Equity (SEM 1, 2010)
1 Introduction to equity
1.1
History of equity law
Equity is distinct to common law (contract/tort) as another body of rules, historically administered by the English High Court of chancery. However, it has moved from a fluid, pragmatic, conscience-based approach to one with authority, rules, maxims, principles, precedents
Equity can be either:
Exclusive jurisdiction, entirely made by equity
Concurrent/auxiliary jurisdiction, aid/enforce legal rights via equity Equity developed for discretionary from relief/rigor/deficiency of common law. Chancellor was church-trained, who would look after equity. Chancellery has supremacy over common law1
„The High Court of Chancery of England shall be forthwith taken away‟ (1653) was resolute but Bill never enacted
Bill to reverse Earl of Ox was passed (1690) but never enacted
„Doctrines of this [equity] court ought to be well settled… as those of the common law‟2
Acts were passed to fuse common law/equity courts:
England, Supreme Court of Judicature Act 1873 (UK)
Supreme Court Act 1935 (SA) ss20-28
Note that there has been NO merger of equity/common law rules.
Ashburner‟s famous quote is „[T]he two streams of jurisdiction (of equity and common law), though they run in the same channel, run side by side and do not mingle their waters‟. Failure to recognize this results in the „fusion fallacy‟3
1.2
Maxims of equity law
Maxims are sayings, which are general guides, rather than rules4, as wide as
„to err is human‟.
Equity looks on that as done which ought to be done
Equity follows the law
A person who comes into equity must come with clean hands
A person who seeks equity must do equity
Equity does not allow statute to be made an instrument of fraud
Equality is equity
Equity acts in personam
Equity looks into intent not form
Equity will not suffer a wrong to be without a remedy
Where the equities are equal, the law prevails
Where the equities are equal, the first in time prevails
Equity aids the diligent and not the tardy
1.3
Modern equity
Hardingham in Essays in Equity says consciousness gives equity its „distinctive ethical quality‟. Equity is the prevention of „unconscionable conduct‟
Challenged via „this court is not a court of conscience‟5
This was rejected by House of Lords who held the court is to act as court of conscience against undue influence6
Despite there is no precedent, it doesn‟t mean the court does not interfere if there is an unconscionable situation7
Sometimes have to hold person liable otherwise it would disregard equity‟s “state of conscience”8
2 Unconscionability
2.1
Fraud in Equity (Unconscionability)
Unconscionability has two meanings:
Broad meaning, the general idea of unfairness; for example, the TPA with its „good faith‟ doctrine9 in is already showing transition towards a
VERY broad idea of fairness
Narrow meaning, relating to discrete doctrines of:
1. Misrepresentation: Although common law/equity both allows for fraudulent/negligent misrepresentation, innocent misrepresentation can only be sued under equity10. Otherwise, it is dealt for under statute11
2. Mistake: Fictions which NO longer apply are:
a. Person accidentally overpaid Is made a fiduciary in relation to overpayment12, rejected by High Court13
b. You can recover if there is a mistake of fact, but not a mistake of law. Overturned by case14 that found sort of mistake didn‟t matter
c. Basis of repayment for mistake is a court-imposed quasi-contract not agreed on by parties, rejected15
Rescission for mistake includes:
a. Common mistake, both parties make same mistake, rejected16
b. Unilateral mistake, where a person mistakes and the other side knows of the mistake17. These contracts are voidable
c. Mutual mistake, where both parties make mistakes, but they are different. These contracts are voidable
3. Fraud in equity: Whereas common law fraud requires intent, in equity, a person may not know what they‟re doing is wrong
4. Estoppel: Estoppel requires the elements:
a. Representation (or promise), which must be precise.
Representation can be by conduct or silence (where there is duty to speak)
b. Reliance, which must be reasonable18
c. Detriment, which must be causal (but not necessarily „but for‟, as long as „significant cause‟ between representation and detriment) There is a debate though, as to remedy19:
a. Narrow school, relating to past detriment only (per Mason and Wilson)
b. Broad school, relating to future detriment too (per Deane) c. Or altogether something different20
5. Undue influence: (not examinable)
6. Unconscionability (catching) bargains: Catching bargain requires not merely inequality of bargain power. Has been held as21:
a. Where there is a disability (which was defined22 as relating to age,
lack of advice, illiteracy and sex), though in later cases, has included:
Dull-witted man who was illiterate and poor and signed interests away to step-son, without explaining implications23
Late 70‟s poorly educated, who signed contract due to a drinking bout for $25K though worth over $33K receiving no independent advice24
Elderly Italian migrant with limited English understanding asked by son to sign guarantee, who understated the deed. Bank had parents sign it, but relied on son to explain25
Male lawyer infatuated with female who initially rejected him, but bought her small gifts, including house.26
Man did not want land broken up between four daughters after death, so asked nephew to manage. Though examined by doctors to have sound mind capable of decision-making, found
unconscionable. Further, passive acceptance could be exploitation27
b. Disability is evident to the other party
c. Onus is on other party to show transaction is „reasonable and fair‟
3 Express trusts
3.1
Introduction to trusts
Trust has broad meaning (to „trust‟ someone), and narrow meaning as a way to hold property. A trustee holds property on behalf of a beneficiary. Three types of trust:
1. Express trusts
2. Resulting (implied) trusts 3. Constructive trusts
3.2
Express trusts
Express trusts are created inter vivos (between living people) or by will. Inter vivos trusts must be in writing/signed if relating to land. Essentials for express trust are:
1. Existence of property that can be subjected to trust 2. Either:
a. Declaration of trust over property by legal person (over 18 years with sound mind, or a corporation) competent to create trust, for beneficiary or charitable purpose. Note though, Equity will not allow lack of trustee (owing to death, etc) to cause trust to fail
b. Transfer of property, coupled with the intention. This requires transferor to do all possible to make transfer28. It may be enforceable
even without written evidence if: i. It is a resulting/constructive trust29
ii. Part performance has occurred30
iii. Establish equitable estoppel disregarding lack of written evidence 3. Certainty so trust is administratively workable
a. Certainty of intention: Onus is on person making trust to show it existed.
Trust may be created by any language clear enough intention to show intention31. Intention is to be inferred from language
employed, nature of transaction, relevant circumstances32. It is usual
to use word „trustee‟ or „trust‟ but lack of isn‟t determinative, as creator might not even know about trusts. Where person creating trust is also trustee, they just need to know attributes to undertake to make them trustee33
Intention is subjective rather than objective34. Jolliffe has however been limited since, Court35 found Jolliffe only applies where trust
created by unilateral statement (one side) without consideration and beneficiary not told.
If intention is unclear, words/acts to transfer gift/property doesn‟t create trust36
Intention to create (permanent) trust where beneficiary acquires immediate interest; should be distinguished from intention to promise property, capable of being revoked by grantor
Extrinsic while/before trust created admitted where (note evidence subsequent only admissible if against creator):
o Written document can‟t reasonably be considered complete statement of maker‟s intention
o Writing not required by law for valid disposition o Terms of trust is ambiguous
Precatory words (words imposing wish/desire) are neutral
Statute may prescribe, expressly/impliedly, money to be held on trust, such as lawyers/superannuation funds
There cannot be trust in imaginary „future property‟ not in existence/possession, meaning bank overdraft (in debt) is not trust property37
Real/personal, tangible/intangible, legal/equitable property can be subject to trust, meaning beneficiaries can have their own beneficiaries. Found to include interest in lottery ticket, fishing license, milk quota, share in partnership, right to sue, goodwill
Not only must property be clearly identified, but also QUANTUM of trust property held by each beneficiary, including identifying the DISCRETE parcel. Court held though, person owning 50 of 1000 shares was alright, but issue unraised in Australia38. Where donator
dies, gift of „whatever remains‟ no longer void for uncertainty, since his will is whole subject matter. If there is invalid subject matter, gift applies to balance after deducting invalid gift; or where it relates to family monument/tomb, the whole balance. If A gets to choose, B gets remainder; if A dies before B, it‟s not possible to ascertain items held for B.
c. Certainty of objects (beneficiaries), trust must be created for beneficiaries39 except where trust is for charity
Unincorporated associations, since not legal person, can be made with presumption trust is for current members40. This can be
rejected though, if relating to farming property for nuns who weren‟t charitable41. Problem can be overcome by incorporating under Associations Incorporations Act 1985
Charitable trusts are enforceable be A-G, but requires four heads of charity per Statute of Charitable Uses (1601) as: (1) relief or poverty; (2) advancement of education; (3) advancement of religion; (4) other purposes beneficial to community
With certainty, depends on express trust:
Fixed trust, where trustee given no discretion. Division between all members requires complete list of beneficiaries, known as „list certainty‟, unless exact number of beneficiaries known. If court is satisfied within reasonable time „substantial majority‟ of beneficiaries can be ascertained, and no reasonable inquiry could improve situation, it should be fine42.
Discretionary trust, where trustee can share in proportions desired. Trust will not fail because it is impossible to draw up every member43,
as long as it can be stated whether beneficiary(s) are member of class, known as the „criterion certainty‟ or „in/out test‟, but not so ridiculously wide anything is a part of that class. Practical difficulties in obtaining evidence whether person in/out of category is irrelevant if aforementioned satisfied.
o Categories found sufficiently certain include „relatives‟ „dependants‟ „employees‟ „ex-employees‟
o Categories found insufficiently certain include „my old friends‟ „persons to whom moral obligation is owed‟ „persons who have rendered services meriting consideration‟ „deserving journalists‟
4. Compliance with requirements relating to evidence
5. Compliance with rules against remoteness and against alienability
Trusts for illegal purposes/contrary to public policy are void. Rights of being a beneficiary are:
For fixed trusts, fixed proportion of trust income and capital distributed. This is not the case for discretionary trusts, where beneficiary is only entitled to an expectancy
Prevent misappropriation by trustees
Have trustees act bona fide
Inspect trust documents
Enjoy equal share in trust fund distribution, call for such payment
Have trust property administered, terminated, and paid interests if they act unanimously44
Beneficiaries do NOT have the right to receive reasons for trustees exercising discretion
Beneficiary can give away full equitable interest, by assigning to third party, request trustee be held for a third person, declaring they hold equitable interest on trust for a third party, direct trustee transfer legal title to third party
Beneficiary can disclaim interest, since no one can be forced to accept a gift. Must be intentional and show unequivocal beneficiary rejects interest Duties of trustee:
Acquaint themselves to terms of trust, documents concerning trust, nature/state of trust property
Trustee may act if trustees direct them to do so, known as „consent‟, which they can decline. However, they cannot decline when: o Given release under seal by all beneficiaries, which relieves
consequences of trustee on doing what is requested o Authorized by court
o Trustee has validly varied terms of trust pursuant to power under trust instrument
o But NOT where it would involve illegal conduct, Statute/court order compels departure, trust directions are incapable of being observed
Duty to get in trust property, pursuing all reasonable measures to obtain possession of outstanding property. They must:
o Ensure title is properly vested in them (and the other trustees) o Take proceedings against parties who breach trust, owes liability to
trust, unless to do so is financially onerous, competing claims. Onus on trustee to show proceedings unjustified
Duty to preserve and protect trust property, safeguarded/protected from loss, capital and income, so:
o Ensure documents relating to title are safe, safe from unauthorized access
o Ensure trust property does not fall in decay due to repair needs
o Invest un-invested money and convert hazardous investments o Ensure trust money lent is protected by adequate security o Insuring trust property
o Represent trust disputes relating to rights/liabilities
o Refrain from making gifts/voluntary payments, selling trust property undervalue, unnecessarily parting with trust property
Rights of trustee:
Machinery powers: o Power to sell
o Power to carry on business o Power to manage trust property o Power to borrow
o Power to compromise claims o Power to provide maintenance o Right to approach court for instruction45 o Right to be reimbursed for reasonable expense
Powers of appointment, relating to discretion to distribute income. Where multiple trustees, powers exercised must be unanimously agreed, unless trust agreement states otherwise.
Breach of trust will occur due to contravention of duties imposed on trustee. Will occur even if act according to powers, but fail to exercise powers reasonably, in good faith, for purposes conferred46. Breach can either be
active (breach by positive act) or passive (breach by omission to act). Trustee can be personally liable if causal connection show between breach and loss to trust estate.
4 Resulting trusts
Resulting trust is NOT imposed by law against intention of settlor, but gives effect to their presumed intention. Resulting trust will arise when47:
1. Automatic resulting trust, which arise:
a. Where express trust has failed, upon failure, trustee holds property on resulting trust for settlor
b. Where, in settling property on trust, settlor fails to dispose
entire beneficial interest, upon failure, trustee holds non-disposed
property on resulting trust for settlor
c. Where property is given on trust for specific purpose, which
can’t be executed, upon failure, trustee holds money/property on
resulting trust for settlor. This does not though, impact cypres doctrine, that pursuant to court direction, charitable money can be used for similar purpose
d. Where property given on trust for specific purpose exceeds that
required to fulfill purpose, unexpended money reverts to
donor/settlor under resulting trust since settlor/donor did not intend to part with money
Surplus in public subscriptions: Where amount obtained via public appeal exceeds that required for purpose, resulting trust held for contributors in proportion with their quantum of contribution o Money raised for two deaf and mute women, undistributed surplus
held on resulting trust after death of intended beneficiaries48
o Money raised to assist sick and wounded in wartime. Though majority of Red Cross said they could keep it, some wanted it back.49
o Money raised for memorial fund for marine cadets killed in road accident, unexpended money held on resulting trust50
o Just because identification of subscriber is difficult/time wasting does not bar existence of resulting trust. No resulting trust will occur however, where:
Funds subscribed are for charitable purpose with overriding charitable intention. Subscription can then be put towards similar purpose („cypres‟ doctrine)
Statute dictates destination of excess subscription, such as
Collections for Charitable Purposes Act 1939 ss16, 17
Where it can be inferred from evidence contributor intended to extinguish right to money subscribed51
Where rules of subscription provide destination of excess subscriptions
Undistributed surplus in dissolution of contributory fund: Where undistributed surplus upon dissolution of contributory fund. This can be rebutted to be passed on to crown as ownerless goods („bona vacantia‟) where:
o Trust deed doesn‟t permit distribution to contributor of fund o Contribution were made pursuant to contract, such that contributor
obtained all bargained for
o Legislative requirement states intention of fund is not to benefit contributors
2. Presumed resulting trust, where X voluntarily transfers property into the names of Y or joint names, and Y provides no consideration. Presumption of resulting trust is rebuttable by:
Evidence of contrary intention, court will not give presumption to resulting trust if contrary to true intention (as contrasted with [ulterior] motive). This could include:
o Intention of other party to take beneficial interest when making financial contribution
o Intention to gift/loan property in question o Clear evidence of intention to create express trust
o Documentary evidence showing transferor intended to divest themselves of beneficial interest. Taking of legal title from husband to wife though is NOT factored as rebuttal of beneficial interest.
Presumption of advancement, if relationship between parties is such that transferor has natural obligation to provide for transferee, equity presumes transferor intended gift:
o Applies to husband to wife (but not de facto wife), man to fiancée, parent to child (includes illegitimate/adopted child, but not step-child), loco parentis (persons acting as parents) to transferee Wife to husband (opposite) has NOT attracted presumption of
advancement52
o This does not limit the Family Court‟s discretionary power to alter property interests on divorce. Non-marital relationships covered by statute53
o Presumption has been judicially criticized as being outdated54 but argued too entrenched in law to be discarded easily55
Quantum of person‟s beneficial interest under resulting trust corresponds to person‟s direct financial contribution towards purchase price56, other
contributions such as mortgage payments and improvements to property NOT altering the quantum.
Resulting trusts still require certainties, though statutory formalities don‟t apply, including:
Certainty of subject matter (property), that property can be held on trust and is exacted
Certainty of object (beneficiary), there is beneficiary and can be exacted
5 Fiduciary relations
Fiduciary questions require:
1. Is there a fiduciary relationship? Look at analogous cases, and maxims such as „equity looks at substance and not form‟
2. Has there been breach of fiduciary duty? 3. Is there defense?
4. Remedies?
Fiduciary doesn‟t require properties. Principles benefit from the fiduciary. Fiduciaries can owe non-fiduciary relationships. Fiduciary obligations imposed upon people in position of trust and confidence, to ensure they don‟t abuse their position for personal gain.
Fiduciary can be theoretically worked out by:
Undertaking theory, that a fiduciary undertakes to act in the interest of another person. This test though has been rejected by its earlier proponents, because fiduciary is imposed, not accepted
Trust and confidence theory, that a person subjectively trusts another, but was emphatically rejected57. Trust exists in commercial relationships, that
are non-fiducial
Full Federal Court58 distinguished between:
Vertical relationships: Between principal/agent, employer/employee
Horizontal relationships: Collaborative relations, such as partnerships/joint ventures
The other way to identify fiduciary is by indicia:
Presence of vulnerability or dependency on behalf of the beneficiary59
Absence of commercial context in which parties have bargained60. Note though Mason J criticized this approach, since
directors/agents/partners/solicitors all in commerce owe fiduciary duties. Practically, fiduciaries are made so either by:
Status based, being in some established category. Courts have held categories are not closed.
o Trustee, fiduciary argued by way of analogy with trust
o Company director, Company owes very strict duty to company61 Directors though, owe their duty to the company, not to individual
shareholders62, except if it‟s a small family company63
Circumstances a fiduciary duty may also be owed by a director are: member has sought director‟s assistance, and director has undertaken to act; shareholders authorize director to negotiate on their behalf in takeover bid; directors have taken it upon themselves to act as agents of shareholders
o Solicitor: Fiduciary obligations measured by equity‟s standards, not that of the law society. Fiduciary relationship continues after solicitor-client relationship ceases. Prohibitions are:
No profit rule, Boardman was lawyer to Tom Phipps, though both earnt money, breach of duty64
No conflict rule, Makaronis wanted to buy chicken farm but not enough money, law firm loaned money at high interest rate. Law High Court held breach of duty65.
o Promoter of a company: Someone who participates in formation of company (NOT marketer). Held financier in venture owed fiduciary duty to partnership66
o Partners, owe fiduciary duties to each other. Fiduciary relations subsists beyond termination of partnership67
o Agents, who owe fiduciary duty to the principle. Agent acts on behalf of principle and consent to act in certain way.
o Employees, not all, may owe fiduciary relations if they are in a position of trust/confidence, or given a particular power/discretion, that places employer in vulnerability. Contractors not employed as so, but acting as though they are employees, are treated so68
Fact based, based on the particular circumstance, on an ad hoc basis. o Though rejected in Australia, fiduciary relations exist to make equitable
remedies available69. For example, person who acquires benefit from
unethical means (stealing) held to account for that as fiduciary70
o Court71 has rejected scope for fiduciary duty between manufacturer/distributor relationship
o Power of bailee over bailor‟s goods may give rise to obligations of a fiduciary relation72
o Though doctors are fiduciaries, High Court held they can only not make a profit, and not be in a position of conflict; and denying access to medical records was neither73
Duties of a fiduciary: Question is whether alleged wrongful act falls within/outside scope of duty, which much depends on terms of engagement/agreement
Duty of loyalty, known as the conflict rule. Fiduciary is bound to act in interests of principal, not their own interest. It is decided as „significant possibility of conflict‟74. In a situation where scope of fiduciary obligation
is strictly limited, fiduciary will not breach conflict rule even if had interest in the transaction75.
o Relating to lawyers, court emphasized no rule solicitors should never act for both parties, as long as there is informed consent76
o Solicitors do not breach their fiduciary duty in a group, if they are NOT aware of that other member‟s potential conflict with client. Chinese walls can be constructed, but courts have held such arrangements to be insufficient sometimes
Duty to account for benefits gained, also known as the profit rule. Not blanket rule against making profits though, e.g. solicitors charge for costs, directors receive salaries, partners receive profits.
o The gain need not be something available to beneficiary of fiduciary duty77
o Especially rigorous profit rule applies to trustees78 Note there is NO duty to act with reasonable care
In Australia, fiduciary duties are negative (things you can‟t do)79, as
contrasted with positive fiduciary duties (things you have to do) in Canada80
Defense to breach of fiduciary duty:
Fully informed consent of all beneficiaries, onus on proving fully informed consent is on fiduciary
o There is still a duty to disclose ALL information relevant with adequate explanation though81
o Fiduciary is not required to disclose information not known to them82 o Consent must relates to ALL beneficiaries83
Honesty is NOT a defense84
Exemption clauses can alter fiduciary duty so no duty, even without informed consent
Remedies to breach of fiduciary duty:
Injunctions: Restrain expected/continuing breach, may be either final/interlocutory
Constructive trusts: Imposed regardless of intention of parties, whenever equity considers it unconscionable party holding title, and denies other party. Constructive trusts not imposed simply because it seems fair to do so, but where there is established equitable principle85.
Constructive trust is appropriate to prevent unjust enrichment of fiduciary over principal, but also has punitive (punishing) purpose86
Account of profits, if fiduciary has improperly profited from acting as fiduciary
Equitable compensation or monetary restitution, to remedy breach of fiduciary, though note it is not the same as common law damages, so causation/remoteness may not be relevant
Specific restitution of chattels, provided where damages inadequate remedy87
Rescission, rescinding any transaction/contract/guarantee/mortgage. For example, mortgage was set aside88
Delivery up and cancellation of a document, delivery up/cancel documents procured in breach of fiduciary duty
Tracing, right of principal to trace property to third parties who‟ve received it
6 Constructive trusts
Constructive trust can either be relief that is:
Proprietary: Beneficial interest in property held by another
Personal: Pecuniary (monetary) liability
The rationale is in absence of constructive trust, person has unconscionable interest in money/property, contrary to equitable principles of retention89.
Contrary to presumed intention, constructive trust is imposed. Court will not impose/declare constructive trust90 if it considers:
Plaintiff‟s ordinary legal remedy provides adequate and appropriate relief
Another form of equitable relief will satisfy demands of justice/good conscience
Circumstances a constructive trust is imposed are many, but mainly: 1. Breach of a fiduciary duty, fiduciary profits/benefits where there was
(a) conflict of interest; or (b) profit gained, due to fiduciary position.
Court won‟t impose constructive trust unless91 doing so is the only satisfactory means of ensuring fiduciary accounts for entirety of gain due to breach of fiduciary duty; AND there is sufficient connection between scope of fiduciary‟s obligation, and property over which constructive trust is sought
If court has decided constructive trust is appropriate relief, it must determine scope of constructive trust92
o If fiduciary can prove to court asset(s) of competing business has been contributed to fiduciary rather than due to breach of fiduciary, court may exclude asset(s)
o If fiduciary has put in time, energy, skills, acted honestly, benefited principal, court may award fiduciary so as to prevent principal from being unjustly enriched
Defenses to breach of fiduciary duty are93 that the fiduciary acted in accordance with: (1) the agreement creating the fiduciary duty; (2) circumstances of their appointment; (3) informed asset (agreement) of principal.
2. Constructive trust with respect to strangers in the trust, though it is unusual to make third parties liable, to attach liability to strangers where equity dictates they ought to be accountable. such circumstances are94:
a. Trustee de son tort (or de facto trustee): Strangers to trust who act as trustee without appointment. Person who meddles with trust as if they are trustee, are liable for losses to trust from their conduct. The stranger must have had possession/control (as compared with actual title) of trust property
b. Two limbs in Barnes v Addy (1874) LR 9 Ch App 244: i. Recipient liability/knowledge recipient: Where stranger
knowingly receives/deals with interest in trust property. Affirmed by court95.
if trustee transfers Torrens title to third party in breach of trust, deprived beneficiary can NOT argue property to be held on constructive trust96
High Court noted in Farah, first limb might also apply to other types than fiduciary.
The knowledge does not extent to encompass notice/knowledge a person has genuinely forgotten. First limb of knowledge established if there was97:
o Actual knowledge
o Nelsonian knowledge, willful shutting of the eyes to the obvious
o Willfully and recklessly failed to make enquiries as an honest/reasonable person would
o Knowledge of circumstances which indicates facts to a honest/reasonable person
ii. Accessory liability: Applies where stranger assists trustee/other fiduciary in dishonest/fraudulent design. Unlike (i), it is not dependent upon receipt of property, so its character is „personal‟ rather than „proprietary‟98.
It has three elements:
o Defendant knows that a dishonest/fraudulent design is being implemented by the fiduciary
o Defendant knows their acts have the effect of assisting the design
o Knowledge of the defendant is of actual facts, not mere claims/allegations
It may be effective in piercing the corporate veil to make a director/officer liable for breaches of fiduciary duty99 Question then is what degree of knowledge is required of
dishonesty/fraudulence, which is similar to above: o Actual knowledge
o Nelsonian knowledge, willful shutting of the eyes to the obvious
o Willfully and recklessly failed to make enquiries as an honest/reasonable person would
o Knowledge of circumstances which indicates facts to a honest/reasonable person
o (*) Constructive knowledge, knowledge of circumstances which would put reasonable person on inquiry
3. Constructive trust arising from contributions to
property/relationship, constructive trust may be imposed to prevent
person from asserting existing legal right, where it would be unconscionable (e.g. where person has contributed)100
Even if does not relate to de facto relationships, breakdown of property is not fair, principles can be applied101. Note though dissolution of
marriage/de facto has statutes
Contrary to resulting trust (where only purchase price is considered), court takes into account issues beyond financial contributions to purchase price102
Courts have thus entitled persons to an interest in property as a result of:
o Pooling of financial resources in relationship for the purpose of securing accommodation for themselves103
o Mutual agreement to spend some/all of the money to purchase a home
o Pooling of labor, even in the absence of pooling financial resource o Contribution to family welfare by way of domestic assistance, such as
homemaking and parenting
4. Equitable fraud (or unconscionable) transactions, when a party has taken advantage of a transaction and was unconscionable (i.e. equitable fraud, mistake, misrepresentation, unconscionable /catching bargain, estoppel), equity will help innocent party recover. Equity does not though:
Assist simple unfairness104
Make it unconscionable for party to rely on terms of contributions agreement, in absence of equitable grounds (listed above)
Make it unconscionable where contributions are made with the knowledge they confer not proprietary rights
Make it unconscionable where relationship does not exist to jointly benefit parties (but are for the parties‟ own selfish business interests)
Make it unconscionable where there is unjust enrichment, though there are judicial comments it might be the basis of foundation for a construction trust105
Alternatives to constructive trust to recognize beneficial interests due to contributions are:
Imposition of equitable charge/lien, equivalent to quantum of contribution
Allowing person to retain interest in property on condition they pay specified compensation to other party106
Make finding of equitable estoppel where party has relied on representation of other party, which they can enforce, or award compensation in lieu (instead of)107
7 Remedies
Common law remedies: contract damages, tort damages
Equitable remedies: injunction, specific performance, account of profits,
rectification (of document) Two types of rights:
1. Primary rights, asks has there been breach of common law/equitable obligation. Must be precisely defined before court looks at secondary rights (remedies)
2. Secondary rights, includes common law/equitable remedies, but
depends on which quadrant, equity is only given when common law
remedy is „inadequate‟, which is usually when:
Unavailability of substitute, parties cannot take damages into marketplace and buy substitutes. These specifically include these cases (though note the category approach is challenged108):
o Contracts involving sale of land, since each piece of land is unique. There has been an expansive approach to meaning of „land‟, including airspace109.
Note although argument works with residential properties, its argument loses force when land purely for investment purposes110
o Contracts involving sale of other forms of property, if the subject matter of contract is rare/unique/sentimental
value/connected with plaintiff‟s livelihood, though mere shortage is not enough
Contract to pay money to third parties111
Note equity does NOT lead to damages (common law remedy), since it is known as the „fusion fallacy‟
Note equitable remedies are DISCRETIONARY whereas common law remedies are rights. Just because they are „discretionary‟ does not mean though they are awarded wherever justice/fairness indicates such remedy is approach. Traditional factors courts take into account when considering remedy includes (but not limited to):
1. Equity won't enforce a contract involving personal service
2. Equity will not make orders that require constant supervision, that is, grant specific performance to keep the store open. House of Lords' Maddock J did though, order damages112. The reason is that to keep open
would mean the lessee would incur vastly disproportionate costs.
In Australia, the court found there is no prohibition of award of specific performance just because there is an issue of constant supervision113.
The issue that should be analyzed is rather 'questions of degree' of undertaking.
3. Laches, delays which cause prejudice. As per Lamshed114, note laches applies not only to commencement of proceedings, but also prosecution of proceedings.
4. Clean hands, which is that plaintiff seeking specific performance must be not have committed unconscionable conduct, or it may be grounds to ignore plaintiff's serious breach115
Court thus has three discretions: 1. Refuse to reward any remedy at all
2. Order a remedy different to one sought, even one that neither plaintiff/defendant has argued for116
3. Order remedy with conditions, based on maxim „he who comes to equity must do equity‟, e.g. allowed mortgage to be set aside, but only if farm owners paid principal (but interest was reduced, since high rate charged by lawyer)117.
8 References
1 Earl of Oxford’s Case (1615) 1 Chan Rep 1; 21 ER 485 2 Gee v Pritchard (1818) 2 Swans 402; 36 ER 670
3 Haydon (in majority) accused Mason (minority) of trying to borrow reward
from tot (common law) in Harris v Digital Pulse (2003) 56 NSWLR 298
4 Corin v Patton (1990) 169 CLR 540
5 Buckley J challenged this in Re Telescriptor Syndicate Ltd [1903] 2 Ch
174
6 National Westminster Bank plc v Morgan [1985] AC 686
7 Young J in Lincoln Hunt Australia Pty Ltd v Willesee (1986) 4 NSWLR
457
8 Stephen J held in Consul Development Pty Ltd v DPC Estates Pty Ltd
(1975) 132 CLR 373
9 s51AC(3)(k)
10 Redgrave v Hurd (1881) 20 Ch D 1
11 Trade Practices Act s52 and Misrepresentations Act (SA) 12 Chase Manhattan Bank NA v Israel-British Bank (London) Ltd
[1979] 3 All ER 1025
13 Roxborough v Rothmans of Pall Mall (2001)
14 David Securities Pty Ltd v Commonwealth of Australia (1992) 109
ALR 57
15 Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577
16 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 17 Taylor v Johnson (1983) 151 CLR 422
18 For example, in Legion v Hateley [1983] 57 ALJR 152 CLR 406, found “I
think that‟ll be alright but I‟ll have to get instructions” from a secretary who didn‟t have the power to make statement was found to be unreasonable
19 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 20 Giumelli v Giumelli (1996) 17 WAR 159
21 by Deane J in Commercial Bank of Australia Ltd v Amadio (1983) 151
CLR 447
22 By Fullagher J in Bromley v Ryan (1956) 99 CLR 362 23 Wilton v Farnworth (1948) 76 CLR 646
24 Bromley v Ryan (1956) 99 CLR 362
25 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 26 Louth v Diprose (1992) 175 CLR 621
27 Bridgewater v Leahy (1998) 72 ALJR 1525 28 Corin v Patton (1990) 169 CLR 540 29 Law of Property Act 1936 s29(2) 30 Law of Property Act 1936 s31(d)
31 Bahr v Nicolay (No 2) (1988) 164 CLR 604 per Mason CJ
32 Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 per Gummow J
33 Paul v Constance [1977] 1 WLR 527
34 Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178,
man opened bank account on trust for wife, after wife died, said hadn‟t intended and was lying. High Court held was possible
35 Shortall v White [2007] NSWCA 372
36 Milroy v Lord (1862) 45 ER 1185 at [1189] per Turner LJ
37 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at
[621-2]
38 Hunter v Moss [1994] 3 All ER 215
39 Morice v Bishop of Durham (1804) 9 Ves 399 at [406] 40 Bacon v Pianta (1966) 114 CLR 634
41 Leahy v A-G (NSW) 1959) 101 CLR 611
42 West v Weston (1998) 44 NSWLR 657 at [664] per Young J 43 McPhail v Doulton [1971] AC 424
44 Saunders v Vautier [1841] EWHC Ch J82
45 Macedonian Orthodox Community Church St. Petka Inc v His Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 per Gummow
CJ
46 Walker v Stones [2000] 4 All Er 412 at [423] per Slade S 47 Vandervell Trustees Ltd [1974] Ch 269
48 Re Trusts of the Abbott Fund; Smith v Abbott [1900] 2 Ch 326 49 Held resulting trust for contributors upon conclusion of war (Re British Red Cross Balkan Fund [1914] 2 Ch 419)
50 Re Gillingham Bus Disaster Fund; Bowman v Official Solicitor
[1958] Ch 300
51 Re West Sussex Constabulary’s Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch 1
52 Muschinski v Dodds (1985) 160 CLR 583 at [590], confirmed in The Trustees of the Property of John Daniel Cummins, a Bankrupt v Cummins [2006] HCA 6
53 De Facto Relationships Act 1996
54 Calverley v Green (1984) 155 CLR 242 at [265] per Murphy J, which
affirmed presumption does NOT apply to de facto relationships
55 Nelson v Nelson (1995) 132 ALR 133 at [140] per Deane and Gummow
JJ
56 Calverley v Green (1984) 155 CLR 242
57 Gibbs CJ in Hospital Products Ltd v United States Surgical Corp
(1984) 15 CLR at [41]
58 News Ltd v Australian Rugby Football League Ltd (1999) 64 FCR 410 59 Hospital Products Ltd v United States Surgical Corp (1984) 15 CLR
per Dawson J
60 Hospital Products Ltd v United States Surgical Corp (1984) 15 CLR 61 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, Director bought
shares in company to help it, court found directors breached fiduciary duty
62 Pervival v Wright [1902] 2 Ch 421
63 Coleman v Myers [1977] NZLR 225, though note exceptional facts, high
insider knowledge, way in which takeover performed. Case affirmed by
Brunninghausen v Glavanics (1999) 46 NSWLR 538, small family
company, director buy shares from another person knowing takeover would made shares worth even more
64 Boardman v Phipps [1967],
65 Maguire v Makaronis (1997) 188 CLR 449 66 Catt v Marac Australia Ltd (1986)
67 Chan v Zacharia (1984) 154 CLR 178, doctors in partnership for 3 years,
one wanted to do something in breach of fiduciary duty, court held couldn‟t even though partnership had come to end
68 Avtex (1992) 107 ALR 539
69 English v Dedham Vale Properties Ltd [1978] 1 WLR 93 per Slade J 70 Black v S Freedman & Co (1910) 12 CLR 105
71 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 72 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR
per Deane J
73 Breen v Williams (1996) 186 CLR 71
74 Chan v Zacharia (1984) 154 CLR 178 per Deane J, who did though warn
about too strict an application of fiduciary
75 Van Rassel v Kroon (1953) 87 CLR 298
76 Privy Council in Clark Boyce v Mouat [1994] 1 AC 428 held solicitor not
in breach if lawyers acts for mother and for son. Lawyer encouraged mom to obtain independent legal advice, though she declined. Mother had only engaged lawyer to ensure mortgage documents properly drawn up, not for legal advice. Jauncey L
77 Boardman v Phipps [1967] 2 AC 46 78 , per
79 Breen v Williams (1996) 186 CLR 71 80 McInerney v MacDonald (1992) 93 DLR 415
81 Wilberforce J in Phipps v Boardman [1964] 1 WLR 993, held Boardman‟s
letter to beneficiaries regarding what to do/seeking consent, did not constitute sufficient disclosure, since not full disclosure of all material Boardman aware of
82 BLB Corp of Australia Establishment v Jacobsen (1974) 48 ALJR 372,
case relating to substantial losses of Australian company was director, not known until year end when accounts were produced
83 Boardman v Phipps [1967] 2 AC 46, where consent of 2/3 trustees held
to be insufficient, despite 3rd trustee had dementia, and incapable of forming
reasoned judgment
84 Boardman v Phipps [1967] 2 AC 46, court stressed fiduciary‟s
honesty/integrity, but still breach
85 Muschinski v Dodds (1985) 160 CLR 583 per Deane J
86 per Gummow J in Stephenson Nominees Pty Ltd v Official Receiver
(1987) 16 FCR 536
87 Aristoc Industries Pty Ltd v RA Wenham (Builders) Pty Ltd [1965]
NSWR 581
88 Maguire v Makaronis (1997) 188 CLR 449
89 Deane J in Muschinski v Dodds (1985) 160 CLR 583 at [614]
90 High Court in Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371
at [370-80]
91 Mason CJ in Warman International Ltd v Dwyer (1995) 182 CLR 544 92 per High Court in Hospital Products Ltd v United States Surgical Corp
(1984) 156 CLR 41 at [110]
93 per Deane J in Chan v Zacharia (1984) 154 CLR 178 at [204] 94 Selborne LC in Barnes v Addy (1874) LR 9 Ch App 244 at [251-2] 95 Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16, where attempt to replace first limb
with „unjust enrichment‟ by Hansen J stated by High Court has
„inappropriate[ly]‟ radical (so much that High Court warned about usurping high court authority), „unhistorical‟, inconsistent with equitable doctrine
96 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 97 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR
373
98 Giumelli v Giumelli (1999) 196 CLR 101 at [112] per Gleeson CJ 99 Royal Brunel Airlines Sdn Bhd v Tan[1995] 2 AC 378
100 Muschinski v Dodds (1985) 160 CLR 583, de facto couple desiring to
buy land, land put in both names, but woman put in $25K, man put in $2.5K. Although failed as resulting trust, court decided there was constructive trust
101 Carson v Wood (1994) 34 NSWLR 9
102 Baumgartner v Baumgartner (1987) 164 CLR 137 103 Baumgartner v Baumgartner (1987) 164 CLR 137 104 ()
105 per Muschinski v Dodds (1985) 160 CLR 583 at [589-9] per Mason J 106 Muschinski v Dodds (1985) 160 CLR 583 at [605-6] per Brennan J 107 Giumelli v Giumelli (1999) 196 CLR 101
108 Windeyer J in Coulls Bagot’s Executor and Trustee Co Ltd (1967) 199
CLR 460
109 Uniting Church in Australia Property Trust (NSW) v Immer (No 145) Pty Ltd (1991) 24 NSWLR 510, where there was proprietary right
relating to airspace above building in Sydney, since sufficiently unique
110 Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146 111 Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460,
though woman was not party to mining royalty agreement, and couldn‟t sue under contract, she was granted specific performance to be paid this
112 Co-Operative Insurance Society Ltd v Argyll [1998] AC 1 113 High Court in Patrick Stevedoring Operations NO 2 Pty Ltd v MUA
[1998] HCA 30
114 Action lay dormant between 1956 and 1962. Though the reason to delay
was because there was sibling relationship involved, High Court held respondent was guilty of laches, appellant thus prejudiced, and thus disentitled to remedy of specific performance (Lamshed v Lamshed (1963) 109 CLR 440)
115 Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57 116 Giumelli v Giumelli (1999) 196 CLR 101
