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There are two main ways to own property in common with other owners at common law: 1. Joint tenancy; and 2. Tenancy in Common. Use of the word „tenancy‟ in this context embraces all forms of proprietary rights.
B. Joint Tenancy
Each joint tenant owns the entire interest, subject only to the rights of all other joint tenants e.g. married couples are usually joint tenants of the matrimonial home. A joint tenant is not considered to own any distinct share in the property. Two distinct features of the joint tenancy are: the four unities, and the right of survivorship (or jus accrescendi) o The Four Unities – all 4 are required for a joint tenancy to exist Unity of Possession: o Each joint tenant must be entitled to unity of possession. o It refers to the right of each tenant to enjoy possession of the entire interest. o This is the only requirement that is shared with tenancies in common. o If one co-owner occupies the entire property, the other cannot sue in trespass in the absence of „ouster‟ – no co-owner can lawfully exclude the other co-owner or coowners from occupation of the entire property. Unity of Interest: o All joint tenants must hold the same interest in the property. o For example, if A is given the fee simple of Blackacre and B is given a life estate over the same, there can be no joint tenancy – A and B will hold a tenancy in common while B is alive. o It is possible, however, for two joint tenants to be given a joint leasehold even if one is also entitled to the reversion on the expiry of the lease. Unity of Title: o Each tenant must acquire his or her right to possess and his or her unity of interest by virtue of the same instrument or act of adverse possession. Unity of Time: 1
o The time of vesting of the interest must be the same for each co-owner; otherwise a tenancy in common, not a joint tenancy, will arise. o For example, a transfer „to A and B in fee simple when they reach 18‟ will result in a tenancy in common if A and B do not share the same date of birth. o The Right of Survivorship This is the right of all joint tenants to have their rights enlarged on the death of a co-joint tenant simply be being freed of the rights of the deceased (Corin v Patton). This prevents the deceased co-owner leaving his or her interest by will, as the interest of a joint tenant is extinguished on death (Gould v Kemp). Apart from this, a joint tenant has an unrestricted freedom to dispose of an interest inter vivos by severance. Where there is doubt as to the time of death of joint tenants, e.g. car crash, the younger joint tenant is presumed to have survived the older, so that the right of survivorship works to the younger‟s estate (Conveyancing Act 1919, s 35).
C. Tenancy in Common
Requires only one unity o Unity of possession. While A and B may have distinct shares in the interest (eg ¼ and ¾), each has a right to occupy the whole territory Even when all the unities are present, however, there is no right of survivorship in the case of a tenancy in common: the size of each tenant‟s share is fixed from the time of creation of the interest or by subsequent dealings. On the death of a tenant in common his or her share passes by will or, if there is no valid will, by intestacy.
D. Creation of Co-ownership – joint tenancy or tenancy in common?
General Due to the operation of trusts, joint tenancies and tenancies in common can exist at law and in equity. For example, A and B may be the legal co-owners of property and are thus entitled to it beneficially in the same way. Alternatively, A and B might hold the legal interest as joint tenants on trust for C and D as joint tenants or tenants in common etc.
At Law 1. A joint tenancy or tenancy in common can be created by express words – words such as „to A and B jointly‟ or „to A and B as joint tenants‟ will create a joint tenancy. 2. Prior to the introduction of the Conveyancing Act, in the absence of words demonstrating an express intention, the common law presumed a joint tenancy. The joint tenancy was the default position unless: one of the four unities was not present, words of severance were used, or an intention to create a tenancy in common was evinced. 3. Words of severance are express words that indicate that each co-owner is to take a distinct share in the property, as opposed to owning the entire interest jointly, e.g. „to A and B in equal shares‟ (Payne v Webb) or „to be divided between‟ (Peat v Chapman).
In equity In contrast, equity presumed a tenancy in common. Particularly in the following situations: o Co-owners contributing different amounts to the purchase price – A resulting trust will usually arise so that they will hold shares as tenants in common in equity in proportion to their respective contributions. This principle applies regardless of how the legal estate is held, so that if B‟s name was not on the conveyance or certificate of title and, therefore, A was the sole proprietor of the legal estate, A would still hold on trust for them in proportion to their respective contributions. If land is conveyed to A and B as joint tenants they will take as joint tenants; but if their respective contributions are ¼ and ¾ of the purchase price, equity will presume that they hold the legal estate on trust for themselves beneficially as tenants in common, with A entitled to ¼ and B ¾ (Bull v Bull). By contrast, if they contributed equal amounts, equity would follow the law and they would be presumed to be joint tenants in equity (Jackson v Jackson). All these presumptions are rebuttable by contrary intention (Pink v Lawrence).
Also, presumption of resulting trust can be rebutted where a presumption of advancement arises. E.g. Trustee of the Property of John Daniel Cummins v Cummins – where the parties to a marriage contribute different shares to the purchase of the matrimonial home, and are expressed to take as joint tenants, it can usually be assumed that they intend to take equal shares, rather than the proportionate shares that would be required between parties that are not in a requisite relationship (Brown v Brown).
o Co-owners advance money on mortgage: Where two or more co-owners advance money on mortgage, equity will presume a tenancy in common. 3
Even in situations not strictly covered by s 26. Conveyancing Act – Statutory Reform S 26(1) CA sets the statutory presumption in favour of a tenancy in common. replacing the common law‟s preference for joint tenancies. equity would deem them to be tenants in common. rather than joint tenancy . S 26(2) provides that the default rule provided in s 26(1) does not apply where the instrument creating co-ownership „expressly provides that persons are to take as joint tenants‟. where A. E. Application to chattel – s 26 also applies to chattels (Registrar-General of NSW v Wood). s 26(1) was held to apply to legal and equitable interests. and C transfers her share to D. o The severed share is held in common with the other co-owners. The court ruled that where a document described the parties as „joint tenants‟ but they took unequal shares. So. and vice versa (Wright v Gibbons). Severance of Joint Tenancy o A joint tenant has complete freedom to dispose of his or her interest inter vivos = severance. A and B remain joint tenants – there is nothing that C can do unilaterally to change their relationship – but D will hold a 1/3 undivided share as tenant in common. o Partnership Assets: Property acquired as part of a joint business venture is deemed to be held in equity under a tenancy in common (Lake v Caddock). because it is has the effect of fracturing the joint tenancy once and for all. The reason for this is that co-owners would wish to get back their own investment (Morley v Bird) – thus. Legal and Equitable Interests: In Delehunt v Carmody. in the absence of intention that they have a joint tenancy. 4 . the parties are presumed to have tenancy in common. Minter v Minter addressed whether s 26(2) meant that an express provision for „joint tenancy‟ would override the rules where equity would deem that a tenancy in common had been created. It follows that if an instrument fails to expressly provide for a joint tenancy. so that a disposition in favour of A and B will give rise to a tenancy in common at law and in equity. This presumption is also rebuttable.even if under the old common law rules a joint tenancy would be presumed. The effect of the transaction in this example is that C will have deprived them of their right of survivorship to her share. equity will presume tenants in common in proportion to the contributing amounts. a tenancy in common will be presumed. B and C are joint tenants.
rather than D. the person who receives notice has no remedies against the RegistrarGeneral in respect of registration of the dealing which severs the joint tenancy. s 97 RPA now makes it possible for a joint tenant to register a transfer to himself or herself in order to sever the joint tenancy without the need for the production of the certificate of title. a severance will occur where a joint tenant has entered into a specifically enforceable contract to transfer his or her share to a third party. B will hold two different interests. So. that is. o In Goyal v Chandra. o Severance can be effected in six ways: (first 3 are Williams v Hensman principles) 1. it will remain a joint tenancy. because this transaction will give the purchaser an equitable interest in the joint tenant‟s share (Lysaght v Edwards).o In the above example. B will remain a joint tenant with A as to the remaining unsevered part of the property. Second. o In equity. o Severance by means of gift requires that the donor must have done all that is necessary to be done on his or her part to put the donee in a position to acquire the legal title (Corin v Patton). A would become entitled to a 2/3 share by survivorship. or course of conduct by one joint tenant that led to the creation of an assumption by the other that no severance would take place (relied on by the other to their detriment) may create by estoppel an equitable right not to have the joint tenancy severed – and this would not amount to a „restraint on alienation‟. o A joint tenant is also free to alienate part of his or her interest. o A gift will be perfect in equity where the donor has executed a document which satisfies s 23C (1)(a) CA. on B‟s death. The severance in equity will not affect the legal estate. o Nevertheless. The Registrar-General must. Brereton J held that an agreement between the joint tenants. Once the notice period has expired. B will also hold C‟s 1/3 share with A as tenant in common. but held on trust for the purchaser as a tenant in common. a signed document in writing. 5 . The purpose of this obligation is to give the non-severing joint tenants the opportunity to raise any legal objection they might have too the severance. First. notify the other joint-tenants (s 97(5)). however. and would hold C‟s former share as tenant in common with B‟s estate. At this point the donor will hold his or her legal or equitable interest on trust for the donee. rather than the entire interest. this requires the handing over of the certificate of title. if C sells her interest to B. This requires a deed under old system law (s 23B (1)) and registration for Torrens title land (s 42 RPA). Unilateral act by one joint tenant: Alienation to a third party o A joint tenant may effect a severance by alienation to a third party where the legal interest is transferred. For Torrens title.
The grant of the lease suspends the joint tenancy. o Thus. such that the right of survivorship will be deferred to the time the lease terminates if the joint tenant landlord dies during the currency of the lease (Frieze v Unger). the joint tenancy revives. unity of title will be broken – with the result that her or she will become a tenant in common of that share. a deed is required (s 23B (1)) and for Torrens title land. thus severance does not occur. This applies to both old system and Torrens title. Lease lease granted by a joint tenant does not sever the joint tenancy (Frieze v Unger). not a transfer (Re Forrest Trust). the creation of a mortgage severs the joint tenancy as the mortgage of old system land involves a conveyance of legal title. On reconveyance after the loan has been repaid. a person entitled to an interest in land may by writing signed by him or her make a declaration of trust of any interest in that land. If a joint tenant landlord survives the tenancy. Declaration of Trust o Under s 23C (1)(b) CA. the right of survivorship will take precedence over the mortgagee‟s right and the property will cease to be encumbered by the mortgage (Lyons v Lyons). In the case of old system land. 6 . the transfer is only effective on registration (Freed v Taffel). o Not possible to be effective in equity because it is impossible to hold on trust for oneself (DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)). In the event that the mortgagor dies before the mortgage is discharged. the grant of a sublease by one co-owner will sever the joint tenancy for the entire lease (Frieze v Unger). the mortgagor steps into the mortgagee‟s shoes to become tenant in common. a transfer of this nature must be effective at law or not at all.e.Mortgage o under old system. Alienation to Self o By ss 24 and 44(2) CA a person may transfer land to him/herself in order to sever the joint tenancy – i. The right to enforce the covenants under the lease for the balance of the term will pass to the joint tenant‟s heirs (Frieze v Unger). Under Torrens title. Where the co-owned property is a lease. mortgages operate as a charge over the mortgaged land.
Severance by Court Order o An order of the court may bring about a severance. 7 . Severance in cases of Unlawful Killing o Where a joint tenant would otherwise unconscionably benefit from the right of survivorship. o A contract of sale alone is not enough to constitute a course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. o Where A unlawfully kills a co-tenant. however. 3. o Severance. o Mere physical subdivision of the property so that each joint tenant can occupy different parts will not sever the joint tenancy (Greenfield v Greenfield). B. o The course of dealing need not amount to an implied contract.2. and so does not need to conform with the general requirement imposed by s 54A CA that contracts for sale must be in writing. o Once this occurs the joint tenancy is severed in equity (Lysaght v Edwards). once effected. A Course of Dealing among the Joint Tenants o If there is a cause of dealing among all of the joint tenants „sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common‟ a severance will occur (Williams v Hensman). Payment of the proceeds of sale of a joint tenancy in sperate bank accounts is. The co-owners will continue to hold the legal estate as tenants in common. equity will impose a constructive trust. A Mutual Agreement among the Joint Tenants o A joint tenancy will be severed if all the joint tenants mutually agree to hold as tenants in common. conduct sufficient to indicate a mutual treatment of the interest as a tenancy in common (Abela v Public Trustee). o The course of dealing need not be evidence in writing. is irrevocable. even if the agreement is subsequently repudiated. A will hold the legal estate by survivorship on trust for himself or herself and B‟s estate as tenants in common in equal shares (Rasmanis v Jurewitsch). but all must participate. o An agreement to make mutual wills will sever a joint tenancy (Re Wilfords’s Estate). 4. 5.
but the transferee cannot be given a right which the co-owner does not have. applies to all cases where the joint tenant dies as a result of the felonious acts of a co-joint tenant. or „ousted‟. There is no ouster where one co-owner upgrades and slightly enlarges a common access strip causing disturbance during construction work (Ferguson v Miller). This equitable interest cannot be defeated by registration because of the fiduciary duty owed to the trustee in bankruptcy. with the exception of murder. Rights and Obligations of Co-owners Right to Possession The unity of possession which all co-owners enjoy entitles each of them to occupy the whole of the property (Thrift v Thrift). o On declaration of bankruptcy. known as the „forfeiture rule‟. the Supreme Court is given power to vary the forfeiture rule if „it is satisfied that justice requires the effect of the rule to be modified‟. Biviano v Natoli The excluding must be „a legal wrong‟ – Luke v Luke. all joint tenants hold the legal estate on trust for the trustee in bankruptcy as tenant in common. F. o By ss 4 and 5 of Forfeiture Act 1995 (NSW). gives no right to sue in ejectment (Biviano v Natoli). Obtaining an AVO which prevents a co-owner going near the property will not be an ouster for the reason that it is not a legal wrong and. may sue the ousting co-owner in trespass. such as a right to exclude other coowners (Frieze v Unger). The excluded co-owner will be entitled to an „occupation fee’ which is in the nature of mesne profits (Biviano v Natoli). Its effect is to sever the joint tenancy in favour of the trustee. This right can be transferred to a third party. as where one co-owner removed large amounts of soil and turf from the land without the consent of the other co-owners (Wilkinson v Haygarth). Severance on Bankruptcy o Bankruptcy of a joint tenant entails the vesting of his or her property in the trustee in bankruptcy (s 58(1) of Bankruptcy Act 1966). This right extends to acts of destruction of the property. The severance arises indirectly as a result of the imposition of a constructive trust. This process is known as involuntary alienation. in cases of unlawful killings. 6. therefore.o The principle. A co-owner who has been excluded from possession. 8 .
9 . Result: The court found that the AVO did not amount to an ouster as there was no legal wrong – personal rights should. In a partition suit. So that where a co-owner spent $100. If the owner in occupation claims an allowance in respect of improvements effected by him. An ouster did not occur at the time court proceedings were commenced either. Improvements are more than mere repairs and maintenance (Leigh v Dickeson). This is a defensive equity.000 (Squire v Rogers). whichever is the lesser of the two. if there has been an exclusion. could claim against successors in title of the non-improving co-owners (Brickwood v Young). Equity – the improving co-owner would have a right of contribution from co-owners who would otherwise unfairly benefit from the improvements (Leigh v Dickeson). thus. It would be inequitable for the excluded co-tenant to claim the rental value of the whole property because there is already a co-tenant in occupation.000 on improvements but the property increased in value only by $15. or a suit for administration of proceeds of sale of the property. such as pest control or insurance premiums. be given priority over rights of property (Davis v Johnson). However. cost of general maintenance.000. equity will permit such an allowance only on terms that he is accountable for an occupation fee – he who comes to equity must have done equity. in a proper case. Calculation of the occupation fee: an occupation fee = mesne profits. The onus of establishing the quantum falls on the party claiming a fee. An ouster = „an express denial of the title and right to possession of fellow tenants. brought home to the latter openly and unequivocally‟. such as a suit for partition or sale. and this amounted to an express denial of his rights as c-tenant which constituted an ouster. since it is in the nature of an equitable charge on the land. so that a co-owner who built houses on land. 2. The claim can be enforced against successors in title. the „wife‟ persisted in her denial of the husband‟s title to the property during proceedings. There are two circumstances where equity will consider an occupation fee: 1. significantly increasing its value. will not qualify (Forgeard v Shanahan). Improvements and Repairs Common law – a co-owner who improves the property has no right to a contribution to the costs of improvements in the absence of agreement (Leigh v Dickeson). Limits – in Boulter v Boulter it was held that a co-owner is entitled either the actual amount spent on improvements or the increase in value of the land. A starting point is 50% of the rental value from the time the ousting occurred. the tenant in occupation will be charged with an occupation fee – equity follows the law. it includes circumstances where there is a suit for termination of the co-ownership. he was only entitled to $15.
An occupation fee claim cannot exceed the claim for improvements. In equity. Termination of Co-ownership Co-ownership can be brought to an end in two ways: 1. At common law a claim for an occupation fee can only be made where one co-owner wrongfully ousts another. occupation of the whole property is merely an exercise of every coowner‟s rights (Forgeard v Shanahan). o Where there is an agreement to pay an occupation rent – co-owners may vary rights by an agreement. Only where a claim for improvements has been made can the non-occupying owner make a claim for an occupation fee. Quantum of Occupation Fee Starting point is 50% of market rent – Biviano v Natoli. o Where the occupying co-owner is claiming an allowance for improvements to the property – in accordance with the principle that „he who seeks equity must do equity‟. the corresponding benefit conferred on the remaining co-owners does not give rise to an obligation to pay a fee or rent on the non-resident co-owner. G.Forgeard v Shanahan Mortgage repayments and council rates are types of improvements. 10 . or where there is an agreement between the parties to pay such a fee. the improving co-owner is under a duty to pay an occupation fee (Teasdale v Sanderson). There are exceptions to this rule. as it is a defensive equity. as where one vacates to allow the other exclusive occupation in consideration for rent (Leigh v Dickeson). a co-owner can claim compensation for improvements where the property has been realised. the value of the improvement compensation is the lesser of the cost of improvements or the value that has been added to the property. so as to give rise to an occupation rent. however: o Where one co-owner ousts another – this gives rise to an action in trespass for an occupation fee for the duration of the ouster (Dennis v McDonald). Right an occupation fee If one co-owner choses not to exercise his or her rights to possession. By Action of the Parties Tenancy in common – co-ownership will come to an end when one of the co-owners acquires the shares of all the others.
Also. o The court also has the power to order the property to be sold (Ferrari v Beccaris). By Order of Sale or Partition by the Court Land: o Any co-owner of property can apply to the court to appoint trustees to hold the property on a statutory trust for sale or partition (s 66G(1) CA). Joint tenancy – when a sole survivor succeeds to the shares of the others. Chattels: o By s 36A CA the court has the power to order a division of chattels belonging to persons jointly or in undivided shares on the application of „persons interested to the extent of a moiety half or upwards‟. and partition is allowed only in special circumstances (Re Cordingley). An order under s 66G does not sever a joint tenancy. The court has the discretion whether to order sale or partition (Forgeard v Shanahan) o A sale is the primary remedy under s 66G. when all co-owners jointly transfer their several interests to a third party. which continues to apply to the proceeds of sale (Re Debney). or when the coowners partition the property to reflect their respective shares. or acts of adverse possession by one co-owner against another (s 38(5) Limitation Act 1969 NSW). In a suit for partition and sale. Partition is physical subdivision of the land. each becoming entitled to sole proprietorship of a fraction of the original property. If the co-owner satisfies the court that partition of the property would be more beneficial than a sale for co-owners who own more than one-half of the property. 11 . 2. the court may appoint trustees for partition rather than sale (s 66G(4)). the court has the power to direct an account of improvements and occupation fees (Leigh v Dickeson).
so equity formulated its own rules for the validity of assignments of both equitable and legal choses. such as a debt. Thus. the assignment is effectual in law to pass and transfer the legal right to the debt or other chose in action from assignor to assignee. such as set-offs and counterclaims available 12 . A statutory assignment need not be for consideration to be enforceable.Gifts and Sales Week 8 Assignments Assignments „Assignment‟ = the disposition of choses in action (or choses in possession). The common law did not recognise assignments of choses in action. Assignments of Legal Property at Law The formalities depend on the type of property to be assigned. only legal interest can be assigned at law. Equitable interests are not recognised by the law. an assignment of a chose in action must be made either under statute or in equity. An equitable chose in action is enforceable only in a court of equity e. Debts and Other Choses in Action S 12 Conveyancing Act 1919 (NSW) requirements must be met. and not by taking physical possession‟ (Torkington v Magee). the assignee having standing to enforce the debt against the debtor joining the assignor. A legal chose in action is enforceable by an action at law. a share or interest in a partnership or an interest in a trust fund. any such assignment is subject to the equities that would have taken priority aside from the assignment. Choses in action can be legal or equitable. However. the assignor steps out of the picture. being the intangible right to the payment of a sum of money from another. As a result. therefore. so a chose in action can be assigned by way of a gift.g. Chose in action = „all personal rights of property which can only be claimed or enforced by action. Where these statutory requirements are met. They are intangible rights enforceable through action. Choses in possession = tangible objects.
Land Old System Assignment of legal property at law (under old system title) requires a deed – s 23B (1) Conveyancing Act. which includes equitable choses in action (Federal Commissioner of Taxation v Everett).against the assignor. and so the assignee cannot take a better title than the assignor. Torrens Title S 41 Real Property Act specifies that assignments of legal property are effectual at law upon registration. only in equity if there is some consideration. subject to a condition precedent or of part only of a debt do not satisfy the statutory requirements. constructive. in that all the assignor‟s rights in the chose in action are unconditionally transferred to the assignee. Future choses in action cannot be assigned at law. o Express Notice – express notice must be given in writing to the debtor (although it need not be given by the assignor) because the debtor must know the identity of the legal owner of the debt in order to pay that person. Delivery with an intention to assign (actual. This is because the assignor cannot assign more than he/she owns. are: o Absolute – the assignment must be absolute. or symbolic [where property is too bulky to deliver – Rolenson v Mort]). Legal chose in action has been interpreted to mean „lawfully assignable chose in action‟. Choses in Possession There are three recognised methods for making a valid assignment of a chose in possession – s 22 Sale of Goods Act 1922: 1. Deed 2. o Writing Signed by the Assignor – the assignment was be in writing signed by the assignor. Assignments by way of a charge only. but need not have the assent of the assignee. S 12 Conveyancing Act 1919 (NSW) requirements for a valid statutory assignment of a chose in action. 13 . Declaration of trust 3.
A co-inhabitants usage of. Intention to Make a Gift Donative intention is characteristically accompanied by words of gift which evince the intention and delineate the object and extent of the intended benefaction. in the absence of a deed of gift or a declarations of trust. extent and whether the gift would take immediate effect eg actions. such as a painting. and o Delivery. and if the donor retains possession.(Harrison v Folley) Delivery between Co-inhabitants – delivery is need in every case of a parol gift inter vivos. unequivocal donative interest attended by the requisite certainty as to object. words. o Intention on the part of the donee to accept the gift. The intention must be made manifest and expressed with certainty A gift can be valid without words of gift so long as the plaintiff proves the existence of a present. There must be giving and taking. documents. declaration 3. are: o An intention to make a gift. There must be some unambiguous act of actual or constructive delivery (Horsley v Phillips Fine Art Auctioneers Pty Ltd) Delivery may be actual or constructive (Where the nature of bulk of the goods renders manual delivery impossible or impractical. In the delivery between co-inhabitants. inter vivos: 1. or access to the chattels. delivery Gifts of Chattel by Delivery (Following principles enunciated in (Nolan v Nolan 2003) The essential elements of a valid gift of chattel inter vivos. usually expressed by words of present gift. acts falling short of manual delivery have been held sufficient to signal a change in possession). deed 2. „if the facts proved were equally consistent with the idea 14 .Gifts of Chattels There are three recognised methods for making a valid gift of a chose in possession. would not suffice. legalities Intention on behalf of the donee to accept the gift Delivery of the gift Plaintiff bears onus of establishing this element Oral or written words of gift not embodied in a deed or will are not sufficient to make an effective gift unless there has been or is delivery of possession to the donee. has not yet given and the donee has not yet taken.
Concept of an Equitable Assignment An equitable assignment can mean one of two things (Norman v Federal Commissioner of Taxation): o An assignment of an equitable chose in action. failure to comply with legal requirements or an assignment of future property. The presence or absence of notice to the debtor may be important. because the assignor retains legal title to the debt the assignee must ordinarily join the assignor in any proceedings to avoid the possibility of the debtor being sued by both the assignee and the assignor (Performing Right Society Ltd v London Theatre of varieties Ltd). such as contracts involving personal skill or confidence (Noakes v Doncaster Amalgamated Collieries Ltd). possession of the chattel in question (Re Rose).e. the assignee has standing to enforce the subject matter of the assignment by suing the debtor to recover the amount due to the assignor. Some choses in action. or suing a third party who infringes the assignor‟s rights. In such a case it is necessary that the act of delivery unequivocally evidence the donor‟s intention to transfer. 15 . or o An assignment of a legal chose in action that is not assignable except by the aid of equity – i. Requirements for an Equitable Assignment The main prerequisite for equitable assignments is an intention to assign and where future property is assigned there must be consideration also.that he intended to deliver the thing to the wife so as to be her property. but it does not impact upon the validity of the assignment. such as a part assignment or the assignment of a future chose. Once a valid equitable assignment has been effected. or otherwise falls outside s 12. cannot be assigned even in equity. being personal in nature. and not retain. Yet. and with the idea that he intended to keep it as his own property then the wife failed to make out her case‟. As both legal and equitable choses in action can be assigned under the statutory scheme. the concept of equitable assignment is most relevant where the assignment does not fully comply with the statutory requirements.
o Legal Choses: As „equity will not perfect an imperfect gift‟ and will not assist a volunteer. for an equitable assignment in the full sense. not by the order in which the assignments were made = rule in Dearle v Hall (an exception to the usual equitable interest priority rules). Consideration Consideration is only required in equity for the assignment of future property. Notice Notice is not a requirement of an effective equitable assignment. An intention to assign may appear on the face of the document or it may be proved by extrinsic evidence. a voluntary assignment of a legal chose in action that fails to comply with s12 CA requirements 16 . the debtor must now pay the assignee. transfer to A of „all my right title and interest‟ in a debt or other chose in action (Shepherd v FCT). no particular form is required. Once the relevant notice has been furnished. The requisite intention is an intention to transfer a chose to the assignee in a manner binding the assignor e. Thus.g. Third Party not Bound until Notice is Given – a debtor who has received no clear and unambiguous notice of the assignment cannot be expected to pay the assignee. but there are two practical reasons why notice is desirable: 1. Whether consideration is required depends on the distinction between legal and equitable choses in action. because „equity looks to intent not form‟. but it must plainly and unambiguously convey to the debtor that there has been an assignment and that there is a sense of peril for ignoring the request to pay (Squires v SA Steel and Sheet Pty Ltd).Intention to Assign An assignment that does not comply with the statutory formalities may still be valid and effective in equity. Provided the assignor has the intention to assign. 2. or otherwise face the risk of being sued by the assignee for the money already paid over to the assignor. Priority of Assignees Dependant on Order of Notice – where there are successive dealing with a chose the priority between those claiming as assignees is determined prima facie by the order in which those assignees gave notice of their assignment to the debtor. The notice need not be in a particular form. notice must be given to the third party. but legitimately continues to pay the assignor.
Norman should have assigned the shares. To assign a right to dividends. E. which is future property. which is present property. This will be the case where (Olsson v Dyson): Assignor has furnished consideration. Alleged assignor. o Equitable Choses: . If consideration is present.g. notice is required to be given. Assignor encourages/induces intended assignee to act to his/her detriment on the footing that the subject of the assignment has become the assignee‟s such that it is unconscionable for the assignor to withhold the interest from the assignee – estoppel.cannot be upheld in equity unless the assignor‟s conscience is bound to hold the property for the assignee. The assignee‟s entitlement to the property passes to him/her as soon as the property comes into existence. This is because equity treats the assignor‟s conscience as bound as trustee of her or his legal rights for the assignee upon the receipt of consideration. Test for Distinguishing Present v Future Property? Norman – there is a distinction between a presently existing contractual obligation to pay a sum of money. it is necessary to distinguish between present and future property. consideration is not necessary provided a clear act of assignment and an intention to assign is present (Norman FCT). 17 . If the assignment is of existing (present) vested equitable interest. consideration is required. and the sum of money itself. so if the other requirements are met then the assignment can nonetheless take effect as an equitable assignment. but it need not be given by the assignor. has done all that is required to be done by her/him under the statute to effectuate the assignment. As consideration is required for a valid assignment of a future equitable interest but not for a present equitable interest. although not complying with all statutory requirements. the assignment being treated as a contract to assign (Palette Shoes v Krohn). so obviously he was assigning the dividends themselves. but on the equitable principle that equity regards as done that which ought to be done. If the assignment is of a future property. equity will treat this as an agreement to assign the thing when it comes into existence. The assignee‟s right is not premised on the availability of specific performance. which is future property.Future v Present Property Future property cannot be assigned at law – they are mere expectancies.
Present property = presenting existing right to income e. the transferor must use the appropriate mode of transferor according to the nature of the property involved. the settlor/assignor must have done everything that. the arrangement may be enforceable in equity as an agreement to create a gift or trust if the claimant has provided consideration. Equitable Assignment of Legal Property Assignable at Law If the assignment of legal property fails for lack of compliance with the statutory or other legal requirements (but it is assignable at law in the sense that it is not part of a debt or chose in action) and no consideration has been given. regardless of consideration. According to the Nature of the Property – everything that must be done is determined according to the nature of the property (Jones v Locke). the trust was not completely constituted. Once this has been done. 18 . was necessary to be done in order to transfer the property (Milroy v Lord). 2. everything to be done means everything that has to be done by the transferor rather than the completion of every single step in the transfer. the beneficiaries take an equitable interest in the property and can enforce the gift. If the gift or trust has not been completely constituted.g. Everything Must Be Done – a transferee acquires an equitable estate or interest in the subject matter of the gift once the transaction is complete so far as the transferor is concerned (Corin v Patton). Thus. E. To „completely constitute‟ a gift or trust.g. For example: Gifts of Leases = assignment (Richards v Delbridge). Thus. hence. There are two elements that must be satisfied to completely constitute a gift of property assignable at law: 1. contractual obligation. The gift remains incompletely constituted where some act remains to be done that is within the sole province of the settlor/assignor. Future property = interest/income itself which comes into existence at some later time. and the court held that the transferor had not done everything necessary to be done by her to effect the transfer because she had not authorised the mortgagee to hand the certificate of title to the transferee. Rule in Milroy v Lord This rule applies to assignments of legal property where the recipient is intended to take beneficially or as a trustee. the following rules must be complied with in order to effect a valid equitable assignment. or it may be enforceable under the exceptions to the rule that equity will not assist a volunteer. in Corin v Patton the transferor dies without the transfer being registered. according to the nature of the property.
or Instead a Gift? Consideration in the present case was $1 – it is settled that nominal consideration suffices to support a simple contract. Registration is unnecessary as the intended donee/trustee can effect it (Corin v Patton). they must hand the passbooks to the purported beneficiary and thereafter consult that beneficiary on the basis that the latter is the beneficial owner of the moneys (or of some interest in them) – Kauter v Hilton. However. Because equity will not assist a volunteer. Yet. Gifts of Cheques = endorsement to its beneficiary (Jones v Locke). A contract at law may still be left. Inadequacy of consideration alone is not an absolute bar to specific performance. 19 . the rule in Strong v Bird. specific performance will not be available for a gratuitous promise even though it is binding at law because it is supported by nominal consideration. Gifts of Chattel capable of passing by delivery = delivery to the intended trustee or execution and delivery of a deed of gift (Anning v Anning). Where the alleged trustee/donor retains possession of an item that is essential to the right to have any money paid over. as parties are supposed to able to determine adequacy of consideration for themselves. but no equitable interest will have arisen and equity will not complete the gift unless the gift binds the conscience of the donor (Corin v Patton). (A donatio mortis causa overrides a will. signed by testator and two witnesses who are present at the same time of the signing and who attest the will in the presence of the testator – if this is not done the testator has not done all that he/she can. specific performance will be denied in any event. Gifts of Shares = signature of a donor on the share transfer form as prescribed by statute and a duly executed instrument of transfer should be delivered as a matter of prudence (Re Rose). the trust is incomplete (Haythorpe v Rae). Gift of Torrens Land = execution of an instrument of transfer and delivery of it to the intended donee and possibly the certificate of title (s 46 RPA 1900). Gift of Money in a Bank Account = a person must not only open an account in another‟s name. also overrides the will) Did the Transfer Embody a Contract for Consideration.For a will you need writing. o Requirements for a Will . where there is merely nominal consideration. nominal consideration is a factor to be taken into account when considering the availability of specific performance.
vesting in P an equitable interest as tenant in common. where the transfer was in the prescribed form duly signed by both transferor and transferee and lodged with the relevant share certificates. namely in giving notice to the debtor of the assignment. thus. notwithstanding that the company had yet to register it. The necessity of action by a third party.s 96(2) CA 1919 requires the mortgagee to release and lodge the CT at the Registrar-General‟s upon request from the mortgagor. and o Beyond the recall or intervention of the donor. the donee need to have authorised the bank to produce the CT . E. The execution and delivery of the transfer and the delivery of the certificate of title would constitute a completed gift. Thus. Once that stage is reached. is not fatal to the completeness of the gift. the gift is complete and effective in equity. the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title. in Re Rose a gift of shares in a company was held complete . In Anning v Anning.g. the further action was within the power of the assignee. 20 . joint tenancy has been severed by a complete gift in equity. „Necessary‟ in the context of this test = those things which only the donor could do to effect a transfer of legal title. In Corin v Patton.Test for Determining whether a Gift of RPA Land under an Unregistered Transfer was Complete and Effective in Equity… Twofold: o Whether the donor has done all that is necessary to place the vesting of the legal title within the control of the donee. so that the assignee was placed in a position where without anyone else‟s intervention it could effect the assignment. Result in regards to ‘everything must be done’ Eric‟s direction to produce the CT suffices for the gift to be complete and the action of third parties still required to produce the CT is not fatal to the completeness of the assignment in those circumstances. neither assignor or assignee. Eric‟s transfer constituted a severance of the joint tenancy by unilateral act by the assignor operating upon his own share. Has P’s Equitable Interest been Retracted or Defeated? Retraction by a later inconsistent unregistered transfer is only possible if the gift were not then complete. and the equitable interest in the land vests in the donee.
and then rushed to get his transfer registered. Eric had not done all that was necessary to render the gift binding upon himself or of putting the transfer beyond the donor‟s recall or intervention. was necessary to be done in order to transfer the property and render the settlement binding upon him. D knew of the earlier gift and refused the CT to be released. statute requires certain trusts/gifts to comply with writing requirements as a condition of validity or enforceability. S 23C(1) CA provides: 21 . which states. the gift was not perfected – and equity will perfect an imperfect gift. Costin v Costin (1997) Transfer beyond the Donor’s Recall or Intervention On appeal. it was held that Eric did not perfect the gift as he failed to comply with the second limb of the Milroy and Lord. The donor effectively allowed the appellant rather than the respondent to become the owner at law of the donor‟s interest in the property. the 2nd transfer alone is not enough to recall the gift. Future property is not assignable at law but it can be assigned in equity. provided that there is consideration. the settlor must have done everything which. Conclusion P has 50% interest as tenant in common. in equity. according to the nature of the property comprised in the settlement. Equitable Assignment of Legal Property Not Assignable at Law A part (as opposed to the whole of) a legal chose in action can be assigned in equity without formality. Thus. o „In order to render a voluntary settlement valid and effectual. Moreover. The court held that whilst Eric‟s gift was complete in the sense that the donor had done all that was required to be done by him alone to transfer the legal title. Since the gift was complete. all that is required is an intention to immediately transfer. Equitable Assignment of Equitable Property At Law – Writing Requirements As equity looks to intent not form. D is not granted indefeasibility of title due to ss 42 and 43 fraud. However. there is no general requirement of writing to create a valid inter vivos trust or gift.
or by will. or by his/her agent thereunto lawfully authorised in writing. or by operation of law. b) A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his/her will. c) A disposition of an equitable interest or tryst subsisting at the time of the disposition. must be in writing signed by the person disposing of the same or by his/her will. 22 . or by his/her agent thereunto lawfully authorise in writing.a) No interest in land can be created or disposed of except by writing signed by the person creating or conveying the same.
although a trust relating to land can be created orally. The document need not be in any particular form provided the terms of the trust. Also. Adamson v Hayes holds that s 23C (1) (a) applies to both legal and equitable interests in land. Subsisting Interest in Land = Writing required under ss 23C (1) (a) and (c). its enforceability is premised on it being evidenced in writing by some document signed by the settlor (Kauter v Hilton). the writing may be made subsequently to the time the trust is declared (Secretary. Writing that predates the declaration and makes no reference to it cannot evidence a declaration (Benjamin v Leicher). In Equity The equitable assignment of equitable property has three elements (discussed above): o Intention to assign o Notice (in order to bind the debtor and secure priority) o Consideration (required for future property and to escape the 2 volunteer maxims). the trust property and the beneficiaries can be ascertained (Hagan v Waterhouse).Disposition Type of Property Writing Requirements Comments Land New Interest in Land = Writing required under s 23C (1) (a). The signature of an agent is insufficient and there must be a signature from both parties (Equuscorp Pty Ltd v Jimenez). So. Department of Social Security v James). Personal Property New Interest = no Pt Ltd v Maradona writing requirement s 23C (1) (c) applies to both Subsisting Interest = writing required under s 23C (1) (c). S 23C (1) (b) requires that a „declaration of trust‟ of property relating to an interest in land be evidenced in writing. realty and personalty. 23 .
Otherwise. If the equitable interest is an equitable chose in action. look to see whether it can be assigned under s 12 CA. an intention to assign must be present. 24 .
o Donatio Mortis Causa – gifts in contemplation of death. B will be entitled to the property in equity. Exceptions 2: Donatio Mortis Causa This exception requires proof of: i. 25 . and continued to believe this until his/her death. and o Estoppel. despite the fact that the gift was imperfect. The gift being conditional upon the death of the donor (but otherwise unconditional) + intention to gift is required here (Dufficy v Mollica). This exception applies where the testator actually thought he/she had given the gift to B. and iii. constructive and symbolic). There are three main exceptions to this rule. These exceptions override a will. If B then becomes the executor of testator‟s estate. however. or a transfer of the indicia of title (physical. equity will not provide any protection to the donee or the beneficiary because he or she is a volunteer. then B is entitled to hold the property for his/her own benefit.Week 9 Exceptions to the Rule that Equity will not assist a Volunteer Equity will not assist a Volunteer If a gift or trust is not validly constituted. ii. A gift of personal property in contemplation of impending death (contemplation of suicide is sufficient – Re Dudman. it has not been included in the will. Exceptions 1: the Rule in Strong v Bird This rule provides that if the testator (A) expresses a present intention to make an immediate gift of specific property to another person (B). Delivery of the subject matter of the gift. and is revocable any time before that.and even if death comes from cause other than expected – Mills v Sheilds). and that intention continues unchanged until A‟s death and B becomes the executor of A‟s will. DMC becomes absolute upon death. Having thought that he/she had already parted with this property. and they are: o The rule in Strong v Bird. or a transfer of the means of getting at the property.
Mrs Beaney did not know that she was making an absolute gift of the property for Valerie. Diprose made many gifts to Louth and sometimes paid unpaid bills.g. Factors Vitiating Gifts Capacity Test for Capacity in regards Transfers Ball v Mannin holds that the question is whether the person concerned is capable of understanding what he/she does by executing the deed in question when its general purport has been fully explained to him/her. vis-à-vis the donee to do so‟ (Pennington v Waine). until she became depressed/suicidal and got in contact with him again. in the eyes of equity. on the other hand. If the subject matter and value of a gift are trivial in relation to the donor‟s other assets. Result Plaintiffs succeed. Although Mrs Beaney may have intended to transfer the house to Valerie. if the subject matter of the gift is the donor‟s only valuable asset. Undue Influence/Unconscionability Louth v Diprose Facts Diprose was infatuated by Louth – they had an on-off relationship. a low degree of understanding will suffice. a high degree of understanding is required – like a will. Louth didn‟t want to see him anymore. Here. given that the house was her only asset. Gibbs v Wright states that the mental capacity required by the law of any instrument. the facts suggest that Mrs Beaney did not have a full understanding of the nature of the transaction – and such understanding is required. Although it was explained to Mrs Beaney that she was making a gift of the house to Valerie.Exceptions 3: Estoppel „A donor will not be permitted to change his or her mind if it would unconscionable. where the trust is almost completely constituted at the time of the settlor‟s death. 26 . she was never told that its effect would be to deprive her other 2 children of any real interest in her estate. and is relative to the particular transaction being effected. is the capacity to understand the nature of that transaction when it is explained. But. E.
the claimant bears the onus of proving actual influence over the mind of the alienor. to the knowledge of the donee. a relationship between the parties which. An antecedent relationship (doctor/patient. places the donor at a special disadvantage vis-à-vis the donee. the donee‟s unconscientious exploitation of the donor‟s disadvantage . but where no antecedent relationship exists. lawyer/client and parent/child) gives rise to a rebuttable presumption that of undue influence. 2. Result Diprose discharged the onus of proof – Louth took advantage of Diprose‟s special disadvantage (infatuation) in relation to her. whose will must be overborne. such that Diprose was unable to make a worthwhile judgement as to what is in his best interest. It prevents an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor‟s will or freedom of judgement in reference to such a matter. Undue Influence Undue influence is similar to unconscionability. Unconscionability Elements Three factors must be present for equity to set aside a gift procured by unconscionable conduct (Amadio factors): 1. the house was registered in Louth‟s name. Diprose bought Tranmere house but by agreement following threats that she would kill herself. the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgement as to what is in his/her best interest. but it looks to the quality of consent of the weaker party. 27 . and 3. Unconscionability looks to the conduct of the stronger party.
It is the settlor‟s intention that is usually the main inquiry in determining whether a trust has been created. Classification of Trusts Express Trusts Where settlor has expressed an intention (which may be inferred from the facts) to create a trust and the certainties and formalities are met. beneficiaries have remedies available to them should a trustee default in performing his/her duties + beneficiaries can enforce their equitable interest in the trust property against any subsequent holder of the property other than a bona fide purchaser for value of the legal interest who takes without notice of the equitable interest (Pilcher v Rawlins). an „express trust‟ arises. Express trusts can be classified in a variety of ways: o Private v Public express trusts – private = where trust is intended to benefit one or more persons. Holding of the property by the trustee for the benefit of a beneficiary (or for charitable purposes). public = trust recognisable as charitable in law. The existence of trust property vested in the trustee that is identifiable and certain. 2. Dual ownership of the same property – the legal ownership being vested in the trustee and the equitable ownership (or beneficial) ownership in the beneficiaries. The creator of the trust = the settlor (or testator for trusts created in a will).Lesson Plan #5: Issues in the Law of Express Trusts Week 10 The Nature of a Trust Definition and Characteristics Trust involves the holding of property by its legal owner (the trustee) for the benefit of others (the beneficiaries or objects). o Fixed v Discretionary trusts – beneficiaries of fixed trust have fixed interest in the income/capital of the trust property. An equitable obligation binds a trustee to administer the trust property for the benefit of the beneficiaries (or charitable purposes prescribed). Thus. 3. Trustees of a discretionary trust have an absolute discretion 28 . Three elements common to all trusts include: 1. thus they can enforce both the administration and distribution of the property trust. A trustee who holds legal title to the trust property.
and without any duty to perform. the modern beneficiary). but where. it would be a fraud for the person upon whom the court imposes the trust to assert a beneficial ownership. e.to apply the income to the beneficiaries.: o Limited Interests in Succession o Claimant Priority Trusts o Protective Trusts – o Investment – o Trusts for Commercial Trading Purposes – o Family Trusts – o Trusts for Charitable Purposes – o Trust as a Remedy – o Unincorporated Associations and Trusts - Trusts and Other Legal Relationships 29 .g. o Constructive trusts (imposition) = the court imposes a constructive trust where no trust has been declared. Modern Functions of Trusts The trust has expanded from being principally a landholding device to having many varied and flexible functions. according to the principles of equity. to A (the „feoffee to use‟. History of Trusts The trust as an institution developed within the exclusive jurisdiction of equity – it is a direct descendant of the medieval „use‟. except to convey it upon demand to the beneficiaries or as directed by them. o Bare trusts = the trustee holds the property without any interest in it other than existing by reason of the legal title of trustee. the modern trustee) to the use of B (the „cestui que use‟. thus the beneficiaries have no enforceable claim to the income/capital of the trust until the trustees elect to exercise the discretion in their favour. Non-Express Trusts Equity can either imply or impose a trust: o Resulting trusts (implication) = arise where one person (settlor) confers title to property to another person but the settlor is presumed to retain beneficial ownership of the property. where land was transferred by common law conveyance.
Trusts and Insolvency Property held on trust lies outside that available to satisfy the claims of creditors of the trustee (Bankruptcy Act 1966 (Cth). Generally. 30 . the money becomes trust property. and so is unavailable for distribution between B‟s creditors. trust property will not be divisible amongst the insolvent trustee‟s creditors. Thus. the terms of a contract can potentially create a trust (Associated Alloys Pty Ltd v CAN 001 452 106 Pty Ltd). Re Australian Home Finance Ltd). and when called upon to hand over an equivalent sum of money. they do not require consideration as a precondition to their validity. Distinction between trust and debt is important because in the case of insolvency of a trustee. Property Given for a Specific Purpose Property held on trust lies outside that available to satisfy claims of creditors of the trustee. Henry v Hammond holds that: o „if the terms upon which the person receives the money are that he is bound to keep it separate…and to hand that money so kept as a separate fund to the person entitled to it. and remedies differ as between trusts and contracts. The trust has similar characteristics to a number of other legal relationships – but different legal consequences flow. where the existence of a trust is explicit. then he is a trustee of that money…if he is not bound to keep the money separate. but is entitled to mix it with his own money and deal with it as he pleases. s 116(2) (a). Trust and Debt Debt relationship arises where a sum of money is due from one person. the absence of an express obligation to keep trust money separate does not deny the trust (Associated Alloys Pty Ltd v CAN 001 452 106 Pty Ltd) Trust and Contract Trusts are based upon intention not agreement. Nevertheless. If A who has advanced money to B succeeds in proving that the money was to be held on trust. the intention of the parties is the distinguishing factor. to another. However. debtor. then…he is not a trustee of that money. Generally this intention must be inferred from the circumstances. but merely a debtor‟. an avenue is open whereby property can be protected from the claims of creditors in the event of insolvency. creditor.
it was held that the money in that account was held in trust for the purchasers in proportion to their contributions. The terms of the loan were such as to impress on the sum advanced a secondary trust in favour of the respondent were the dividend not paid. once declared. however. its claim was subject to it. In Re Australian Home Finance Pty Ltd a company received periodic payments form prospective house purchasers to be used to finance house purchasers. A weighty factor is whether the person to whom the money is advanced is required to keep it separate or can mix it with his or her own funds. Quistclose. These payments were deposited into a separate „progressive purchase fund account‟. As the bank had notice of the circumstances giving rise to the trust. claimed that the money was impressed with a trust and was therefore returnable to it in priority to the bank‟s claim. Rolls Razor went into liquidation and the bank sought to set-off the overdrafts owing against the money in the account. On liquidation of the company. The separate account was with the appellant bank. Trust for Individual as Opposed to Purpose Trust Australian courts have rejected the notion that the Quistclose trust heralds a new era for the noncharitable purpose trusts. Co-existence of Loan and Trust – ‘Quistclose Trust’ Barclays Bank Ltd v Quistclose Investments Ltd recognises that a loan may co-exist with a trust relationship. Lord Millet in Twinsectra Ltd v Yardley believed the relevant vehicle through which a Quistclose trust could be effect was the resulting trust: o „Like all resulting trusts. the trust in favour of the lender arises when the lender parts with the money on terms which do not exhaust the beneficial interest being a default trust 31 . The court held that the account was impressed with a secondary trust for repayment to the respondent upon the failure of the primary trust for payment of the dividend. is a debt owing by a company to its shareholders). The arrangement for payment of the shareholders Quistclose gave rise to a fiduciary duty that the court characterised as the primary trust. and was not available to meet the claims of the company‟s creditors.Trust or Debt? It is the intention of the parties that separates a trust from a debt. which had notice that the money was for a specific purpose. In this case Rolls Razor borrowed money from Quistclose to pay a dividend it had declared to its shareholders (a dividend. The terms of the loan provided that it was for the purpose of paying the final dividend and that the money was to be paid into a separate account.
If the purpose fails. In Re Australian Elizabethan Theatre Trust Gummow J held that the making of an „unconditional‟ donation was inconsistent with an intention to retain beneficial ownership in it. or trust…‟ A Quistclose trust has been seen as a single express trust. Moneys placed in a general operating account do not usually attract a trust relationship (Gliderol International Pty Ltd v Hall). 32 . the money borrowed will be repaid to the lender. but should be used exclusively for a specific purpose. to be inferred from the language the parties employed. The Relevance of Intention Australian Courts have shunned the two-trust approach taken in Quistclose. This construction would. The Quistclose trust sits better as an express trust than a resulting trust. Quistclose trusts usually look to the mutual intention of both the lender and the borrower. however. Thus. The accounting treatment of the funds concerned may constitute evidence concerning the intention of the parties. with the mutual intention that it should become the assets of B. there will be implied a stipulation that if the purpose fails the money will be repaid.which fills the gap when some part of the beneficial interest is undisposed of and prevents it from being „in suspense‟”. and the arrangement will give rise to a relationship of a fiduciary character. The principal inquiry is the intention of the person who advances the funds. the nature of the transaction and the circumstances attending their relationship. the lender is entitled to be repaid. Where there is no evidence that the transferor of moneys or property intended to transfer only legal ownership in that money or property. its existence determined by reference to the intention of the parties involved. to be ascertained objectively (Educational Resources Pty Ltd v Poteri). the lender retains the beneficial interest in the money. a Quistclose trust cannot arise. In Australasian Conference Association Ltd v Mainline Constructions Pty Ltd Gibbs CJ interpreted Quistclose to mean: o „where money is advanced by A to B. and are more likely to be recognised where the funds are earmarked for a specific purpose and are kept separate from the recipient‟s other funds – the parties must evince an intention that should the purpose fail. pending the application of the money for the specific purpose. entitle the lender to demand repayment of the money at any time prior to the fulfilment or failure of the stated purpose. Where the moneys received are earmarked for a specific purpose and kept separate from the recipient‟s other funds such as to warrant the conclusion that the moneys are held specifically for that purpose the court may recognise a Quistclose type of trust.
whereas the donee of a power may or may not choose to act because a power is facultative (McPhail v Doulton). thus same test for certainty of object. discretions the trustee must exercise (trust powers). Donee of the power (or appointor) = person who exercises the authority. discretions the trustee may exercise but have no duty to exercise (mere powers). not to themselves. Donees of a general power are entitled to appoint any person they wish including themselves – thus equivalent to unencumbered title of the property. 2. Distinctions between Trust Powers and Mere Powers The trustee must act because the trust is imperative. Objects (or appointees) = persons to whom the property is disposed pursuant to this authority. Thus. whereas a power may be legal (such as power of attorney) or equitable (if within a trust instrument). 33 . whereas the trustee of a fixed trust can be compelled to make a distribution prescribed by the trust deed. Distinguishing Trust Powers from Mere Powers Most relevant in the context of discretions to distribute income. and 3.only authority to deal with it – whereas a trustee must have title to the trust property.Trusts and Powers Powers A power (or mere power) = an authority to dispose of real or personal property irrespective of any existing estate or interest in the holder of the power. A trust is an equitable relationship. Both beneficiaries and objects can prevent payment being made outside (ultra vires) the trust or the power respectively. Donor of the power (or settlor) = the person who confers upon the donee the said authority. A trust instrument must vest in the trustees two kinds of dispositive discretions: 2. the donee of a mere power (or bare power) cannot be called to make any payment to objects. A special power. Both beneficiaries and objects of a power have a mere expectancy to receive a distribution. Similarities between Trust Powers and Mere Powers 1. A donee of a mere power need not have any property vested in her or him . on the other hand. Generally. allows the donee to appoint in favour of some or all of the persons within the class of objects specified by the terms of the power. and prevent the trustee or donee from acting in bad faith in administering the trust or exercising the power.
Requires an inquiry as to the settlor‟s intention. a trust power is created (Hourigon v Trustees Executors and Agency Co Ltd). The Requisite Certainties Principles To create a valid trust. where the settlor retains legal title to the property in question. Namely: 2. where the settlor transfers legal title to property to a trustee to hold the property on trust. „desire‟. Construction – ‘equity looks to intent rather than form‟. Certainty of Intention to Create a Trust – settlor must have an intention. the discretion extending merely to who to appoint and not to deciding whether or not to appoint. in addition to satisfying the requirements of formalities and complete constitution. „understanding‟. whether express or inferred.g. absent intention. the three certainties must be present. thus. By transfer. a question of construction (Re Leek). or will revest. but declares that he or she intends to hold the that property on trust. An express trust can be created in one of two ways. Inferring an Intention to create a trust – an intention to create a trust may be inferred (but not imputed) where this reflects the true nature of the relationship entered into by the parties. the transfer may be construed as a gift. Absent such intention.g. „hope‟. For example. „belief‟. Trust powers – trustees are bound to distribute the income but have discretion as to how it should be divided between the beneficiaries. that the property be held on trust. no particular words are necessary provided the words bear an imperative meaning e. even if they did not realise that they were creating a trust or understand its nature and effect. Mere powers – trustees have two discretions e. the intention to create a trust may be inferred where its presence could overcome problems with contractual privity – protecting the interest of a third party – Bahr v Nicolay – also where trustee is insolvent. „wish‟ are merely precatory and don‟t give rise to a trust. and discretion as to how to divide the income between the beneficiaries. or By declaration. capacity and legality. 34 . Where the language of the disposition impose a clear duty on the donee of the power to distribute the funds amongst at least some of the class of potential beneficiaries. discretion whether or not to distribute the income.
or a beneficiary of a discretionary trust. the quantum beneficial interests taken by beneficiaries in the trust property must. a trust may be validly created for the benefit of unborn children. This requires the trustee to be 35 . Discretionary Trusts – essence of this type of trust is that the trustees have a discretion to select. Western v Western says that as long as on the balance of probabilities you are able to make a reasonable list of the objects. „the bulk of my estate‟. such as where there is some objective criteria to calculate the quantum. be trust property. Therefore. Certainty of the Subject matter of the Trust – the property of a trust must be defined and identifiable. there will be no difficulty with certainty of subject matter. it is not essential that all objects can be ascertained when the trust commences. ascertained or capable of being ascertained. a disposition in a will of „a reasonable income‟ was upheld on the basis that the testator had prescribed an objective yardstick. or the trust will be void for uncertainty (Federal Commissioner of Taxation v Clarke). Also. Nature of the property – any interest in property (real. choses in possession. the beneficial interest vesting upon birth. so cannot be the subject of a trust. future property cannot be the subject of an immediate trust. Subject to the rule against perpetuities. or „most of my houses‟ – Boyce v Boyce. a mere expectancy is not property. who will benefit under the trust and the extent of such benefit. legal. Quantum of interest – where the settlor fails to precisely define the actual beneficial interest to be taken. personal. Certainty of Objects of the Trust – Beneficiary Principle – requires a trust to be in favour of definite beneficiaries (objects). it will satisfy list certainty. from amongst a class of possible beneficiaries. Also. other than in the case of a discretionary trust. choses in action. „the remaining part which he does not want‟. the trust will be void for uncertainty. Where the words used are capable of being interpreted with certainty by the court. equitable) may be the subject of a trust. Nor can an object of a mere power. In Re Golay.3. 4. or of a recognisable charitable purpose (or tomb and animal cases are other exceptions). be certain. Fixed Trusts – must be possible for the trustee to compile a list of all the possible objects of the trust (list certainty – Inland Revenue Commissionaires v Broadway Cottages Trust). Where a list cannot be complied. Uncertain phrases include. provided they are described with sufficient precision so that a list can be made at the date of distribution (Kinsela v Caldwell). the trust will fail for uncertainty of object and the testator‟s intention will be frustrated. The „criterion certainty test‟ must be satisfied in the context of discretionary trusts (McPhail v Doulton – aka Baden No 1). However.
The use of the phrase „is or is not a member‟ in the Re Gulbenkian’s Settlements test does not mean that a trustee must be able to say with certainty that an individual is not a member of a class – not 36 . Types of Uncertainty of Object – Inter vivos There are 3 main forms of uncertainty of object: 1. But Baden said that criterion certainty is used for both bare powers and discretionary trusts. It is unlikely that a settlor can avoid semantic uncertainty by stipulating that the objects are those who the trustee or some third person considers to have met a specified (uncertain) criterion (Tatham v Huxtable). even on the widest meaning attributable to those words. the court can appropriately deal with the latter on an application for directions. A disposition tainted by semantic uncertainty is void. Relevant Question: Can it be said with certainty that any given individual is or is not a member of the class? (Re Gulbenkian’s Settlements).able to determine with certainty whether or not any claimant is within the description of the class of beneficiary prescribed by the settlor – there must be a criterion applied for this purpose. uncertainty renders the trust void. or linguistic. there must be a criterion capable of certain application. Once a class of persons is conceptually certain it is a question of fact if an individual is within that class. To be semantically certain. As to the word „dependants‟ – the difficulties that arise in determining whether an individual is a dependent are evidential and raise questions of fact and not law. As to the word „relatives‟ – even the widest meaning of the word „relative‟ does not produce linguistic uncertainty. Semantic Uncertainty (or conceptual/linguistic) – focuses on the precision of the language used by the settlor to define the class of beneficiaries. the trustees are able to determine whether or not a particular candidate comes within that class‟. there only exists a degree of evidentiary uncertainty. Re Baden’s Deed Trusts (No 2) A disposition to the „dependants‟ or „relatives‟ of specified employees is certain because. Whilst semantic. and the trustee holds the trust property on resulting trust for the remaining objects (Re Beckbessinger). There is no conceptual uncertainty inherent in the use of the word „dependants‟. Prior to Baden (No 1) there was a different test for bare powers (criterion certainty) and discretionary trusts (list certainty). evidentiary uncertainty does not. If a trust meets the requirement of semantic certainty it meets the criterion certainty test.
a disposition to „all the residents of greater London‟. By Will: The Rule against Delegation of Testamentary Power Classic statement of the testamentary non-delegation rule comes form Houston v Burns: o „a testator can defeat the claim of those entitled by law in the absence of a valid will to succeed to the beneficial interest in his estate only if he has made a complete disposition of that beneficial interest. is a question which can be determined by the court and does not introduce linguistic uncertainty. the trustee is left with the discretion to decide who will be within the specified class. „…to who the trustee thinks fit‟). If semantically certain. When you have a discretionary trust established under a will. indeed.only would this be impractical. This is because the testator is leaving it to another to dispose of the benefit. Administrative Uncertainty – where the meaning of the words is clear but the definition of beneficiaries is so hopelessly wide as to not form „anything like a class‟. Evidential Uncertainty – focuses on the extent to which the available evidence enables specific persons or bodies to be identified as members of the class and therefore (potential) beneficiaries. and it is criterion certain. The doubt which the use of the words „dependants‟ and „relatives‟ gives rise to. The complete ascertainment test has been rejected. The essence of the test is that it requires that at least a „substantial number‟ of objects could be said with certainty to fall within the trust. 37 . Usually under a discretionary trust. it may still offend the rule against delegation of testamentary power (e. He may.g. evidential problems will not invalidate the disposition for uncertainty of object. although mere powers are not subject to this additional requirement (Re Manisty’s Settlement). especially where the identity of prime candidates for the exercise of the discretion is clear (Schmidt v Rosewood Trust Ltd). and a substantial number of beneficiaries identified. the test for discretionary trusts is now criterion certainty – it is not necessary to prove who is definitely not a member of the class. 2. for example. 3. provide that a special class of persons…are to take in such shares as a third person may determine. but that is only because he had disposed of the beneficial interest in favour of that class as his beneficiaries‟. There needs to be a survey done. so as to render the trust administratively unworkable (McPhail v Doulton). He cannot leave it to another person to make such a disposition for him unless he has passed the beneficial interest to that person to dispose of as his own. Administrative uncertainty invalidates a trust. and it would go back to list certainty. Thus. but it would involve an inconsistency with the latter part of the test that the trust „does not fail simply because it is impossible to ascertain every member of the class‟.
Gifts to Unincorporated Associations Common Law Approaches to Validating Gifts Unincorporated association = association of persons who share a common interest. you would only look to criterion certainty and ignore the common law rule against delegation of testamentary power. as distinct from a trust fro individuals. in which case any member can sever his/her share and claim it even if he/she ceases to be a member of the association. by construing them in one of three ways: 1. Gregory v Hudson held that the non-delegation rule does not apply: o To bequests for charitable purposes o To gifts of property by will to a pre-existing trust or to constitute a completely constituted trust o Where secret trusts are used Purpose Trusts The General Rule Trusts for charitable purposes satisfy the beneficiary principle because they are enforceable by the relevant Attorney-General. By construing the gift as an outright gift to the individual members of the association at the relevant date. This is not the case with fixed trusts. is clearly void because there is no beneficiary (Re Recher’s Will Trusts) – thus it is often argued that a trust either fosters a charitable object or is for individual beneficiaries. S 44 Succession Act aligns the requirements of certainty of object under a will with the requirements inter vivos. thus the testator has already selected the beneficiaries.Pettingall v Pettingall. A trust for non-charitable purposes. as for these to be valid there must be list certainty. Thus. it has no legal status separate from its individual members and so cannot hold property. Exception: Tomb and Animal Cases The principal exception to the strictness of the principle that non-charitable purpose trusts fail concerns trusts for the erection and maintenance of tombs not associated with churches. you cannot characterise the trust as a charitable trust. In Re Clarke a bequest „to the 38 . and trusts to maintain particular animals belonging to the testator . The law has sought to validate gifts to unincorporated associations (which would otherwise fail). if the purposes of the association are not charitable. If the testator died after 1 March 2008.
the gift would be valid. and the fact that at the time when the bequest became operative the members of the Party had no capacity to put an end to their association and distribute its assets. Thus. The prima facie presumption favouring a gift to the members of the association was displaced due to the form of the gift (to the Communist Party „for its sole use and benefit‟). but cannot sever his/her share. 2. In such a case. which accrues to the other members on his/her death or resignation. as a trust. The Succession Act validates gifts to unincorporated associations in wills – and only if the testator dies after I March 2008. As the purpose was political. in accordance with the beneficiary principle. was held to be for the purposes of the Party. each member can ensure that the subject matter of the gift is applied in accordance with those rules. As a joint tenant. In Leahy v Attorney-General (NSW) the validity of a gift to a selected order of nuns was at issue. was upheld on the basis that it was a gift for persons. the extensive membership of the Party that was subject to substantial fluctuation. only if it was for a charitable purpose. in which case it takes effect as a trust for those purposes. A lot of associations get around this by incorporating. Hence. By construing the gift as for the existing members subject to their respective contractual rights and liabilities towards one another as members of the association. 39 . 3. members can sever the joint tenancy and can claim a share even if the cease to be a member. indicated that it was likely that the testator intended to benefit the continuing purpose of the order. the courts ordinarily assume that the second construction is what the donor intended.Committee for the time being‟ of an unincorporated association. In Bacon v Pianta a gift „to the Communist Party of Australia‟. As a starting point. an unincorporated association. it could not take effect as a valid charitable trust. and the subject matter of the gift (a grazing property). By construing the gift as for the continuing purposes of the association. the number and geographical spread of members of the order. This presumption is rebuttable by evidence that shows the donor intended to foster the continuing purposes of the association rather than benefiting its members directly. It was held that the form of the gift. those purposes must be charitable for a gift so construed to be valid.
Thus. Charitable Trusts v Private Trusts Charitable and private trusts may be created inter vivos or by will. If for a purpose. with the right and duty to enforce charitable trusts. provided that the statutory conditions are fulfilled. does it come within the heads of Pemsel? If in the first 3 heads there is rebuttable presumption of public benefit. Donations to charities are usually tax deductible. Perpetuities Rules Must satisfy the perpetuity rule. Charitable Trusts and Certainty of Object The law recognises the Attorney-General as protector of charities. 40 . Charitable trusts lack traditional beneficiaries. and must fulfil certainty of intention and subject matter. if in the fourth head you have to prove both public benefit and that it comes within the spirit of the Preamble. certainty of object for charitable trusts involves an inquiry as to whether the purposes specified in the trust are charitable (according to the legal definition). but those who will ultimately benefit are termed „ultimate beneficiaries‟. A gift that vests in a charity within the perpetuity period is valid even though its actual application in carrying the charitable purpose into execution awaits an event that may not happen within the perpetuity period. Charitable trusts = trusts for purposes. Taxation and Rating Concessions Charitable trusts enjoy exemptions from income tax. Both qualitative and quantitative public benefit must be shown. and private trusts = trusts for persons. Gifts over from one charity to another are exempt from the rule against perpetuities. Charitable trusts‟ ultimate beneficiaries must be members of a class of persons that represent a section of the community sufficient to meet the criterion of public benefit.Week 11 Charitable Trusts Ask is this a trust for persons or a purpose.
Meaning of ‘Charitable’ at Law
For present purposes, defining what is „charitable‟ as understood by the law is important as trusts for non-charitable purposes are void because there is no individual person capable of enforcing the terms of the trust (like the A-G for charitable purpose trusts).
Charitable Purposes To define charity courts have historically been guided by the Preamble of the Elizabethan Statute of Charitable Uses 1601, which contains the following list of charitable purposes: Relief of aged, impotent and poor people; Maintenance of sick and maimed soldiers and mariners, schools of learning, fire schools and scholars in universities; Repair of bridges, ports, havens, causeways, churches, sea banks and highways; Education and preferment (advancement) of orphans; Relief stock or maintenance of houses of correction; Marriages of poor maids; Support aid and help for young tradesmen, handicraftsmen and persons decayed; Relief or redemption of prisoners or captives; and Aid or ease of any poor inhabitant concerning payment of fifteens, setting out soldiers and other taxes. Courts look at whether a trust is within the spirit of the Statute. Lord Macnaghten in Pemsel grouped the charitable objects into four heads of charity, which is applied in modern charity law: (start with these categories in an exam). The relief of poverty, age and impotence; The advancement of education; The advancement of religion; Other purpose beneficial to the community. Extension of Charitable Purposes Act impacts Commonwealth legislation only – includes child care, contemplative religion etc.
Requirement of Public Benefit Public benefit is a necessary prerequisite under each head of charity except the first (the relief of poverty; where you only have to establish private benefit). Two aspects to public benefit: o Qualitative – demonstrable public benefit; public benefit:detriment ratio of a trust
o Quantitative – Oppenheim test – does it exclude people based on some personal tie or elitist characteristic. It must be for the „benefit of the community or an appreciably important class of the community‟ (Verge v Somerville). A class of ultimate beneficiaries under a proposed charitable trust linked by „blood, contract, family, association membership or employment‟ does not constitute the „public‟ for the purposes of the public benefit test (Oppenheim v Tobacco Securities Trust Co Ltd – here the class was dependent upon employment with the Tobacco company; even though it was a trust for education). What about a trust for genetic disabilities where all are related? Strathalbyn says that there is a public benefit for such a trust. A request that family members get preference is ok. Public benefit is usually presumed in the first three heads of charity, subject to contrary evidence, but it must be positively established under the fourth head. Trusts for the relief of poverty are an exception to the public benefit requirement.
1. Trusts for the Relief of the Poor, Aged and Impotent
Relief of Poverty Poverty = „anyone who in the normal acceptation of life has to “go short” in the ordinary acceptation of the term, due regard being had to their status in life‟ (Re Coulthurst). Going short = necessitous circumstance – an inability „to obtain all that is necessary, not only for a bare existence, but for a modest standard of living n the Australian Community‟ (Ballarat Trustees Executors v Federal Commissioner of Taxation). Relief connotes „necessity‟, synonymous with „benefit‟. An intention to relieve may be readily apparent (Muir v Open Brethren), or the court may infer an intention to relieve poverty from the wording of the gift. In Downing v Federal Commissioner of Taxation, a gift for the „amelioration of the condition of members or exmembers of the defence forces‟ was held to evince an intention to relieve poverty.
Relief of the Aged (need public benefit) A trust for the relief of the needs attributable to old age is prima facie charitable. The higher the threshold age, the more likely it is that the settlor intended to relieve the disabilities of age (Owners of SP 39204 v Sutherland Shire Council). The charitable status of retirement homes and villages that do not generate private profit for individuals, carry the inference that the gift is intended for the relief of the aged (D V Bryant Trust Board v Hamilton City Council).
Relief of Impotence (need public benefit) Impotent = physically weak, disabled or helpless. Gifts for hospitals and like institutions that do not generate private profit for their owners are charitable under this head (Le Cras v Perpetual Trustee Co Ltd – trust for St Vincent Private Hospital was charitable).
2. Trusts for the Advancement of Education
Educational Purposes Requires the requisite element of public benefit. Educational purposes are not restricted to the conventional idea of classroom teaching but extend to all branches of human knowledge and its dissemination (spreading). ‘Advancement’ of Education Advancement includes the establishment, maintenance and contribution to educational institutions, establishing teaching positions, and providing scholarships ad academic prizes for students. Zoological, botanical gardens, museums and art galleries, public libraries and observatories are also educational charities. Research having as its object the increase of useful knowledge comes within the advancement of education (Taylor v Taylor – a trust for the „advancement of scientific research generally‟ was upheld). Trusts for medical research have also been upheld as valid charitable trusts. Will not be valid if the subject of the research is useless (Humelton). If a sport is attached to an educational institution, it will be a valid trust for the advancement of education.
Public Benefit and Education The „public‟ element is absent where the nexus between possible ultimate beneficiaries is their relationship to a single propositus or several propositi, in which case those beneficiaries are neither the community nor a section of it (Oppenheim v Tobacco Securities Trust Co Ltd). The „benefit‟ element will be absent where the evidence shows that there is unlikely to be any benefit attaching to the gift in question (Re Pinion).
Cemeteries and Tombs The provision of facilities for worship is a valid charitable purpose. Public benefit Requisite public benefit must be met. Trusts for Other Purposes Beneficial to the Community 44 . the court will generally presume a public benefit unless contrary evidence is established. Religious Buildings. in pastoral or missionary ways. saving legislation is usually applied here. Where the gift is construed as virtute officii (a gift to a person for the time being by virtue of the church office that person holds) the court must determine whether the purposes for which it is to be applied are exclusively charitable.3. It cannot be a mere parody or sham. Trusts for the Advancement of Religion The Meaning of ‘Religion’ According to Church of the New Faith v Commissioner of Pay-roll. spread its message. and take some positive steps to sustain and increase religious belief. Gifts to church offices to which „superadded words‟ are attached. the legal definition of religion involves: o Belief in a supernatural being. thing or principle. ‘Advancement’ of Religion Must advance religion to be valid. However. and o The acceptance of cannons of conduct in order to give effect to that belief. such as „church purposes‟. Gifts to Religious Officials Gifts for the provision and maintenance of clergy are charitable. and a religion cannot involve beliefs or activities that are contrary to the law or public policy. If the purposes are found to be religious in nature. Broad scope – does not have to be a recognised denomination. involve the court determining whether these words broaden the scope of the gift so as to encompass non-charitable purposes. and also the view that religion itself generates benefit to the public. To advance religion = to promote it. This assumption reflects the courts‟ reluctance to assess the comparative worth of different religions. 4.
or some section of it. Relief of Distress The relief of human distress is a valid charitable purpose. Locality Cases A gift with reference to a particular district or locality is generally considered charitable as importing the necessary element of public benefit even though a specific purpose is not stated.g. In the leading Australian case of Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation. Thus gifts to animal welfare organisations for the protection of animals are valid. Trusts for the preservation of native fauna are charitable on the ground that a real and substantial benefit will accrue to the community from saving indigenous wildlife from the encroachment of human activity‟ (Attorney-General (NSW) v Sawtell). Gifts for institutions providing emergency services may also be valid under this class. E. as are gifts to establish and maintain homes for homeless. stray or unwanted animals. Trust for the „benefit of animals generally‟ is not charitable because it is not for the benefit of the community served by benevolence towards animals (Murdoch v Attorney-General (TAS)).Two-Stage Test Dispositions under the fourth head of charity must satisfy a two-stage test as a prerequisite of validity: 1. often arising out of natural disasters and wars (Re Darwin Cyclone Tracy Relief Trust Fund). the purpose in question must be beneficial to the community. and was within the spirit of the Preamble because „the sustenance of the law is a benefit of a material kind which ensures for the benefit of the whole community‟. sick. and 2. the purpose must fall within the spirit of the Preamble of the Elizabethan Statute of Charitable Uses 1601. on the assumption that they promote personal and public morality by curbing inborn tendencies to cruelty (Re Wedgwood). 45 . not private individuals (Monds v Stackhouse). gift for the beautification of a locality is for the edification and enjoyment of the community as whole. The Protection of Animals Trusts of this nature are generally upheld as charitable. Barwick CJ reasoned that „the production of law reports is…beneficial to the whole community because of the universal importance of maintaining the socially sustaining fabric of the law‟.
Promotion of Safety and Protection of the Country This is a good charitable purpose. gifts for the recruitment. On the other hand. this in the context of a gift for the promotion of sport or recreation at an educational institution (Kearins v Kearins – fostering Rugby at Sydney Uni was a valid charitable trust as it has the effect of promoting education in the wide sense). e. Nor is a trust for mere recreation. a trust expressed to be for both charitable and noncharitable purposes is regarded as non-charitable. o It represents a public recreational facility. hospitality and entertainment (Williams Trustees v Inland Revenue Commissioners). o It is validated pursuant to statute. Recreation and Sport A trust for mere sport is not charitable (Royal National Agricultural and Industrial Association v Chester). This is because it is difficult for the Court to determine whether a proposed change in the law will or will not be for the public benefit (Bowman v Secular Society Ltd). A political purpose trust will be valid only where the political purpose is ancillary or incidental to an established charitable object. 46 . The relief for the benefit of Australian aborigines is a example of a gift that may carry the inference that its aim is the relief of human distress – a group judicially described as „in need of protection and assistance‟ (Re Matthew (deceased)). trusts for the promulgation of political views or agitation for legislative change are invalid. training and improvement in the efficiency of members of the services and police offies are charitable (Inland Revenue Commissioners v City of Glasgow Police Athletic Association).g. Most commonly. activities of a recreational character are not viewed as advancing religion merely because they are conducted by a religious organisation (Attorney-General v Cahill). A gift for sport or recreation may be upheld where: o It is incidental or pursuant to an accepted charitable object. Mixed Charitable and Non-Charitable Purposes Apart from saving legislation or severability. such as education (Attorney-General v Ross – where attached to an educational institution). Political Purposes Generally.
The High Court held that when viewed in the context of the constitution as a whole. So long as there is a general charitable intention. Alternative Purposes – the legislation severs the non-charitable purpose („blue pencil‟ approach). will be validated where its object is so predominately charitable as to evidence a charitable intention on the part of the settlor. E. gifts expressed to be for charitable or alternatively noncharitable objects. Saving Legislation In NSW. the associations objects included the maintenance of philanthropic agencies. 47 . In Congregational Union of NSW v Thistlethwayte. will generally be upheld (Smith v WA Trustee Executor & Agency Co Ltd – „charitable institutions. and the preservation of civil and religious liberty.Gifts for Purposes of Associations This depends on the objects and activities of the association. in Re Ashton the court saved a gift of a church „to help in any good work‟ by restricting the application of the trust funds to „good and charitable work‟ – charitable purposes. bodies and organisations‟. Gifts that an be construed as specifying cumulative requirements in addition to a charitable object. will fail (Chichester Diocesan Fund and Board of Finance v Simpson – trust for „charitable or benevolent purposes was invalid). Application to Associations – a trust for institutions whose objects are predominately charitable may be saved from failure – in Leahy v Attorney-General (NSW) a gift „to orders of nuns‟ was saved by confining it to orders of nuns considered charitable in law. where charitable was construed as qualifying each of the following words). Vague and uncertain expressions that disclose no general charitable intention are not saved by the legislation. s 23 Charitable Trusts Act 1993 (NSW) addresses the problem of mixed charitable and non-charitable purposes – the trust is construed as giving effect only to the charitable purposes. If its main purpose is charitable the association is a charity – thus courts have to distinguish the main from the ancillary or incidental. these noncharitable objects were ancillary to the association‟s religious objects – the constitution was construed by the court in a way that suggested the maintenance of philanthropic agencies needed to be conducive to the achievement of its main religious object. no invalid purposes should be deemed to have been directed or allowed. such as „benevolent purposes‟.g. Alternative and Cumulative Expressions Except where validated by legislation. Compendious Purposes – a gift involving an expression that connotes charitable and noncharitable purposes.
General charitable intention is a prerequisite for a cy-pre`s application in such cases. 48 .Enforcement of Trusts Cy-pre`s Schemes Where the intended purpose of a trust is impossible. The cy-pre`s doctrine does not apply where: o The trust instrument makes provision for the use of the property in the event of failure of the particular purpose. a gift may be applied to a successor institution. However. Where an institution existed at one time but has since disappeared. Under s 10 of Charitable Trusts Act 1993 a general charitable intention is presumed unless there is evidence to the contrary in the instrument creating the trust. best to start with this presumption in an exam. Trusts for Non-existent Institutions A gift to a specified charitable institution which never existed will lapse absent a general charitable intention that enables it be applied cy-pre`s (Re Davis). By setting a cy-pre`s scheme. impractical or illegal. it is possible for the court to apply the available funds to objects that are as near as possible to the testator‟s original intention.g. the question arises as to the destination of the trust fund. This requires the court to find a purpose wider than the execution of a specific plan involving the direction that has failed. the gift will lapse in the absence of a general charitable intention – this may be difficult to import where a specific institution is identified carefully as the institution to receive the gift (Re Mills). in which case the most appropriate course for the trustee is to seek directions from the court to apply the fund to the institution intended (Re Chanter). Initial Failure – General Charitable Intention This is where a testamentary charitable trust is impossible or impracticable to carry out as at the date of the testator‟s death – e. o The evidence indicates that the testator has misdescribed the institution the subject of the gift. an intention more general than a bare intention that the failed direction be executed (Attorney-General (NSW) v Perpetual Trustee Co Ltd). there must be a general charitable intent. where the charity doesn‟t exist or it‟s not possible to use the property for the intended purpose or there is no trustee. Again. if there is a specific intent that it is assumed that the settlor intended the funds to return to him/her if the institution did not exist.
thus legislation was introduced Charitable Trusts Act 1993 (NSW) ss 9-11. o To pass to the Crown.Subsequent Impossibility Where a valid charitable trust has become impossible or impractical after it has commenced its operation. A general charitable intention is presumed absent evidence to the contrary in the trust instrument. In NSW. the situation may be different (IRC v McMullen). where an intention to donate outright + a general charitable intention can be inferred. not due to any general charitable intention (Re Slevin). parks and gyms for working people was held to charitable as the dominant object was the health and welfare of the working classes + the working classes were a sufficient section of the public to meet the public benefit 49 . S 12 Charitable Trusts Act provides the A-G power to approve cy-pres scheme where property < $5500 Public Appeals – Excess Moneys Where money donated exceeds what is required to fulfil that charitable purpose. Statutory Cy-Pre`s Court do not have an unrestricted cy-pre`s jurisdiction. the court can provide an administrative scheme. the court will apply its property cy-pre`s. if the trust is to encourage sport for some charitable end or if the trust will establish sporting/recreational facilities which will benefit the public. Thus. Administrative Schemes Where a donor has made a gift for charitable purposes but has failed to specify a means by which it is to be applied. the law recognises three possible option for the destination of that excess money: o To revert to the donors. This is because the gift has already become the subject of charity. o To be applied cy-pre`s. bona vacentia. Ss 12-22 confers upon the Attorney-General a limited power to settle cy-pre`s schemes. via the resulting trust. In Re Hadden a trust for the establishment of fields. This applies where the court concludes that the donation was for the specified purpose only. in proportion to their contribution. Strathalbyn Show Jumping Club Inc v Mayes Sport – the general rule is that trusts for mere sport will not be charitable (Re Nottage). no proof of a general charitable intention is required in the case of subsequent impossibility. Yet. the A-G may settle administrative schemes in circumstances prescribed by statute: Charitable Trusts Act 1993 (NSW) ss 12-22.
Thus. and trusts for the provision of sporting facilities that will benefit the public. A trust for the establishment of a sports ground or recreational facilities will be charitable. or as an adjunct to some other charitable purpose. „If an additional charitable flavour can be detected amongst the objects. benefit of locality.test. so that they form a section of it. 50 . Sport principles: At common law. or for the promotion of the general health and welfare of a sector of the community. the quality that distinguishes the class from other members of the community. Public Benefit: If the trust were charitable in the Elizabethan sense. provided that it is for use by the community at large or is of general public utility. unless it is part of or as an adjunct to a broader educational purpose. The difficulty in most cases is determining whether there is a sufficient element of public utility. distinction between trusts for the promotion of sport. a trust merely for the promotion of sport will not be a valid charitable trust. must be a quality which does not depend on their relationship to a particular individual. Re Hadden said that a trust to establish a sporting or recreational facility that can also be said to have some public benefit will be a valid charitable trust. Beneficiaries must not be numerically negligible. or a section thereof.g. it would have to be for the benefit of public. so much the better‟ e. The members of a private club or association will not form a relevant section of the community to satisfy the test of public benefit.
otherwise the trust disappears as the separate legal and equitable estates merge. This is the highest form of equitable interest you can have. small estates and act as trustee of estates of mentally incapacitated persons (Public Trustee Act 1913 (NSW)). Bare Trustees A bare trustee – person who holds the property on trust for the absolute benefit and at the absolute disposal of beneficiaries who are of full age and capacity. and has no further duty to perform in respect of that property other than to convey it upon demand to the beneficiaries or as directed by them (Herdegen v Federal Commissioner of Taxation). but a sole beneficiary cannot be a sole trustee. The presence of active duties of management distinguishes „active‟ from „bare‟ trustees – but this should not be applies to rigidly (Herdegen v Federal Commissioner of Taxation). As well as acting as executors and administrators of estates and the trustees.Week 12 Trustees Capacity to Act as Trustee Persons legally capable of holding property in their own right have the capacity to be a trustee. 51 . Types of Trustees Trustee Companies Trustee Companies Act 1964 (NSW) governs the creation and operation of „trustee companies‟. A beneficiary can act as a trustee. trustee companies‟ main role concerns the investment and management of funs on behalf of clients. A company may act as a trustee – „corporate trustee‟. but has no interest in that property other than by reason of legal title as trustee. A trust is not invalidate if a settlor attempts to vest property in a person who cannot legally hold it. Public Trustees The Public Trustee is empowered by statute to administer wills. as equity will not allow a trust to fail for want of a trustee – the court will appoint another trustee. Appointment of Trustees Trustees can be appointed to replace or increase the number of trustees pursuant to: o The terms of the trust instrument.
Appointment Pursuant to Statutory Power Absent a power to appoint trustees in the trust instrument. o Desires to be discharged. o Remains out of the State/Territory for >12 months. make an order appointing new trustee/s either in substitution for or in addition to any existing trustee/s. „Appointor‟ = the person under the trust instrument who has the power to appoint. giving effect to the maxim that „a trust will not fail for want of a trustee‟. or is unfit to act (e. or serious prolonged illness (Re Weston’s Trusts). 52 . or o Is removed under a power contained in the trust instrument. o The surviving trustees. Such a provision takes precedence over statutory powers to appoint trustees. trustees. whenever it is expedient to appoint a new trustee/s. Appointment by the Court The court has jurisdiction to appoint new trustees due to its general supervisory jurisdiction over trusts. difficult or impracticable to do so without the assistance of the Court. is incapable due to unsound mind (Re East). Persons who may make the order are: o Those nominated in the trust instrument. o The court. refuses to act. S 70 provides that: o „the Court may.o Statute. and it is found inexpedient. Appointments can be made where the outgoing trustee: o Is dead. o Has committed a serious breach of trust or neglect of duty (Willis v Stephens) or engaged in a conflict of interest and duty (Monty Financial Services v Delmo). and usually remove. and o The personal representatives of the last or only surviving trustee.g. or although there is no existing trustee‟. Appointment Pursuant to the Trust Instrument Trust instruments commonly include a provision that governs the occasions and manner of appointment of new trustees. by becoming bankrupt – Re Turner). the trustee legislation prescribes the circumstances in which appointments can be made and the persons who may make that appointment (s 6).
53 . The identity of the new trustee/s will be impacted upon by three considerations (Re Tempest): o Whether the settlor has expressly or impliedly shown who he/she wishes to act as trustee. In NSW (s 6(5)(b)). Examples of situations justifying an appointment on the grounds of „expediency‟ include: o Where no trustee was appointed or capable of acting (Re Lemann’s Trusts). o Where there was animosity between the trustees (Letterstedt v Broers). There is no limit on the number of trustees that may be appointed pursuant to an express power of appointment. or the court may appoint a trustee in his/her place. Number of Trustees The original number of trustees need only be maintained if the instrument so directs (Re Mayne). If a sole trustee disclaims. but may leave under the retirement provisions. Retirement of Trustees Trustees may retire from a trust: o Pursuant to a provision of the trust instrument. The wishes of the settlor are given great weight. o Whether the proposed appointee will represent the interests of all the beneficiaries – appointees can‟t be aligned with one of the beneficiaries (Australian Olympic Committee v Big Flights Inc) or biased against one or more of the beneficiaries (Wallace v Wallace). the trust property revests in the settlor as trustee until the appointment of a new trustee (Mallott v Wilson). In making the appointment and determining the identity of the new trustee/s. the statutory power to appoint cannot be used to increase the number of trustees beyond four. The disclaimer must be of the whole trust and must be within a reasonable time after appointment. A trustee who accepts the office cannot disclaim. Disclaimer by Trustee A person appointed as trustee may disclaim the trust office before doing any act or performance amounting to the acceptance of that trust (Lady Naas v Westminster Bank Ltd). preferably in writing (Re Lord and Fullerton’s Contract). the court‟s dominant consideration is the welfare of the beneficiaries (Miller v Cameron) – this involves consideration of the safety of the trust property and the interests of the beneficiaries. o Whether the proposed appointment will promote the execution of the trust. but the Court is not bound to follow them (Re Wilson). o Where the trustee was under a legal disability (Re Shelmerdine).
o Pursuant to statutory provisions concerning the replacement of trustees.g. o By the court. Removal of Trustees Often proceedings to appoint new trustees are concurrent with efforts to remove a trustee. infancy or where the trustee is carrying on the testator‟s business at a loss (Will of Phillips). The court will remove a trustee whose breach amounts to negation of the trust. the „welfare of the beneficiaries‟ principle will be offended and the court may order removal (Titterton v Oates). efficient execution of trust and a faithful and sound exercise of powers (Miller v Cameron). or whose conduct is likely to jeopardise the security of trust property. 54 . had a confrontational approach and tolerated delay) had a „cumulative effect on the disintegration of the trustee‟s capacity to carry out their duties‟. Friction between Trustees Where friction between trustees or beneficiaries and trustees has become obstructive to the administration of the trust and there is no prospect of improvement in the future. Removal by the Court The welfare of the beneficiaries is the dominant consideration here – consideration of the security of the trust property. or where there is evidence that the trust will not be properly executed in the interests of the beneficiaries. o With the consent of the court e. or where the other trustee consents – s 8. \grounds of sickness.o Pursuant to trustee legislation – provided there are 2 trustees left (or a trustee company). but the beneficiaries cannot direct the continuing trustees to appoint a new trustee. pursuant to its inherent jurisdiction to administer trusts. Breaches of Trust Breach of trust doesn‟t necessarily result in the court ordering the removal of the trustee (Quinton v Proctor). In Craven-Sands v Koch the court ordered the removal of trustees where the evidence (trustees had written blank cheques. o With the consent of all beneficiaries being of full legal capacity. Thus trusts may be removed: o Pursuant to an express power in the trust instrument. which will be strictly construed (Werner v Boehm). lost records.
they enable a trustee to act in a certain way. financial distress. the trustees had failed to recognise this conflict and take steps to ensure that their interest should not prevail as against their duty. This may include taking proceedings against a co-trustee. the court will only remove in a situation where allowing that person to continue as trustee endangers the security of the trust property (Monty Financial Services Ltd v Delmo). the trustees had disregarded the interests of infant beneficiaries. or absence for a prolonged period.g. In Hunter v Hunter the court ordered removal where the evidence shoed that there was a conflict between interest and duty. a former trustee of a third party who is liable to redress a breach of trust or otherwise owes a present liability to the trust. Duties. a trustee becomes subject to the duties and acquires the powers and rights that attach to that office. Powers = facultative. If it is evident that the settlor/testator had contemplated the conflict of interest in appointing that person as trustee. they compel or prohibit a trustee from acting in a certain way. and a state of hostility existed between the trustees and the immediate possessor of the trust estate which worked against the interests of te trust. Incapacity of the Trustee Courts have removed trustees by reasons of incapacity e.Potential Conflict of Interest Conflict of interest carries considerable weight. but leave a discretion as to whether and how he/she should act. disappearance. 55 . The rights of trustees are mainly prescribed by general law but can be excluded by contrary provisions in the trust instrument. Powers and Rights of Trustees Upon accepting office. Trustee must ensure that the documents of title are kept in a safe place and safeguarded from unauthorised access or use. Duties = imperative. Duties of Trustees Basic Duties Trustees must first ensure that the property is brought under their control and vested in them. In Hackett v Hackett a trustee was removed by reason of drunkenness + financial difficulties and a general disregard of the interests of the trust.
o Accounts that substantiate revenues and expenditure in respect of the trust. o An illegality will occur as a consequence of obedience. A trustee will not be bound to carry out the terms of the rust instrument where: o Unanimously directed by absolute beneficiaries of full age and capacity. age. o The deviation is sanctioned by the court. o Separate income and capital accounts. Beneficiaries Right to Information Beneficiaries are entitled to full information regarding the trust property. Duty to Account and Provide Information Duty to Account’ A trustee must account to the beneficiaries for transactions carried out by the trust in a timely. Trustees must familiarise themselves with the terms of the trust deed and carry out their obligations dutifully so as to give effect to the settlor‟s intention. o A schedule of trust property. Professional trustees. No Right to Reasons Trustee has no duty to explain how the trust is managed or reasons for particular decisions – such a duty would add to the trustee‟s already onerous obligations and might embitter the relationship 56 . faithful and accurate fashion – reduce likelihood of breach of trust. Standard of Care That of an ordinary prudent business person (Re Speight). S 14A Trust Act imposes higher standard for trustee companies – the standard of care required is that which a prudent person engaged in that profession would exercise in managing the affairs of others. to be furnished fully and not reluctantly by the trustee (Re Fairbairn). address and marital status of beneficiaries. This duty generally requires: o Accurate and timely information regarding the name. may be subject to a higher standard of care because they hold themselves out as having special expertise and charge for their services (Bartlett v Barclays Bank Trust Co Ltd). like trustee companies. o Statute or court order warrants this departure.
if plaintiff puts forward a prima facie case that the trustees‟ discretion has miscarried. Documents prepared by trustees for their own purposes that would not be required to be handed over to the beneficiaries on the winding up of the trust are not „trust documents‟ (Hartigan Nominees v Rydge). The court may infer confidentiality in respect of certain information pertaining to the trust. No Right to Non-trust Documents Beneficiaries‟ right to inspect is limited to „trust documents‟ which are characterised by the following (Re Londonderry’s Settlement): o In possession of the trustees in their capacity as trustees. Duty to Administer the Trust Personally Fettering Discretion Trustees cannot commit themselves in advance as to their future conduct as trustees. In terms of legal proceedings. however. 57 .between trustees and beneficiaries or the beneficiaries themselves (Re Londonderry’s Settlement). in Re Stephenson’s Settled Estates the court held that it was a breach of trust for trustees with a power of sale to enter into a contract binding them to sell the trust property for a fixed price at a specified future. Trustees must not permit others to dictate to them the manner in which their discretion ought to be exercised unless the trust instrument requires them to consult such persons (Re Brockbank). Disclosure Inconsistent with Settlor’s Intention The beneficiaries‟ right to information may be ousted by the trust instrument (Hartigan Nominees v Rydge). o Beneficiaries have a proprietary interest in the documents. not some time prior.g. where it can be discerned that the trustee receives it in circumstances attracting a duty of confidentiality. o Contain information about the trust which the beneficiaries are entitled to know. the absence of reasons and the absence of any evidence before the court as to what happened will tend to make that prima facie case a „virtual certainty‟ (Maciejewski v Telstra Super Ltd). They must not bind themselves contractually to exercise a power in a prescribed manner – must make decisions that are in the best interest of the beneficiaries at the time the diecison is made. E.
agents are employed merely to carry out or implement decisions properly taken by the trustees. discretion ad authority. either to a co-trustee or a third party Delegation is permitted where the trust instrument allows it. Agents may be appointed where the trust instrument. a majority vote instead. authorities and discretions arising under the trust. Charitable trusts require only a majority vote. Thus. trust business can only be transacted at a meeting of all trustees. the general law or statute permits this. As stated in Re Speight: „a trustee may not appoint an agent where he should do the work himself.Duty Not to delegate and its Exceptions The duty to act personally prohibits a trustee from delegating the exercise of his/her powers. Fiduciary Duties The relationship between trustee and beneficiary is fiduciary. Appointment of Agents under Statute Trustee legislation allows agents to be appointed (s 53). but he may employ an agent where…it is in the ordinary course of business to use others. The trustee will not be responsible for the default of an agent employed in good faith. The trust instrument may provide otherwise – e.g. Appointment of Agents Unlike delegates. If the relevant care is taken. thus. who actually exercise the trustee‟s power. and if he runs no needless risk in doing so‟. Care must be taken in selecting and supervising agents in the work they undertake. Appointment of Agents at General Law At general law a trustee may appoint agents (such as lawyers. trustees are subject to the dual fiduciary rules of „no conflict‟ (the trustee must refrain from engaging his/her own interests in 58 . accountants etc) to assist him/her in the performance of his/her duties and powers were this is necessary for practical reasons. Unanimity in Trustee Decision Making Rule of trustee unanimity provides that trustees of private trusts must agree unanimously to any course of action (Luke v South Kensington Hotel Company). the trustee is not liable for losses incurred by the agent (Re Speight).
3. therefore.any activity that may conflict with the duties as trustee) and „no profit‟ (the trustee may not take an unauthorised profit from the trust) – designed to ensure loyalty to the trust. The court will construe any such clause strictly. A remunerated trustee may be subject to a higher standard of trusteeship than a gratuitous trustee. which. will be grounds for its setting aside (Re Douglas). Court-Awarded Remuneration The court may allow remuneration where the work is time-consuming and the remuneration is required to ensure proper services are obtained from the trustee (Re Queensland Coal and oil Shale Mining Industry). Trustee’s Remuneration A trustee who is renumerated prima facie profits from the position of trustee. The purchase of trust property by a spouse. There must be clear agreement. if not rebutted. consent being in writing. Purchase of Trust Property by Trustee (‘Purchase Rule’) The purchase or lease of trust property by a trustee is generally prohibited because it places the trustee‟s personal interest in conflict with his/her duty to the beneficiaries. Remuneration Pursuant to Express Provision in the trust Instrument A charging clause may be inserted for this purpose especially where the trustee is a professional (such as a solicitor or an accountant). Courts will be wary where there is evidence of the slightest unfairness or undue pressure. Any such transaction is treated in equity as voidable at the instance of the beneficiary. There are three situations where the trustee will be allowed remuneration: 1. and raises the possibility that the trustee could derive an advantage over third party purchasers by reason of his/her knowledge of the property. Remuneration Pursuant to a Valid Agreement between Trustee and Beneficiaries Applies where beneficiaries are of full age and capacity and where the agreement provides that the trustee is to be paid for his/her services. 2. 59 . close relative or associate of the trustee raises the presumption that it is for the trustee‟s own benefit. the payment of remuneration is generally precluded. with fully informed beneficiaries.
and using information received in the capacity of trustee (Gould v O’Carroll). the trustee must make the trust productive in the interests of the income beneficiaries. statute or court order. Exceptions to the Purchase Rule Trustee may purchase trust property where: o All beneficiaries (fully informed. Duty to Invest Trustees must invest trust moneys even where the trust instrument does not direct them. Duty to Act Impartially The trustee must not act so as to favour one class of beneficiaries at the expense of another. This duty is particularly important where there are beneficial interests in succession. i. E. but not risk capital to secure a higher return of income. o Provision in trust instrument allows this. To ensure fairness between income and capital beneficiaries. as this would have benefited the persons in remainder to the detriment of the income beneficiaries – even though a majority of the income beneficiaries agreed to the proposal.g. such discretion is circumscribed by the ordinary prudent person standard of care. 60 .Purchases Prior and Subsequent to Appointment Trustee‟s retirement from the rust for the purpose of purchasing or leasing trust property is subject to the purchase rule because the decision to purchase or lease was been taken whilst acting as trustee. at the termination of their interest.e. in Re Zimpel the court directed trustees to not to accept a recommendation that would have changed that would have changed the nature of the trust funds from income to capital. Maintenance of separate income and capital accounts is mandatory in this case. Trust Instrument If a trust instrument gives the trustee power to invest „upon such investment as to them seem fit‟. o The court approves the transaction – requires evidence of exceptional circumstances. This duty must be exercised by the trustee in the manner authorised by the trust instrument. where the trustees hold property on trust to pay income to income beneficiaries and. The courts are alert to schemes that effect an imbalance between income and capital beneficiaries. transfer the corpus to persons in remainder. full age and capacity) consent to the acquisition and the acquisition occurs at arm‟s length for a fair price (Williams v Scott).
unless expressly prohibited by the trust instrument. trustees must be concerned primarily with the financial advantage to the trust. Statute S 14 Trustee Act 1925 (NSW) provides that a trustee may. and that as a result the trust 61 . and that a quantifiable loss to the trust estate has resulted from this (Nestle v National Westminster Bank). Court – pursuant to ‘expediency’ jurisdiction Likely to arise only where the trust deed expressly prohibits certain investment avenues available to the trustees. Maintenance of the ‘Real’ Value of the Trust Fund In order to maintain an action for breach of trust. diligence and skill that a prudent person of business would exercise in managing the affairs of others‟. The ordinary prudent standard of care operates both to prevent speculation by the trustee and to make the trustee personally accountable for failing to actually invest trust moneys for the purpose of ensuring a return. Where the subject of a profitable investment would be inconsistent with the views on moral and social activities strictly held by adult beneficiaries. invest trust funds in any form of investment. This situation is most likely to arise in the context of charitable trusts. the beneficiaries must prove that the trustees made decisions regarding investments that would not have been made by an ordinary prudent business person. in carry out their duty to invest (Cowan v Scargill). and vary such an investment at any time. the standard of care required is that which a prudent person engaged in that profession would exercise in managing the affairs of others. This power is controlled by the general law standard of care: „a trustee exercising any power of investment shall exercise the care. it may not be for the „benefit‟ of those beneficiaries to know that they are receiving larger financial returns under the trust by reason of investment in those activities than they would have received by investing in other investments. Trustees must put then own personal interest asides. The opinions of beneficiaries cannot justify an investment strategy that reduces financial advantage to the trust. Thus. In the case of a professional trustee. Investment for Financial Advantage of the Trust Subject to provisions in the trust deed. Where it is clear that the trustees‟ failure to adopt an appropriate investment strategy is not consistent with the standard of an ordinary prudent business person. the list of authorised investments has gone.
confer upon trustees the necessary power to effect a transaction that could not otherwise be effected by reason of the absence of a power for that purpose in the trust instrument. pursuant to their jurisdiction to act for reasons of ‘expediency’. An underpaid beneficiary may sue the trustee for breach of trust. This must be exercised in accordance with the purpose for which it was conferred and it must not be exercised irresponsibly. statute or the court. whether of fact or of law. in order to fulfil the good faith and real and genuine consideration requirements (Karger v Paul). a trustee should be able to sue a beneficiary under the law of restitution to recover an overpayment made by mistake. For example. Trustee’s Discretion The exercise of most powers contained in trust instruments is at the discretion of the trustee. Court’s Assessment of Trustee’s Discretion 62 .estate has suffered a quantifiable loss. Trustee Act also confers powers. Powers of Trustees Powers must be exercised within the trustee‟s scope and authority. It may also be possible for an underpaid beneficiary to pursue an action in personam against an overpaid recipient if the trustee cannot meet the liability. Such provisions usually contain a provision specifying that the power so conferred is subject to the trust instrument. However. leaving the execution as effective as it may be. the trustees will be liable to compensate the trust fund for that loss whether or not the real value of the fund has been maintained. a trustee cannot recover in a personal action against the beneficiary (Merriman v Perpetual Trustee Co). charity trustees will be vested with a different range of powers than trustees of private trusts. Courts may. and the trustee is liable to make the loss caused by the wrongful payment. Duty to Pay Correct Beneficiaries If a trustee overpays a beneficiary he/she is required to recover the overpayment from the overpaid beneficiary‟s share remaining in the trust estate or from future receipts of income to which that beneficiary would otherwise be entitled. Sources of Trustees’ Power Common for trust instrument to specify extensively the various powers of the trustee. capriciously or wantonly. The powers conferred will reflect the nature and duration of the trust created. a testamentary trust calls for less extensive powers than an inter vivos trust. Powers are conferred upon trustees by the trust instrument. Excess exercises of power are severable. Nevertheless.
Nature of the Right 63 . otherwise they would fetter the trustee‟s discretion. instead of expending their own funds and subsequently seeking reimbursement. carelessness or gross negligence in a trustee exercising a discretion ≠ bad faith. Rights of Trustees Right to Indemnity and Recruitment As the legal owner of the trust property. Views of Beneficiaries Beneficiaries cannot direct trustees in the performance of their trust (Re Brockbank). The court may intervene where it is satisfied that the trustee has not given real and genuine consideration to the exercise of the discretion e. and relies on directions of others regarding the trust estate. Fraud. Heavy onus lies upon person seeking review of a trustee‟s decision – otherwise. who usually undertakes heavy responsibilities for no financial reward.g. The court may also substitute its own decision for that of the trustee where it is established that the trustee is unlikely to properly fulfil the relevant duty (Minehan v AGL Employees Superannuation Pty Ltd). the trustee. Court will set aside an errant exercise of discretion. Honest blundering. where a trustee does not familiarise him/herself with the trust deed. Court will examine evidence of the trustee‟s inquiries. the absence of fair consideration of the issues. the information he/she had. and refraining from further inquiry for fear of confirming a suspicion that something is wrong = bad faith. making a decision for an ulterior motive. so doesn‟t even know that there is a discretion to exercise. does not exhibit real and genuine consideration (Turner v Turner). a trustee is personally liable for debts he/she incurs in performing the trust. A court will only interfere with a discretionary decision of a trustee where bad faith can be shown (Karger v Paul). would be burdened. and the reasons for/manner of the exercise of the discretion. Because trustees manage the trust property for the benefit of beneficiaries. and direct the trustee to re-exercise the discretion correctly. they can indemnify themselves out of the trust property to satisfy the debts incurred on the trusts behalf (Vacuum Oil Co Pty Ltd v Wiltshire + s 59 Trustee Act).
the latter is only exercised once the trustee. A right to proceed against a beneficiary personally for recoupment. A „mere slip‟ or „error of judgement‟ will not prevent an expense from being properly incurred (Nolan v Collie). Must be properly incurred – improperly incurred expenses or liabilities do not come within the right of indemnity but fall on the trustee personally. The fact that the trustee‟s right to indemnity represents an equitable proprietary interest with priority over the claims of the beneficiaries. and 2. such as rates and taxes. 64 . therefore. A right of indemnity against the trust property. there must be a check on those expenses and liabilities. If trustee deliberately acts in breach of trust. in situations where the trustee is out of pocket as a result of the management of the trust property – until the charge has been satisfied (Octavo Investments Pty Ltd v Knight). o A successor trustee with notice takes the trust assets subject to any unsatisfied charge. expenses will be improperly incurred (the trustee may still be personally liable to the contracting party of an unauthorised agreement. are (prima facie) properly incurred (RWG Management Ltd v Commissioner for Corporate Affairs). Expenses Subject to the Trustee’s Indemnity The beneficiaries are effectively meeting the trustee‟s expenses and liabilities. In practice. deny the equitable ownership of the beneficiary in whom the trust fund is vested in interest and possession (Arjon Pty Ltd v Commissioner of State Revenue). who takes the trust property subject to the right of indemnity of the former trustee. will take priority over the beneficiaries equitable interest. has exhausted the right to indemnity out of the trust estate (J W Broomhead). however. o The trustee‟s creditors may be subrogated (entitled) to the trustee‟s charge. For the purposes of enforcing the indemnity. or a person subrogated to a trustee. The equitable charge of the trustee over the trust assets. Enforceability of Right of Indemnity against Beneficiaries Right of indemnity is of 2 types (Hardoon v Belilos): 1. The right is proprietary in nature so it survives the trustee‟s loss of office – the former trustee‟s claim for indemnity would be against the new trustee in whom the trust assets are vested. however). statute or general law. Expenses authorised by the trust deed. and expenses of carrying on the business where this is authorised. means that (Octavo): o The right passes to the trustee in bankruptcy/liquidator where the trustee is insolvent. the trustee possesses a charge or equitable lien over trust assets. This right of the trustee to indemnity does not.
Right to Seek Advice and Directions from the Court S 63 Trustee Act (NSW) vests in the trustee. advice or direction of the court on any question respecting the management or administration of the trust property. If the trustee has placed before the court all relevant evidence such that the court is fully informed as to the matter. or for resolving a contest between the trustees or other parties to the trust – all parties should be heard in regards to these types of issues. 65 . The right of indemnity from the beneficiaries does not accrue to a trustee of a discretionary trust. then the trustee is deemed to have discharged his/her duty as trustee in the subject matter of the application when he/she acts in accordance with the advice or directions of the court. the right to seek the opinion. The procedure should not be used for substantive issues. to secure additional powers for the trustees. because the beneficiaries‟ right is not proprietary. Contrary Provision in the Trust Instrument Trustee Act (NSW) does not make the right of indemnity subject to the trust instrument.
o Constructive trust is imposed on trustee (Chan v Zacharia) o Three main advantages of a proprietary claim.where a trustee uses trust moneys or property. That is. Proprietary . a co-trustee or a successor trustee. failing to act as an ordinary prudent person in the management of trust assets (Re Speight) or.Week 13 Breach and Terminations of Trust Breach of Trust What is a Breach of Trust? An act or omission in contravention of the trustee‟s duties. o any increase of the value of the asset accrues to the beneficiaries. in good faith and for the purposes for which they were conferred. or trust moneys from more than one trust. failing to act as an ordinary prudent person of business (Bartlett v Barclay’s Bank Trusts) Who has Standing to Sue for Breach of Trust? A beneficiary (including a person representing the beneficiary‟s estate). The court may restrict the right of a beneficiary to sue in his/her own name where it is not yet possible to ascertain the identity of all beneficiaries (Fried v National Australia Bank Ltd). or Acting in excess of a trustee‟s powers. o if the asset is transferred to a third party other than a bona fide purchaser for value. proprietary claim.a. Remedies for Breach of Trust Personal or Proprietary/Against Trustee or Third Party? Personal . the beneficiaries may seek redress from the trustee (or a third party receiver) personally for such consequences. the beneficiaries‟ claim is enforceable against that third party. o if the trustee is insolvent. to purchase or improve an asset in the trustee‟s own name (or that of a third party). are: trustee‟s creditors. may sue a trustee who has breached trust. or failing to exercise those powers reasonably.A trustee is personally liable to the beneficiaries for the consequences of breaches of trust – thus. for a professional trustee. or a mixture of trust moneys and his/her own moneys. it allows the beneficiaries to claim the asset in priority to the 66 .k. over a personal claim. the beneficiaries may seek a remedy directly against that asset a.
information or capacity (Attorney-General for Hong Kong v Reid) – e. if there is an increase in the value of the property. if the asset is in the hands of another. the beneficiaries will be entitled at least to a proportional amount of the profits. remoteness. issues of causation. the beneficiaries are entitled to the entire profit.g. do not apply (Re Dawson) – the rationale for this is deterrence of trustee breaches. whether by breach of trust or in the ordinary course of management of the trust. one should seek to make a proprietary claim. Where trust funds are invested profitably n breach of trust. On the other hand. Where the trustee has used both trust money and his/her own money to realise an unauthorised gain. Compensation for Gain that would have been made through Reasonable Diligence 67 . Thus. Allowances will be made for the skill and work of the trustee (discounts will be made to the account of profits) (Boardman v Phipps). the trustee is liable to restore the trust estate to the same position as it would have been had no breach been committed (Target Holdings v Rederns) Connection Test: The relevant test is whether the losses „would have been incurred but for the trustee‟s breach‟ (Bank of NZ v NZ Guardian Trust Co 1999) Different from common law damages. The remedy of account of profits is particularly beneficial to beneficiaries where the trustees have made a profit in breach of trust that could not have been made by the trust of the beneficiaries themselves for lack of skill. where trustees utilise confidential information. if T is bankrupt. A trustee must account to the beneficiaries for any profit made from the trust fund. Beneficiaries will seek an account of profits if they can show that a profit has been made and that the account will yield more than compensation with interest. 3rd party: a personal action against persons who receive trust property as volunteers is available where the distribution was in breach of trust and all possible remedies against the trustee have been exhausted (Re Diplock 1948) Personal Remedies against the Trustee Account of Profits This remedy is an alternative to equitable compensation. S Equitable Compensation for Loss Where a breach of trust has been committed. or if the property remains in the hands of the trustee. etc. one should seek personal remedies against the trustee and/or the 3rd party receiver.
68 . the beneficiaries are entitled to the gain that would have accrued to the trust had the property not been prematurely sold (Re Bell’s Indenture).Re City Equitable fire Insurance Co Ltd. This can also apply to an account of profits. E. A person is in „wilful default‟ only if he/she „knows that he/she is committing. then look to tracing. An award of interest is founded upon stripping a trustee of profits rather than compensating the beneficiary for loss suffered (Wallersteiner v Moir (No 2)). Mere negligence or error of judgement does not amount. Executors and Agency Co Ltd).g. a breach of his/her duty. some degree of moral turpitude is required. and these assets would have profited the trust. or is recklessly careless in the sense of not caring whether his/her act or omission is or is not a breach of duty‟ . o Where T fails to purchase assets and it is his/her durty to buy. and not for those of any other trustee except where these happen through the first trustee‟s own „wilful default‟. neglects or defaults. If there is a mix of trust property and other funds. o If T retains assets that should have been sold. o Where T effects an unauthorised sale of an asset that later rises in value. Interest A trustee who has occasioned loss to the trust estate through breach of trust is liable to make good the loss together with interest (Re Dawson). Look to this remedy where the trustee has used trust property exclusively to purchase another property. Liability for Co-Trustee’s Breaches of Trust – ‘Wilful Default’ S 59(2) Trustee Act provides that a trustee is answerable and accountable only for his/her own acts. the beneficiaries can sue for the gain that would have been made had the duty been fulfilled (Elder’s Trustee and Executor Co Ltd v Higgins). Proprietary Remedies against the Trustee Constructive Trust of Property gained in Breach of Trust An alternative remedy to account of profits. and intends to commit. the beneficiaries may claim compensation for any subsequent fall in value (Hicks v Trustees. Compensation must be made for any gain that a trust fund would have made had the trustee acted with reasonable diligence. receipts.
The legal estate conveyed to the false fiduciary also vests in him. * The recipient of a bribe hols that bribe and the property representing the bribe on trust for the injured person. together with any profits. Attorney-General for Hong Kong v Reid (1994) Facts: Mr Reid accepted bribes in breach of a fiduciary duty owed to the Crown. When a bribe is accepted by a fiduciary in breach of duty. as long as the purchaser is not a bona fide purchaser for value of the legal estate without notice. o o o * Property which a trustee obtains by use of knowledge acquired as trustee becomes trust property. and any bribes and profits which ought to be payed to the beneficiaries. the fiduciary is not entitled to any surplus in excess of the initial value because he/she cannot profit from a breach. If the property decreases in value the fiduciary must pay the difference between that value and the initial amount. A constructive trust can be imposed over property purchased in breach of trust even if the errant trustee/fiduciary has not profited from that transaction. and justifies his claim that the money which they handled or received (and if necessary which they still retain) can properly be regarded as representing his property‟ (Boscawen v Bajwa). Principles: o o o At law. any moneys mistakenly invested by the trustee. the increased value of the property representing the bribe. Tracing Nature of Tracing Tracing is the „process by which the plaintiff traces what has happened to his property. and unlike an express trust it does not create an enduring relationship but is aimed at securing a particular result. the fiduciary who receives the bribes becomes a debtor in equity for the amount of that bribe and also for any benefits. o The bribe and property representing the bribe (or another breach) are held on constructive trust for the person injured. namely. The constructive trust arises at the time the breach occurs – this has implications for priority disputes. he/she holds that bribe in trust for the person to whom the duty was owed. In the event of insolvency of trustee. The fiduciary/trustee remains personally liable for the bribe/breach if the value of that property then recovered by the injured person proved to be less than that amount. and will take priority over interests created later in time. identifies the persons who have handled or received it. In equity. Mr Reid‟s assets include three properties purchased with the bribes. the money constituting the bribes belongs to the recipient. The principal of a constructive trust has the earlier equitable interest. should be withdrawn from the unsecured creditors as soon as the mistake it discovered. If the property increases in value. 69 . The constructive trust is more like a bare trust. thereby bringing about a determination of the rights and titles of the parties‟ (Giumelli v Giumelli). The imposition of a constructive trust „obliges the holder of the legal title to surrender the property in question. which ought to be payed to the beneficiaries.
or conversion. Property in question remains identifiable (not been dissipated). on the other hand. The claimant may also obtain the benefit of increases in the value of the property (or in the case of mixed funds. which pre-dates the claims of third party recipients. but may be a precondition for the exercise of rights. at least a proportionate share of the increase). tale a proportionate part of the new property secured by way of an equitable charge. 3. Tracing is an „in rem‟ remedy. which cannot be maintained if the property has changed form or become mixed with another‟s property. Where Single Trust Fund is mixed with Trustee’s own Money and thereafter Converted… The principal task to identify the trust money. This is advantageous where the defendant is insolvent and a personal remedy. and o The continuing ability to identify the property. common law tracing will be of little relevance. Change in ownership (succession) to the property contrary to the trust/fiduciary relationship. Breach of fiduciary duty. 70 . and 4. Tracing at Common Law Only available at common law if the claimant establishes: o A pre-existing common law cause of action. at his/her election. Since tracing is usually used in situations where trust property has been mixed with other property. lacks practical value. such as an action for money had and received. the trust money represents only part of the cost of acquiring the new asset the beneficiary may. but it can support a personal remedy for recipient liability or accessory liability. or the defendant is insolvent and it is desirable to secure priority over other claimants. even though it may have changed form or have been mixed with other property. Where.Tracing or itself confers no rights. Proprietary claims (beneficial interest) will usually be asserted where the value of the traceable proceeds exceeds that of the original asset. 2. such as compensation. Tracing in Equity Available where the claimant can establish the Re Diplock requirements: 1. That the legal estate has not been acquired by a bona fide purchaser for value without notice or has not been registered without fraud (Farah v Say-Dee) Tracing in equity enables the claimant to establish a right to a pre-existing equitable proprietary interest. Otherwise. personal claims for compensation or an account of profits are effective remedies for the beneficiaries.
‘First in. leaving the beneficiary to claim any balance remaining. so they can cliam a charge/lien securing repayment of their respective contributions to the purchase price. it is also necessary to allocate the traceable trust property between respective trusts. Where a loss has been suffered. Lowest intermediate balance rule – equity limits the beneficiary‟s proprietary claim to the lowest balance in the account between the date of the wrongful deposit and the date the claim was made. (Windsor Mortgage Nominees v Raymond Griffith Cardwell (1979) E. There are two main approaches used by the courts: 1. Apply Re Hallet: the court presumes that where trust funds are mixed in the trustee‟s own bank account. the trustee is acting honestly. the beneficiaries will have an interest in the proportion of 3:1.000 to the mixed funds. Where the trustee has used the mixed funds to purchase other property the beneficiary is put to an election to either: o Claim a proportionate part of the property. the general rule is that the beneficiaries of the several trusts have an interest in the mixed fund in proportion to their contribution to it. beneficiaries would not want to claim an interest in the property. „Pari Passu’ (the proportionate approach) – where the property of more than one trust is mixed. the beneficiaries are entitled to at least a proportional amount of the profits (Scott v Scott).g. or o Claim a charge/lien against the trustee equal to the trust‟s contribution (Foskett v McKeown). in addition to first identifying what property is traceable. such that the trustee withdraws and expends his/her own money first. Where Multiple Trust Funds are Involved… Where property from more than one trust is mixed with the trustee‟s own money. Re Hallet applies to other property. 71 . if B1 contributed $3. unless it can be inferred that the trustee intended to restore funds to the depleted trust (James Roscoe (Bolton) Ltd v Winder). such as shares (Brady v Stapleton). First Out’ Approach – an exception to pari passu has been recognised in cases where the funds have been mixed in a bank account. If the trustee realises an unauthorised gain. 2. (T can‟t use this as a defence to deny B‟s interest in any property bought with money from the mixed funds account – Re Oatway).000 and B2 contributed $1. and a trustee withdraws money.
o Call in his/her share. the rule in Clayton’s Case applies and it is assumed that the sum first paid into the account is first withdrawn. if possible. Re French Caledonia Travel Service Pty ltd (2003): The court held that as a matter of principle. or if it appears that the trust property has been improperly managed. although the court is not bound by a defaulting trustee‟s intentional allocation of loss to specific beneficiaries – Re Global Finance Group. the rule should not be used to allocate losses suffered by beneficiaries whose funds are mixed. in breach of trust. o Seek an order to inspect trust documents or account. o Pursue personal action against third party recipients. or compel proper performance of the trustee‟s duties. o Seek to restrain a breach of trust. or improper disposition of assets can be shown. Options Apart from Action for Breach of Trust Before contemplating an action for breach of trust a beneficiary may: o Apply to the court to remove trustees who have breached trust. o Seek a declaration as a means of resolving a question as to whether a particular course of conduct. This rule doesn‟t apply: To transactions entered on the same day (it applies to the balance at the end of the day) – Re Laughton Where there is a specific contrary agreement – Barclays v Quistclose Where specific withdrawals are earmarked as belonging to a particular trust. Personal Remedies against Third Party Rights against the trustee must at first be exhausted (Re Diplock) Court Order 72 . o Seek an administration action calling for an order that the trust be carried into execution by the court. as the first in first out approach leads to complications. In such a case. waste. Pari passu is generally preferred. or if is in danger of being lost or if it can be satisfactorily established that parties in a fiduciary position have been guilty of a breach of trust‟ – Yunghanns v Candoora). by way of an injunction. o Seek the appointment of a receiver (usually „if misconduct. was or will be.
or a mere failure to inquire in a manner consistent with the behaviour expected of a reasonable and honest person. are accountable for gains and liable for losses. and accountable as constructive trustees in respect of any resultant gains. 2. knowledge of circumstances which would indicate the facts to an honest and reasonable person (but Australia does not accept constructive knowledge). is insufficient to attract accessorial liability. knowing it is subject to a fiduciary duty and that its transfer is in breach of that duty will be made a constructive trustee of that property for the benefit of the principal. actual knowledge. unless fraud can be shown. A beneficiary may seek a court order. Acting dishonesty has been defined as „not acting as an honest person would in the circumstances‟ – objective standard (Brunei Airlines v Tan). 2nd limb of Barnes v Addy – knowing assistance Persons who dishonestly assist or induce a trustee or other fiduciary will be liable as constructive trustees for any resultant losses. willfully shutting one‟s eyes to the obvious. to the relevant fund. or for his/her own benefit. being „busy bodies‟). because the accessory has not received trust property. but who make themselves trustees by there acts (i. to convey the property to the beneficiary or a newly appointed trustee. 3. 4. Barnes v Addy Constructive Trust 1st limb of Barnes v Addy – knowing receipt A person who receives property in his/her own name. This is a way of imposing personal liability for the loss or gain – this allows for the remedy of equitable compensation to be pursued. 73 . according to Consul Development v DPC Estates: 1. Trustee de son Tort Persons who are not properly the trustee.e. The fault element for accessory liability is more stringent than for recipient liability. The knowledge required for recipient liability extends to the first 4 Baden categories. Proof of mere negligence. This element of fault is premised upon proof of dishonesty or fraudulent design on behalf of the accessory. against a 3rd party innocent volunteer or a purchaser with notice. willfully and recklessly failing to make such inquiries as an honest and reasonable man would make. Farah v Say-Dee holds that on registration of Torrens title property the knowing receipt claim is cut off.
Registration of a bona fide purchaser of the legal estate without notice will take priority over beneficiaries‟ claim. Defences to Breach of Trust Trustee Exemption Clauses A provision may be included in the trust instrument limiting the extent of a trustee‟s liability for breach of trust. Exemption clauses are construed according to the ordinary meaning of the words used in their context. Tracing in equity is permitted even though the substitute property consists of a contribution from the innocent volunteer. Provided the original property was held in a fiduciary capacity. Substitute for Trust Property: Tracing If the trust property has changed form the property can be traced. Personal remedies are not sustainable against successors in title. a priority dispute arises. because such a beneficiary lacks clean hands. Proprietary Remedies against Third Party Original Trust Property Where a third party receives the original trust property. Advertent or reckless breaches of fiduciary duty would constitute dishonesty or bad faith for the purpose of breach of trust (Alexander v Perpetual Trustee). A trustee cannot avoid liability for breach of trust simply by putting the beneficiary to an election to either object or acquiesce in the breach – a beneficiary is entitled to keep his/her options open 74 . so long as the third party is not a bona fide purchaser of the legal estate without notice. consents or concurs in a trustee‟s breach of trust cannot succeed in an action based upon that breach. A trust can exclude a trustee‟s liability for all breaches. but the court will construe any ambiguity contra proferentem (Reader v Fried). the situation is treated as the same as the mixing of property from two different trusts. excluding fraud and breaches involving dishonesty (Armitage v Nurse). Consent or Acquiescence by the Beneficiaries Consent A beneficiary who instigates. tracing in equity is permitted even though the substitute property is now held by an „innocent volunteer‟. Where trust property and property of the innocent volunteer are mixed.
Acquiescence in a Past Breach of Trust The acquiescence of a beneficiary to a past breach is a defence to a claim for breach of trust. in order to establish the defence (Spellson v George). it is delay. S 47(1) (e) Trustee Act prescribes a 12 year limitation period for fraud. Delay/Laches Delay in bringing a claim (laches) may evidence acquiescence or it may render the pursuit of the claim inequitable even in the absence of acquiescence. 75 . fraudulent breach of trust or the retention or conversion of trust funds or property. Onus is on trustees to show that their conduct was honest and reasonable and that in all the circumstances of the case they ought fairly to be excused. Active encouragement or inducement. Essence of laches is not knowledge. such as exercising a vote as company director to effect the breach (Spellson v George). „Honesty‟ requires proof that trustees act in good faith and for the welfare of the trust . Consent may also be inferred from silence and lack of activity with knowledge.concerning consent to an impending breach until called upon to do some formal or unequivocal act. the trustee must know of the consent prior to the breach. Acquiescence = positive act. S 48(a) Trustee Act (NSW) limits the time in which a person can bring an action against a trustee for „innocent‟ breaches of trust to 6 years. Court’s Statutory Power to Excuse Breach S 85 Trustee Act (NSW) gives the court the discretion to relieve trustee from liability for breach of trust where they have acted honestly and reasonably. However. Relief is only in respect of past or possibly continuing breaches (Edwards v Attorney-General (NSW)). participation with or without direct financial benefit. The beneficiary‟s knowledge must be full knowledge of the act complained of and his/her rights in respect of that act (National Trustee Co of Australasia Ltd v General Finance Co of Australasia). and ought fairly to be excused. or the beneficiary remaining inactive with knowledge of the breach. not a fraudulent trustee or one who misappropriates trust funds (Cotton v Dempster). and express consent = consent. Therefore. such as adoption of the breach. laches may be pleaded whether or not the beneficiary had knowledge of the breach of trust.thus.
or by way of resettlement on other assets. Grossly negligent behaviour or carelessness. if they all consent and are all of full capacity. though. such as delay (Hagan v Waterhouse). „Reasonableness‟ is the most difficult hurdle. the trustees or a third party to revoke the trust. terminate the trust. The court retains an overriding discretion to deny the right to terminate a trust of an aliquot share where the nature of the trust property is not conveniently divisible (Manfred v Maddrell). Termination by the Court The court may terminate the trust pursuant to an application for variation by way of an order for the distribution of the assts. harder for professional trustees. Termination of Trust Termination by Revocation A power of revocation may be included in the trust instrument that allows the settlor. Termination by Beneficiaries The rule in Saunders v Vautier holds that the beneficiaries of a fixed trust may. provided that there is no contrary intention in the trust deed. a beneficiary absolutely and indefeasibly entitled to an aliquot share of the trust may terminate the trust in respect of that share and call for payment. even if this defeats the settlor‟s intention. or a clear fiduciary breach. which proves to be incorrect.g. A plea of relying on the advice of others will not be accepted as „reasonable‟ unless such reliance is justified. E. no right to revoke arises and the trust is treated as an irrevocable disposition of property (Mallott v Wilson). where the objects of a trust are entitled to the trust property indefeasibly and absolutely. or there is another discretionary equitable bar to relief. The „ought fairly to be excused‟ is the final hurdle. that is. 76 . This principle operates only where the entitlement to the beneficial interest is unrestricted. Also. Unless such a power is included in the instrument. where a trustee properly engages a solicitor experienced in the field and relies on that advice. A court may decline an honest and reasonable trustee relief where to do so would cause undue prejudice to the beneficiaries. that trustee is likely to be entitled to relief from a resultant breach of trust for having acted reasonably (Re Investa Properties). will undermine any case based on reasonableness of the trustee‟s conduct. and provided that the beneficiary does not owe a liability to the trust estate (Whakatane Paper Mills v Public Trustee).
Settlement of Outstanding Claims Trustees must settle outstanding claims against the trust estate prior to distributing the trust property at the trust‟s termination. adopted or illegitimate child. 77 . of their rights (Trustees Executors & Agency Co Ltd v Margottini). The court must be satisfied that there is a strong probability that no further beneficiaries will be added to the class. the trust is terminated by the distribution of trust property to the beneficiaries in accordance with the terms of the trust. entitled to benefit under the trust. so as not to deprive existing persons. The beneficiaries‟ entitlement is confined to so much of those assets as is available after the liabilities have been discharged or provision has been made for them. The court will consider the possibility of an unborn. trustees should seek leave of the court to distribute trust property for the purposes of terminating the trust. or a future spouse.Termination by Distribution of Trust Property The terms of the trust ordinarily provide for its duration. In any case. in the case of a discretionary trust. It duration may be fixed by reference to a certain event in the case of a strict private trust or. by the due exercise of the trustee‟s discretion. Possibility of Additional Beneficiaries Coming into Existence Where there is a possibility of other beneficiaries coming into existence. including the next of kin of the testator or settlor.
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