaries are nominated / stipulated. The trustee is given no discretion as to whom the distribution of trust property should be made. Discretionary trusts are trusts in which the rights / share of the beneficiaries cannot be known at the outset. The settlor nominates a number or class of beneficiaries, but leaves a power of appointment to someone else (often the trustees). The power of appointment is the power to choose to whom distributions of the benefits of the trust shall be made. Under a discretionary trust, no one beneficiary has the right to compel the trustee to make a distribution. It is generally considered that the beneficiary of a fixed trust has an equitable proprietary interest in the trust property. Cf the beneficiary under a discretionary trust does not – merely a hope or expectancy. 56
Executed v executory trusts A trust which fully stipulates all the details of the trust, so that it is completely constituted, is an executed trust. If the settlor leaves something to be done by the trustee to order to ‘perfect’ the trust. NB the terms of an executed trust are construed more strictly than are those of an executor trust. A bare trust A trust pursuant to which the trustee has nothing more than the legal title to the trust property and has no active duties to perform. In a bare trust the trustee simply holds the legal title, until the beneficiary/ies request that it is transferred to them.
Creating a trust There are 2 main ways to create a trust: 1. by transfer i.e. A (settlor) B (trustee) on trust for C (beneficiary) Here both legal and equitable title passes. 2. by declaration i.e. A declares that henceforth, she holds property on trust for C Here A = both settlor and trustee and C = beneficiary. Here only equitable title passes. Legal title remains with A. NB Butterworths -Third possibility = direction i.e. the beneficiary directs the trustee to hold the property on trust for another.
Essential ingredients of a valid express trust The essential ingredients for a valid express trust are: 1. The ‘three certainties’; 2. Formal requirements a) Any statutory requirement that the trust be in writing or evidenced in writing must be satisfied; and b. b) The trust must be ‘completely constituted’ or supported by valuable consideration; 3. There must be no vitiating factor (such as incapacity of the settlor, illegality etc.). From Heydon and Loughlan at 24.1. Executive Summary Validity of Express Trusts The three certainties – Certainty of Intention 57
– Certainty of Subject Matter (Trust Property) – Certainty of Object (Beneficiary) Formal requirements – Any statutory requirement that the trust be in writing or evidenced in writing must be satisfied. – If it is a trust by transfer, it must be ‘completely constituted’ or supported by valuable consideration. Any vitiating factors? Good problem question structure. Three certainties are the 'ingredients' for a trust, then has it been done properly and is it valid? Then you will have a valid trust. The Three Certainties 1. Certainty of Intention – No special words The usual words are ‘to X on trust for Y’. There are no special words necessary to create a trust. Equity looks to substance, not form. Whatever words are used must indicate an intention to create a trust. Intended to be an obligation and it needs to be clear before the property is transferred. It is a legally binding obligation. Usual equity maxim applies. The burden of proving the intention falls to the person asserting the existence of a trust (Herdegen v FCT (1988) 84 ALR 271). There must be a clear and certain expression of intention to this effect. A trust deed will help things along and it needs to be proved to a civil standard. Where the trust is created in writing - words will be given their ordinary meaning, but they will also be considered in the context of the document as a whole. E.g. Re Altson ‘my express wish’ v ‘I direct’. However, the intention may be inferred from the nature and circumstances of the transaction. A trustee needs to know there is an obligation and they are taking the property based on the obligation. 'I direct' suggests there is a direct obligation. What intention? No necessity that the settlor even knows what a trust is. This intention is a dual intention i.e. to confer a benefit on the beneficiary AND to impose a duty upon the trustee. NB This doesn’t apply to resulting (presumed) or constructive (irrelevant).
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It needs to be clear you are giving the property to one person and there is a benefit to a third party. The discretion may be how much that the trustee wants to give to the children i.e. money wise. They have to distribute it but have discretion as to how much they see fit to give to each child
Nature of the transaction and all the circumstances The court may look at the nature of the transaction and all the circumstances in order to draw an inference as to the intention. Example = Dean v Cole (1921) 30 CLR 1. In this case, the testator had given all his property to his wife ‘trusting to her’ that she would divide fairly between the children. But was not a trust, because earlier the will referred to some of the property as being at her ‘absolute disposal’. A trust would have been inconsistent with this. A trust can arise out of a document but also through conduct. Dean v Cole case, essentially it was a 'gift‘ but the children argued it was a trust as it was what the settlor expected her to do. Trusting someone here does not give rise to an obligation. He had said it was out the wife's 'absolute disposal' which does not give rise to an obligation. Actual intention On the other hand, the mere fact that the supposed settlor uses the word trust or even says that they intended a trust is not conclusive. It is the actual intention that matters. Extrinsic evidence Parole evidence rule usually applies But extrinsic evidence will be admitted when: 1. The written instrument could not reasonably be considered to be a complete statement of the maker’s intention (Star v Star [1935]SASR 263). 2. Writing is not required for a valid disposition e.g. for personal property. 3. Terms of the instrument are ambiguous e.g. Lutheran Church v Farmers’ Co-op Executors and Trustees (1970) 121 CLR 628. Dal Pont and Chalmers 438. Look to the trust document but not usually beyond it. Writing is required for inter vivos trust for land or for an equitable interest. Where terms are ambiguous then the court can have access to intrinsic evidence. 59
Go to the document itself and see if the parole evidence rule will apply, look to the 4 corners of the document etc.
The Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 Mr Joliffe opened an account in his wife’s name with himself as trustee and deposited £900. His purpose was to get extra interest that he would not get if he had put the money in his own account. When his wife died he converted all the money in the account to his own use. He went on to say that it was not the intention for him to be the trustee, and claimed it was only an idea. He wanted to put the money in his account. You cannot say it is or is not a trust when it suits you. Held: the Court split. Majority = Knox J and Gavan Duffy J said that his real intention not to create a trust. No use of any form of words could create a trust contrary to a proven actual intention. Therefore it was not part of her estate – it was his money. Minority = Isaacs J strongly dissented. Said Mr Joliffe should be held to his expressed intention. The court does not like helping people to go back on their word. However... Where the language is unambiguous and there is nothing in the objective circumstances to preclude an intention to create a trust... then a court will hold that a trust exists. Hilton v Kauter (1953) 90 CLR 86 Recent changes Byrnes v Kendle [2009] SASC (FC) K purchased a house in his own name – and signed "acknowledgement of trust" to the effect that he held an undivided half interest in the property as tenant in common upon trust for B. K later denied that he intended to hold part of his interest in the property on trust for B. Byrnes died and Kendle went back on his word to say he did not intend the trust. HELD: Regard should be had to: The terms of the written document, ‘which are a significant matter for consideration’, the context in which it came into being and the relationship between the parties. 60
The High Court agreed that Mr Kendle must be held to the unambiguous acknowledgment of trust made in writing. He could not be heard to deny that this was his ‘actual intention’. Gummow and Hayne JJ: ‘A settlor must … possess the necessary intention to create a trust, but his personal intentions are irrelevant … [i]f he enters into arrangements that have the effect of creating a trust …’. Appeal to the HC. They held he needed to be held to the trust he made in writing. Here they said it doesn't matter the intention it is what you said. They have not contradicted the Joliffe case there just needs to be a very good reason to look to the other intention. Primarily What matters is the meaning of your words. NOT what you meant to say. Your actual intention will be gained from the actual words you have used. In a problem Q if it clearly is a trust and the person is denying it then it will be assumed that the actual intention was the words you said. Precatory words Words evincing an intention to create a trust must be mandatory / imperative - not merely precatory. Precatory words = words of request. Permissive rather than mandatory. E.g. trusting that …, beseeching that …, requesting that …, in the hope that …etc. Will be in the exam so need to know how they work. These words are not mandatory and do not indicate an obligation and on their own they are neutral. It does not mean that there is not a trust. Some words may be used as a courtesy so the intention and obligation is there with no choice involved but they are given in a polite and non-rigid way. Re Altson [1955] VLR 281 The testatrix declared that her ‘express wish’ was to grant a lease to the plaintiff and that she ‘desired’ the plaintiff to have the opportunity to purchase the property when the lease ran out. Trustees of her estate wanted to know whether they were obliged to grant the lease or whether this was a matter for their discretion (i.e. power not duty). Held No duty to grant a lease, merely a discretionary power. So … even if mandatory words are used in a will, precatory words (relating to or expressing a wish or request) will not create a trust.
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What does 'express wish' mean? Here it was seen to be a discretionary power. Dean v Cole (1921) 30 CLR 1 Facts Testamentary disposition left almost all property to the widow ‘trusting to her … that she will … divide in fair just and equal shares between my children … all … such portion of my estate as she may be in the use or enjoyment of’. Was she a trustee? Held – per Knox CJ, Gavan Duffy and Rich JJ The words ‘trusting to her’ were an expression of his confidence that she would divide the property that he left her in accordance with his wishes i.e. equally and fairly. But they did not impose any legal obligation to do so. Therefore they were not an attempt to impose a trust. These words were not sufficient to contain a legal obligation. Therefore: Precatory words are, in themselves, neutral. If the words are merely precatory, then even though the property and objects may be expressed with certainty, no trust will result. BUT if it appears from the document as a whole that a trust was intended, precatory words will not preclude this result. Jacobs at [506]. Bottom line: If the document is professionally drafted and the words are merely precatory, then there will probably be no trust. If a client drafts it themselves and comes to you to check it, look out for precatory words, do they mean it to be optional or an obligation, need to change the words to you shall from you may. This too may be in the exam. Precatory words are not fatal they are insufficient. Beneficiaries’ knowledge As it is the intention of the settlor which is relevant, it does not matter that the beneficiary doesn’t even know of the trust. Rose v Rose (1986) 7 NSWLR 679. Burden of proof The burden of proving the intention falls to the person asserting the existence of a trust (Herdegen v FCT (1988) 84 ALR 271). What if she / he fails? The disposition may amount to an outright gift; Or, if it clear that no beneficial interest was intended for the donee, there will be a resulting trust: In the case of an inter vivos trust, the property might result back to the person who set up the transaction (i.e. ‘the settlor’); or
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In the case of a testamentary trust, it might result back tho that person’s residuary beneficiaries.
2. Certainty of subject matter There is no trust without trust property and the trust property must be specified. Example: Re Goldcorp Exchange Ltd [1995] 1 AC 74. Goldcorp purchased gold in bulk. Argument that it was held on trust for particular investors failed, because no specific item (gold bar) was identified as trust property. It can be an obligation but there needs to be a property and if there is no property and it is not clear what is the trust property then the trust will fail. There was no specific allocated item of property here therefore the trust failed. Boyce v Boyce (1849) 16 Sim 476; 60 ER 959. Trust property for Charlotte = houses not selected by Maria. Maria made no selection before she died. Therefore, no trust property had been identified. There are 3 main ways in which a trust can fail for want of certainty of subject matter: 1. uncertainty as to the property described; 2. uncertainty as to the existence of the property; 3. uncertainty as to the beneficiary’s interest in the property Guideline = if it was called upon to enforce the trust, would a court know what to do? E.g. Directions ‘to reward’ the beneficiary (Knight v Knight ) and to ‘make ample provision for’ a particular beneficiary (Winch v Brutton (1844) 60 ER 404) each failed for want of certainty of subject matter. A situation not where the 'street name' is not specified it is where the property is not specified. The court will try to understand what was in the trust and the intention. Uncertainty as to property described Ever helpful - Equity says: that which is not certain is capable of being rendered certain.’ This means that a trust will not fail for want of certainty of subject matter so long as there is enough information there from which a court can ascertain ‘the identity and quantum of the trust property.’ E.g. In Re Golay’s Will Trusts [1965] 1 WLR 969, the words ‘a reasonable income’ were (in the context) considered to be sufficient to indicate the property bequeathed.
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That what is not certain can be rendered certain sometimes. Reasonable is something the court can understand therefore they can help to direct the trustee to be fair. An undifferentiated portion Ordinarily, an attempt to convey an undifferentiated portion of a mass of goods constitutes no conveyance at all. – See Re London Wine Co (Shippers) Ltd [1866] PCC 121 regarding wine; – Re Goldcorp (above) re gold bars. – Re Appleby’s Estate (1930) 25 Tas LR 126 re portion of a bank deposit. Cf Associated Alloys Pty Ltd v CAN 001 452 106 Pty Ltd (2002) 202 CLR 588. It is better if the property is referred to as clearly as you possibly can. London Wine Co, the deed did not specify which bottles were to be held on trust as they are all separate chattels. Harder to distinguish with company shares. An undifferentiated portion: Shares A trust relating to shares should specify to which company the shares pertain. A trust over X% of my share portfolio or even of 100 shares – not specifying a company – would be void for uncertainty. Herdegen v Fed Commissioner of Taxation (1988) 84 ALR 271. However, it has been held that a gift of X% of 1000 shares in Y Pty Ltd is quite valid – Hunter v Moss [1994] 1 WLR 452. See also Re Harvard Securities Ltd [1997] 2 BCLC 369. This decision has been highly criticised. Uncertainty as to the existence of the property Any property can be held on trust – legal, equitable, chose in action, chose in possession. But the property must be in existence at the time that the trust is made. For this reason, future property cannot be held on trust, neither can a mere expectancy. Eligibility to benefit under a general power of appointment is a mere expectancy. It is essentially separate trusts in one document as each piece of property creates a separate trust. Re Rule’s Settlement It was probable they would exercise it in her power but Mary did not have any right to property. Held: Mary had a mere expectancy, until her parents exercised their power and made an appointment in her favour. So, there was no property in existence at the time that the trust was made And therefore no trust and therefore no tax payable. 64
Future property Trust property must be in existence at the time that the trust is created. BUT if there is a specifically enforceable contract to create a trust, then a trust will arise when the trust property comes into existence. Norman v Fed Commissioner of Taxation (1962) 109 CLR 9, 25. NB this does not apply to volunteers. See Re Ellenborough [1902] 1 Ch 697. A situation where you promise that when you get money i.e. you will hold it on trust for someone. It is not expressed. You need to distinguish between actual property and mere expectancy.
In fixed trusts, the beneficiaries’ share of the trust property must be ascertainable. Mussoorie Bank v Raynor (1882) 7 App Cas 321. The testator left his widow all of his estate ‘feeling confident that she will act justly to our children in dividing the same when no longer required by her’. This is where it is not certain what the shares of the beneficiary will be. 'Acting justly’. Raynor case, issues was the amount of trust property all together; the shares were to be 'just' so it was unclear how much each child would get. Certainty of subject matter (trust property) this is that the trust property needs to be property. Fixed trust i.e.to children in equal shares or shares are fixed. They must be ascertainable. Needs to be clear what the size of the share will be. Mussoorie Bank v Raynor (1882) 7 App Cas 321. Held: The trust failed for want of subject matter. ‘act justly’ too vague for the courts to administer (i.e. while the courts may be prepared to assess a reasonable share – they cannot assess what is a ‘just’ share). Result – the widow kept the property free from obligation.
Uncertainty as to the beneficiary’s interest in the property
2 possible objects · Trust for persons;
· Trusts for charitable objects
The beneficiary principle Every non-charitable trust must have an identifiable human beneficiary in whose favour the court can decree performance. Corollary = that a non-charitable purpose trust is void, even if the purpose is very clearly specified. 65
Human beneficiary includes corporations, i.e. there must be a person who can be in charge, beneficiary etc.
Morice v Bishop of Durham (1804) 32 ER 656 Held the case when it went on appeal. You are entitled as a beneficiary under the Trustees Act to ask the court for guidance in determining shares etc.
3. Test for certainty of object Two tests exist: The yes/no, in / out or certainty or criterion test – i.e. can it be said (yes or no) of a particular person whether or not they fall within the class of objects? (Discretionary) The list certainty test – can the beneficiaries of the trust be listed? (Fixed) In deciding private trusts i.e. for a person or class of persons. There are 2 tests and it will depend on the trust you are looking at. I.e. fixed trust or discretionary trust. Fixed Trusts All beneficiaries must be ascertained or ascertainable. The trust must satisfy the ‘list certainty’ rule i.e. one should be able to exhaustively list the beneficiaries. The list should be able to be compiled at the date the beneficiaries are entitled to their estate. But see: West v Weston (1998) 44 NSWLR 657. The class must be described with sufficient clarity. Fixed trust needs certainty. West v Weston (1998) 44 NSWLR 657 In the context of a fixed trust which contemplated distribution of the entire capital of the fund, the rule will be satisfied if, within a reasonable time after the gift comes into effect, the court can be satisfied on the balance of probabilities that the substantial majority of the beneficiaries have been ascertained and That no reasonable inquiries could be made which would improve the situation. Facts Testamentary trust over residuary estate, to ‘lineal descendants’. Problem was how you could ever be certain that you had tracked them all down. Residuary estate: property that is not allocated i.e. anything left over. Drawing up a list of lineal descendants may be very difficult. 66
Held Young J: applied McPhail v Doulton… ‘the trust would be valid if, within a reasonable time (as opposed to on that exact day) after the gift comes into effect, the court can be satisfied on the balance of probabilities that the substantial majority of the beneficiaries could be listed and ‘no reasonable inquiries could be made which would improve the situation’.
Discretionary trusts Criterion certainty test. In a discretionary trust, the trust/ee has either a mere power v trust power. Mere power = trust/ee has a discretion as to whether to make a distribution at all. Trust power = trust/ee must make a distribution, but has a discretion in relation to whom to distribute. Trust power i.e. can be on a yearly basis, at an amount you see fit. They need to distribute it at some point and cannot keep it for themselves
McPhail v Doulton [1971] AC 424 Bertram Baden established a fund for the benefit of the staff (including former staff) of Matthew Hall & Co and their relatives and dependants . Trust power- you are obligated to make a distribution Here in this case it is difficult to tell if it is trust or mere power and this was also the case in workshop 7. Funds were left to the staff of the company, their relatives and dependents. Criteria certainty would be easily satisfied. Held per Lord Wilberforce (with whom Lords Reid and Dilhorne agreed). This was a trust power i.e. there was an obligation to make a distribution. . The distinction between mere and trust powers in a discretionary trust was ‘narrow, artificial, unfortunate and wrong’ and the test for certainty of object should be the same in either case. And the better test was the criterion is a yes/no certainty test. The appropriate test here in all discretionary trusts is the certainty test Private trust? Is it fixed or discretionary? Different tests for each one, Discretionary trust will be criteria and certainty test. The criteria may be certain even if there are no records and you may be able to draw people in or out of the list (List certainty test). However, it seems that there may be some differences in the way that test is applied, depending upon whether a trust or mere power is conferred.
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Lord Wilberforce said that a trust would fail if the statement of the beneficiaries was so hopelessly wide as not to form ‘anything like a class’, so that the trust was administratively unworkable. This can applies only to trust powers and not to mere powers. Only a trust power will fail for the ‘too loose class’ rule. Administrative workability is a matter which a court can assess. If the trust cannot be practicably administered in its native form then it might be a matter for opinion, advice or directions under the Trustee’s Act 1962-78 (WA) s92. Semantic and evidential uncertainty Semantic uncertainty (aka “conceptual” or “linguistic” uncertainty) Relates to whether the settlor has prescribed a criterion capable of certain application: a disposition that suffers semantic uncertainty fails the criterion certainty test, and is void. – Semantic uncertainty will cause a trust power to fail, because you can’t enforce someone to exercise a power that cannot be ascertained. – Semantic uncertainty will also cause a mere power to fail, because a court cannot tell whether or not it is being exercised impulsively or unreasonably. Are the words the testator has used semantically clear? Re Gulbenkian’s Settlement [1970] AC 508 Facts Calouste G set up a trust, obliging that the trustee ‘at his absolute discretion’ during the life of C’s son Nubar, to pay all / any of the income of the fund to (or apply it for the benefit of) all or any persons of a particular class. Anyone who has ever given the son a job or has let him stay at their house. Discretionary, so it was the criteria test, however was it semantically clear? It needs to be clear i.e. they either employed him or didn't etc. It could be difficult to prove, but semantically it is a clear class of people. Held (HL) This = a mere power. The test for certainty was whether or not it could be with certainty whether any given person did or did not fall within the class described. Here it could and so the class was sufficiently certain.
Evidential uncertainty Evidential uncertainty = extent to which the evidence available in a particular case enables specific persons to be identified as members of the class and so as beneficiaries or potential beneficiaries. A disposition will not fail for evidential uncertainty.
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Re Gulbenkian’s Settlement Trusts [1970] AC 508 – “if the class is sufficiently defined by the donor the fact that it may be difficult to ascertain the whereabouts or continued existence of some of its members at the relevant time matters not. The trustees can apply to the court for directions…” Easier to prove The beneficiary principle Every non-charitable trust must have an identifiable human beneficiary in whose favour the court can decree performance. Corollary = that a non-charitable purpose trust is void, even if the purpose is very clearly specified. Unincorporated Associations Legal problems arise in the case of gifts (almost always testamentary gifts) to unincorporated associations. Donors often make gifts, many by way of trust, to unincorporated associations. An unincorporated association, e.g. a tennis club or an order of nuns, does not constitute a legal person, as a corporation does. Example, to A on trust for the Leeming Bowling Club. So the gift will fail, unless the association’s purposes are charitable. People do not distinguish between corporated and unincorporated associations. Unincorporated associations are not legal persons, but a corporation is. Therefore it could be charitable. But you may have left it to a person under the unincorporated body; they can take it as trust for all members of the club for example. Unless you construe the trust in a particular way, it will fail. If you do not leave it to a person, it will be left to the 'unincorporated' body and will therefore fail. However, courts have generally given effect to such gifts wherever possible. A gift to an unincorporated association can take effect in one of three ways, depending on the purpose for which the gift is made. Cross J in Neville Estates Ltd v Madden [1962] Ch 832 at 849. Rebuttable Presumption So, in order to salvage the trust, there is a presumption that: where a gift is made to an unincorporated association by name and for it general purpose it is presumed to be made to the present members. But this presumption is rebuttable. It may succeed if you leave it to someone on trust for all members of the club at the time you die. If not it will fail.
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Rebuttable presumption i.e. at the time the trust comes into effect, is it likely due to the nature of the group, property etc. that it can be rebutted to not be current members. Charitable Trusts ‘A charitable trust is a trust for a purpose, not for a person.’ Attorney General (NSW) Perpetual Trustee Co Ltd (1940) 63 CLR 209 at 222 per Dixon and Evatt JJ. Commissioners for Special Purposes for Income Tax v Pemsel [1891] AC 531 Held per Ld Macnaghten This was a charitable trust. At 583 … – ‘”Charity” in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purpose beneficial to the community, not falling under the preceding heads.’ – If you are not certain if it is charitable or not then you can decide through these elements Morice v Bishop of Durham The legal concept of charity consists of the purposes listed in the preamble together with any other purposes that fall ‘within the spirit and intendment of the act.’ Per Sir William Grant MR and affirmed on appeal by Lord Eldon. Not looking at what was intended in the statute but look to the spirit of the intention of the statute. Public Benefit In addition to this, a charitable trust must provide a benefit to the general public. This means that it must be: – Beneficial to the public; and – For a ‘public’ as opposed to a ‘private’ purpose. – Needs to be for a public purpose i.e. publically accessible. Trusts for the relief of poverty Derived from the preamble to Statute of Elizabeth – ‘relief of aged, impotent (i.e. sick / disabled) and poor people’. Must be read disjunctively. I.e. ‘old and / or sick and / or poor’. For instance, trusts made for the benefit of the aged will be charitable, even if those benefited are neither disabled nor poor. – See Re Glyn’s Will Trusts [1950] 2 All ER 1150 (‘working class women over sixty’). Relief of a particular illness i.e. this will suffice. I.e. for old people of WA will also need to prove it is public, not private. Therefore it needs to be for a public purpose. The trust does not have to stipulate that it is for the alleviation of poverty, 70
So long as it is clearly intended to have that purpose – See Downing v FCT (1971) 125 CLR 185 (‘amelioration of the condition of the dependants of members or ex-members of the armed services’). OR that is likely to have this effect. – See Re Niyazis Will Trusts [1978] 3 All ER 785 for the construction of a hostel for working class men). Trusts for the relief of poverty do not require proof of public benefit. Trusts for particular poor people or groups have been held to be charitable. – See Dingle v Turner [1972] AC 601. However, this does not apply to trusts for the benefit of the old and / or the sick. Trusts for the advancement of education This includes all trusts, which promote learning. For example: – Trusts for the purpose of maintaining a school (e.g. AG v Lady Downing (1766) 27 ER 353); – or university college (e.g. Wilkinson v Malin (1832) 2 Cr & J 636); – or a university chair (Yates v University College London (1875) LR 7 HL 438); – or a scholarship (Re Leitch [1965] VR 204) or academic prize (Chesterman v FCT [1926] AC 128). But is not restricted to educational institutions. So that trusts for the promotion of: – The Boy Scout movement (Re Webber [1954] 1 WLR 1500); – The playing of chess (Re Dupree’s Deed Trusts [1945] Ch 16); – Cultural advancements such as: choral singing (IRC v Royal Choral Society [1943] 2 All ER 101), organ playing (Re Levien [1955] 1 WLR 964), and the Archibald prize for portrait painting (Perpetual Trustee v Groth (1985) 2 NSWLR 278). Means education in a broader context. Leads into public policy as the exception of charity. Could also be a sporting club etc. Education means the dissemination of knowledge, not merely the amassing of information. So research alone will not suffice, unless it adds to the sum of publicly available information. Such as: – Scientific research (Taylor v Taylor (1911)110 CLR 218); – Educational research (Re Schulz [1961] SASR 377); – Research into matters of cultural importance (Re Hopkins Will Trusts [1965] Ch 669). Even if they serve the public good by promoting learning, these trusts must promote education of the public or sectors of the public in order to be considered to be charitable. Thus, trusts for the education of private individuals e.g. the testator’s children or of particular families are considered to be private trusts. – See Re Compton [1945] Ch 123; and 71
– Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297. Trusts for the advancement of religion This was recognised after the Statute of Elizabeth and is not found in the preamble. The law has no preference for one religion or sect over any other. It includes all religions, not merely those that rest on a belief in God. Leads to the question of 'what is a religion'? scientology was not included here Nor is validity is not an issue, unless the proposed religion could be described as a hoax or a sham. See Church of the New Faith v Commissioner for Payroll Tax for Victoria (1983) 154 CLR 120 re the Church of Scientology. Does the group in question: hold some belief in a supernatural being, thing or principle, Are its beliefs and practices related to man’s place in the universe and his relation to things supernatural? Accept cannons of conduct to demonstrate this belief. Publically beneficial, cannot be purely private The ‘advancement of religion’ means the promotion and advancement of the given faith. Including: Evangelical work United Grand Lodge of Free and Accepted Masons v Holborn Borough Council [1957] 1 WLR 1080. Providing or maintaining (public) places of worship; The support of clergy; Public services, even for the benefit of particular individuals; BUT NOT private prayer. This is not considered to be sufficiently beneficial to the public. Re Joy [1886-90] All ER 1110. Trusts for the advancement of religion must benefit the public. However, it is generally presumed that the public benefited at large benefits from the spiritual and moral advancement of its members who in turn go into the wider community and improve it. – See Neville Estates Ltd v Madden [1962] Ch 832, per Cross J. For this reason, trusts in favour of purely contemplative and / cloistered orders have not been held to be charitable. – See Leahy v Attorney General (NSW) (1959) 101 CLR 611; Cocks v Manners (1871) LR 12 Eq 574; Gilmour v Coats [1949] AC 426. Furthermore, charitable trusts must not be private. Therefore, gifts made simply to clergymen or made expressly for ‘parish purposes’ or even explicitly ‘at [their] discretion’ have been upheld. Re Flinn [1948] Ch 241. However, a trust for the clergyman’s personal purposes would not be charitable. 72
Trusts for purposes beneficial to the community In order to fall under this category, the trust must: – Be beneficial to the community – and – Fall within the spirit and intendment of the preamble to the Statute of Elizabeth. This is generally determined by analogy. 'Other' so not for education, religion or poverty. Examples: For the benefit of inhabitants of particular places eg for ‘my country England’ / the Australian community. Trusts for the benefit of ‘aborigines’ / ‘members of the armed services. Trusts for stray animals / the prevention of cruelty to animals. Relief of human suffering, but not in a political context. Sport has not been considered to be beneficial per se, but only in an educational context. Public facilities e.g. parks. Relief in cases of natural disaster. I.e. for animals, it is not for the benefit for the animals as such, it is a benefit to the community as the community will be a 'better place' if animal cruelty is prevented. Law reporting is important to administration of justice and therefore beneficial to the community. Incorporated Council of Law Reporting of the State of Queensland v FCT (1971) 125 CLR 659. Now possibly also agitation and debate with respect to political and / legislative change. Aid / Watch Inc v Commissioner of Taxation (2010) 241 CLR 530 Aid Watch: purpose was to keep the topic of international aid apparent in society. Courts were reluctant to find a charitable trust to push a particular political view, i.e. if it was political, it was not charitable. Political trusts Formerly, trusts for political purposes would not be upheld as charitable, even if they might otherwise have been considered to be beneficial. Eg trusts for the benefit of Amnesty International have failed as being for political purposes. McGovern v Attorney General [1981] 3 All ER 493. We can see the reason for this, courts do not want to be seen to be promoting political causes or sitting in judgment as to their benefit to the public. – See Bowman v Secular Society Ltd [1917] AC 406 at 442. Following, Aid / Watch Inc v Commissioner of Taxation (2010) 241 CLR 530, there is no longer a ‘blanket disqualification’ of political purpose trusts. Aid / Watch’s purpose was to influence government policy with respect to the delivery of foreign aid. Court took a more modern approach with Aid Watch and said political aspects could be charitable. It was found that Aid Watch was a charitable body.
Aid / Watch v Commissioner of Taxation Aid / watch was a charitable body. 73
BUT, arguably, if the purpose was not to stimulate debate, but merely to assert views (lobby?) then it might still fail (see Heydon and Keiffal JJ). Mixed charitable and non-charitable purposes The general rule is that where the objects of the trust are sub-categorised, then unless each and all of the sub-classes of beneficiary satisfies the rule in Morice v Bishop of Durham, the entire trust will fail. So: if a trust is made for several objects, some of which are charitable and others consist of non-charitable purposes, Then the whole trust will fail. But ... See statutory intervention: s 102 Trustees’ Act 1962 (WA). This section permits a trust for both charitable and non-charitable purpose to be preserved by severing the non- charitable purpose / expression. Where a body has both charitable and non-charitable aims (e.g. a political purpose) the trust can be allowed to stand so long as the charitable purpose is the primary object and the non-charitable purpose is only ancillary. Victoria Women Lawyers Association v Commissioner of Taxation [2008] FCA 983. Primary purpose = to assist women to enter and advance in the legal profession; Ancillary aim = achieve law reform. Cy-près ‘close-by’ i.e. close by to who it was intended for. If the charitable purpose does fail, this doctrine allows the funds to be used for a charitable purpose which approximates the purpose specified by the creator of the trust. So the trust is saved. Originally equitable, now also statutory. Testementory trust, doctrine of cy-près, Where the trust has not specified a purpose or it is unclear then funds will be put towards a similar purpose of charity. In Taylor v PMH the hospital's name was misspelt slightly, Judge found it was perfectly clear who the trust was intended to be for.
A. Formal requirements: Express Trust Testamentary trusts: Except for certain other trusts post-mortem (secret trusts and half-secret trusts) trusts that come into effect after the settlor’s death must be contained in a validly executed will. Inter vivos trusts: Any statutory requirement that the trust be in writing or evidenced in writing must be satisfied.
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Legal interest in personal property – no formalities. Legal interests in land (trusts by transfer) – in writing and signed s34 (1)(a) PLA Legal interests in land (trusts by declaration) – evidenced by writing s34 (1)(b) PLA Equitable interest in legal / personal property in writing and signed s34 (1)(c) PLA If the trust is a trust by transfer, it must be ‘completely constituted’ or supported by valuable consideration. There must be no vitiating factor. 1. Statutory requirements that the trust be in writing or evidenced in writing: Trusts Post Mortem Testamentary trusts the Wills Act; Secret and Half-secret trusts. Inter vivos Trusts s 34 Property Law Act . Voluntary transfers 2. Complete constitution: When is it required? and What does it mean?
Wills Act 1970 (WA) Part II — Dispositions and appointments by will Section 6. Provision that may be made by will A person may, by a will executed or made in a manner required or permitted by this Act — (a) dispose of property (whether acquired before or after the making of the will) to which at the time of the person’s death the person is entitled either at law or in equity; (b) dispose of property that in exercise of a power of appointment the person is entitled or able to dispose of by will; and (c) appoint a guardian of any infant child of the person. Needs to be a valid will. Part III — Execution of wills Section 8 Execution generally Subject to sections 17 and 20 and Parts X and XI, a will is not valid unless — 75
(a) it is in writing; (b) it is signed by the testator or signed in the testator’s name by some other person in the testator’s presence and by the testator’s direction, in such place on the will so that it is apparent on the face of the will that the testator intended to give effect by the signature to the writing signed as the testator’s will; (c) the testator makes or acknowledges the signature in the presence of at least 2 witnesses present at the same time; and (d) The witnesses attest and subscribe the will in the presence of the testator but no publication or form of attestation is necessary.
Valid executed will. Usually you sign at the end with an execution clause. Also make sure they sign in the same pen. Make sure you use a person as a witness who will be willing to be called upon at a later time to acknowledge they actually signed it.
Part X — Informal wills Section 32. Court may dispense with formal requirements (1) In this section and section 33 — “document” means any record of information including — (a) anything on which there is writing; (b) anything on which there are marks, figures, symbols or perforations having a meaning for persons qualified to interpret them; (c) anything from which sounds, images or writings can be reproduced with or without the aid of anything else; or (d) a map, plan, drawing or photograph, And includes any part of a document within the meaning given by this subsection. (2) A document purporting to embody the testamentary intentions of a deceased person, even though it has not been executed in the manner required by this Act, constitutes — (a) a will of the person; if the Supreme Court is satisfied that the person intended the document to constitute the person’s will ... If you want something to be effective without needing to go to the SC for approval you need to comply with s.8 If it doesn't comply with section 8, no 2 witnesses etc. This does not mean it cannot come into effect. (3) In forming its view, the Supreme Court may have regard (in addition to the document) to any evidence relating to the manner of execution or testamentary intentions of the person, Including evidence (whether admissible before the commencement of this section or otherwise) of statements made by the person. 76
Does not matter what the property is i.e. land or chattel or an equitable interest, s.8 is still the platform
Secret trusts A ‘secret trust’ may be created where: – On the face of the will, the legatee (donee) takes absolutely; – But extrinsic evidence reveals that the testator has arranged with the legatee (either before or after the making of the will) that the gift is actually to be held on trust for another (e.g. a mistress or illegitimate children); and – The legatee agrees or acquiesces to the trust. Extrinsic evidence will be admitted to prove the existence and terms of the trust. The trust will be valid and the legatee may not use the formal requirements of the Wills Act to evade his obligation. Otherwise, this would permit the Wills Act to be used to perpetrate a fraud. The will must be proven where there is a lot of property at stake. Extrinsic evidence is an exception to the general rule. Half secret trusts The will reveals that there is a trust, but the terms of the trust are not specified. Question – must the terms of the trust be communicated to the trustee at or before the making of the will? Canadian court had insisted that they must. Young J of the Supreme Crt of NSW had held that such a trust may be enforceable, even if the terms weren’t communicated to the legatee until after the execution of the will. Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532. That there is a trust is apparent but the terms are not apparent and the beneficiaries are not clear. It has been held that requirements for a half trust are stricter than a secret trust. Half secret trusts need to be incorporated into the will. Cannot incorporate a conversation that has never occurred. Brown v Pourau [1995] 1 NZLR 352 Sophy Douglas left her property to her eldest daughter Emma. Intention is important- legally binding obligation as opposed to a moral obligation. Emma was to hold it for a particular purpose but on the face of the will it was a gift. If it was a trust, then Emma could not pass it beneficially to her son. But if it was a wish, hope etc. then Emma could have given it to her son. Held 77
Need to demonstrate “the critical step from ‘ought’ to ‘is’. Here the defendants did not discharge the onus of proving an intention to create a secret trust. Evidence suggested a very vague intent i.e. that the land was somehow to be held ‘for the family’. Imposing a mere moral obligation. Nor was there sufficient evidence that E accepted any such trust i.e. willingly undertook a legal obligation and exposed herself to sanction by the court for any breach of trust. Result = no trust. Onus of proving the trust exists is up to the people proving there was a trust (Emma's family)
Trusts made inter vivos No Formal requirement imposed by Equity itself Equity looks to the intent rather than the form – so no requirement of writing at general law to create a valid trust. But certain types of trusts must fulfil certain statutory formalities. It is better to have a will drawn up and signed by the trustee/executor etc. Make sure a copy is kept by a proposed beneficiary. No formal requirements of trusts- substance not form. Personalty There are no formal requirements (i.e. of writing) in relation to an inter vivos trust in relation to personal property. Kilpin v Kilpin (1834) My & K 520 Facts: Gifts of £8000 and £4500 worth of shares. The only evidence of an intention that the share be held on trust was an unsigned memorandum and oral agreement. Held: valid trust. This proposition was affirmed in Grey v IRC [1960] AC 2 at 16 Where personal property is concerned then there is no formal requirement for conveyance of legal interest in the property, i.e. painting, musical instruments. s 34 (1)(b) Smith v Matthews (1861) 3 De GF & J 139 at 151. Relates to trusts created by declaration, rather than by transfer. The evidence may be made after the trust is declared. (Gardiner v Rowe (1828) 38 ER 923).
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Conflict with para (a), which was held in Adamson v Hayes (1973) 130 CLR 276 to apply to the creation and disposition of both legal and equitable dispositions in land. Conflict between paras a & b. Something may be covered by a or b, if it is in writing or evidenced in writing. However the best thing to do would be to put the whole thing in writing. No clear HC authority or legislation. Trust by declaration, land, a declaration will suffice and the whole thing will not need to be in writing as such. Para c purpose is to prevent hidden transactions, so the best thing is to get it all done in writing. Equitable Interests s 34 (1) (c) a disposition of an equitable interest or trust subsisting at the time of the disposition shall be in writing signed by the person disposing of the interest, or by his agent thereunto lawfully authorised in writing or by will. Purpose = to prevent hidden transactions in equitable interests and to enable trustee to identify the person to whom they are accountable. Does not apply where the legal owner disposes of his or her legal and beneficial interest in the property. DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510. Complete constitution of the transfer of trust property As we saw earlier, express trusts can be created in one of 2 ways: – Declaration of trust by the settlor; OR – Transfer from the settlor to the trustee. Legal interest in land- put it in writing and have it signed. Trust by transfer, legal interest in land needs to be in writing and signed. s.33(1) PLA general law land you will need a deed. If it is a trust by transfer, you need to consider if the trust property is owned by the trustee or not, if it is or it is unclear then it will not be completely constituted. Trusts by Declaration The settlor is already the owner of the trust property. So, the trust is automatically ‘completely constituted’. So long as the 3 certainties are present and any formalities complied with, the trust will be enforceable. Trusts by transfer One additional requirement applies: the trust must be completely constituted. While the trust property remains owned by the settlor, the trust will not be completely constituted.
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The trust will be completely constituted when the title (ownership) of the trust property is vested in the trustee. Vesting the trust property in the trustee Torrens System Land : registration of transfer. General law land : deed of conveyance (s33(1) PLA). Chattels capable of passing by delivery: – delivery of the chattels to the intended trustee – or delivery of a deed of gift of the chattels. – Anning v Anning (1904) 4 CLR 1049 Choses in Action: see s 20 Property Law Act 1968 (WA). – Assignment must be absolute - Norman v Federal Commissioner of Taxation (1963) 109 CLR 9. – Must be made in writing and signed by the assignor. – Express notice must be given in writing to the debtor. Where there is consideration... BUT note that, even if the trust property is not completely transferred to the trustee at law, it may yet be effectively be enforceable if consideration was provided. ‘Equity deems to be done that which ought to be done’. If the contract is specifically enforceable, parties will be treated as is the contract to create the trust / transfer the property has been performed. Where any conveyance is concerned then in the eyes of equity the trust may be completely constituted In the absence of consideration... BUT, unless the trust is completely constituted by: – effectual legal transfer; or – specifically enforceable contract It will not be effectual Because equity does not perfect an imperfect gift. Complete constitution of the transfer of trust property So – to completely constitute the trust, the settlor must: 1. Do everything necessary; 2. according to the nature of the property To transfer the trust property from the settlor to the trustee. Equity will consider it to be completely constituted where the testator has done everything they could do that is necessary to be done to make the transfer. Everything necessary What does this mean? That there is absolutely nothing left to be done? 80
Means that the transferor must do those acts which it was necessary for him to do i.e. for him and him alone. See Milroy v Lord and Corin v Patton. Limitations on the settlor’s power of disposition An express trust which satisfies the three certainties is completely constituted and where all parties have capacity will generally be valid, Unless there is some vitiating factor. Discussed 3 certainties and formal requirements, but is there some other reason that the trust will fail? I.e. vitiating factors B. Vitiating factors Vitiating factors include: Illegality – where it is created to serve some illegal or fraudulent purpose; Void as against public policy where it imposes unlawful conditions upon alienation; where it promotes immorality or undermines the sanctity of marriage or the family; Where it offends the rule against perpetuities or the rule against indestructibility; or Where it is overridden by statute. Purpose of the trust must be such that the law allows. Trusts for illegal purposes Orthodox Rule ‘It is a fundamental condition that the purposes of a trust must be such as the law allows – otherwise the trust will be void.’ Departure from the Orthodox Rule The modern approach is that the orthodox rule of non-interference is departed from in certain cases … Where it is considered in the interests of justice that the plaintiff should be assisted. Summary of the modern approach The party to a trust for illegal purposes can recover property transferred under the trust, if: – the illegal purpose has not yet been carried into effect (both England and Australia) OR – they can make out their claim w/o leading evidence of that illegal purpose (English approach); 81
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OR – Where enforcing the trust would not defeat the underlying purpose of any legislation breached (modern Australian approach). Australian courts take a different view of illegal conduct. So long as enforcing the trust does not defeat the purpose of the legislation, it can go ahead. Where the illegal purpose has not yet been carried into effect The doctrine of locus poenitentiae. A person who has transferred property pursuant to an illegal trust may get it back, if they have repented prior to the illegal purpose being carried into effect and the property in question remains identifiable. Repentance ≠introspection or remorse on the part of the defendant. Question = has the defendant aborted the course without commencing it? The person asserting the illegal purpose has the onus of proving both that the purpose alleged exist and that it has been carried into effect. Under this approach, the court asks: Has the illegal purpose been carried out in whole or part? Has the settlor refrained from using the fraudulent cover? Has the settlor recanted before any necessity arose for using the fraudulent cover? It is nothing to do with repentance, it is have you planned or have you done something illegal. Perpetual Executors and Trustees Association of Australia v Wright (1917) 23 CLR 185 Husband purchased a house in his wife’s name in case he failed in business. So purpose = to cheat creditors. Normally there would be a resulting trust. It was just a purpose and he had not done anything illegal. Held per Isaacs, Gavan Duffy and Rich JJ The onus of proving that the illegal purpose has been effected lies with the person seeking to deny the trust. It is not sufficient to show that a trust was set up for the purpose of attaining some illegal object, if that purpose has not been or cannot be achieved. The question = ‘whether the illegal purpose … still rests in intention only’ (at 196). Here, the administrators failed to discharge their onus. So he was entitled to his interest. Administrators could not deny the resulting trust. The Australian approach … The English approach can lead to harsh and arbitrary results and has been rejected in Australia.
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In Australia, a settlor can recant from a trust for illegal purposes, and recover property transferred under the trust Where enforcing the trust would not defeat the underlying purpose of the law breached. Even if this necessitates adducing and relying upon evidence of his own illegality. Nelson v Nelson (1995) 132 ALR 133 Indicates that, at least in the case of statutory illegality, The court should look at the policy behind the law breached And inquire whether it will be served by denying the interest. Special interest rate, she put it on paper that she only had 1 house in her name in order to get the discount. But on paper it was a 'gift' to the child she had fraudulently intended a cheaper interest rate and the mum had to rebut the presumption of the gift and the only way to do this was to state her intention of the trust, which was the illegality. This case demonstrates how illegality will be treated in an Australian court. You can plead the existence of a resulting trust, even if you have to confess to some illegal act The mother was declared to have a beneficial interest in the proceeds of sale. Three of the five judges held that this declaration should be subject to a requirement that she restore the subsidy to the Commonwealth. Purpose of the statute This approach, focusing on the purpose of the statute in question was followed in: Fitzgerald v FJ Leonhardt (1997) 189 CLR 215 and Damberg v Damberg (2001) 52 NSWLR 492. Mixed purposes If a trust is created partly for a lawful and partly for an unlawful purpose, the whole trust will fail, unless the property to be held for the lawful purpose can be separately ascertained, because: – the “lawful property” was identified by the settlor (Chapman v Brown (1801) 31 ER 1115); or – the court can ascertain the sum that would have sufficed to achieve the illegal object (Mitford v Reynolds (1842) 41 ER 602). Jacobs’ Law of Trusts at 115. Reasons why a trust may fail other than fraud. Where only one of the terms of the trust is for an illegal purpose … The trust can only be saved if that term can be severed without defeating the purpose of the trust as a whole. Jacobs’ Law of Trusts at 115. It is there to prevent people from directing and controlling the property, i.e. it was against public policy as dynasties were built up. 83
Public policy: Trusts in restraint of alienation of property The idea is that if a gift is made of an absolute interest e.g. fee simple or ownership, then he cannot purport to restrict alienation. To do this is ‘repugnant’ or inconsistent with the interest given. Therefore, a settlor may not transfer property absolutely, subject to conditions restraining the transferee from transferring, mortgaging, selling or otherwise dealing with the property.
Grayson v Grayson [1922] QSR 155 McCawley J held that : the court must look at all the factors, such as: The number of the persons to whom it could be alienated; the length of the restriction; The effect on the value of the property given etc. The question = whether, even if the whole of the power to alienate is not withheld, is a valuable portion taken? Exceptions Be aware that there are some exceptions e.g. to wife until remarriage is OK. Lloyd v Lloyd (1852) 61 ER 338. Either passes or fails on day 1 depending on how it is written
Trusts which disturb the sanctity of marriage or family Trusts which have the effect of interfering with the sanctity of marriage are void. On this basis: a trust gift that vests upon the separation of a H and W is generally void. Trusts that destabilise the institution of the family are generally also void. So trust for the benefit of future illegitimate children were usually void. And gifts designed to separate children and parents are likewise void. Yet … Trusts which provide that the beneficiary’s interest is to be forfeited if they marry: A particular person (Jenner v Turner); or A person of a particular – Nationality (Perin v Lyon (1807) 103 ER 538), religion (Dugan v Kelly (1847) 10 Ir Eq R 295); or Class (Jenner v Turner); or 84
Without consent (so long as a gift over is also provided in circumstances where they do marry without consent) (Leong v Lim Beng Chye [1955] 2 All ER 903) … Have been held to be valid. In an exam you do not need to decide if it passes or fails based on the rule. It is when the trust 'ends' or is vested in someone, it is about the clause whereby it is determined when it is vested and when it ends. Need to distinguish this from an indestructible trust. When looking at indestructible trusts, you will need to determine if it is a charitable trust or not. However… Competing public policies and changing social values have caused difficulty in the formulation of consistent principles. So that, trusts to take effect if and when a married couple separate are still void (Re Moore (1988) 39 Ch D 116) … But trusts in favour of children born outside legal marriage would no longer be invalid. (Jacobs, p. 117). And trusts which are forfeit if a person marries a person of a specified nationality would now probably offend s9 of the Racial Discrimination Act 1975 (Cth). Jacobs p118 fn 61. Jenner v Turner The testator left her residuary estate to her brother, but stipulated that his interest under the trust would be forfeited if he ever married a domestic servant. The trust was upheld (by Bacon VC) on the basis that – ‘there is no reason nor any authority for saying that the testator may not make it a condition that … the object of his bounty shall not marry any particular person by name, or any person of a particular nation, or belonging to a specified class.
Trustees of Church Property of the Diocese of Newcastle v Ebbeck Testator left a life interest in his residuary estate to his wife and the remainder to his sons. However, the son forfeited his interest as remainderman if he and his wife were not protestant. All the sons married Roman Catholics. Held per High Court That the trust was void as tending to encourage the dissolution of marriage.
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The father was putting the son in a position where, unless he could induce his wife to desert faith, the son had a serious financial inducement to end the marriage. Therefore, the condition was void. And furthermore … Trusts determinable on the remarriage of the settlor’s surviving partner or on the marriage of the beneficiary have been upheld. Morley v Rennoldson (1843) 67 ER 235 at 239; Lloyd v Lloyd 61 ER 338 at 341. The “modern perpetuities” rule (Also known as “the rule against remoteness of vesting”) is a common law rule. It imposes a time limit on the amount of time which may elapse between the creation of a future interest and the ultimate vesting of that interest. Recognise the common law side in the exam but do not need to discuss in detail just say i.e. it may be a problem rule against remoteness of vesting.
The rule against perpetuities The rule against perpetuities aims to stop the indefinite (perpetual) postponement of the vesting of an interest in property: i.e., it seeks to ensure that the interest concerned will vest in someone w/in a certain time after the commencement of the instrument creating the interest. Promotes the free alienability of property. Effect of the rule Any future interest that is not bound to vest within this period is invalid. If a trust infringes the rule against perpetuities, the express trust fails and the trust property reverts to and vests in the settlor of the trust (on resulting trust) or to the settlor’s personal representatives. The rule does not purport to affect the duration of the interest once vested. Statutory modification The general law position is modified by statute. In WA the statutory modification is contained in ss99-115 of the Property Law Act 1969 (WA).
Indestructible trusts
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Public policy of preventing property from being tied up indefinitely is also reflected in the rule against indestructibility of trusts. With the exception of charitable trusts a trust is void if it is indestructible. An unlimited and perpetual gift of income is presumed, in the absence of contrary evidence, to be a gift of the body of the fund itself: Congregational Union of NSW v Thistlethwayte (1952) 87 CLR 375. If the trust does not lend itself to such a construction it will be void.
Congregational Union of NSW v Thistlethwayte The testator left his estate on trust for life and after that a gift of 5% of the proceeds of the income of the estate to the Congregational Union in perpetuity. Yet, the court held that the gift was to a charity it was not void, even though it was intended to endure in perpetuity (indestructible). Statutory limitations on a settlor’s power of disposition The trust may be unenforceable, by virtue of statute Main forms of statutory unenforceability = trusts to avoid creditors, trusts to evade taxation and the Family Court’s power to set aside family trusts which have the effect of defeating an order of the Court. Trusts to avoid creditors The Bankruptcy Act 1966 (Cth) may render a trust void as against the trustee in bankruptcy in circumstances where it has the effect of, or is created with the intention of defeating the settlor’s creditors. Trusts to evade taxation Trusts established to evade taxation are void as against the Commissioner of Taxation. Important to appreciate the distinction between those arrangements to reduce the incidence of taxation which are legitimate and those which are designed to evade it. See Part IV A of the Income Tax Assessment Act 1936 (Cth). Family Court powers to set aside family trusts The Family Court has jurisdiction to set aside family trusts under ss 106B of the Family Law Act 1975 (Cth) – where the trust or disposition of property is made to defeat an existing or anticipated order – or which, irrespective of intention, is likely to defeat any such order. Section s106B operates irrespective of the intention of the settlor – it is not the purpose of the trust which is examined by the Family Court, but its effect on the other party. 87
Relates to tutorial 7. The spouse doesn't have to prove the intention, they just need to prove it will affect the Family Law Act. Family Court powers Also, under s79 Family Law Act 1975 (Cth), the Family Court is conferred a wide discretion to alter “property” interests between parties to a marriage in proceedings with respect to their property. The court may be required to decide whether property within a family trust is “property” for the purposes of s79. If discretionary trust is the “mere puppet” or “alter ego” of a party to the marriage, the Court may find that the trust was the “property” of that party even if the party is not a beneficiary of the trust or is merely a discretionary beneficiary. Ashton v Ashton (1986) FLC 91-777
Inheritance (Family and Dependants Provision) Act 1972 (WA) A testator’s word is not always final. If the trust is created by a will, and the testator has not made adequate provision for proper maintenance and support of his close relatives, a court can vary the trust under the testator family maintenance provisions of this Act. It is about protecting the dependents who you should have provided for in the will. These are all the vitiating factors.
Express Trusts – How do they work?
If a formal requirement is not met and the trust fails, no property has been transferred and it is 'nothing'. So look to if the trust will succeed or fail etc. This section of lectures will be in the form of short answers.
Capacity to act as trustee Natural Persons as trustees So long as a person has the legal capacity to take and hold title to property, they are capable of being a trustee. One person who cannot be a trustee is a sole beneficiary
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DKLR Holding Co v Commissioner Stamp Duties [1980] 1 NSWLR 510 (per Hope JA at 519). Anybody who has the capacity to own property can be trustee. This means that an infant may be 'trustee'. The trustee cannot be the sole beneficiary, but if you are not the only beneficiary then you may be a trustee. Trustee Act 1962 (WA), s 7(1)(g) Where a trustee is an infant The person named in the trust as having the power to appoint new trustees may appoint another person as trustee. Citizens of foreign countries can be trustees, so long as they are resident within Australia (And fall within the jurisdiction of Australian courts). You do need to be within the called court of jurisdiction i.e. need to be accessible to Australian Courts, if they are not accessible then this may be grounds for removing the trustee.
If property is conveyed upon trust to someone who cannot hold it on trust or if the trust deed imposes specific duties upon the trustee and the trustee has not the capacity to perform those duties, then the trust will not fail. Sonley v Clockmakers Co (1780) 28 ER 998. A trust will not fail for want of a trustee Sinnott v Hockin (1882) 8 VLR 205. The property will be deemed to be held on and the court will appoint a new trustee. Corporate Trustees A corporation is a legal person. Therefore, prima facie, it may be a trustee. However, the company may only do that which is permitted within its Memorandum of association. If its memorandum of association, does not permit it to act as a trustee or does not permit it to own property, then the company may not act as trustee. Corporations can be a trustee as they are a 'person' but if the company does not allow them to 'own' property then they cannot be trustees.
Appointment of trustees
The trust instrument The original trustees will be specified in the trust instrument.
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The instrument usually stipulates the manner in which original and any new trustees are to be appointed. Look at the trustee, look to the legislation then go to court. 3 steps of what to do if you are unsure of the trust In relation to new trustees - commonly an individual will be nominated as appointer The appointer will have the role of selecting new trustees. The Trustees Act If no appointer is named, then this role is usually fulfilled jointly by the other trustees (or the personal representatives of the last surviving trustee) – s 7(1) Trustees Act. The court will have inherent jurisdiction, i.e. Supreme Court over the administration of trusts. Appointment by the Court The court has an inherent jurisdiction to appoint new trustees. The maxim = a trust will not fail for want of a trustee. Pursuant to s 77(2), the situations in which a new trustee may be appointed in this way include: Where the trustee wants to quit; has been convicted of an indictable offence; is a person of unsound mind; or is bankrupt. Under s.77(2) can have the trustee replaced with someone else. Appointment by the court This is added to by s 77 Trustees Act 1962 (WA), which provides that the Court may appoint new trustees in addition to / substitution for old, whenever: it is expedient to appoint a new trustee and it is inexpedient / impractical / difficult to do so without the Court’s assistance. Expedient here means conducive to ‘the interests of the beneficiaries, the security of the trust property and efficient and satisfactory execution of the trusts and faithful exercise of the trustees powers. Miller v Cameron (1936) 54 CLR 572. For instance, where there is animosity between the trustees. Letterstedt v Broers (1884) 9 App Cas 371. In appointing new trustees, the court’s primary consideration is the welfare of the beneficiaries. Letterstedt v Broers and Miller v Cameron. In making its choice, it looks at: the wishes of the settlor; the need for a trustee who will fairly represent the interests of all beneficiaries. And 90
the need to advance the execution of the trust. Letterstedt case where they were forcing the trustee to choose Lloyd's bank. Balance between what the beneficiaries want and what the trustee thinks is right. Essentially the beneficiaries are simply volunteers. When it comes to appointing the new trustee, replacing another one or not, best interest of the beneficiaries. One argument may be that there will be a breach, i.e. not in the interests of the trust and the representation will not be fair or there will be a strong conflict of interest, this may be a good argument. Such trustees have all the same powers as if they had been appointed by the trust instrument - s 77 (5). Disclaimer by trustee There is no obligation to act as trustee, merely because one is appointed as a trustee Robinson v Pett (1734) 24 ER 1049. A person appointed as trustee may refuse the trust before the trust property is conveyed to him. If someone has nominated as a trustee, you may refuse it, however, make sure you do it quickly. Otherwise you may be held liable for inaction and you will need to ask if you can retire which is difficult. Make sure the refusal of the trust is very clear and in writing. Even if trust property has been conveyed to him, he may disclaim the trust. Hardoon v Belilios [1901] AC 118. The intended trustee may expressly refuse to act as trustee (disclaim) or refusal may be implied from inaction on his part. Re Birchall (1899) 40 Ch D 436. However, the onus of proving that someone refused the trust lies on him. Lady Naas v Westminster Bank Ltd [1940] AC 366.
The disclaimer must occur before the intended trustee has accepted the trust – (unless otherwise stated, execution of the trust deed is an acceptance of the trust - Bennett v Bennett (1875) 1 VLR 280). Or done anything as trustee. Noble v Meymott (1851) 51 ER 367. Just saying you will think about it and ask for the documentation, this may be misconstrued.
Retirement of trustees A trustee may retire in 4 ways: 91
1. In accordance with retirement provisions in the trust deed. 2. Pursuant to the power contained in s 9 Trustees Act 1962 (WA). 3. The trustee may be permitted to retire, if all of the beneficiaries (of full age and legal capacity) agree to this. Although this may bring an end to the trust entirely, Re Brockbank. 4. By consent of the court. Look at the trust deed; go to the statute then go to the court, again these are the 3 steps which need to be done. 1 look to the trustee, documents etc. 2. Look to s.9 and 3. Consent of the court.
Retirement by consent of the court The trustee may apply to the court for a release from his duties. The court has an inherent jurisdiction to do so. It may impose terms, Including insisting that the trustee pay the costs of appointing a new trust. Acceptable reasons to be excused include: sickness, infancy, the fact that he is suffering financial loss as a result of the role. The fact that the trustee wishes to enter into dealings with the trust that would otherwise be a breach of fiduciary duty (eg he wants to buy the trust property) is also a legitimate reason. Gould v Carroll [1964] NSWR 803. Removal of trustees A trustee may be removed if: Under an express power in the trust deed. pursuant to ss 7 or 77 Trustees Act, which permit a new trustee to be appointed in substitution for an existing one; or By the court exercising its inherent jurisdiction to supervise trusts. When can you actually 'sac' the trustee? ss.7 & 77 allows the court to replace the trustee but can also be used to remove the trustee. Removal by the court This jurisdiction is used to protect beneficiaries. The trustee will be removed if his continuing in office is inconsistent with the welfare of the beneficiaries - Miller v Cameron (1936) 54 CLR 572. It will only be used in exceptional circumstances - Porteous v Rinehart (1998) 19 WAR 495 at 516-7. Reasons for removal of trustees Breach of trust Breach of trust is not in itself a reason unless the welfare of the beneficiaries is compromised. 92
Princess Ann of Hesse v Field [1963] NSWR 998. So simple breaches of trust will not be grounds for dismissal. Serious breach, i.e. fiduciary obligations, this will be sufficient grounds. You are not allowed to be in a situation where there is a breach and it will not usually be litigated unless detriment is caused for a party. Being in the situation of e.g. conflict of interest can be a breach but depends when it occurs. On the other hand, a trustee may be removed even if she has committed no breach of trust. For instance, if the relationship between the trustee and the beneficiaries is so poor that it impedes the administration of the trust, then the trustee may be removed. Hunter v Hunter [1938] NZLR 520. However, mutual dislike will not suffice - Letterstedt v Broers (1884) 9 Ap Cas 371.
Potential conflict
Potential conflict of interest may, but need not necessarily, constitute grounds for the removal of a trustee. A trustee is likely to be removed, if they refuse to acknowledge the potential conflict and to take steps to avoid it - Hunter v Hunter [1938] NZLR 520.
Incapacity of trustee The court may remove a trustee and replace him if he is unfit to hold office For example, misconduct in administering the trust, conviction of an indictable offence, is of unsound mind, bankruptcy (won’t necessarily incapacitate) or in the case of corporate trustees ceasing to carry on business / in liquidation / dissolution. s 77(2) Trustees Act 1962 (WA). If the beneficiaries wish to remove a trustee without having a replacement appointed, or if the trustee contests his removal, then must apply to the court to exercise its inherent jurisdiction. They must show that the trust property is in danger or that the trustee has behaved dishonestly, reasonable fidelity or some other quality essential in a trustee. Letterstedt v Broers. If the trustee contests then you need to go to court for them to exercise their inherent jurisdiction.
Vesting the trust property in a new trustee Jurisdiction to vest 93
Pursuant to s 78 Trustees Act 1962 (WA), the court has jurisdiction to make orders vesting trust property in new trustees. However, generally, an order compelling the trustee to divest himself of the property and revest in the new trustee. See Chellaram v Chellarem [1985] 1 Ch 409. The statutory jurisdiction will be used as a matter of last resort, where the ordinary conveyance methods have failed or are not available. Re Nairn’s Application [1961] VR 41. Effect of vesting order Sections 85 and 87 Trustees Act 1962 (WA). The effect of a vesting order is that: In cases where the order is made on appointing a new trustee or upon the retirement of a trustee, it is as if the outgoing trustee has made the conveyance or as though someone of full capacity has done so (s 85 (1)). In all other cases, the effect of the order is as if a person of full capacity had been ascertained and had made the conveyance (s 85 (2)). NB If the trust property = Torrens System land, then the vesting does not take place until the register is altered – s 85(3). In any other case where the transfer of ownership of the trust must be registered, it is as though the new trustee is vested with the right to call for a transfer – s 85(4). Alternatively the court may simply appoint a person to affect the conveyance and any such conveyance will have the same effect as if a vesting order had been made (s 87). Trustee’s Duties Initial Duties: A trustee’s duties begin from the moment that she is appointed. the first duty = to get in the trust property i.e. ensure that the trust property is vested in him/her – Field v Field [1894] 1 Ch 425. The moment you execute the trust deed or verbally say you will do it means that your duties begin. The first thing to do is to get everything 'in your hands' i.e. make sure it is safe. Now need to check if there is a mortgage? Does the bank have the CT or is there a duplicate etc.? As part of this duty, the trustee must get in any title deeds / documents and store them in a safe place - Field v Field [1894] 1 Ch 425 at 429.
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Section 48 of the Trustees Act permits the trustee to deposit documents with a bank or a company in the business of providing safe-storage of documents. Need to charge the cost of doing so to the trust. Duties The trustee’s second duty is to familiarise himself with the trust instrument and acquaint himself with the terms of the trust Harvey v Olliver (1887) 57 LT 239 at 241; Hallows v Lloyd (1888) 39 Ch D 686 at 689. Primary obligations is fulfilling the settlor's instructions Duty to obey the trust instrument The primary and overriding source of the trustee’s duties is the trust instrument. The trustee’s main duty is to fulfill the settlor’s wishes as expressed in the trust instrument. Get the trust property and the document. Section 5(2) Trustees Act Exceptions – s 89 and s 90. What the deed says comes first, but if there is nothing contrary in the deed then the provisions in the Trustees Act will apply. The trustee may only disregard the terms of the trust, if: – he is authorised to do so by the beneficiaries (by unanimous decision of all trustees being of full age and capacity) Saunders v Vautier (1841) 49 ER 292; – to do so would be illegal e.g. the terms of the trust are illegal or following them would mean committing an illegal Act; and – If she is compelled or sanctioned to depart from the trust document by court order or statute. Do what you are told unless as it is illegal. If you do not want to do it, go to the beneficiaries ensuring they are all of age i.e. not children. If there are children you will need to go to court. Section 89 Section 89 allows the Court to sanction actions by a trustee that are: – beyond his expressly conferred powers, – but would nevertheless be in the best interests of the beneficiaries. This jurisdiction is expressed to be exercisable notwithstanding anything to the contrary expressed in the trust deed. But this power is not to be relied upon. Re Weston’s Settlements [1969] 1 Ch 223. Lord Denning refused the appointment of a new trustee here. Be careful when using this section, you cannot really rely on it
Section 90 95
Section 90 empowers the crt to: revoke or vary trusts and / or to enlarge trustees powers contained in testamentary trusts at the request of anyone who is or will in the future have an interest in them (including a discretionary interest), So long as the proposed variation would not be to the detriment of the applicant or another beneficiary. I.e. you may want to have 3 trustees rather than 2 for example. Boardman and Phipps case this is an example where you may use the s.90 to vary the trust In considering detriment, the court may have regard to the welfare and honour of the family to which he (the beneficiary) belongs (s90(2)). An example of an application to the court for permission to depart from the trust is Re Weston’s Settlements [1969] 1 Ch 223. Duty to preserve trust property As we saw, the trustee (whether an original trustee or newly appointed) should; Get in all trust property, so that it is within his control. Keep safely the title deeds to the trust property store them in a safe place; and Bring any outgoing trustee to account for any breach of trust. I.e. if the trust property is a 'jewel' and you need to keep it in a safe place, locked up etc. then your dressing table is not a good idea. If you see an ex-trustee wearing it for example, it is your duty to get it back etc. Any trustee who destroys the trust property or any part of it is in breach of trust. Re Fairbairn [1967] VR 633, 637. It may also part of this duty to insure the trust property. Power to insure the trust property (s30(1)(g) Trustees Act 1962(WA)) Traditional view = trustee not liable for loss caused by failure to insure Re McEacharn (1911) 103 LT 900. Modern approach = unless the income from the trust property would be inadequate to pay the premiums, insuring at least for replacement value may be an implied duty. See Davjoyda Estates P/L v National insurance Co of NZ Ltd [1965] NSWR 1257; Pateman v Heyen (1993) 33 NSWLR 188; and SA Perpetual Forests Ltd 1964 Trust Deed (1994) 64 SASR 434. s.30(1) (g) says the trustee may insure it, there is no duty to ensure it. Need to insure the property at least where it is income generating. So no duty to insure if there is no money given for that purpose.
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To Account and Provide Information As soon as funds fall into the trustees hands, he has a duty to keep proper accounts of all $$ received and paid out. So that such accounts may be furnished to the beneficiary, should he ever wish to see them. Wroe v Seed (1863) 66 ER 773. This is used to ascertain whether the trustee has performed his other duties i.e. to obey the trust instrument, preserve the trust property and to invest. Have to keep records- it is a critical duty. Rhinehart case on at the moment. The accounts (which are generally expected to be kept and resented in written form) must be ‘faithful’ and ‘accurate’ and must be provided in a timely manner (Strauss v Wykes [1916] VLR 200). Furthermore, trustees must (if requested to do so by a trustee): fully disclose to a beneficiary the amount of the trust funds and provide complete details as to the manner in which it has been invested. (Walker v Symonds (1818) 36 ER 751). At any given time if asked to do so. Duty to administer the trust personally Firstly, the trustee cannot act under dictation, or bind him or herself contractually to administer the trust in a particular manner. His/her discretionary powers must remain unfettered. Re Brockbank [1948] Ch 206. It may be a breach to 'take the easy way out' i.e. if it is discretionary, ask the beneficiaries what they want etc. A trustee must use their own judgment as to what is in the beneficiaries’ best interests. It used to be thought that options to purchase / to renew a lease could not be granted by a trustee as they offended this principle. But such ordinary contracts are now statutorily permitted. Trustees Act s 27(3)(b) (options to purchase) and s27(3)(a) (options to renew leases). The trustee can delegate their duties, but they must retain the decision making power and actually make the decision. Secondly, the trustee generally cannot delegate his/her powers, authorities or discretions. Each trustee has an obligation to ensure that the trust instrument is obeyed and that the trust is carried out. Unless they have a good reason for doing so, they may not defer to the wishes of a third party or even to a fellow trustee. 97
Delegation is permitted in two circumstances: if allowed by the trust instrument or in certain circumstances, in which the Trustees Act permits delegation. It is common for the trust deed to expressly provide that the trustees have the power to – employ agents, workmen, contractors, employees, consultants etc to assist them in the execution of their duties. Where so permitted, even a delegation by the trustee’s delegation will not be a breach (Doyle v Blake (1804) 2 Sch & Lef 231). e.g. power to employ an accountant to do the accounts is perfectly acceptable to do the duties of keeping the books The Trustees Act also permits delegation in particular circumstances: Section 54 permits a trustee who is outside the State or who is or may be suffering under a physical infirmity to delegate his/her responsibilities under the trust. You can delegate tasks but you cannot delegate decisions. Temporary 'lack of capacity' you can delegate all of your powers under the trust temporarily In order to do this, a deed needs to be executed granting the delegate a power of attorney (s54(1)). Any co-trustee and any person entitled to appoint trustees also agrees by deed (it can be the same deed) s54(2). However, a trustee cannot delegate to a co-trustee where there is only one other trustee unless that trustee is a trustee company. You are dissolved of your duties for this time. So long as the trustee makes the appointment in good faith and not negligently, they will not be liable for any default by their delegate (s54(4)). The delegation will be revoked by the trustee’s return to the jurisdiction or recovery of capacity (s54 (6)). Delegation should be distinguished from the appointment of agents. At common law, a trustee can also employ an agent. An agent is different from a delegate in that they are not actually exercising the trust power, But they are helping to ensure that the power is exercised properly. Adviser advises but trustee decides As Robert Walker J said in Scott v National for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705 at 717 (quoted in DP and C at 626): – ‘advisers advise and trustees decide’.
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Typically, this will be an expert in a particular field, such as a solicitor or a property-valuer. At common law, a trustee may appoint an agent if it would be in the normal course of business for a person to appoint someone else to do the work. A trustee cannot appoint an agent merely to get out of doing work (Re Speight (1883) 22 Ch D 727). An agent can also be appointed under statute. In the Trustee Act, s50 expressly permits the use of a valuer and s53 expressly permits a trustee to appoint an agent to do any transaction with respect to the trust. The agent who is appointed must be competent in the appropriate area and care must also be taken in the supervising of the agent, Otherwise the Trustee can become personally liable (Re Lucking’s Will Trusts [1968] 1 WLR 866). Duty of Co-trustees to act collectively It follows from the fact that trustees are obliged to act personally, that, where there is more than one trustee, they must all act unanimously. A majority cannot bind the minority. (Luke v South Kensington Hotel Company (1879) 11 Ch D 121, 125-6) By appointing more than one trustee, the settlor minimizes the chance that the trust will be administered in an idiosyncratic manner. Any decision is to be unanimous. All trustees need to agree, but it may be expressed in the deed to be a majority i.e. if there is more than 2 trustees. But where there are 2 trustees and a conclusion cannot be reached then you need to go to the court for directions. This rule may be expressly excluded (Re Butlin’s Settlement Trusts [1976] Ch 251). Another alternative, in cases where the trustees cannot agree, is to apply to the court for the appointment of a receiver to take charge of the property. However a court would only be prepared to entertain such an application if the trust property was at risk (Swale v Swale (1856) 52 ER 1233). Furthermore, this rule does not apply to charitable trusts (Perry v Shipway (1859) 65 ER 799). Duty to Act Impartially In the exercise of his powers and duties, the trustee is obliged to act impartially and not to favour one beneficiary or beneficiaries over another Re Lepine [1892] 1 Ch 210 and Re Charteris [1910] 2 Ch 379. This is important for family trusts i.e. broken families. This differs to a conflict of interest. It is where the beneficiaries contest the appointment of the trustee as they feel they will not do their job fairly. 99
Fiduciary Duties Two fiduciary duties: not to permit a conflict of interest not to make a personal profit by reason of information or opportunity gained in performance of his duties unless she / he has made full disclosure to the beneficiary and obtained her / his informed consent.
Standard of Care Loss caused by virtue of the manner in which a trustee has performed his duties is not automatically recoverable. The trustee will only be liable for loss caused in the performance of his powers and duties, if he has failed to exercise the requisite care and diligence. You know what you need to do, but how much care do you need to take. Do not necessarily need to compensate the beneficiary where there has been a loss of the trust property where you have exercised their discretions to the standard of care required. The standard of care and diligence that a trustee has to maintain in carrying out both powers and duties is that of the care and diligence that an ordinary, reasonably prudent (Wise in handling practical matters; exercising good judgment or common sense) business person would take with his or her own property and business affairs Elders Trustee and Executors Company v Higgins (1963) 113 CLR 426. This is an objective standard. It does not matter whether the trustee is in fact a business person (Fouche v State Superannuation Board (1952) 88 CLR 69 at 641. Indeed it makes no reference to the trustee’s actual degree of skill and prudence. Needs to be a business decision. As Sir George Jessel MR said in Re Speight (1883) 22 Ch D 727 at 740: ‘ A trustee is not bound … to conduct business in other than the ordinary and usual way in which similar business is conducted by mankind in transactions of their own. … If it were otherwise no-one would be a trustee at all.’ (Approved in relation to investments by Lord Halsbury LC in Learoyd v Whitely (1887) 12 App Cas 727 at 731-2). Where investment is concerned it is different. In exercising this care, the trustee is expected to remember to reserve some capital for the benefit of future beneficiaries.
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There is authority which suggests that the standard of care for professional trustees and trustee companies may be higher Bartlett v Barclay’s Trust Co (No 1) [1980] 1 Ch 515 and Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 and Wilkinson v Feldworth Financial Services Pty Ltd (1998) 2 ACSR 642). The Act Section 5(2) Trustees Act provides that: the powers conferred under the Act are in addition to those in the trust instrument; that they are subject to the terms of the instrument and apply only in so far as no contrary intention is expressed in the instrument. Result The trustee has the powers conferred upon him in the trust instrument. In addition to these, trustees have a variety of statutory powers, the most important of these is the power to invest.
Duty to invest In every trust, there is an obligation on trustees to invest the trust property Even if the trust instrument does not expressly state this (Adamson v Reid (1880) 6 VLR 164). However, it is normal for a trust instrument to expressly state the kind of investments that a trustee can make i.e. ‘authorised investments’. Trust duties, every trust instrument imposes a duty on the trustee. The investment made by a trustee must be made in a manner that is authorized by: the trust deed; statute; the court. The instrument: Trust deeds often oblige the trustee to invest the trust property. The relevant provision may proscribe to a greater or lesser extent the types of authorised investment. Or it may merely oblige the trustee to make such investments ‘as seem to them fit’. However, it has been held to include the purchase of property in circumstances where no monetary return is envisaged (Re Wragg [1919] 2 Ch 58).
Over-arching duty of care 101
Trustees owe a duty of care to beneficiaries with respect to the manner in which they execute any of their non-fiduciary duties. This duty is to exercise the same ‘care and diligence that an ordinary, reasonably prudent business person would take with his or her own property and business affairs.’ Elders Trustee and Executors Company v Higgins (1963) 113 CLR 426. See also in Speight v Gaunt (1883) 9 App Cas1, 19 in which a similar general statement was made.
Duty of care with respect to the duty to invest In the context of investment, the duty has been expressed differently. This has been re-enforced in the Trustees Act 1962 (WA) - However, this power must be exercised with the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons (s18). NB With respect to professional trustees, the standard of care is higher. s18 (1)(a) Trustee Act provides that (subject to the trust instrument) ‘if the trustee’s profession, business or employment includes acting as a trustee or investing money on behalf of other persons, then the trustee shall exercise the care, diligence and skill that a prudent person engaged in that profession, business or employment would exercise in managing the affairs of other persons.’ NB In this case the statement was put by the High Court with respect to the duty to preserve the trust property. In this case, with respect to the duty to invest.
Duty of care – investment The trustee must take the same care as would be taken by a reasonably cautious man, when investing other people’s money. Having regard, not only to the interests of those presently entitled, but of those who stand to take a future interest. See Whitely v Learoyd (1886) 33 ChD 347. Also need to take into account those who are entitled but also future beneficiaries. Statute The statute provides that, unless it is expressly forbidden in the trust instrument, the trustee may invest money in any form of investment (s 17). The limitation is that this power must be exercised with the care, diligence and skill required by the statute (s 18). Statutory standard of care In exercising this power, the trustee must do so with the requisite care, diligence and skill: 102
if the trustee’s business or employment includes acting as a trustee or investing money on behalf of other persons, then the standard = ‘the care, diligence and skill that a prudent person engaged in that profession, business or employment would exercise in managing the affairs of other persons - (s 18(1)(a)). Otherwise, the standard of care = ‘the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons’ – (s 18(1)(b)). In any event, trustee must, review the performance (individually and as a whole) of trust investments at least once each year – (s 18(3)). –
Statute In exercising the power, regard must be had to the matters in s 20(1). I.e. if you have a long term trust for the advancement and education of the settlors children and grandchildren. Need to take into the property, length of trust ad type of trust then balance it as well as looking to profits/ investments etc.
The Court The court in its inherent jurisdiction can also authorise an investment that is not within the realms of the powers provided in the trust instrument or the statute So long as this would be ‘expedient in the management or administration’ of property vested in the trustee or would be in the best interests of the beneficiaries. s 89 (1) Trustees Act. The court will exercise this power very carefully. A court may excuse a breach and absolve the trustee from liability, so long as he has acted honestly, reasonably and ought fairly to be excused. However, it will not do so if the trustee has invested the property against the advice of one whom he ought to have consulted - Shaw v Gates [1909] 1 Ch 389.
Other
Trustees’ Statutory Powers powers conferred upon a trustee by the statute include: The power to sell property (s27(1)(a), (b), (c)); The power to lease property (s27(1)(d), (e)) including the power to renew leases under s36; The power to expend money to repair, maintain or renovate property (s30(1)(a)). If money is expended to improve or develop the property then the amount is limited to $20 000 (or $50 000 if the trustee is acting on the advice of someone who the trustee reasonably believes to be competent to advise on improvement and development). 103
unless the Court consents (s30(1)(c)); The power to ‘make decisions’ with respect to any debts. (s42); The power to insure the trust property (s46) and the power to use any insurance payout to replace, repair, rebuild etc damaged trust property (s47(4)). The power to raise money by selling or mortgaging trust property (s43). If money is required then there is a power to sell even if the contrary is expressed in the trust instrument. ss 37-40 give the trustee particular powers where the trustee has invested the trust property by way of mortgage i.e. where the trustee = mortgagee These include the power to foreclose the mortgage, to exercise the power of sale etc. If part of the trust property is a business, the trustee has the power to carry on the business (s55) The power to “make decisions” with respect to any interest in trust property that is not vested in the trustee (s49). Power of advancement The power to use the income from a trust for the maintenance of an underage beneficiary (s58). The trustee can also apply capital of up to $2000 or half of the trust fund (whichever is greater) for that purpose (s59). The trustee can make the advancement of this money conditional (for example, on repayment by the beneficiary) (s60). ss.58,59,60 where money is left for the specific advancement of children, it is the use of income from the trust Pilkington v Inland Revenue Commissioners [1964] AC 612 The trustees wanted to use the power of advancement to create a fund for one of the beneficiaries in order to avoid death tax. If what you are doing is for a legitimate purpose, there may be another benefit so long as it is not for yourself. Held - this was an appropriate use of the power of advancement. Although the purpose behind the move was to avoid tax. It was clearly for the child’s “advancement or benefit”, in that it was to improve the material situation of the beneficiary. It did not matter that there were others who were not beneficiaries under the will who might benefit. It didn't matter that others who were not beneficiaries would benefit.
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Tempest v Lord Camoys [1866] LR 1 Ch App 485. The trust instrument gave a trustee the power to purchase property in his absolute discretion, and there was also a power to raise funds by mortgaging the property. But the other trustee didn’t agree. Held That the Court will not intervene to force a trustee to exercise a power that is at his complete discretion. However, the Court will be able to ensure that a power that is sought to be exercised is exercised properly and reasonably. On these facts the Court was not willing to force the trustee to acquiesce to the purchase of the property. Klug v Klug [1918] 2 Ch 67 However the discretion whether or not to use a power must be exercised honestly. One of the trustees (the Public Trustee) felt that he should exercise his discretion to make advancement to her. The other trustee, her mother, did not wish to exercise her discretion to do this. Held that this was not a valid exercise of the discretion, and so the Court ordered that the advancement be made to pay off the mortgage and to make the further payments that were required. Effectively, they found that the mother had not honestly exercised her discretion and in those circumstances the Court could interfere.
Karger v Paul [1984] VR 161 The plaintiff was a “remainder-person” under a will, with the life interest being held by the testatrix’s husband. However, there was a discretion exercisable on the part of the executors of the will to transfer all or part of the interest to her husband for his own use absolutely. Held: that the discretion was worded broadly, so that if it were exercised in good faith, with real and genuine consideration and in accordance with the purposes for which the discretion was granted, the Court would not interfere. In deciding this, the Court can look at the reasons (if any are given) for the exercise of the discretion and in the absence of this, the Court can look at the evidence to decide whether the discretion has been exercised in good faith. In this case, the executors had made inquiries with the plaintiff as to her financial position, and had therefore taken into account the effect on the remainder-person. 105
Mayo v Mayo [1943] Ch 302 With respect to the manner and circumstances in which the Court will interfere, there is no difference between a statutory discretion and a discretion that is provided by the trust instrument. Statutory discretions and other discretions. If you have a discretion and you exercise it in good faith and use it appropriately is okay, but if you do not use it fairly etc. then the court needs to step in. If you use it in good faith etc. and there is a benefit to someone else then that is okay. Rights of Trustees: Remuneration As usual, look to the trust instrument. The trust instrument usually permits the trustee to be paid. s98(1) Trustees Act states that the Court may allow a trustee to take out of trust property ‘such commission or percentage for that person’s service as is just and reasonable’. However, this amount cannot exceed 5% of the value of the trust property (s98(2)). The Court can decide that any amount that is divided between trustees be divided unevenly between them (s98(4)). If the trustee is engaged in a profession or business and is not being paid by the trust instrument, then s98(5) permits the person to take out of trust property ‘all usual professional or business charges for business transacted, time expended, and acts done by him or his firm in connection with the trust’ Providing the trust instrument does not state otherwise (s98(5)). The trustee does not need to apply to the Court to make an order under this subsection; the right exists provided it is not excluded by the trust instrument. This is different from re-imbursement and indemnity. This is a salary. Reimbursement and Indemnity s 71 Trustees Act Gives a trustee the right to reimburse himself for all expenses reasonably incurred in the execution of the trust duties and powers. The trustee can make any payment directly out of trust property without having to go through the process of paying the amount themselves and then reimbursing themselves from trust property. You do not need to go to court and have it sanctioned s 97: permits the Court to make an order directing that any costs and expenses relating to applications for orders under this Act and any conveyance or assignment arising from such be paid as the Court directs e.g. out of the trust. Relates to the trustee spending money for court needs you are able to take this money out of the trust fund. 106
s 108: Permits a trustee to take any costs, expenses and charges associated with locating a beneficiary be taken out of the benefit that is to go to that beneficiary Providing a contrary intention is not stated in the trust instrument. Right to Discharge Providing no contrary intention is expressed in the trust instrument (s9(4)), s 9 permits a trustee to retire by declaring in writing that he wants to be discharged, Providing at least two individuals or a trustee corporation remain as trustees (s9(1)). Indemnity is where there is a liability occurred. This is when you can retire, it is not easy to do so, thus you need to decide carefully if you want to pull out. If the consent of the co-trustees and any person entitled to appoint trustees is obtained, then the retirement can take place without there being a new trustee appointed (s9(2)). However, the retiring trustee cannot be discharged until any conveyance required to vest the trust property solely in the remaining trustees is done (s9(3)). If you want to retire and there is only one other trustee then you cannot write a letter and simply walk away. A new trustee will need to be appointed. Right to Pay Trust Fund into Court A trustee who has possession or control of money or securities can pay them into Court for the Court to deal with (s99(1)). This can be done by a majority of the trustees by way of a court order, without the consent of the other trustees (s99(3)). When the amount is paid into Court, the trustees will be given a certificate, and that will discharge them of their duties in re the sum paid (s99(2)).
Right to Assistance and Protection of Court Important! Any trustee may apply to Court for directions concerning - s92(1) the management or administration of trust property or with respect to the exercise of any power or discretion vested in the trustee, whether granted by the instrument or by statute. If you are concerned that another trustee is breaching their obligations or you are a concerned beneficiaries you may appoint a receiver if you are concerned about the welfare of the funds. When in doubt bear in mind s.92. 107
On top of this is the inherent jurisdiction of the court to administer trusts.
Rights of Beneficiaries
The right to possession of the trust property Where the trustee has no active duties to perform in managing the trust property, the beneficiary may insist on being given possession of the trust property (and the title deeds) – Turner v Noyes (1903) 20 WN (NSW) 266. As only the possession (and not ownership) of the trust property is passed, the trust remains on foot. Even if the trustee has active duties to perform in managing the property, the beneficiary may still apply to the court for an order allowing them to take possession of the trust property – Jenkins v Milford (1820) 37 ER 508. Trustees not to breach their duties, not to exceed their power but they need to fulfil their duties. The right to compel performance of the trust Any beneficiary may sue to compel a trustee to do his duty and / or to protect the trust property – Bartlett v Bartlett (1845) 67 ER 800. The beneficiary may sue either in his own name or using that of the trustee (or a receiver appointed to act in his stead). If the suit is in the equitable jurisdiction and there are exceptional circumstances, then the beneficiary may sue in his own name - Ramage v Waclaw (1988) 12 NSWLR 84. May sue through another trustee, i.e. if beneficiary is an infant and their guardian is suing through their name. Can sue for breach of contract, negligence etc.
Rights of Beneficiaries If the suit is a common law action or the circumstances are not exceptional, then the appropriate course of action is to bring a suit against the trustee to compel performance of his duty; and Apply: for the appointment of a receiver; and to bring the proposed action in the trustee’s name or that of the receiver.
To restrain a breach of trust If the trustee is about to breach of trust, then the beneficiary may apply for an interlocutory injunction. Normally an applicant must prove that irremediable harm will be suffered if the injunction is not granted. However, as the application is in equity’s exclusive jurisdiction, this requirement does not apply. You may appoint a receiver during the interlocutory period. 108
The right to approach the court for determination of questions of construction and administration Beneficiary has standing to apply for a declaration in relation to interpretation of the trust instrument. However, this will not be granted in relation to matters in dispute between the beneficiaries or the beneficiaries and the trustees. s 94(1) Trustees Act 1962 provides that any person with an interest (vested or contingent) in trust property or is, upon reasonable grounds, aggrieved by the actions of a trustee may apply to the court for a review of the trustee’s act, omission, decision etc. but there needs to be reasonable grounds
The right to approach the court for determination of questions of construction and administration, either with or without a decree for general administration A beneficiary is entitled to apply to the court of Equity to have the trust administered by the court (Re Blake (1885) 29 Ch D 913). This is called an order for general administration. The question is, is such an order actually necessary to the determination of the issues between the parties. After such an order, the trustee’s powers are suspended and he requires the court’s supervision in order to act. The right to inspect trust documents Beneficiaries are entitled to have all the records of the trust (and other information that the trustee has in relation to the trust property) furnished by the trustee promptly and readily. – O’Rourke v Darbyshire [1920] AC 581; – Manning v FCT (1928) 40 CLR 506. These records are not part of the trust property. Nevertheless the beneficiaries are considered to have a proprietary right to them and are entitled to take possession of them. Entitled to take possession of the documents for the purpose of examining them. This right is held even by beneficiaries in a discretionary trust. However, beneficiaries in a large discretionary trust (i.e. with many beneficiaries) will not have the same rights to disclosure as are held by the beneficiaries of a fixed trust or those under a discretionary trust with few beneficiaries - see Hartigan Nominees v Rydge (1922) 29 NSWLR 405).
To follow or trace trust property (in certain circumstances); and to terminate the trust and call for the corpus. Unless a contrary intention is clearly and explicitly expressed, a beneficiary who is:
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absolutely entitled (i.e. fixed trust, vested interest ie no contingencies or re-conditions outstanding) to an aliquot share of the trust property; and of age and legally competent may insist that the trustee conveys the legal ownership of the trust property into his name. This will terminate the trust. This is the rule in Saunders v Vautier (1841) 41 ER 482. Beneficiaries rights are the other side of trustees obigations. With a fixed trust, in the eyes of equity, as the sole beneficiary you own that trust property. With shared trusts, as a beneficiary you own your share in the eyes of equity. Saunders v Vautier (1841) 49 ER 292 Under the terms of the trust, the trust fund was to be paid to Vautier upon his attaining the age of 25. At age 21, Vautier directed the trustee to pay over the fund to him. The court held that notwithstanding that the testator had preferred him to wait until 25, as Vautier was the only beneficiary of a fixed trust and therefore the absolute beneficial owner of the trust property, he was entitled to insist upon payment as soon as he was legally competent to validly discharge the trustee i.e. full age and legal capacity. Terminates a fixed trust. This principle also applies to fixed trusts, where there is more than one beneficiary who are sui juris and absolutely entitled. In such a case, the bens may unanimously agree to call for the trust property and terminate the trust. It may even be exercised individually by one beneficiary of several, so long as he or she has been allocated an aliquot share - Quinton v Procter [1998] 4 VR 469. It may even apply to a discretionary trust - Sir Moses Montefiore Jewish Home v Howell and Co [1984] 2 NSWLR 406 At least where the class of objects is closed and all of the income of the fund must be paid each year to one or more of them. However, both Meagher and Gummow (2316) and DP and C say (at 772) that the requirement that all beneficiaries be of full age and capacity together with the difficulty of attaining a unanimous decision, means that this rarely occurs in discretionary trusts. However, the beneficiaries must be absolutely and indefeasibly entitled to the trust property - Comptroller of Stamp Duty (Vic) v Howard-Smith (1936) 54 CLR 614. There is no doubt that this rule can lead to the intentions of the settlor being frustrated.
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For instance, if all of the beneficiaries agree, then even a protective trust may be terminated in this manner – Re Smith [1950] Ch 915; Re Coppel [1950] VLR 328. According to DP &C (772), the basis for the rule in S v V is ‘threefold: … equity treated a voluntary trust as equivalent to a common law gift; … equity regarded the trustees as holding the balance between the differing interests of the beneficiaries, so that if the bens desired to terminate the trust, the rationale for the trustees’ existence disappeared; and Beneficiaries who are absolutely entitled are entitled to enjoy the property in any way desired.’ However, as a matter of practicality, the settlor can prevent the beneficiaries from terminating the trust by naming a general charitable purpose as a discretionary object of the trust.
Termination of the Trust How do you finish a trust other than under Saunders? Under these forms 1. Termination by Revocation Occasionally there will be a power of revocation given to the settlor, the trustees or a third party in the trust instrument. Unless this right is provided for in the instrument, the creation of the trust is irrevocable (Mallott v Wilson). 2. Termination by Beneficiaries 3. Termination by the Court The Court has an inherent jurisdiction to terminate a trust in whole or in part. The Family Court is also given jurisdiction to set aside family trusts by the Family Law Act 1975 (Cth). s85 and s85A of the Family Law Act 1975 (Cth). 4. Termination by Distribution of Trust Property *This is the most common ending to a trust. Need to settle outstanding claims and pay bills etc. The trust will be at an end when the trustees distribute all of the trust property to the beneficiaries. This can occur either on the happening of a particular event (under a fixed trust) or due to the exercise of discretion by the trustees (under a discretionary trust). Before making final distribution, the trustees are required to settle all outstanding claims against the trust. To ensure that this requirement is met, s 63 Trustees Act requires the trustees to publish a notice specifying a period in which claims against the trust are to be made.
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Breach of Trust A breach of trust occurs when a trustee acts in contravention of duties that are imposed on him by the trust (including the duty not to exceed his powers). So …a breach of trust consists of nothing more nor less than an act by the trustee: – In contravention of the duties imposed by the trust; or – exceeding powers granted. Re Spedding (decd) [1966] NZLR 447 at 463-464. If you have a power to do something and you exceed that power and do something you are not in power to do. These are the essence of the breaches. These breaches can either be: passive (where the trustee fails to act) or active (where the trustee acts intentionally, negligently or dishonestly). A trustee who acts is breach of trust is generally personally liable for the breach. A trustee who acts in breach of trust can be sued by: a beneficiary, a co-trustees or a replacement trustee (that is, a trustee who replaces the trustee who is alleged to have been in breach). Co-trustees duty to sue you if there is a breach by you. Remedies for Breach of Trust Injunction A beneficiary who anticipates a breach of trust may seek an injunction to prevent the breach from occurring or being repeated. This injunction may be: mandatory (to force the trustee to properly perform his duties) or prohibitory (to prevent a trustee from acting in breach of her duties or beyond his powers). Need to prove you have a case where the balance of convenience favours you. Equitable Compensation In determining the amount that is to be given to a beneficiary, the overriding principle is that of compensation. There is no power to punish the trustee. Example - Re Dawson: There was a breach of trust. However, there was a fluctuation in the exchange rates between the time of the breach and the time that the 112
action was decided, leading to an increase in the amount of required to compensate the trust fund. The Court held that the date at which the damage is assessed is the date of judgment. The trustee must place the trust in exactly the same position as if the breach had not occurred. Interest is generally also awarded on any amount that is to be paid. If loss has already been sustained and you cannot get an injunction, the remedy is equitable compensation but there is not a punitive right. Account of Profits This will normally be requested when the profit that the trustee has made through the breach in trust is more than the loss that the trust has suffered. This is an alternate remedy to equitable compensation. Tracing Breach of fiduciary obligation may be applied here. Tracing- where trusts are concerned, it can include non-express trust such as resulting trusts Tracing ‘Tracing is a doctrine whereby … the owner of property is treated as being the owner of anything into which that property has been converted.’ Meagher and Gummow, Jacobs’ Law of Trusts in Australia, 6th Edn, 736. Tracing is where you effectively follow the money. Following is where you follow the item itself, generally to a bona fide purchaser without notice. Difference between tracing and following. Tracing enables trust property to be persued through different owners and changes in the form of the trust property (for example, if property is sold, the money can be traced). It is normally used as a remedy when the trustee’s pockets are not deep enough or if the compensation that can be obtained is insufficient. In order to be able to “trace” an asset, it must be identifiable at all stages over which it is sought to be traced. So long as the trust funds / property remains identifiable, the trustee may follow it into the hands of third parties (not being bona fide purchasers for value without notice) and into property purchased with it. Can follow the item but trace the funds Account of profits is limited. Declaration of constructive trust.
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In Equity, tracing permits a beneficiary to follow trust funds that have been mixed with other funds e.g. into a bank account in which the trust funds have been mixed with the trustee’s own funds. If the trustee mixes the trust property with his own money, the rule in Clayton’s case does not apply and the trustee will be presumed to have withdrawn h is own money first – Re Hallett’s Estate (1880) 13 Ch D 696. Unless that money has been invested and the money that remains has been dissipated – Re Oatway [1903] 2 Ch 356; followed in Scott v Scott (1963) 109 CLR 649 AT 664. Tracing also existed at law as well as equity, as soon as the property was taken and sold and the cash was put in their bank account, at law this was as far as you could go. Equitable tracing has been more favourable as it goes beyond this where money that has been mixed with other funds can be followed. Clayton's case rule is 'first in, first out' in relation to depositing and withdrawing funds. If Clayton's case said it is your money that has been taken then Hallett's case assumes that the trustee takes out their own money first and the money remaining is the beneficiaries. Re Oatway- Trustee took money out and invested it. This case assumes the beneficiaries money is invested. Can only take the amount of money that was taken at the time. So you can only trace to the amount that you lost in the first place. James Roscoe (Bolton) v Winder The beneficiary may trace into a mixed fund to the extent of the lowest balance maintained since the date of the mixing.
Re Tilley’s Will Trust The beneficiary may not trace funds that have been paid to a bank to repay an overdraft. These have passed to bona fide purchaser for value. On husband’s death, she paid the expenses of the estate, about £500 out of her own funds, and was eventually left with a bit over £2000. This amount was, over the years, confused with her own money. If the money is put into an account with overdraft, they owe the bank the overdraft and by putting money in the account they are just paying off the debt. The Court held that the trust money had only been used to reduce the overdraft, and therefore were not used to purchase the property. Therefore, the property could not be traced, and the beneficiary’s estate was only entitled to half of the bit over £2000.
Options
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Re Halletts said that where property is purchased solely with trust funds, then the beneficiary has a choice – take the property or assert a charge over the property for the full amount of the funds. This charge = a fixed amount. It is not a percentage of the value of the asset. If the property has increased in value, the former is the better option. The latter is more attractive, if the property has decreased in value. The beneficiary can take all the sale proceeds, but does not have to be satisfied with that. He can still sue for the rest. In Halletts, the court said that if the property was purchased with a mixed fund, then a charge was the only option. Tracing BUT in Scott v Scott the court said that: So long as the property is specifically severable, shares / livestock, then the beneficiary may elect to assert absolute ownership of that proportion of the property as corresponds to the proportion of the purchase price represented by the trust funds. Even if the property is not severable, the beneficiary may claim a proportionate interest in the property purchased. So there is choice. If the property has decreased in value, then the charge would be the better option. Modern approach is that you should be able to obtain a portion or amount.
Scott v Scott: Where property is purchased with mixed fund, the trust funds may be the traced into property purchased with those funds and will give the beneficiary an interest in the property (a lien) proportionate to the percentage of trust funds used in the purchase. This interest will increase in value as the value of the property increases
Where funds are mixed with those of other beneficiaries …
Where a trustee has mixed the funds of different beneficiaries. Clayton’s case applies. Trustee will be resumed to w’draw her own funds first. However, after that she will be presumed to have w’drawn funds in the order that she deposited them. First in first out! Re Stenning [1895] 2 Ch 433. So money you take is assumed to be yours, the money you take out and spend is the beneficiaries
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i.e.$150, 000 where $100, 000 is Beneficiary 1 and $50,000 is Beneficiary 2 and it becomes 300,000 Beneficiary 1 will get $200, 000 and Beneficiary 2 will get $100, 000.
Other Remedies Removal; Apply to inspect the trust documents or an account; Call in his or her share – Manfred v Maddrell (1950) 51 SR (NSW) 95. Seek a declaration as to whether particular conduct is a breach of trust; Setting aside the transaction; Appointment of a receiver; Forfeiture of remuneration; Loss of Indemnity.
Third Party Liability If a third party has received trust property and is a volunteer, then it may be possible to recover the property from that person. In Re Diplock executors mistakenly distributed money to 139 charities. The residuary beneficiaries were able to recover the money from the charities when the trustees did not have deep enough pockets. In Western Australia, s65 of the Trustees Act says that this applies to trusts as well as to estates. However, s65(7) states that the volunteer must be pursued before any action is commenced against the trustee, otherwise the right is lost. s65(8) provides a statutory defence for the volunteer if he has changed his position. Defences for Breach of Trust Informed consent of beneficiaries If all of the beneficiaries, being of full age and capacity authorise a trustee to act in breach of trust, they will not be able to later pursue the trustee for breach of trust. s76 of the Trustees Act allows the Court to make any orders it thinks are just for impounding part of a beneficiary’s interest to indemnify a trustee who has acted with the written consent of that beneficiary Acquiescence A beneficiary can acquiesce to a past breach of trust providing they have been given full details of the breach. Delay An inordinate delay in bringing the action for breach of trust may result in a Court exercising its discretion not to give a remedy. Secondly, the statute of limitations might prevent an action being taken. In WA, the time limit is 6 years for an “innocent” breach of trust but is unlimited in the case of fraudulent breaches of trust (s47 Limitation Act). 116
A longer time period (12 years) is allowed to recover land in WA (s4 Limitation Act).
Trust Instrument Both complete defences and limits on liability can be provided by the trust instrument, but they are interpreted strictly by the courts. There is also case authority to suggest that it will not save a trustee who is in positive breach of a duty (Seton v Dawson).
Statutory Power of Court to Excuse Breach The Court has a power to exclude a trustee from liability or limit a trustee’s liability under s75 if the trustee has acted honestly and reasonably and ought fairly be excused from both the breach of trust and of failing to seek directions from the Court.
Resulting Trusts
sometime called ‘implied trusts’ arise when one person confers title to property to another person, but equity considers that they retain some or all of the beneficial interest in it themselves. the beneficial interest ‘results back’ to the first person. A resulting trust can arise from the presumed intention of the parties or by operation of law. presumption = an inference drawn from a given set of facts - shifts the burden of proof. Non express trust, resulting and constructive trusts. Difference between and resulting and constructive trust is now easier to distinguish. Resulting trust= intended to arise, or because there is a rule of law implied to intend a trust in certain situations. Basis Sometimes the basis of the trust is said to be intention of the settlor. It is this meaning that corresponds with the term ‘implied’ trust. In other cases, it seem that the settlor’s intention is beside the point. In these cases, the resulting trust = a remedial device used to decide who should be entitled to the property. Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961 at 990-991 considered that all resulting trusts were based on a presumed common intention of the parties.
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“Both types of resulting trusts are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention.” Based on what your intention would have been i.e. if the trust failed.
In what circumstances does a resulting trust arise? Presumed resulting trusts arise where a purchaser of property directs that it be conveyed into the name of a 3rd person, but there is no evidence that that person was to take beneficially. If there is no express intention for that person to take beneficially, there is a presumed intention that the property should revert to the settlor. Automatic resulting trusts arise where a settlor transfers property to trustees without wholly disposing of the beneficial interest in the property: what is undisposed of ‘results back’ to the settlor, though in one sense it never left the settlor (automatic). See the judgment of Megarry J in Re Vandervell’s Trusts (No 2) [1974] Ch 269 at 289. Megarry J. Presumed and automatic resulting trusts. Equity takes the view if it was paid and purchased as property, that it was intened to be a trust held for someone, thus a resulting trust. This intention may be rebutted but until then it will be assumed to be a resulting trust. It can result back to the original settlor. Westdeutsche Landesbank Girozentrale v Islington London Borough Council Lord Browne-Wilkinson at 990-991 put the same thing a different way – without using the term ‘automatic’. He identified the following as the 2 main circumstances in which a resulting trust will arise: Where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest… When does it arise (i.e. timing)? It arises at the time of that transaction. Implications there must be certainty of interest at the time of its creation; 118
evidence of actual intention of the parties after the date of the transaction is not relevant and cannot be used to rebut the presumption of trust; beneficiary’s proprietary interest arises and its priority is determined. If you purchase property and put it in someone else’s name then the trust will result on the day of purchase. Arising from contributions to property Where the legal ownership of property does not accurately reflect the direct contributions to the purchase of that property ... it is presumed that a resulting trust arises in favour of the purchaser or purchasers in the proportions to which they contributed to the purchase money: Calverley v Green (1984) 155 CLR 242 at 246-7 per Gibbs CJ. Constructive trusts will be contemporary in the sense of elders and their property.
i.e. elderly couple sell property and buy land and build properties for their son and his wife who only add a $100,000 to the 1million dollar block and 1million property.
Result of trust would be that the property is legally the son and wife's but at equity they look to the money put in by each party. Differences between contribution to purchase price or voluntarily giving it (transfer).
So - it is presumed that the property should result back to the transferor when: A purchases property in the name of B or in the name of A and B jointly (“purchase money situation”); and There has been a transfer of property by one person to another and that person has provided no consideration (“voluntary transfer situation”). Resulting trust i.e. tenancy in common where there are 10/90% shares, for example. Purchase money situation Where a person purchases land in the name of someone else or in the name of himself and someone else, it is presumed that that he / she were not intended to take beneficially. Calverley v Green (1984) 155 CLR 242. Remember Nelson v Nelson. This presumption applies to both real and personal property. In these situations, the law presumes those who transfer property to others for no consideration, or purchase property for others, do not intend to donate this property. Muschinski v Dodds (1986) 160 CLR 583 at 589-590 per Gibbs CJ; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961 at 990-991.
i. ii.
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The presumption may be rebutted by evidence that no trust was intended, eg by showing that a gift or loan was intended or by raising a presumption of advancement. Purchase in another’s name Where the legal ownership of property does not accurately reflect the direct contributions to the purchase of that property, it is presumed that a resulting trust arises in favour of the purchaser or purchasers in the proportions to which they contributed to the purchase money: Calverley v Green (1984) 155 CLR 242 at 246-7 per Gibbs CJ. Evidence can either reinforce or rebut this presumption. The property in question may be either real [Napier v Public Trustee (WA) (1980) 32 ALR 153] or personal [Russell v Scott (1936) 55 CLR 440 (money in a joint bank account)] Bloch v Bloch The property was conveyed into the name of the son, although his father contributed part of the purchase price. The circumstances rebutted the presumption of advancement. So - the contribution was not a gift and it was not a loan. Therefore, the inference was that the father intended the son to hold the property in trust for him in a proportion corresponding to the amount of the purchase price that he contributed. Similar to Nelson v Nelson of illegal trusts
Calverley v Green Man (Calverley) and woman (Green) had been in a de facto relationship since 1968. In 1973, they purchased a house and put it in their joint names. Uneven contributions Held: Mason and Brennan JJ (at p258): “When two or more purchasers contribute to the purchase of property and the property is conveyed to them as joint tenants the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contributions …’ Therefore, the couple held as tenants in common with shares proportionate to their contributions to the purchase price. Here this was held to be 1/3 to Green (based on her ½ share in the loan) and 2/3 to Calverley. NB No credit given for her contribution to household expenses. If he had paid 100% it will be held on trust for him and he would get the full amount. The mortgage amount was the same for each party and they would both be liable if they did not pay. In this case, the rule is that only the purchase price contribution matters, not the contribution thereafter.
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The direct financial contribution to the purchase price is the sole measure of the proportionate shares. – SO: household expenses will not be taken into account, nor will money spent on improvements in the absence of contrary intention, Robinson v Robinson [1961] WAR 56; Pettitt v Pettitt [1970] AC 777. – Conflicting authority as to whether incidental costs of acquisition are included within ‘direct contributions to purchase price’. Currie v Hamilton [1984] 1 NSWLR 687 – held that incidental costs did constitute direct contributions to the purchase price; Cf Little v Little (1988) 15 NSWLR 43 held that it was the purchase price that was the relevant amount and not the incidental costs. Mortgage payments do not constitute a contribution to the purchase price because the beneficial interests of the parties are to be determined at the time of purchase. Calverley v Green (1984) 155 CLR 242 NB Cf In UK repayments of principal and interest under a mortgage are characterised as payments of purchase price. Falconer v Falconer [1970] 3 All ER 444; Gissing v Gissing [1971] AC 886 at 903; Re Densham [1975] 3 All ER 726. NB Constructive trust relief The absence of a resulting trust will not constrain a court from preventing an unconscionable assertion of a beneficial interest by the imposition of a constructive trust (or where its elements are established, by means of equitable estoppel). Situation on the day the house was purchased.
Marriage and de facto relationships s 79 Family Law Act 1975 (Cth)
Alteration of property interests s 79 and de facto relationships legislation (in some jurisdictions but not yet in WA) have diminished the importance of the equitable presumptions of resulting trust and advancement in the context of property of matrimonial or de facto relationships. BUT In WA (so far) the presumptions remain relevant to the allocation of equitable interests in property within de facto or any relationship other than marriage. Voluntary Transfer If the purchaser of property directs that it be put into another’s name, then equity presumes a resulting trust (Napier v Public Trustee (WA) (1980) 32 ALR 158). So, if X purchases from Y, but directs that the property be placed in Z’s name, then, in the absence of: 121
– evidence of intention to the contrary (eg gift / loan); or – Presumption of advancement Equity presumes that Z holds the property on trust for X. The legal owner will hold it on resulting trust. Where the supposed trust/ee has provided no consideration. We need to consider personal property and realty separately. Realty There is some doubt as to whether the presumption arises in the case of voluntary transfers of general law land. This is because of the possible application of the Statute of Uses. Furthermore, in WA ss38 PLA provides that: No use to result from absence of consideration No use shall be held to result merely from the absence of consideration in a conveyance of land as to which no uses or trusts are therein declared. It seems s 38 PLA says no trust will arise as there is no consideration. The cases and legislation are not consistent. Seems to say trust by voluntary transfer does not relate to land but this is unclear. An explanation of the Victorian equivalent of this statutory provision was given by Cussen J in House v Caffyn [1922] VLR 67 at 75-81 . The effect of s38 is not to exclude resulting trusts altogether, it just changes the burden of proof – throwing it back onto the transferor. This means that a resulting trust will not be presumed on a voluntary transfer of realty without consideration, unless the transferor actually indicates an intention that the transferee is not to take beneficially. Even so, does this apply to Torrens System land? Some authorities suggest that it does, Newcastle City Council v Kern Land Pty Ltd (1997) 42 NSWLR 273, Bhana v Bhana (2002) 10 BPR 19,545. Others suggest that it does not. House v Caffyn; Wirth v Wirth (1956) 98 CLR 228. PLA applies to torrens and non-torrens. Relates back to example of the parents and their son previously. Wirth v Wirth Facts: A man and fiancée = JTs of Torrens land, later the man voluntarily transferred his interest in it to his fiancée for a stated consideration of £100 (which was probably not paid). Was there a presumption of resulting trust in favour of the man? Held: Dixon CJ That a resulting trust could arise here. 122
BUT he was displaced by the presumption of advancement. NB He was wrong on this – Allen v Snyder says the presumption of advancement does not arise in relation to fiancées. Personal Property A resulting trust in some circumstances: Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363-364; Napier v Public Trustee (WA) (1980) 32 ALR 153 at 158 per Aickin J. Presumption of resulting trusts arises: where the property transferred is capable of producing income and property in relation to which title doesn’t pass on delivery (eg shares or a debt[$ in bank]). Fowkes v Pascoe (1875) LR 10 Ch App 343 at 348; Russell v Scott (1936) 56 CLR 440. If it was non income generating property in your name, there is an assumption it was not assumed to be on trust and retain beneficial interests. If it is income generating, then it is assumed to be on trust for retaining beneficial interests. BUT Not in other cases – e.g. money and chattels which pass by delivery. Heydon v Perpetual Executors, Trustees and Agency Co (1930) 45 CLR 111 at 112 – 3. The onus is on the transferor to prove that the transfer was made on trust as opposed to gift: e.g. a person who pays money to a stranger is not presumed to have withheld the beneficial interest – is prima facie a gift. Rebutting the presumption Only the actual intention of the parties before or at the time of the transaction, or so immediately after it as to constitute part of the transaction is relevant to rebut the presumption of resulting trust. Calverley v Green (1984) 155 CLR 242 (at 251; 262); Muschinski v Dodds (1986) 160 CLR 583 (at 589-590). The property rights cannot be altered by subsequent events unless such involve an enforceable agreement or conveyance. Martin v Martin (1959) 110 CLR 297 at 304; Pettitt v Pettitt [1970] AC 777 (at 803;813) If 2 purchasers who contribute in unequal proportions have taken the property in joint names, the intentions of both are material. Calverley v Green (1984) 155 CLR 242 (at 251; 258 and 261). Need to show at the time or at some time before the person giving it said it was a gift. It is not about paying it, but it is about what was intended at the time. 123
Intention is ascertained from the acts and declarations, and words and conduct of the parties, and the relationship between the parties. Calverley v Green (1984) 155 CLR 242 (p261;269-270). Evidence of intention to gift or loan the property in question will rebut the presumption. Express agreement to the contrary or evidence of an intention to create an express trust will rebut the presumption: Gough v Fraser [1977] 1 NZLR 279 at 283. If consideration is proved, the presumption may also be rebutted. Re Bulankoff [1986] 1 Qd R 366.
The presumption of advancement In some relationships - where the transferor is under a “natural obligation to provide” for the transferee, the law presumes that the transferor intends to make a gift. This presumption is called the “presumption of advancement”. The presumption of a resulting trust may be displaced where a presumption of advancement applies. Calverley v Green (1984) 155 CLR 242; Muschinski v Dodds (1986) 160 CLR 583 (at 589-590). Issue if it needs to be abolished or if it needs to be expanded to other relationships. Presumption of advancement does not apply to= Siblings: Noack v Noack, son in law: Knight v Biss or nephew/ niece: Russell v Scott and grandchildren: Soars v Foster Unless the donor is loco parentis to that person (in the place of a parent) Anderson v McPherson: Resulting trusts are about what was probably intended and constructive looks to circumstances contribution to purchase price and voluntary transfer fall under resulting trusts Presumption of advancement- Nelson v Nelson. Transfer from Husband to Wife: is presumed to be made by way of advancement: Russell v Scott (1936) 55 CLR 440 Traditionally no corresponding presumption in the case of a transfer from wife to husband. A transfer after separation will not attract the presumption: Cossey v Bach [1992] 3 NZLR 612 at 630; Wilson v Wilson [1963] All ER 447 at 454 per Russell LJ. Transfer by a man to his fiancée will attract the presumption: Wirth v Wirth (1956) 98 CLR 228 (at 237-238), but if the marriage does not take place a resulting trust arises [Davies v Messner (1975) 12 SASR 333] Cf Allen v Snyder. The tendency has been to focus on relationships that it applies to. It was based on an obligation to provide and wives were not usually the providers for their husbands. However this is still unclear 124
De facto spouses: no presumption of advancement arises Calverley v Green (1984) 155 CLR 242 at 260 (per Mason and Brennan JJ). Transfer from parent to child: – Transfer from father to child is presumed to have been made by way of advancement. Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 364 – In Australia: transfers from mother to child: Nelson v Nelson (1995) 132 ALR 133 (at 141;162-163;169-171;183-184); Brown v Brown (1993) 31 NSWLR 582 (at 598-599 per Kirby J). – Extends to any person who in equity is treated as being in loco parentis (“in the place of a parent”). Calverley v Green (1984) 155 CLR 242 (at 247 per Gibbs CJ). – in favour of an illegitimate [National Trustees Executors and Agency Co of Australasia Ltd v Fenn [1924] SASR 470. – Strictly limited to married relationships. Rebuttal of the presumption of advancement Presumption of advancement may be rebutted either partially or completely, by evidence that at the time of the transfer no gift was intended. Shepherd v Cartwright [1955] Can look to acts and declarations before of at time of purchase or so immediately after as to form part of the transaction. Burden of rebutting the presumption of advancement lies upon the person asserting the existence of a trust: Martin v Martin (1959) 110 CLR 297; Calverley v Green (1984) E.g. Evidence that the transfer was motivated for reasons inconsistent with an intention to confer beneficial ownership will dislocate the presumption. (e.g. illegal purpose cases) Nelson v Nelson- tried to prove it was a gift and the mother revealed her illegal motive. Failure of disposition Resulting trusts arise where, for any reason, a settlor fails to dispose of some or all of the beneficial interest in the trust property. The trustee holds on a resulting trust for the settlor to the extent that the beneficial interest has not been carried to him or others. Is it about an obligation to provide, love and affection or the intentions? Anderson v McPherson= issues with parents putting property in the name of their son and daughter in law. Presumption of advancement for your son but not for the daughter in law, better to put it into the full name of your son. Trust with no beneficiary will be a resulting trust, i.e. if certainty of object fails it will result back to the settlor.
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Typical situations where a resulting trust will arise Failure of express trust – trustee will hold for settlor or settlor’s personal representatives. Express trust may fail because: It is void for uncertainty, perpetuity or illegality [see Nelson v Nelson (1995) 132 ALR 133]; It is unenforceable – because of failure to comply with formal requirements for complete constitution [Vandervell v IRC [1967] 2 AC 291]; The intended beneficiary predeceases the testator. Failure to set out the trust or dispose of the whole beneficial interest – usually is a result of incorrect drafting. E.g. a settlor transfers land to A “on trust” but doesn’t refer to beneficial interest; or part only of an estate is disposed to named beneficiaries – residue will be held by trustee for benefit of settlor or settlor’s personal representatives. I.e. If you say to hold on trust for 3 people but only list two, you have not fully stipulated the beneficiaries. The trust will fail and become resulting. Property conveyed for a specific purpose which fails – Classic case: Clarke v Terry (1859) 1 Legge 753. – Modern example is the Quistclose Trust : where money lent for a specific purpose which fails may be characterised as trust property, and thereby stand outside the pool of assets available to the borrower’s creditors upon the latter’s insolvency: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. Property conveyed on trust for certain purposes exceeds that required Barclay Bank v Quistclose Investments Ltd [1970] AC 567 Held (per HL) Lord Wilberforce (Lords Reid, Morris of Borth-y-gest, Guest and Pearce agreed). The arrangement gave rise to a trust, primarily in favour of the creditors (shareholders) and then, secondarily, to the lender (here Q). To the extent that any of the $$ is not used for the designated purpose, it is held on resulting trust for the lender. B Bank was bound, because it had notice of the trust at the time that it advanced the funds. Twinsectra v Yardley [2002] 2 AC 164 House of Lords approves Quistclose. Yardley borrowed $$$ from Twinsectra. But did not deal with them directly. Dealt through solicitors. The solicitors (acting for Yardley) received $$$ from T in return for an undertaking that: – The loan moneys were to be retained by the solicitors until used by Y to purchase a particular property; 126
The loan $$$ was to be used solely for purchasing the property and for no other purpose. However, despite this undertaking, they released the $$$ to Yardley. Yardley spent much of the $$$ for a different purposes and did not repay the loan. This was all advanced just so the property could be purchased. It was not to be used for any other purpose. Held The $$ was held on trust and was not available to Mr Yardley for any purpose other than that specified. Rather the $$ was held on trust for Twinsectra up and until it was applied for the specified purpose. The borrower must either use it for that purpose or return it. That purpose failed. There is then a resulting trust in favour of Twinsectra. Importance: they had more than a debt, but a traceable proprietary interest in the $$$. –
Constructive Trusts
A constructive trust arises by operation of law, not as a result of the intention of the parties. The basic principle is that if a person holds property in circumstances where equity and good conscience demand that the property be held or enjoyed by another person, then the holder of the property will be compelled to hold it on trust for the other person. Carson v Wood (1994) 34 NSWLR 9 at 26: – “Equity will impose a constructive trust as a remedy to preclude the retention or assertion of beneficial ownership on the property to the extent that such retention or assertion would be contrary to equitable principle.” Institution or remedy? Is the constructive trust a trust or simply a remedial device? There is a continuing debate as to whether the constructive trust is, like an express trust, a property institution or is rather a remedial device. It appears that the constructive trust is a concept flexible enough to function as an institution in some circumstances and as a remedy in others: Muschinski v Dodds (1985) 160 CLR 583 at 612-615 per Deane J. Institutional constructive trust
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Arises by operation of law as from the date of the circumstances which give rise to it: the function of the court is merely to declare that such trust has arisen in the past: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961 at 997. Those circumstances are recognised by law as defined categories, which give rise to an interest to which the court gives effect from the date when the defining events occurred. Remedial constructive trust The remedial constructive trust “does not exist at all until the Court imposes it”. There must be an asset in the defendant’s hands in respect of which the court considers it appropriate to impress a trust, and some principled basis for declaring that assets held by Fortex Group Ltd (in receivership and liquidation) v MacIntosh [1998] 3 NZLR 171 at 175. The court has a discretion as to whether or not to impose a constructive trust on the property in question, and will not do so if “there is an appropriate equitable remedy which falls short of the imposition of a trust.”: Giumelli v Giumelli (1999) 161 ALR 473 at 476. Followed in Chan v Zacharia Compared with other types of trust Differences Main distinction is that constructive trusts are imposed by the court irrespective of the actual, inferred or presumed intention of the parties in issue. Constructive trust is not intended to create an endure. The trustee’s powers and duties are less precisely defined. The principles governing the retirement, appointment and removal of trustees, do not apply to constructive trustees. New lease was held by Chan on trust for Dr Z Similarities Where the constructive trust is used to provide proprietary relief, this clothes the property with the characteristics of trust property. Therefore, the remedy of tracing is available. The property is separate from the assets of the constructive trustee on her or his insolvency and any profits arising from that property belong to the beneficiaries and not to the constructive trustee. Constructive trust must, like express and resulting trusts, exhibit both certainty of object and, with some exceptions, certainty of subject matter. For obvious reasons, certainty of intention is not required.
Remedial constructive trust
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Theoretically, as the court “creates” the trust, the trust so created cannot be back-dated to a time before the court order which created it: Fortex Group Ltd v MacIntosh [1998] But courts have exercised a discretion to back-date the proprietary impact of the order, taking into account any prejudice to 3 rd parties: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] 2 All ER 961 (there is a continuing debate). Where the improper profit or gain is money it is interesting to see if it will be a constructive trust. It will only be imposed as a constructive trust where it is necessary to achieve a just remedy. Hospital Products- was a business opportunity as opposed to property. AG v Hong Kong said bribes were held on constructive trust for the Crown and the property was used through the crown money and through tracing it was theirs. However looking back to recent times, the UK is trending back to a Lister v Stubbs view. Situations in which a constructive trust arises Institutional constructive trusts: Mutual wills Breach of fiduciary duty; Trustees de son tort. Third parties who receive trust property as a result of breach of the trust or participate in the breach of trust. Where trust property has been transferred to someone - other than a bona fide purchaser for value without notice. Where property is held by someone who attained it by virtue of a transaction likely to be set aside in Equity (e.g. undue influence). Purchaser under a specifically enforceable contract of sale (?). Remedial constructive trusts: Mutual wills- different to breach of fiduciary obligations. Barnes: 2 limbs whereby a person participates in a breach of trust or fiduciary or knowingly receives property as the result of a breach. Constructive trustee Mutual wills The courts have recognised institutional constructive trusts arising to give effect to an agreement between the parties for mutual wills. Mutual wills arise where a non-revocable agreement is made between 2 persons, as to the manner of disposition of their property after their deaths. Because the first party to die is unable to enforce the agreement,
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equity imposes on the survivor the obligations of a constructive trustee to carry out the terms of the agreement.
Birmingham v Renfrew (1937) 57 CLR 666 Where husband and wife made wills and the W died first. H tried to change the will to benefit his family instead of his wife’s Held: There was a valid contract, pursuant to which the H was precluded from revoking his will. So that his personal representative held the property on constructive trust for the beneficiaries and in the terms of the first will. NB He was not obliged to preserve the trust property during his lifetime only to fulfil the agreement as to devising whatever remained at the time of his death. Improper gains by a trustee or other fiduciary A fiduciary who gains by reason of her / his position may be liable to account for that gain through the imposition of constructive trusteeship upon the fiduciary regarding the moneys or property the subject of the gain.
Keech v Sandford A trustee, under a testamentary trust, held a lease on trust for a minor. It was held that the lease should be held on trust for the minor, that the trustee should account for profits made since the renewal and that the trustee should be indemnified from any covenants contained in the lease. There was no fraud in this case but the court said the trustee should rather have let the lease run out than to have had it to himself.
Chan v Zacharia “the principle in equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain – (i) which has been obtained or received in circumstances where a conflict…[of interest] existed or – (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from [his fiduciary position]. Any such benefit or gain is held by the fiduciary as constructive trustee… That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no
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absence of good faith or damage to the person to whom the fiduciary obligation was owed.
Improper gains by a trustee or other fiduciary The principle applies to fiduciaries other than trustees. For instance, in Phipps v Boardman [1967] 2 AC 46. This case shows how harsh the rule can be. BUT gains derived in breach of fiduciary duty are not invariably held on constructive trust by the errant fiduciary…the constructive trust will only be imposed “where it is necessary to do so to achieve a just remedy.” NOTE: Exception = It was thought that a constructive trust could not arise, if the fiduciary’s improper profit was a bribe or secret commission Lister v Stubbs .(1890) 45 Ch D 1. However, it seems most unlikely that this remains good law - AG (Hong Kong) v Reid [1993] 3 WLR 1143. Barnes v Addy (1874) LR 9 App 244 Lord Selbourne at 251 outlined the circumstances in which third parties may be held liable for breaches of trust and may be fixed with a constructive trust. Trustees de son tort A trustee of his own wrong – i.e. a trustee de son tort.” Mara v Browne [1896] The trustee de son tort being deemed to be a constructive trustee. A common example of trusteeship de son tort arises in respect of agents of a trustee who deal with the trust property in a manner inconsistent with the known terms of the trust. Trustees by virtual of their own wrong. Agents of the trustees who go beyond the scope of their authority and still act as though they are trustees but still breach the trust by exceeding powers. It is insisted you provide a remedy accordingly. Re Barney [1892] 2 Ch 265 The imposition of constructive trusteeship will only be justified where the stranger is so in control of the trust property as to, like an express trustee, have been capable of disposing of it in any possible way. The court must determine whether the stranger was so far in control of the trust property as to warrant imposing upon her or him the liabilities equivalent to those of express trustees. Intermeddlers: (Liability of Third Parties) Where a stranger to the trust becomes involved with the trust property or with a trustee committing a breach of trust, they may become liable in 2 main situations: 1. Knowing receipt i.e. receive trust property 131
2. Knowing participation in a fraudulent design i.e. fraud with the trustee
BLB v Jacobsen (1974) 48 ALJR 372 Jacobson = the manager of BLB’s business in Australia (supplying yarn). He was also the director of one of BLB’s customers – Bel Knit. In response to a claim by J for wrongful dismissal of J, BLB argued that J had breached his fiduciary duties to BLB by supplying a large quantity of yarn to Bel Knit, when that company was not solvent. He had disclosed Bel Knit’s debts and the fact that it was ‘struggling to establish itself’. It was held by the High Court that J’s disclosure was sufficient. Arguing fiduciary obligations. He was deemed to know they were insolvent. How much notice? Consul Developments v DPC Estates (1975) 132 CLR 373 , which was a knowing participation case, said that notice for the purposes of Barnes v Addy included categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul: Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Barwick CJ agreed. Gibbs J left open the possibility that category 5 constructive notice would suffice. Notice The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the first limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. Farah v Say-Dee: HCA said that these conclusions in Consul as to what is involved in "knowledge" for the second limb represent the law in Australia. They should be followed by Australian courts, unless and until departed from by decision of this Court. Anything except pure constructive notice Known participation case- Farah. This turned away from Australia following the English law. Knowing receipt ( aka recipient liability)
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Where a person receives in her or his own capacity, not as agent for the trustee, property already subject to a trust with the requisite knowledge that it is trust property and that the transfer is in breach of fiduciary duty, he or she will be made a constructive trustee of that property for the benefit of the beneficiaries or principal.
Knowledge required Knowledge required for constructive trust liability in ‘knowing receipt cases’ includes: Actual knowledge: United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157; Wilful shutting of the eyes to the obvious: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398 per Gibbs J. Wilful and reckless failure to make inquiries that an honest and reasonable person would make: Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 at 267. Knowledge of circumstances that would indicate the facts to an honest and reasonable person: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398 per Gibbs J. And notice of facts that could have been discovered by conducting the inquiries that a reasonably prudent person would conduct as a matter of course. Gibson J in Baden Delvaux v Societe Generale [1992] Proof of dishonesty by the recipient is not necessary for the recipient to be liable as constructive trustee. Knowing participation Aka accessory liability According to Selbourne LJ in Barnes v Addy (1874 9 Ch App 244), need 3 things: Participation (direct or indirect) A dishonest or fraudulent design (must be morally reprehensible – more than mere negligence or mere technical breach) Knowledge (as above) Essential difference = Cases of receipt liability are concerned with rights of priority in relation to property taken by a legal owner for his own benefit. Participation cases concern accessory liability for furtherance of fraud. Issue = is constructive notice sufficient here and, if so, which types? Mere carelessness is not enough. However, in Carl Zeiss, Sachs LJ said that the focus is on honesty not notice. BUT after Farah v Say Dee – categories 1-4 knowledge will suffice and category 5 will not. 133
What is required here (for the second limb) is dishonesty and conscious impropriety not failure to inquire.
Knowing participation BUT this = a knowing receipt rather than a knowing participation case and the remarks were obiter. And see Belmont Finance v Williams Furniture (No 2) (1980) (indicating that constructive notice not enough).
Dishonest participation? For a time it was considered that Australia might follow the Privy Council’s remarks that, in second limb cases, it is dishonesty, not knowledge that is critical. This emphasis on honesty, rather than notice, was expressed by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan (1995) 2 AC 378. So, on this view, notice isn’t the issue. The question is whether the 3P observed the standards to which an honest person would adhere. The Privy Council’s view was rejected by the High Court in Farah Constructions P/L v Say-Dee (2007) 81 ALJR 1107. Remedial constructive trusts Remedial constructive trusts have been used mainly in the context of allocating property interests on the breakdown of relationships between persons where the legal proprietary interests of the parties do not reflect that which equity considers consistent with equitable principle. Unlike the institutional constructive trust, the remedial constructive trust is not based on a pre-existing fiduciary or contractual duty owed by one party to the other. In Australia, the justification for the remedial constructive trust is an unconscionable assertion to a beneficial interest in property Baumgartner v Baumgartner (1987) 164 CLR 137. Constructive trusts- remedial and institution They arise in classes, i.e. mutual wills, breach of fiduciary etc. Muschinski v Dodds (1985) 160 CLR 583. Ms M and Mr D lived together in a de facto marriage for about 8 years. The house was conveyed to them as joint tenants. In the end, he contributed very little. About 9% of the $ spent on purchase and improvements. When they split, Mrs M sought a declaration that Mr D held his interest in the property on trust for her.
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NSW Crt of Appeal - That There was no equitable fraud here upon which to base a constructive trust. In fact Ms M had made a gift of the ½ share of the property. Held So in this case, they each held their shares on constructive trust – term = to repay the other their contribution (i.e. her pay $10 000 – him pay $90 000) with the capital appreciation to be split equally i.e. the same result as if he had lent him the $ to make an equal contribution. Baumgartner v Baumgartner Muschinski v Dodds was applied in Baumgartner v Baumgartner (1987) 164 CLR 137, where the High Court held a constructive trust may be imposed where, upon the breakdown of the relationship, it would be unconscionable for one party to assert her or his entire legal interest.
Remedies
Equity- you can compile a suite of remedies to best assist your client.
4 observations about equitable remedies The number 10 well recognised equitable remedies. Specific and flexible They give the plaintiff exactly what she/he wants. And they can be drafted in whatever way the court deems fit. Discretionary Equitable remedies are always discretionary. Personal Usually = decrees / commands directed at the person.
Equitable remedies are very important to understand equity’s role and the relationship with the common law. It is popular because it has very effective remedies in comparison with the common law. Also the characteristics of the remedies are somewhat better, they are wholly different from common law. Constructive trust is used as a remedy in Australia, other than this we have 10 well recognised remedies. You have be wronged, this is the money equivalent of putting you in the position where you would have been if the task was performed or not breached. It is in a monetary form. Equity acknowledges that money doesn’t always suffice for a remedy. P in a position they would like to be in rather than just get money. Equitable remedies are specific and flexible. Common law is limited to a pecuniary replacement of what you have lost. 135
You would want an injunction in relation to having your confidence breached as opposed to money as a ‘solution’. This is only available in equity= equitable injunction. Damages are a good remedy but sometimes they are not, i.e. if something is irreplaceable like a particular piece of technology. Damages would not suffice here as your whole business would suffer. Only equity will give you specific performance of the K. it is limited to certain circumstances. Law of tort= conversion in common law, damages. It will not allow you to get your goods back, it would be money. Sometimes what is required for justice is to get your goods back. Unlike the common law equity has specific remedies. They are also flexible and not binary. Limit the extent of the injunction by the courts, to days months etc. to shape the remedy to best do justice for the P without being unfair to the D. Nelson case= trusts (illegal). Equitable remedies are discretionary but also conditional. i.e. you can have it but only if you do this… Leads onto the fact equitable remedies are also discretionary. The unquestioned legal view that remedies are always discretionary. The court can decline a remedy. This is why in an exam the Q will arise as to what remedies you would like and if you think you would be successful. Discretionary is critical- you may not be able to answer the remedies as clear as in common law. When answering remedies in the exam, state I think we will ask for…. i.e. declaration of constructive trust because I want to make sure if the fiduciary goes bankrupt that the money/ property goes to the client & it is not distributed amongst other creditors. I do or do not think I will be able to achieve this because… (state reasons). Similarly with interlocutory injunction, there is much room for discussion. Equitable remedies are personal, they are decrees against the person. Constructive trust is the exception, but they are essentially orders, i.e. you will perform the K, you will cease publishing confidential information or you will pay x amount of compensation. The Menu Interlocutory Injunction Appointment of a Receiver Final Relief Declaration Compensatory Remedies Equitable Compensation Damages in Equity Account of Profits Rescission Delivery up and Cancellation of Documents 136
Rectification Specific Relief Specific Performance Specific Restitution of Chattels Injunction Declaration Is a final and authoritative statement by the court (usually) as to the rights and obligations of the parties to the litigation. Power originated in Chancery. Now found in s 25(6) Supreme Court Act and O18 R16 SCR. It is not about the judgement, it is a declaration that the D holds x property in trust for the P. Argue it is encapsulated in the statute, but even without it this would still exist. Section 25 (6) Supreme Court Act 1935 (WA) There is no doubt over this anymore, you can go to court and seek nothing but a declaration. Quick and inexpensive. Useful in: – Ascertaining proprietary rights and interests; – Construction of documents legislation etc. May be used in a pre-emptive way. Benefits of a declaration Proprietary rights, i.e. a priorities claim in property law over land. i.e. whether the original K was binding or not. Statute of Frauds. No order of specific performance, just a declaration. Construction of a particular clause of a contract. Construction of a trust deed, i.e. where a term in the deed is unclear and the trustee doesn’t understand it. It may also be used in a preemptive way. Declarations can be used to avoid a problem. i.e. a trustee doesn’t understand something in the deed so they go to the court because they do not want to breach it and ask for a declaration of the definition of that section. If the court says no= problem averted Declarations can also be useful with legislation i.e. local government wants to pass a bi law and they want to make sure it falls in the scope of the governing law so they will not be acting ultra vires. Contempt of court- you would need to sue again. i.e. breach of interlocutory injunction. You may well find the fact you would have consciously breached a declaration of the court has an effect on the relief the court gives. Now statutory, but still discretionary. E.g. may be refused if purely hypothetical or if plaintiff has not sufficient interest. 137
Even statutory remedies are still discretionary. Hypothetical situations are a breach of the court’s services. Declarations can prevent you from getting sued but you are not getting sued. You need to have (sufficient) standing to get a declaration. It is not there for people to use if they have insufficient interests. Ainsworth v Criminal Justice Commission (1992) 106 ALR 11, 22 (Mason CJ, Dawson, Toohey and Gaudron JJ). There must be a real legal controversy – not merely an abstract / hypothetical query. The applicant must have a ‘real interest’. A declaration may be granted with respect to future conduct. BUT not: WRT conduct that has not and might not ever happen; or Where the declaration will have no foreseeable consequences for the applicant. You need to have a real controversy and the applicant needs to have a sufficient interest. It can be granted for future conduct. Monetary compensation There are 2 remedies by which the court orders the defendant to provide monetary compensation: 1. Equitable compensation; and 2. Damages in Equity. These are distinct. 2 circumstances where you may want monetaries/ compensation. 1st is where there is a common law cause of action, this is common law so there is no need to go to equity for remedies and you will receive damages 2nd equitable cause of action, you don’t want an injunction/ declaration and you want compensation, C/L damages cannot be used here because you do not have a C/L cause of action. At equity this remedy can perform a role for damages i.e. monetary role. These are not ‘damages’ as such. Maintain the terminology of equitable compensation, equitable damages, avoid other terminology. Sometimes case law here is ‘fuzzy’ as it is not clear which one judges are using. Equitable Compensation Inherent jurisdiction to award compensation for financial loss suffered as a result of a purely equitable duty. Theoretically restitutionary (i.e. restorative) in nature. Aim = to place the pl in a position as nearly as possible to that in which they would be if there had been no breach. 138
Not an equitable equivalent to common law damages. Discretionary and may be decreed conditionally. There has to be a remedy where the P has suffered a loss and the D hasn’t made any particular profit and the P simply wants to be compensated. This is equitable compensation. But is this like damages i.e. mitigating, issues of remoteness etc.? Strictly speaking the answer is no as it is not like common law damages. These rules here do not apply for equitable compensation. None of the common law cases are essentially binding law in equity. Court can look to common law by analogy. Compensatory remedy. It does the same thing as common law damages in that it compensates for loss, but is not equivalent as the same rules do not apply. One key difference is theoretically equitable compensation is restitutionary in nature. Here it means it is restorative i.e. giving you back what you have lost. McDonald case. Here, you could have the money back i.e. the value in money of the thing you lost. It is notionally restorative in nature, i.e. put the plaintiff in the position or close to the position they would have been in had there been no breach. Equity= no right to equitable compensation, it is discretionary. You can ask for it but it’s up to the court to decide. Has been used in cases of: – Breach of trust; – breach of fiduciary obligation; – breach of confidence; – estoppel; – undue influence; and – unconscionable bargain. Complementary doctrines, i.e. doctrines that have been used to fill a gap left by the C/L. purely equitable doctrines. The court has jurisdiction to grant such compensation/ remedies. If you cannot get back the thing you lost but they give you money instead as a replacement, is that ‘equitable’? The courts are not too overly worried if they strain beyond the equitable jurisdiction or not. Regardless if the PQ i.e. is for estoppel or UI or on the other hand breach, if the remedy you are asking for is compensatory then you can ask for equitable compensation. If there is a breach and your client wants or is likely to get compensation then ask for equitable compensation. Differs from CL damages: Discretionary – not available as of right; Quantum assessed at the time of the judgement with full benefit of hindsight;
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The CL requirement of causation does not apply. However. (semble) there is usually a ‘causal link’ requirement similar to CL causation i.e. ‘but for’ + March v Stramare ‘common sense’; The foreseeability, remoteness, and the requirement to mitigate do not apply; Defences of contributory negligence and voluntary assumption of risk do not apply; No equivalent to ‘exemplary damages’ – ‘equity and punishment are strangers’. Some sort of remoteness will be relevant just not the ‘law’ of remoteness. Defences are important and it is not equivalent Deterring others in future/ punishing the defendant= exemplary damages
Result = sometimes the quantum of CL damages will differ from that available by way of equitable compensation. Example – CL damages AND e.g. compensation available, in circs where the damages, but not the e.g. compensation is liable to be diminished by virtue of contributory negligence. Where this occurs the P is entitled to elect. It should be no shock to see the same cause of action may be both negligent and a breach of fiduciary obligation, you may ask for damages and/ or equitable compensation, most likely ‘or’ the quantum here will be different. The P is entitled to elect whatever is in their own best interests. Examples Nocton v Lord Ashburton (where solicitor had to compensate client for damage caused pursuant to the fiduciary’s conflict of interest). Leasing land for a mortgage, deceit. McKenzie v McDonald (where real estate agent purchased his client’s farm in breach of fiduciary duty, but the conveyance could not be rescinded). Had there been no breach, the farm wouldn’t have been sold. Had to pay the amount to put the P back in her original position. Commonwealth Bank v Smith (where the bank manager was held to have acted as the customer’s investment adviser). 140
Damages in Equity No inherent jurisdiction to award damages. However, sometimes damages at common law are unavailable and specific relief (specif perf or inj) is either inappropriate or less desirable. Result – Lord Cairns’ Act 1858. Contained in s 25(10) Supreme Court Act. Available in the exclusive jurisdiction? Unclear. As opposed to compensation E.g. King case, compensation was not awarded here, sale of a farm, gone through and awaiting settlement. The purchaser had started to move stock to the farm. Then the vendor said no, not going ahead with the K. The P here was able to get damages here at C/L but didn’t want damages the P wanted the farm. i.e. specific performance. Damages here was not a sufficient remedy. The purchaser here was possibly able to get SP, but it was to be inadequate here in that it was not quite enough. The delay had been that the purchaser’s stock had died whilst waiting for settlement i.e. sheep so if he got the farm this would still not be adequate for the loss of stock as well. Damages in equity was created to assist in these circumstances. For other reasons too, the P didn’t win here. Section 25 (10) Supreme Court Act 1935 (WA) These damages in addition to specific performance. They are statutory but happens to apply in an equitable context. In obtaining it there are 2 major differences between this and equitable compensation, 1 is that its statutory i.e. need to make out the terms of the statute, so to get damages in equity you need to 1 st prove the court has jurisdiction to award SP or an injunction and in the circumstances there is good reason for the court to award it. If the court can give you an injunction etc., they can elect to also give you damages as well. Cases relate to courts having jurisdiction. Section 2 Lord Cairns’ Act Where the court has jurisdiction to award specific performance or injunction, it can (if it thinks fit) award damages, either in addition to or in substitution for specific performance or injunction. This is statutory, not inherently equitable, it just happens to apply in an equitable context. Damages in Equity Statutory remedy linked to the availability of specific performance or injunction. Narrow view – King v Poggioli. Wider view – Wentworth v Woollahra 141
Examples and utility (in the context of breach of trust): the Talbot case (The ‘millionaire’ case). Older/ narrow view= cant get damages in equity unless the court is prepared to give it.
Modern/ Wider view= They agreed the court doesn’t have to be prepared to grant a remedy and exercise their discretion in your favour, of SP or injunction they just need to have jurisdiction to do so. This is enough to fulfil Lord Cairns Act (predominant view at the moment).
It may go to discretion if you can prove you are ready, willing and able to perform. We award this because damages in C/L will be inadequate. Judges find they go to discretion not jurisdiction. You can still ask for damages in equity instead of or as well as the specific relief.
1. 2. 3. 4.
Shelfer v City of London Electric Lighting Co Guidelines for damages in equity Smith LJ laid out a ‘good working rule’ for awarding damages in equity. Where the damages to the plaintiff’s rights was small. The injury is capable of being estimated in money. The injury is capable of being compensated by a small monetary payout. In the circumstances, it would be cruel to grant an injunction against the def. Set out guidelines for damages in equity. i.e. rule of thumb. Different form the King example. Granting remedies in place of SP So you can ask for s.25(10) or Lord Cairns Act remedies in lieu First big difference between equitable compensation and damages in equity is that one had inherent jurisdiction and one is statutory and specific Second in assessing damages in equity the rules apply i.e. mitigation. Assessment of damages In assessing damages – equity follows the law. Common law rules re assessment usually apply. E.g. duty to mitigate loss, remoteness of damage etc. Account of Profits Profit by the defendant is quantified and paid over to plaintiff. ‘The distinction between an account of profits and damages is that, by the former, the infringer is required to give up his ill-gotten gains to the party whose rights he has infringed. By the later, he is required to compensate 142
the party wronged for the loss he has suffered. The two computations obviously yield different results, for a plaintiff’s loss is not to be measured by a def’s gain, nor a def’s gain by the plaintiff’s loss. Either may be greater or less than the other.’ Colbeam Palmer v Stock Affiliates by Windeyer J.
Breach of trust: If they just want compensation- ask for compensation But if they want SP or an injunction plus damages then the damages has to be damages in equity. Where profit and loss coincide, the plaintiff must elect whether to take damages for loss or an account of profits. Procedure set out in O45 Supreme Court Rules. File a summons supported by an affidavit setting out the basis for application; At hearing ask that an account be taken ie auditors are appointed to work out how much profit the def has made and to certify that fact AND a court order that the certified amount be paid within a specified time; Account is taken, once the extent of the profit has been quantified and certified, the def is obliged to pay within the time specified in the order. Nobody lost anything, there was just an improper profit by the fiduciary, i.e. they made more profits than they were supposed to. Exclusive jurisdiction doctrines. Elect what they want. It could be a loss of an account for profits, i.e. improper profits. May elect equitable compensation, but in the circumstances of Hospital Supplies case, then you can elect to take the profit etc. but you cannot have both at the same time. Procedure is set out in O45 SCR. Gives a better idea of what an account of profits it. This is where equity has taken over something common law established and also improved it. Equity developed the remedy of paying the profit. Decree/ order of you will pay… and if not you are in contempt of court. Certified amount to be paid in a certain amount of time.
Order 45 Rule 1 RSC Summary order for accounts (1) Where the statement of claim claims an account or involves the taking of an account the plaintiff may, at any time after the defendant has entered an appearance, or after the time limited for appearing, apply for an order under this Rule.
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(2) An application under this Rule must be made by summons and must, unless the Court otherwise directs, be supported by affidavit or other evidence.
(3) On the hearing of the application, the Court may, unless satisfied by the defendant by affidavit or otherwise that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.
Account of Profits The defendant’s profit may exceed what the plaintiff would have made. But remember only the amount actually made as a result of the def’s breach of equitable duty is recoverable. But onus is on def to prove that any profit does not flow from the breach. What is ‘profit’? Gross receipts minus the costs and expenses incurred in generating the income. But which expenses should be deducted? The HC has held that this is a question of fact in each case and onus is on the def. Dart Industries Inc v Décor Corporation Pty Ltd.
Breach of fiduciary obligations/ trust/ confidence i.e. which remedies to ask for, and you consider account of profits, one thing you ought to consider is only the profits that flow from the breach will be accounted for. This is a question if fact in each case, i.e. Dart.
Take out overheads etc. if you try to say something needs to be deducted the D needs to prove it.
Rescission
Distinguish from the contractual and common law right to rescind. The remedy of rescission (available both at common law and in equity). Rescission available in equity for mistake, innocent or fraudulent misrepresentation, equitable fraud e.g. undue influence, unconscionable bargain etc. Easier to get in equity, because the pre-requisite of restitution in integrum is more liberally construed (i.e. only have to ‘substantially’ restore the status quo). Delivery Up and Cancellation Where a document is void or voidable, the court may order that it be delivered up and cancelled. 144
Prevents innocent third parties being duped. Often sought in combination with recession. Not ordered if the invalidity is apparent on the face of the document. Rectification of Documents If it can be proven that a written instrument does not reflect the true intentions of the parties, then the court may rectify that document. NB It is only the written instrument that is rectified. Not the contract itself. Exception to the parole evidence rule. Need very clear evidence that the document is wrong. Usually only available in cases of mutual mistake. Not available if the true meaning is obvious or can be achieved as a matter of construction. Applies retrospectively. Rectification may be made by ordering the parties to execute a fresh document. But more commonly, is done by court order that a copy of the decree of rectification be endorsed on the document itself. Specific Relief Specific Performance An order of the court compelling a contracting party to perform her / his obligations under the contract (Waltons Stores (Interstate) v Maher. Pre-requisites: Valid contract; Plaintiff ready, willing and able to perform; and Damages for breach would be inadequate to compensate the plaintiff e.g. sale of land, sale of unique or rare chattels e.g. Falcke v Gray (1859) Drew 651 or chattels which are (extremely) difficult to obtain chattels e.g. Dougan v Ley (1946) No lack of mutuality. Contracts usually not specifically enforceable Contracts for the payment of money; Contracts requiring constant supervision; Series of breaches or the breach of a continuing obligation; and Contracts for personal services e.g. employment contracts. Specific Restitution of Chattels Decree by the court that particular chattels that have been wrongfully obtained be returned to the person rightly entitled to them. 145
Normally, remedy in tort is damages. Specific restitution is available where damages would not be an adequate remedy. E.g. unique or rare chattels. E.g. Practically irreplaceable Doulton Potteries v Bronotte. Doulton Potteries v Bronotte Doulton sent a die to Bronotte for repairs. Disputed Bronotte’s bill ($9000). Bronotte refused to return the die until the full price was paid. Doulton sought specific restitution of the die on the basis that it needed it for its business, it would take months to make another (and the only one who could do it was Bronotte). Hope J granted specific restitution on the basis that the die was ‘for all practical purposes irreplaceable’ and was necessary for the plaintiff’s business. Injunction A decree restraining the defendant from doing an act or compelling them to do something. Section 25(9) Supreme Court Act Empowers the court to grant an injunction in all cases in which it appears to the court to be ‘just or convenient’ to do so. And such injunction may be granted upon ‘such terms and conditions as the court thinks just’. Injunction terminology Prohibitory injunction – forbids. Mandatory injunction – compels / commands. Final injunction = an injunction granted at the end of the trial, by way of final relief. Interlocutory injunction = granted before completion of trial. NB Where granted up until a particular date, called an interim injunction. Inter partes injunction = granted after hearing from both sides. Ex parte injunction = only applicant heard (urgent and temporary). Quia timet injunction = granted to prevent a threatened or apprehended wrong. Mareva Injunction = prohibiting a party from removing assets from the jurisdiction or from disposing of / dealing with them within the jurisdiction so as to frustrate the execution of the proceedings. Anton Piller Order = prohibiting the removal or destruction of evidence that is necessary to the proceedings. Injunction to protect a legal right or title Plaintiff must prove: 146
Infringement of a legal right; Of a proprietary nature; NB Extremely liberally construed. Infringement is likely to occur or be continued / repeated; and Damages would not adequately compensate the plaintiff for the infringement of that right.
Interlocutory Injunction Granted before the completion of trial. Purpose = to preserve the status quo until the end of trial, so as to prevent irreparable or irreversible damage to the plaintiff’s rights. O52 R1(1) SCR provides that the court may make interlocutory injunctions and sets out procedure. Must prove a ‘serious question to be tried’ American Cyanamid v Ethicon / ‘a triable issue’ Murphy v Lush. Court must consider that the balance of convenience favours the granting of an injunction. Takes into account: Adequacy of other remedies (eg that damages would be an adequate damages). The conduct of both parties. Hardship to both sides and to third parties. Public interest (if relevant). Overall justice of the case. Applicant must undertake to the court to compensate the other party for any damage caused by the injunction, if it turns out that it ought not to have been granted. Appointment of a Receiver A receiver is appointed to take possession of the property of another. Receiver: – Gets in the property; – Pays the outgoings; and – Holds the balance for the person entitled to it. Distinguish from receivers appointed pursuant to a contract e.g. mortgage or pursuant to statute e.g. Companies Code. Equitable remedy of receiver usually appointed as an interim measure to preserve property (or income from it) which is the centre of dispute i.e. to preserve the status quo pending resolution. Power contained in Order 51 Supreme Court Rules. Where need a business kept alive as a going concern, need a receiver and manager. Defences Laches; Acquiescence; Consent; 147
Unclean hands;
Illegality; and
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Hardship.
Laches Aka ‘laches and acquiescence’. Acquiescence = part of the defence of laches. Traditionally, the Statute of Limitation Act did not apply to equitable causes of action. BUT Maxim = Equity assists the diligent and not the tardy. Mere delay is not a bar. Defendant must show that: Plaintiff’s actions constitute acquiescence to the defendant’s conduct; The defendant has changed her position such that it would now be unfair to grant the relief sought by the pl.
Limitation Act 2005 (WA), s 27 Equitable actions (not analogous to other actions) (1) An equitable action cannot be commenced after the only or later of such of the following events as are applicable — a) the elapse of 6 years since the cause of action accrued; or b) the elapse of 3 years since time started running, on equitable principles, for the commencement of the action. (2) In this section — equitable action means an action — (a) in which the relief sought is in equity; Laches Not arbitrary or technical. Arises where it would be ‘practically unjust’ to afford a remedy, either because: – The pl’s conduct may fairly be regarded as equivalent to a waiver of his cause of action; or – Pl’s conduct and neglect have otherwise put the def in an unreasonable situation if the remedy sought is now granted. Two circumstances are always important: – Length of delay; and – The nature of the acts done in the interval. See Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221, 239-240. Consent Specific to breach of fiduciary duty = Full disclosure and informed consent. Unclean hands Maxim = he who comes to equity must come with clean hands. Involves a consideration of the pl’s conduct in the past. Cf ‘He who seeks equity must do equity’, which relates to the transaction / dealing under dispute.
Does not require that a pl must have been ‘a saint’. Examples of ‘unclean hands’: Where pl has been guilty of misrepresentation to the def or another eg in relation to a contract in re which he seeks specific performance; Where the pl has misled the court in some material way or committed an abuse of process; Where the pl has been guilty of ‘legal depravity’. e.g. gross sexual depravity Gill v Lewis [1956] Illegality Nelson v Nelson (1995) 132 ALR 133 at least in the case of statutory illegality, the court looks to the policy behind the law breached and inquire whether it will be served by denying the interest. Mc Hugh J at p193: ‘courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: – (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or – (b) … (i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies.’ Hardship Relates to specific performance. specific performance will not be granted, if: – To do so would ‘impose great hardship’ on either party (Dowsett v Reid (1912) 15 CLR 695, 705); or – Performance would be impossible or futile (Mundy v Joliffe (1839) 9 LJ Ch 95). Difficult to prove. Not just that the terms of the contract are hard. Example, where specific performance would have involved the def undertaking risky litigation to recover land in order to convey it – Wroth v Tyler [1974] Ch 30, 50.
