WEEK 1 ... 6
THE DEVELOPMENTOF EQUITY ... 6
Development ... 6 Equitable Jurisdiction ... 7 Exclusive Jurisdiction ... 7 Concurrent Jurisdiction ... 7 Auxiliary Jurisdiction ... 7 EQUITABLE DAMAGES ... 7
Distinguish Equitable Damages from Equitable Compensation ... 7
FUSIONOF EQUITABLEAND COMMON LAW JURISDICTIONS ... 8
The Fusion Fallacy ... 9
THE MAXIMSOF EQUITY ... 9
THE NATURE OF EQUITABLE INTERESTS AND RIGHTS ... 10
WHATISANEQUITABLEPROPRIETARYINTERESTINSPECIFICPROPERTY? ... 10
The Trust ... 10
Is an Executor (of a deceased estate) a Trustee? – no ... 10
Classification of Equitable Rights ... 11
Mere Equity ... 11
Equitable Proprietary Interest ... 11
Equitable Proprietary Interest in respect of specific property ... 11
The Personal Equity ... 12
The Mere Equity in Specific Property ... 12
SUMMARY TUT 1 ... 13
WEEK 2 ... 14
TRUSTSDISTINGUISHEDFROMOTHERSIMILARCONCEPTS ... 14
Talking Express Trusts ... 14
Trust and Bailment ... 14
Trust and Debt ... 14
Trust and Agency ... 15
Trust and Contract ... 16
Summary ... 16
TRUST TERMS ... 16
Fixed Interest Trusts, Trust Powers or Discretionary Trusts and Mere Powers ... 16
1. Fixed Interest Trust ... 16
2. Mere Powers (Bare or Collateral) ... 16
3. Trust Powers (Discretionary Trusts) ... 16
General, Special and Hybrid Powers (of appointment) ... 16
General Powers (applies to MP only) ... 17
Special Powers (applies to MP or TP) ... 17
Hybrid Powers (TP or MP) ... 17
THREE CERTAINTIESREQUIREDFORTHECREATIONOFANEXPRESSTRUST ... 17
1. Certainty of Intention ... 18
Precatory Trusts (now defunct) ... 18
2. Certainty of Subject Matter ... 18
3. Certainty of Objects ... 18
Tests ... 19
1. The List Test for Certainty of Objects ... 19
2. The Criterion Test for Certainty of Objects (less stringent) ... 19
Life of a Trust ... 19
Certainty of objects for fixed trusts ... 20
Application of the Criterion Certainty Test to ‘relatives’ ... 20
Abolition in Queensland of the Rule Against the Delegation of Testamentary Power ... 21
WEEK 3 ... 22
THE CONSTITUTIONOR CREATIONOFVOLUNTARYTRUSTS ... 22
Voluntary Trusts ... 22
Steps Required to be taken to Complete a Gift in Equity (ie to complete a voluntary trust) ... 22
A settlor must do everything that only he can do. The remaining acts may be performed by another or by others. ... 22
Circularity of Obligation (legal impossibility) ... 25
If impossible – may be construed as a release ... 26
What is Present Property? ... 26
Assignments of Choses in Action ... 27
S199 PLA – Assigning CIA – does NOT apply to Decl of Trust. ... 27
Gift of Shares in a Company ... 28
A Gift Made by way of Release to Trustee ... 28
Schedule 6 - Definition of ‘Disposition’ ... 28
A Release ... 28
Exceptions to the Complete Constitution Rule ... 29
The Rule in Strong v Bird (Pure Personalty & Land?) ... 29
Donatio Mortis Causa (Not to Land in Australia) ... 29
The Rule in Dearle v Hall ... 29
TUT4 WEEK 5 ... 30
WEEK 4 ... 31
PROPERTY LAW ACT WRITING REQUIREMENTSFORTHECREATIONANDDISPOSITIONOFCERTAINPROPRIETARYINTERESTS (IELAND) ... 31
Section 10 ... 31
Pure Personalty ... 31
SECTION 11 (P11 COURSEMATERIALS) ... 31
Section 11(1)(a) (Legal & Eq land, made in writing, + agent) ... 31
Section 11(1)(b) (decl of trust – land, ev in writing, no agent) ... 32
Section 11(1)(c) (disp of eq interest– land & pp, ev in writing, +agent) ... 32
Schedule 6 - Definition of ‘Disposition’ ... 33
Section 11(2) ... 33
Section 12(1) ... 33
Section 59 (p12 Course materials) ... 33
Section 6 (p12 course materials) ... 34
Section 6(d) ... 34
Part Performance ... 34
Section 12(2) ... 34
Leading case re-section 11 ... 34
Good summary of the application of section 11 ... 37
Grey Direction (Can only release to trustee) ... 37
(Doctrine of Merger of Estates) ... 37
Section 3 – schedule 6 ... 38
Does a disposition include a release? (yes) ... 38
(Doctrine of Merger of Estates 2) ... 39
REVOCABLE MANDATE ... 39
Distinction between a direction to transfer, the “Grey” direction (a misnoma), and a mere revocable mandate to transfer, the “Vandervell” direction (genuine direction) ... 39
The sub-trust ... 41
Direction to Transfer Legal Interest ... 41
Mischief Rule vs Literal Rule ... 42
Vandervell Direction: ... 42
Dealing by or on behalf of the beneficiary of a resulting trust ... 42
Dennis’ Opposing view to Literal Rule in s11(1)(c) – Position Uncertain ... 43
WEEK5 ... 44
CHARITABLE TRUSTS ... 44
General Charitable Purpose ... 44
Preamble to the Statute of Charitable Uses ... 44
Public Benefit – The Four Categories of Legal Charity ... 44
Meaning of a Section of the Community or Public ... 45
Improper Discrimination ... 45
Exception – Trusts for the Relief of Poverty ... 46
Public vs Private Trust (in poverty)? ... 46
‘Proviso’ may cure ... 47
1. Trusts for the Relief of Poverty ... 47
Trusts for Relief of the Poor (Def’n of Poverty / Poor?) ... 47
Trusts for the Benefit of the Sick ... 47
Trusts for the Benefit of the Impotent ... 48
2. Trusts for the Advancement of Education ... 48
What constitutes education in the law of charitable trusts? ... 48
Music ... 49
Art ... 49
Law Reports ... 49
Physical Education ... 50
A charitable trust for the advancement of education must also be for the public benefit. ... 50
3. Trusts for the Advancement of Religion (not any religion in general – deals with particular religions) ... 50
1. Definition - The Meaning of Religion? ... 50
2. What constitutes the advancement of Religion? ... 51
Public Benefit Element Required ... 52
Trusts for Worship and Prayer ... 52
4. Trusts for Other Purposes Beneficial to the Community ... 52
Beneficial to the Community ... 52
Spirit and Intendment of the Preamble ... 53
What about a law change in a foreign country? ... 54
Section 103 Trusts Act (recreation and leisure) ... 54
TRUSTSFOR CHARITABLEANDNON-CHARITABLEPURPOSES ... 55
Section 104 Trusts Act (cm p13) (severence) ... 55
THE DOCTRINE OF CY-PRES (= ASNEARLYASPOSSIBLE) ... 55
1. Initial Impossibility ... 56
2. Subsequent Impossibility ... 57
cy-pres extended by: Section 105 Trusts Act (cm p14-15) ... 57
WEEK 7/8 ... 59
RESULTINGTRUSTS ... 59
Automatic Resulting Trusts – Incomplete Dispositions ... 59
Presumed Resulting Trust ... 60
Express Oral Agreement to receive Property as Trustee = Constructive Trust (NOT Resulting Trust) ... 61
EXAM FLOWCHART – RESULTING TRUST / CONSTRUCTIVE TRUST ... 63
Defacto Relationship Case (Presumed Resulting Trust) ... 64
Equitable Charge – where A makes repayments solely despite A & B being ‘joint and several’ ... 64
No Presumption of Advancement – Defacto Relationship ... 64
Mortgage Free Investments ... 65
Illustration of the Distinction Between the Conventional Purchase of Land as in Calverley v Green and the Mortgage Free Investment in Land ... 65
Presumption of Advancement (ie. Presumption of Gift) ... 66
Presumption of Advancement – prevents presumption of resulting trust arising ... 66
The gratuitous transfer of title to personal chattels does not raise a presumption of resulting trust ... 67
evidence required - Rebutting Either the Presumption of Advancement or the Contrary Presumption of a Resulting Trust ... 67
Some Intricate Aspects Concerning the Presumption of a Resulting Trust (rebutting the presumption) ... 67
Rebutting the Presumption of Resulting Trust – immediate Gift ... 67
Accepted Baumgartner Principle ... 68
Constructive Trusts? ... 69
Defacto JV without attributable Blame ... 69
Proprietary Estoppel = constructive trust (inducement – detriment) ... 70
JV or Proprietary Estoppel? ... 70
A New Approach (if unjust – equitable compensation over constructive trust) ... 72
Presumption of a Resulting Trust may be Rebutted Either Completely or Only Partially ... 73
De Facto Legislation ... 73
Resulting Trusts and Illegal Transactions ... 73
The Former Position – The Old Law in Australia (still law in UK) ... 73
Illegality ... 73
English Position (not law in Australia) ... 74
The Current Position – The New Law in Australia (Nelson v Nelson – Intention to Defraud) ... 74
Presumption of Advancement – Mother - Children ... 75
Remedy – Repay Benefit Received within Specified Time ... 76
Measuring the Unlawfully Derived Benefit ... 77
WEEK 8/9 ... 78
CONSTRUCTIVE TRUSTS (RESIDUARYCATEGORY) – NOTBASEDONINTENTION ... 78
Constructive Trusts Imposed to Prevent the Statutory Writing Requirements from being used as an Instrument of Fraud ... 78
Orally Receiving Property subject to Contingent Trust ... 78
Oral Agreement to SELL land not enforceable ... 78
Secret Trusts and Half-Secret Trusts ... 79
Fully Secret Trusts ... 79
Half Secret Trusts ... 79
Strangers who Receive Trust Property Either with Notice that it is Trust Property in Breach of Trust or Pursuant to Assisting in Another Person’s Breach of Fiduciary Duty and Thereby Making a Profit ... 80
Knowing Assistance ... 80
Knowledgeable Assistance of a breach of Fiduciary Duty ... 80
Selangor Test (Test of Reasonable Care) ... 81
Carl Zeiss Test (Dishonest + Blind Eye) – More Lenient ... 81
Honesty – Objective Standard (No Moral Standards Implied) ... 82
WEEK 9 ... 84
FIDUCIARY RELATIONSHIPS ... 84
The Elements of a Fiduciary Relationship ... 84
Fiduciary Duties ... 84
Relationships Giving Rise to Fiduciary Obligations ... 84
Trustee and Beneficiary ... 84
Director and Company ... 85
Directors and Corporate Business Opportunities ... 86
Exoneration from Duty to Account ... 86
Promoter and Company ... 86
Stockbroker and Principal ... 87
Partner and Partner ... 87
Fiduciary Obligations Prior to the Execution of a Partnership Agreement ... 87
Fiduciary Obligations Continue Following the Dissolution of a Partnership ... 87
Banker and Customer (Not, as such, a Fiduciary Relationship) ... 88
Agent and Principal ... 89
Joint Venturers ... 89
Solicitor and Client ... 90
Summary of Boardman v Phipps ... 92
Remedies Ordered in Boardman and Phipps ... 92
Employer and Employee ... 92
Other Possible Fiduciary Relationships ... 93
Manufacturer and Distributor ... 93
Doctor and Patient – NO in Australia ... 94
Clergy and Parishioner - NO ... 95
Scope of fiduciary? ... 95
Bribes Received by a Fiduciary ... 95
REMEDIES ... 95
Injunction ... 95
Remedies to Recover Gains Improperly Made by Fiduciaries and to Recoup Losses Improperly Cause to Persons to whom Fiduciary Duties are Owed ... 95
Liability not Dependent upon proof of loss ... 95
Appropriate Remedy still Uncertain ... 95
Constructive Trust – Proprietary – Not affected by Bankruptcy ... 95
Bankruptcy – Becomes (Bankruptcy) Trust property – Protected from Creditors ... 96
Personal Liability (Equitable Debt) – Equitable Compensation or AoP ... 96
Unsecured Creditor (No Charge over own property) – Not Protected – Dividend only ... 96
The Relevant Equitable Remedies Compared ... 96
(Apply) Liberal Allowance for Expenses, Skill and Effort ... 96
If Charge – Protected from Creditors ... 97
Contributory Negligence ... 97
Remedies Sought must be Mutually Consistent ... 97
REMEDYSUMMARY ... 98
fiduciary in breach – not bankrupt – deficit ... 98
WEEK 11 ... 99
TRACING (REMEDY) ... 99
tracing deficiencies ... 99
TRACINGAT COMMON LAW ... 99
TRACINGIN EQUITY (MIXINGOKAY) ... 101
Is there a need for an initial fiduciary relationship to allow equitable tracing? –debated – not clear ... 101
Rule in Clayton’s Case – First In / First Out ... 101
Tracing into a Mixed Fund ... 102
New Rule from Hallett’s – Presumption of Honesty ... 102
Remedy options for Claimant: ... 103
Presumption of Honesty still applies if balance < aggregate of Trust monies ... 103
have to show ownership at start of tracing process ... 103
Clayton’s Case (1st in/out) or Pari Passu (rule of proportionality)? ... 103
Refinement of Pari Passu – applies to EVERY withdrawal, not just ultimate balance. ... 104
Position Uncertain between equally innocent claimants ... 104
Presumption of Honesty not Confined to Mixing of Different Sums of Money but Applies to any Mixing of Different Items of Pure Personalty by a Fiduciary ... 104
Mixing by Fiduciaries of their Own Money with Trust Moneys Derived from One or More Sources ... 105
Claimants can only claim LOWEST balance of account in intermediary period ... 105
whether to apply hallett, re-oatway. pari passu or clayton’s? ... 106
Competition between Delinquent Fiduciary & Claimant ... 107
Competition between equally innocent claimants ... 107
Where mixture of Fiduciary and innocent claimants ... 107
conflict - Tracing Compared with a Breach fiduciary (Aop) ... 107
Two Difficult Cases – which preferred Profit Rule ... 108
Mixing by Innocent Volunteers ... 108
Special Statutory Provision – Section 109 Trusts Act ... 109
SUMMARY ... 110
TRACING TEMPLATE EXAMPLE – TUT 11 ... 110
Process ... 110
Answer 1: Clayton’s + Presump of Honesty in relation to LAND ... 111
Answer 2: Clayton’s + Presump of Honesty in relation to SHARES ... 111
Answer 3: Pari Passu + Presump of Honesty in relation to LAND ... 112
WEEK 1
THE D
EVELOPMENTOFE
QUITYDEVELOPMENT
Equity cannot be defined except in a general way as that body of legal principles developed by the former Court of Chancery (The principle court of equity). The common law, which existed before equity, is a complete and independent legal system that could function without equity. However, the common law is both deficient and harsh in some respects (eg. Only CL remedy was damages). Equity therefore has two functions:
• Equity supplements the common law by recognising some rights and remedies which the common law does not recognise such as specific performance.
• Equity corrects the common law; namely equity intervenes to correct the common law where it is regarded as harsh.
For example, equity recognises the concept of a trust whereas the common law does not. The trust is equity’s most
distinguished creation. Whereas the common law regards the owner of property as the holder of common law title, equity would enforce the trust in favour of the beneficiary against the trustee.
Equity could not function without the common law, as it must have something to operate on. Indeed, equity is neither a complete nor an independent system; equity depends on the common law for its existence.
Equity owes its development to the Lord Chancellor (Sir Thomas Moore 1529) of England. From the 13th century, the Lord Chancellor would entertain petitions from persons not satisfied with the common law positions. Eventually, the Lord Chancellor became the head of the Department of Chancery and later, the Court of Chancery. The Lord Chancellor would act on the conscience of individuals when the common law procedure was considered unconscionable. He would issue a so-called ‘common injunction’ (also order SP) against that individual to stop the enforcement of a common law judgment or prevent the bringing of an action or to prevent a remedy being awarded by a common law Court (CL courts – Kings Bench, Common Pleas, Ex-Chequer). Therefore equity provided superior remedies only if CL damages inadequate.
This constant interference by the Lord Chancellor annoyed the common law judges. It came to a head in the 17th century (1615). In the Earl of Oxford’s Case, the Lord Chancellor issued a common injunction against a common law plaintiff from enforcing a judgment from a common law Court in ejectment. This brought about a dispute between Coke LCJ of the Court of King’s Bench and Ellesmere LC regarding this interference. In 1616, the dispute was referred to King James 1 who resolved the matter in favour of the Lord Chancellor, and thus, from this time onwards, the rules of equity have prevailed over the common law whenever there is conflict. When the common law says one thing and equity says something else, the equitable view will prevail. Section 5(11) of the Judicature Act 1876 (Queensland) embodies this supremacy of the rules of equity over the rules of common law. (Has been relocated in S249 Supreme Court Act 1995 (QLD).
CL did not recognise the Trust, so equity introduced the Trust for fairness. 3 types of Trust:
•
Express Trust – Express Intentions•
Implied Trust – Implied Intentions•
Constructive Trust – no intention at all (ie. imposed by the court)The following is a standard example of the rules of equity prevailing over the common law in the doctrine of contribution. In a contract of guarantee, the guarantor guarantees that the debtor will pay the creditor. The contract is between the creditor and the guarantor. If there are two or more guarantor’s or surety’s, on default by the debtor, the creditor can call upon one of the surety’s to pay. The common law position is that to claim contribution from his fellow surety’s, a guarantor must have actually paid more than his fair share of the debt. The equitable position is different. In Wolmershausen v Gullick, it was held that in equity, as soon as the creditor claims against the guarantor, that surety is entitled to join the other surety’s to share the obligation to repay the debt. The equitable position is now law.
Example: Irrevocable Powers of Attorney. CL = intrinsically revocable. Eq = if valuable consideration given to
EQUITABLE JURISDICTION
There are three categories of equitable jurisdiction:
• Exclusive jurisdiction
• Concurrent jurisdiction
• Auxiliary jurisdiction
Exclusive Jurisdiction
The exclusive jurisdiction of equity is exercised where the rights in question are recognised in equity only. The common law has no role to play and common law concepts are excluded. A prime example is the trust, a concept unknown to the common law. When equity enforces a trust, it is an exercise of the exclusive jurisdiction of equity because the most important Fiduciary duty is that of trustee, recognised in equity only and not at common law.
Concurrent Jurisdiction
The concurrent jurisdiction of equity arises where there is a violation of a right that is recognised both in equity and at common law. For example, if there is a contract for the sale of land and the purchaser or vendor is in breach of that contract, the common law simply awards damages to the innocent party. The equitable remedy for breach of a contract for the sale of land is specific performance. Specific performance can be ordered against either the vendor or the purchaser as the case may be. If the vendor breaches the contract, equity will direct him to execute the relevant documents and give those documents to the purchaser. The reason why equity orders specific performance against the vendor is that land is considered to be a unique commodity and accordingly, damages will be an inadequate remedy for the purchaser. According to the doctrine of mutuality, the vendor is also able to obtain an order for specific performance against the purchaser. If the purchaser is in breach of the contract, the vendor cannot say that he is deprived of a unique commodity but as the purchaser can obtain specific performance against the vendor, it is only fair that the vendor can obtain specific performance against the purchaser. Although specific performance is normally available with respect to a contract for the sale of land, it is also available in the case of the sale of a unique chattel or more broadly even, a contract for the sale of pure personalty that is unique.
Auxiliary Jurisdiction
The auxiliary jurisdiction is exercised only to assist a person in the protection of a purely common law right that has been violated. For example, if a trespass (nuisance) is committed, as trespass is actionable per se, there can be an action at common law for damages against the trespasser. In the case of an apprehended trespass or wrong of another nature, however, damages are not awardable as no damage is done. Thus, no remedy is available at common law. By contrast, equity will issue a quia timet (ie. ‘because he fears’) injunction. The right to the discovery of documents in the course of litigation is an equitable right conferred by the auxiliary jurisdiction. Example: If Creditor sues Debtor, equity would order discovery of documents from the D.
EQUITABLE DAMAGES
The concept of equitable damages was introduced by section 2 of the Chancery Amendment Act 1858 (United
Kingdom), the so-called Lord Cairns’ Act. This provision was adopted by section 62 of the Equity Act 1867
(Queensland). Section 62, adopting Lord Cairns’ Act into Australia, has since been repealed but its operation has
been preserved by section 2(4) of the Statute Law Revision Act 1908 (Queensland). In Barbagallo v Catelan Pty Ltd, MacPherson J noted the common practice to refer to Lord Cairns’ Act jurisdiction as section 62 even though it has been repealed.
DISTINGUISH EQUITABLE DAMAGES FROM EQUITABLE COMPENSATION
Equitable damages are often confused with equitable compensation. The concept of equitable damages, derived from Lord Cairns’ Act is to be contrasted with equitable compensation, which is not derived from Lord Cairns’ Act. According to Nocton v Lord Ashburton, equitable compensation is payable for any loss caused by a breach of a fiduciary duty. (Note: Equity has always had this and should not be confused – an inherent power of the court exercising Equitable jurisdiction). There is some argument as to whether before Lord Cairns’ Act was passed, the Court of Chancery did have the power to award equitable damages. This is regarded as an interesting but not
accepted view. The accepted view is that prior to Lord Cairns’ Act the Court of Chancery could award equitable compensation, not equitable damages.
Section 2 of Lord Cairns’ Act empowers a Court to award equitable damages to a plaintiff either in lieu of or in addition to an injunction or specific performance provided at the time of the application for the injunction or specific performance, the Court had jurisdiction to entertain the application. Jurisdiction is determined at the time of the application for an injunction or specific performance and the Court may award equitable damages even if at the time the order is made, the Court has lost jurisdiction.
It is not immediately clear how jurisdiction may be lost. However, for example, there is a contract for the sale of land subject to a mortgage. The vendor fails to transfer the land to the purchaser and the purchaser sues the vendor for specific performance. At the time of commencement of the action, the Court had the power to grant specific performance. If in the course of the hearing, the vendor defaults in the repayment of the loan to the mortgagee and the mortgagee exercises its power of sale, by the time judgment is given, the Court would have no power to grant specific performance. Nonetheless, the Court could still award equitable damages to the purchaser under Lord Cairns’ Act.
In Barbagallo v Catelan Pty Ltd, MacPherson J outlined four propositions with respect to section 62:
• Equitable damages under Lord Cairn’s Act may be awarded even where the plaintiff does not make an express claim for them. For example, if the plaintiff simply claims an injunction or specific performance, the Court may also award equitable damages. Thus, equitable damages may be but need not be expressly claimed.
• Jurisdiction is determined at the time at which the plaintiff applies for an injunction or specific performance. If at the time of commencement of the action the Court had jurisdiction to entertain the application for specific performance or injunction, equitable damages may still be awarded even if jurisdiction is later lost. Example:
Breach of Contract between Vendor and purchaser of a house. But Mee sells the house during the period of the dispute so that SP is no longer available – therefore Eq damages may be awarded.
• Even if the Court refuses to grant a remedy such as specific performance on discretionary grounds for example if the plaintiff is guilty of laches, namely unconscionable delay or acquiescence, the Court may still award damages in lieu of an equitable remedy.
• The most interesting point is that as the Court has the power under the legislation to grant damages in lieu of an injunction, damages may be granted even though no damage has yet been suffered. For example, in Leeds Industrial Co-operative Society Ltd v Slack, a split decision of the House of Lords, a quia timet (‘because he fears’) injunction may be granted before the apprehended injury occurs. Accordingly, damages may be awarded even though no actual damage is suffered. If damages are awarded instead or in addition to an injunction, this amounts to the award of equitable damages even though the plaintiff suffers no damage. The dissenting opinions suggested that equitable damages couldn’t be awarded before the damage is suffered. They argue that statute or no statute, it is absurd to grant damages to a person who has not suffered damage. Example: Sue a neighbour because an unsafe wall may collapse on your property (ie no damage yet) – P applies for an IN, but if court assesses that if wall falls only damage is cost of cleaning up then they may award equitable damages to cover this cost.
FUSION OF EQUITABLE AND COMMON LAW JURISDICTIONS
Prior to the enactment of the following legislation, separate Courts exercised the equitable and common law jurisdictions. This was highly inconvenient, as if a plaintiff went to the wrong Court, that Court would have no jurisdiction to entertain the application.
The Judicature Acts 1873 and 1875 (United Kingdom), which where duplicated in Queensland by the Judicature
Act 1876 (QLD), to reduce inconvenience, fused the equitable and common law jurisdictions. This means that the
Supreme Court may now exercise both common law and equitable jurisdictions. (But does not mean Eq & CL are fused).
The NSW legislation to fuse the jurisdictions was not enacted until 1972. Before this time, it was possible to make an application to the wrong division of the Supreme Court as equity and common law were administered by different divisions of the Court.
In Castlereagh Motels Ltd v Davies-Roe, a company director was accused of a breach of fiduciary duty. He was sued in the Common Law Division of the Supreme Court of NSW. The Court had to say that it could not entertain
the action, as it should have commenced in the equity division as the matter was heard before 1972. The common law does not acknowledge the existence of fiduciary duties, it is an entirely equitable concept.
Section 4 of the Judicature Act fuses the two jurisdictions by providing that the Supreme Court shall administer law and equity by recognising all legal and equitable estates, titles, rights, duties and liabilities in every civil cause or matter. Section 5(11) provides that in the case of conflict between law and equity, the rules of equity shall prevail over the common law rules. (Relocated to s244 SCA 1995 (QLD) – every judge has power to hear equity)
THE FUSION FALLACY
A perennial dispute is whether the act simply fuses the two jurisdictions or whether it went further and fused the two systems of law so that it is no longer intelligible to refer to common law and equitable remedies as if they were different.
• Those who subscribe to the view that the act only fuses the two jurisdictions accuse the other side of the fusion fallacy.
• Those who subscribe to the view that the act fuses the two systems of law accuse the other side of the anti-fusion fallacy.
In Salt v Cooper, Sir George Jessel suggested that the act merely fuses the two jurisdictions but leaves the two
systems of law separate. This is a superior view because otherwise, section 5(11) would not be required.
In Seager v Copydex Ltd, the plaintiff designed and manufactured goods. The plaintiff requested that the defendant market those goods. In the course of the discussions between the plaintiff and the defendant, the plaintiff disclosed confidential business details to the defendant. The defendant refused to market the goods but then copied the confidential details that the plaintiff ha disclosed in a new design. The defendant was guilty of a breach of the duty of confidence, a purely equitable right. The plaintiff applied for an injunction to stop the defendant from continuing to manufacture and sell the copied goods. The plaintiff also claimed damages for the loss suffered by virtue of the defendant’s breach of the duty of confidence or alternatively, the plaintiff claimed an account of profits from the defendant. The English Court of Appeal rejected all three claims. The Court awarded damages to the plaintiff but those damages were not equitable damages based on Lord Cairns’ Act. The Court purported to award common law damages assessed on the basis of reasonably compensating the plaintiff for the defendant’s unauthorised use of confidential information. A further difficulty with the remedy granted is that the damages awarded were not based on the loss suffered by the plaintiff but on the use of the confidential information by the defendant. No injunction, no damages for loss and no account of profits were awarded. The Court purported to award common law damages for the breach of an equitable right, namely the duty of confidence. In Australia, it is most likely that an order for an account of profits would be made.
The view taken in Seager v Copydex Ltd is that if a legal or equitable right is breached, the Court may award a legal or equitable remedy. For example, if an equitable right is violated, equitable and common law remedies are available. In English v Dedham Vale Properties Ltd, Slade J referred to Seager v Copydex Ltd in terms of an award of equitable damages under Lord Cairns’ Act but as the damages were not awarded for the loss suffered by the plaintiff, his reasoning is unconvincing.
THE MAXIMS OF EQUITY
Due to its haphazard origin, equity is not a complete system but there are certain general principles upon which the Court of Chancery exercised its jurisdiction. Many of these principles are embodied in the so-called maxims of equity. These are not positive laws or rules or principles of equity that will be applied literally and relentlessly in their full width but rather as trends that can be discerned from many of the detailed rules that equity has established. The maxims are broad statements of the equitable approach that describe the result of equitable rules and principles. Further, no logical division of these maxims is possible. The maxims do not cover the whole ground of equity and they overlap. One maxim may contain by implication what belongs to another. Nonetheless, each maxim merits separate consideration, for each embodies some peculiar function of equity. The 12 maxims are as follows:
• Equity will not suffer a wrong to be without a remedy.
• Equity follows the law.
• Where there is equal equity, the law shall prevail.
• Where the equities are equal, the first in time shall prevail.
• He who seeks equity must do equity.
• He comes into equity must come with clean hands.
• Equality is equity.
• Equity looks to the intent rather than to the form.
• Equity looks on that as done which ought to be done.
• Equity imputes an intention to fulfill an obligation.
• Equity acts in personam.
THE NATURE OF EQUITABLE INTERESTS AND RIGHTS
W
HATISANEQUITABLEPROPRIETARYINTERESTINSPECIFICPROPERTY?
THE TRUST
The trust is the most important institution in equity. Def’n In Hardoon v Belilios, Lindley LJ declared that all that was necessary to create a trust, namely the relation of trustee and beneficiary was to prove that legal title to
property vests in one person and that the equitable title to the same property vests in another person. The division of legal and equitable title necessarily results in the creation of a trust.
In Baker v Archer-Shee, the House of Lords held that a beneficiary under a trust (=owner of Property) had more than a chose in action to enforce the trust against the trustee. A majority of the House of Lords held that the beneficiary is the owner in equity of the property held in trust for him. The chose in action is merely incidental to equitable ownership. The beneficiary under a trust has the property in equity, not just a chose in action.
The beneficial interest of a beneficiary under a trust can form the subject matter of a trust. If someone is the beneficiary under a trust and that person declares himself a trustee of that beneficial interest for a third party, there would be created a trust. The head trustee is the original trustee, the beneficiary of the head-trust is also a sub-trustee and there is a sub-beneficiary of the sub-trust.
A beneficiary under a trust, because he is the equitable owner of the property, has an equitable proprietary interest in that property but lesser forms of equitable proprietary interests in specific property are possible.
A person may have an equitable proprietary interest in specific property even though he is not the equitable owner of that property; for example, the equity of redemption (right to pay off loan and discharge mortgage) possessed by a mortgagor. The mortgagor has an equitable proprietary interest in specific property, namely the equity of redemption in the mortgaged property, but the equitable proprietary interest of the mortgagor is not equitable ownership of the property as the mortgagee is not a trustee for the mortgagor. Also, where a person has a charge on property, they have an equitable proprietary interest in the property charged but the chargee’s equitable proprietary interest is not equitable ownership of property. Thus, there are various forms of equitable proprietary interest in specific property of which the most comprehensive form is equitable ownership.
In the case of an absolute owner, there is no division between legal and equitable title. In DKLR Holdings Company Pty Ltd v Commissioner of Stamp Duties, Hope J held that an absolute owner does not hold legal title in trust for himself. This is a legal impossibility because the absolute owner cannot sue himself to enforce the trust. In the same case at High Court level, Aickin J held that an absolute owner of property possessed a legal interest, namely the entire and unqualified legal interest in that property, not qualified by any trust. An absolute owner of property does not own separate legal and equitable interests in that property. As a matter of convenience, the absolute owner may be described as having legal and equitable title to property but this is done simply to show that both equity and common law acknowledge him to be the owner. It does not mean that there are separate estates in law and in equity in the case of equitable ownership.
IS AN EXECUTOR (OF A DECEASED ESTATE) A TRUSTEE? – NO
(Note: Administered Estate = has been distributed by Executor, Unadministered Estate = assets not yet distributed) The executor of a will administers the deceased’s estate. The executor is a fiduciary but not a trustee of the assets of the deceased’s estate because in the course of the administration, the executor may have to sell the deceased’s estates assets to answer the debts of the deceased. This contrast is drawn out by the decision of the Privy Council in
Commissioner of Stamp Duties (Queensland) v Livingston. Here, Coulson died domiciled in NSW. Her first husband, Livingston, predeceased her. On his death Livingston granted Coulson a one third interest in the residue of his estate in his will. (The residue or a residuary estate refers to that part of the estate remaining after the deduction of debts, expenses, specific bequests of personalty and specific devises of realty, namely the remaining assets.) At the time of Coulson’s death, Livingston’s unadministered estate was unadministered. An unadministered estate
means that the assets of the estate have not yet been distributed to the beneficiaries and the creditors of the deceased. An estate ceases to be unadministered when all the assets in it have been distributed. Livingston’s estate comprised realty and personalty in Queensland and in NSW. The issue was when Coulson died whether she died owing property in Queensland, namely her one third residuary interest in Livingston’s unadministered estate. If so, her estate was subject to Queensland succession duty. It was held that despite the residuary interest, Coulson did not own property in Queensland at the time of her death. The estate was in the course of administration and there was no property on trust for Coulson. The estate may be discovered to be bankrupt and accordingly, there may be no residue.
Until the administration of the deceased’s estate is complete, one does not have assets that can be said to form the subject matter of a trust for any beneficiary.
Viscount Radcliffe said that in order for there to be a trust, there must be identifiable property capable of
forming the subject matter of a trust. The executor of an estate is not a trustee as there is no trust property. The
executor of the estate takes title to the deceased estates assets as full owner subject to the duties of administration. If a trust is created by a will, and a person is appointed both executor and trustee, the offices are consecutive and not concurrent. An executor could not be a trustee as no trust property could be identified as there may be no residue after administration. (ie Unadmin Estate = No Trustee)
Do not confuse a beneficiary under an unadministered estate with a beneficiary under a trust. In Commissioner of Stamp Duties (Queensland) v Livingstonthere was no trust as there was no property capable of forming the subject matter of a trust. In Baker v Archer-Shee, the equitable ownership of the property vested in the trustee.
In Commissioner of Stamp Duties (Queensland) v Livingston, the residue given to Coulson was not the subject matter of a trust. However, Coulson had an equitable chose in action against the executor’s of Livingston’s estate. This equitable chose in action was itself property and the Privy Council had to decide where that property was located. It was held that as Livingston had died domiciled in NSW and the executor’s of his will resided in NSW, the chose in action was located and should be enforced in NSW. Coulson’s equitable chose in action was not subject to Queensland succession duty (now abolished).
In Official Receiver in Bankruptcy v Schultz, the High Court held that the Commissioner of Stamp Duties (Queensland) v Livingston principle applies to all unadministered estates and not merely residues .It is not confined to interests in residuary estates and applies to specific bequests and devises that cannot be the subject matter of a trust as those assets may be sold in the course of administration. Here, there was a specific devise of a house and a specific bequest of the contents. The beneficiary under the will, who held a chose in action, became bankrupt. Section 116(1) of the Bankruptcy Act 1966 (Commonwealth) provides that the chose in action vests in the official trustee in bankruptcy and is distributable. It is devisable inter vivos or by will. The equitable chose in action would include its expected fruits.
CLASSIFICATION OF EQUITABLE RIGHTS
There are four categories of equitable rights:
• A mere equity in specific property
• An equitable proprietary interest in specific property
• A equitable proprietary interest in respect of specific property
• A personal equity
Mere Equity
A mere equity in specific property is a right that must be enforced to acquire an equitable proprietary interest in specific property. It is logically antecedent to an equitable proprietary interest. Per Kitto J in Latec (eg. Right of defrauded Mor to set aside the tfr of title to his land where Mee & purchaser were fraudulent).]
Equitable Proprietary Interest
An equitable proprietary interest in specific property is the ownership of an interest in a specific asset, for example; the beneficiary’s interest under a trust or the mortgagor’s equity of redemption.
Equitable Proprietary Interest in respect of specific property
An equitable proprietary interest in respect of specific property exists when no ownership in the relevant asset is conferred; for example, the right of the beneficiary under a will when the deceased estate is unadministered. The
beneficiary does not have an interest in specific property as that would make him a beneficiary under a trust. (ie. if enforced, may or may not give you property)
The Personal Equity
A personal equity is merely the right in equity to bring a personal action against another person. This right cannot be exercised against any other person and it cannot bind a third party, even when the third party has notice of the existence of the right. This right is purely personal against the person to be sued – it is a personal right in the strict sense. Enforcement of the right may or may not yield an equitable proprietary interest in specific property as the asset may be sold in the course of administration.
In National Provincial Bank v Ainsworth, the House of Lords was concerned with what is known as the deserted wives equity. Under the law at the time, a wife had the right against her husband to be provided with accommodation. As the right may exist against the husband one day but not on the next, it is a purely personal right against the husband with no proprietary interest. It fluctuates with matrimonial circumstances. Here, the husband deserted the wife and could not pay the mortgage on the house. The bank elected to take possession of the house. The wife argued that the bank could not take possession as the held the deserted wives equity. The Court held that the bank was entitled to the house on default by the mortgagor even with notice of the desertion and the wives accompanying right against her husband. The wife’s right was purely personal.
** Wilberforce J held that there are four criteria to identify a proprietary right:
• Definable
• Identifiable by third parties, namely capable of binding third parties
• In its nature capable of assumption by third parties, namely assignable
• Some degree of permanence or stability
The criteria are satisfied by an equitable proprietary interest in specific property, an equitable proprietary interest in respect of specific property, and a mere equity in specific property but the criteria are not satisfied by a personal equity as three criteria are not satisfied.
Mason J Toohey approved these four criteria in R v Toohey; ex parte Meneling Station Pty Ltd. The High Court held that a licence to graze stock on crown land was not an interest in that land as the licence could be cancelled with three months notice because the Minister was empowered to cancel, therefore no degree of permanence, stability and not assignable (ie. failing some of the 4 criteria).
The Mere Equity in Specific Property
In Latec Investments Ltd v Hotel Terrigal Pty Ltd HCA, Hotel Terrigal was the mortgagor and Latec Investments was the registered mortgagee. Hotel Terrigal defaulted and Latec Investments, as mortgagee, fraudulently exercised its power of sale by selling the property to its subsidiary company, Southern Hotels. The purchaser nonetheless registered a memorandum of transfer. The purchaser gave a floating charge to MLC (another company) for value without notice of the fraud. The floating charge subsequently crystallised and became a fixed charge, namely a full equitable proprietary interest. Hotel Terrigal later sought to have the sale set aside. The High Court held that there would be no difficulty in setting aside the sale if MLC had not been involved because Southern Hotels had been fraudulent and could not rely on the indefeasibility provisions of the relevant act, the Real Property Act, the NSW equivalent to the Land Title Act in Queensland. However, MLC’s fixed charge had intervened. The competition was between Hotel Terrigal, the defrauded mortgagor and MLC, the innocent holder of a charge for value. The Court held that MLC’s charge was prior to Hotel Terrigal’s right in equity to have the fraudulent sale set aside. It was held that as Southern Hotels was fraudulent, all that they obtained was Latec Investments mortgage.
Kitto J, (Equitable Proprietary Interest in Property for value & without notice acquires it free of mere equity) applying the reasoning of Westbury LJ in Phillips v Phillips held that the mortgagor’s right to set aside a fraudulent sale was a mere equity, logically antecedent to an equitable interest. The equitable interest was the mortgagor’s equity of redemption. However, this reasoning only applies where a fraudulent purchaser has registered title. The equitable maxim that where equities are equal, the first in time prevails (Rice v Rice) does not apply here as the equities are not equal. MLC has a full equitable proprietary interest whereas Hotel Terrigal only has a mere equity. Taylor J, relying on Stump v Gaby, held that the right of the mortgagor, to set aside the sale, is a proprietary interest in equity. However, after the sale to the fraudulent purchaser, there is an impediment to that equitable interest meaning that MLC’s proprietary interest prevails as the charge was created before the impediment was removed, namely before the sale was set aside. Essentially, Kitto and Taylor JJ are saying the same thing in different terms. A
Obtaining fraudulent title. Note: an unregistered interest is not an impediment). Menzies J held that the right of the defrauded mortgagor is a mere equity for the purposes of competition between equitable rights but for the purposes of an inter vivos transfer of succession, it was to be regarded as an equitable interest.
In the above circumstances, sale refers to a sale completed by the registration of the purchasers title. Indeed, in Latec Investments Ltd v Hotel Terrigal Pty Ltd, the fraudulent purchaser had become registered. If the purchaser had not registered its title, however, the situation would be different. In Victoria the position is clear Swanston Mortgagee Pty Ltd v Trepan Investments Pty Ltd, the Full Court of the Supreme Court of Victoria held that even where the purchaser’s title was not registered, the contract of sale itself between the vendor and the purchaser meant that the
mortgagor had a mere equity. Therefore, the mortgagor could not lodge a caveat. Unjustifiably, due to factual
differences, the Court purported to follow the reasoning in Latec Investments Ltd v Hotel Terrigal Pty Ltd.
In Queensland the position is unclear, Ryan J held in Re McKean’s Caveat that where the purchaser had not registered its title, the defrauded mortgagor had an equitable proprietary interest sufficient to support a caveat under section122(1)(a) of the Land Title Act. This decision is now embodied in section 122(1)(c) of the Land Title Act, which allows a registered owner to lodge a caveat.
Still Unsettled law – Forsyth v Blundell per Walsh J at 497 implied a Defrauded Mor (Purchaser not registered) had a mere equity. At 498 implied the Defrauded Mor had an Equitable Proprietary Interest.
In McKean v Maloney, (Breach of Mee selling when not taking reasonable care to achieve market value) MacPherson J made obiter dicta comments to the effect that if the mortgagee exercises the power of sale mala fides and the purchaser has not yet registered an instrument of transfer, the mortgagor would have to show that (1) the mortgagee had acted mala fides (bad faith) and (to retain your eq prop interest) arguably (2) had to show that the purchaser had notice of the mortgagee’s fraud at the time of purchase. (ie. If you have to show notice then you
have a mere equity, and if you then show notice you retain your equitable proprietary interest and Rice v Rice
applies)
It is unclear in a situation where the purchaser has not registered its title whether the defrauded mortgagor has a mere equity or an equitable proprietary interest. Under the Land Title Act, the mortgagor retains legal title but the
equitable position is of concern here. If the mortgagor retained an equity of redemption, namely a full equitable
proprietary interest, despite the fraudulent sale in a case where the purchaser had not registered its title, there would be no need for the mortgagor to show that the purchaser had notice of the mortgagee’s fraud because the mortgage would prevail. The mortgagor would prevail because, as according to Rice v Rice, when the equity’s are equal, the first in time prevails. If the mortgagor has a mere equity, Phillips v Phillips applies and the purchaser will prevail without notice of the mortgagee’s fraud.
SUMMARY TUT 1
Jane has an Equity of Redemption (Equitable Proprietary Interest). Trevor defrauded Jane. Margaret has an Equitable FS (Equitable Proprietary Interest) on signing the K and has no notice and has not registered.
Normally Jane would seek compensation under s85(3) PLA.
Under s78(2)(c)(2) LTA the registered Mees remedies is the right to foreclose on Mor to redeem the mortgage lot. Therefore the Mor retains Equity of Redemption and registered ownership.
Jane retains the Equity of Redemption as in Dennis’ eyes, no one can explain why it should be lost and reduced to a Mere Equity.
As between Albert and Christine – Normally Albert would acquire an EFS on signing of the K (in this case a K for the future), but in this case he obtains an requitable Chose in Action (ECIA).
Christine also acquires an ECIA, therefore applying Rice v Rice – Albert wins
Christine may claim that Albert didn’t lodge a caveat so he fails – but this is incorrect as (1) Albert couldn’t lodge as he has no equitable interest as required under s122(1)(a) LTA, and (2) Prejudice as Albert paid valuable consideration whilst Jane’s was a gift.
WEEK 2
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RUSTSDISTINGUISHEDFROMOTHERSIMILARCONCEPTSTALKING EXPRESS TRUSTS
Express Trusts can be created by:
•
Transfer – Transfer of Property Transferred to one/more persons for so as expressly to impose on transferees an obligation enforceable only in equity to hold for another person or persons of whom the transferees may beor for charitable purposes.
•
Declares – himself Trustee of Property that before declaration he or she owns.The concept of a trust is to be contrasted with other similar concepts at common law. There is no definition of trust commanding universal acceptance. Basically, there are two types of trusts:
• Trusts for the benefit of individuals, namely a trust with human individuals as the object of the trust. A trust of imperfect obligation, for instance a trust with specific animals as the object of the trust, cannot be enforced, even though it may be carried out.
• Trusts for the promotion of charitable purposes or charitable trusts. Such trusts are purpose trusts. Human individuals are not the objects of such trusts (although money will ultimately benefit individuals)
Generally, a trust arises whenever title to property is vested in one or more person so as to impose upon that person or upon those persons an obligation enforceable in equity to hold that property for the benefit of another person or for the benefit of several persons which may include but must not comprise the trustee or trustees or for a charitable purpose. The trustee cannot be the sole beneficiary. It is possible for someone to be a trustee and a beneficiary so long as he is not the sole beneficiary. If the trustee is the sole beneficiary, there is no trust, as the trustee cannot sue himself to enforce the trust.
TRUST AND BAILMENT
• A bailment involves a transfer of possession from the bailor to the bailee. An express trust is not concerned with the transfer of possession but the transfer of title to the person who takes that title as trustee or declaration of trust over property.. An express trust can also be created by an absolute owner declaring himself trustee of the property for another person, the beneficiary.
• The subject matter of a bailment can only be a personal chattel. It is not possible to have a bailment of other types of property. The subject matter of a trust may be any form of property such as land, personal chattels or choses in action provided that there is no statutory prohibition.
• A bailee is under an obligation to redeliver the personal chattel to the bailor or to the bailor’s nominee upon termination of the bailment. A bailment is created by delivery and is terminated by redelivery. Throughout the bailment, the bailor retains legal title to the personal chattel. The bailee is obliged to take reasonable care of the property during the bailment. A trustee is the legal owner of the relevant property and there is no obligation to redeliver possession to the beneficiary. The trustee’s obligation is to hold the property for the beneficial enjoyment of the beneficiaries under the trust. (Equity regards the beneficiary the owner)
• Bailment is a common law concept. The trust is an equitable concept.
• The bailor or the bailee may enforce a bailment. Only its beneficiaries may enforce a trust, unless the settlor of the trust reserves to himself a power to enforce the trust. The settlor is the person who has created a trust with property owned by him immediately before the trust is created.
The concepts of trust and bailment are, however, similar, in that they can be created either gratuitously or for value. For example, a bailee requiring payment for storage of a personal chattel is a bailment for value. If payment is made to the settlor for the creation of the trust, the trust is created for value.
TRUST AND DEBT
• A debt is created where one person, the debtor, is placed under a common law obligation to pay another person, the creditor, a specific sum of money. The debtor’s obligation, unlike the trustee’s obligation, is exclusively
personal. The debtor does not hold any property for the creditor. The creditor has a right to sue the debtor for money. In the case of a secured debt, the creditor can sell to recover debt but the proceeds still go to the debtor. (The concept of debt is wider than a loan, eg. Credit Card purchase = a debt not a loan)
• This distinction is crucial in cases of bankruptcy. If a debtor becomes bankrupt and his estate is insufficient to pay his debts in full, by virtue of section 108 of the Bankruptcy Act 1966 (Commonwealth), his creditor’s will
only be able to claim from his estate a ratable proportion of what is owed to them by the debtor. For example,
the creditors will receive two cents in the dollar. This is unsatisfactory for the creditors. If the debts are adequately secured, it is a different matter as the creditors may realise the security but this does not always happen. (Book p 486) If a trustee is declared bankrupt, that bankruptcy will not prejudice the beneficiary under
the trust by virtue of section 116(2)(a) of the Bankruptcy Act. Property held in trust by the bankrupt person is
not divisible amongst his creditors. This section embodies the position under the general law. Only property beneficially owned by the bankrupt is divisible amongst his creditors. A beneficiary’s property is, in the event of the trustee’s bankruptcy, protected. Section 58(5) Bankruptcy Act – secured debt can be enforce security not
withstanding the bankruptcy of the debtor. Note: Bankruptcy is a term used for natural persons only (not Corps).
• Summary: Creditors prejudiced by Bankruptcy (unless secured). A beneficiary is not.
Re Kayford Ltd (Book p23) illustrates the importance of the contrast between a debtor and a trustee in practice. Here, a trading company experienced trading difficulties. Fearing insolvency, the company decided to protect its customers by opening a customers trust deposit account and paid all money received from customers who ordered goods from the company into that account. The company would then receive money for orders as trustee. The company would withdraw the purchase price from the account when the delivery was made. The company went into liquidation and the liquidator claimed the money in the account belonged beneficially to the company and should be used to pay its creditors. The customers claimed that the trust account contained money that was held on trust for them in respect of unfulfilled orders. Megarry J held that the money in the trust account belonged to the customers as the company received the money as trustee and not as debtor. The insolvency of the company did not affect the account as those funds were held in trust for the customers (equitable ownership of the money was the customers). Megarry J drew an important distinction between someone declaring a trust over his own property and someone who receives property as trustee (in this case the company did not declare trust over property). The voidable transaction or voidable preference rule, which states that an insolvent company cannot preference certain creditors to others under company law, is irrelevant here. The money was not the company's in equity. The customers were not creditors. The company did not prefer certain creditor’s to others.
TRUST AND AGENCY
• An agent is given authority by another person, the principal, to act on behalf of them. A trustee does not act as agent but as principal. To everyone in the world except the beneficiaries under the trust, the trustee is the owner of the relevant property. It is only as between the trustee and the beneficiary in equity that the trustee is not regarded as the owner.
The following is an uncertain area of the law. When an agent receives money in the course of the agency, does the agent receive that money as debtor to the principal or as trustee for the principal? Whether the agent receives that money as debtor or trustee is a matter for the express or implied intention of the principal and agent. The authority for this proposition is Walker v Corboy (Book p7), a decision of the NSW Court of Appeal, where it was held that the agent was intended to account to the principal (farmers) as debtor only. Here the agent sold the farm produce of a number of principals, subsequently becoming insolvent. The Court said that there was no trust because it would be impractical for an agent to hold the funds of so many principals’ on trust. To avoid commercial inconvenience, the agent was to account as debtor and not as trustee.
• The principal may give directions to the agent. In Re Brockbank, (Book p51) it was held that the beneficiary under a trust couldn’t give directions to the trustee as to how the trust could be executed. They may elect to terminate the trust if in combination they own the entire beneficial interest but until they do so, the trustee is not bound if they purport to give directions.
• Agency is terminated by the death of either the principal or the agent. The trust is not terminated by the trustee’s death or by the death of one or more beneficiary. Maxim = A Trust never fails for want of the trustee.
TRUST AND CONTRACT
• A contract is an agreement made between two or more parties either supported by sufficient consideration or made under seal. The contracting parties do not become trustees or beneficiaries for each other.
• Contract is a common law concept. The trust is an equitable concept.
Nonetheless, the benefit of the contract as distinct from the burden may be held in trust according to Lloyd’s v Harper (Book p170). The Courts are reluctant to find the intention to hold the benefit of a contract in trust. Readily inferring such an intention will blur the distinction between trust and contract.
SUMMARY
The common law concepts of bailment, debt, agency and contract are recognised in equity even though they are not equitable concepts. However, the common law does not recognise the trust or any other equitable concept.
TRUST TERMS
FIXED INTEREST TRUSTS, TRUST POWERS OR DISCRETIONARY TRUSTS AND
MERE POWERS
It is important to distinguish between the following terms:
1. Fixed Interest Trust
A fixed trust or a fixed interest trust is a trust where the interests of both the various beneficiaries and the identities of the various beneficiaries themselves are specified. For example, a trust for A, B and C in equal shares is a fixed interest trust. (The trustee has no power to select beneficiaries or their interests).
2. Mere Powers (Bare or Collateral)
A mere power, a bare power or power collateral is the power to appoint property that does not have to be exercised. The person in whom the power vests is not obliged to exercise it.
A person who confers the power of appointment whether a mere power or a trust power is a donor. The person given the power is the donee. This concept of a donee is to be contrasted with donee’s who receive property as the result of the exercise of a power. The donee of a mere power may either be a trustee or someone who is not a trustee. If a mere power is given to someone who is not a trustee, subject to good faith, that person may elect not to exercise the power. In exercising that power, he need not consider the merits of individuals. When a mere power is given to a trustee, it remains a mere power but the trustee is bound to carefully consider whether or not the power should be exercised and should consider the merits of potential beneficiaries if he decides to exercise the power. (Note: Difference Mere Power & Trust Powers = Trust Powers bind trustees to exercise power, Mere Power trustees have a choice to exercise or not).
3. Trust Powers (Discretionary Trusts)
In Re Gulbenkian’s Settlements, Reid LJ noted that the Courts use the terms trust power and discretionary trust interchangeably. A trust power or a discretionary trust must be given to a trustee (and not a non-trustee). Property is vested in the trustee and then a trust power to distribute that property is conferred on the trustee. The trustee has an obligation to exercise the trust power, as it is not a mere power. The trustee is obligated to select the beneficiaries from a class of persons designated by the donor of the power, namely the testator or the settlor as the case may be. This power is accompanied by the power to determine the amount of property to be given to the selected beneficiaries although this is not essential for a trust power. Upjohn LJ in Re Gulbenkian’s Settlement held that the Court may compel a trustee to exercise the power or be replaced.
GENERAL, SPECIAL AND HYBRID POWERS (OF APPOINTMENT)
It is important to distinguish between the following terms. Powers of Appointment are further divided into general, special and hybrid powers. Testamentary powers are conferred by will. Power’s main also be conferred inter vivos by deed, namely between the living. (Eg. Have a Testamentary or Inter Vivos GP, SP, HP)
General Powers (applies to MP only)
A general power is a power to appoint property to any person or persons in the world. It is truly general as they may appoint all the property to themselves without considering the merits of other people. This power is a mere power because it is so comprehensive in scope. The conferment of the general power of appointment of property is so wide that it is often described as the conferment of title to property. However, there is one important distinction. Someone given a general power may choose not to exercise the power when they are alive or by will in which case, on their death, the general power lapses and no property will have been appointed under it (and therefore the property remains with the original owner). The person may vest the power in himself or choose someone to exercise the power. A person under a Mere Power can selfishly appoint property to themselves, therefore General Powers are never given to a trustee.
Special Powers (applies to MP or TP)
A special power of appointment may be either a mere power or a trust power that exists where the power is to appoint the property to one or more persons from a class of persons designated by the donor of the power. It is sometimes a difficult question as to whether the special power is a mere power or a trust power. There is, however, a point of clarity on that issue. If the special power is followed by a gift over in default of appointment, the special power is necessarily a mere power as the donor of the power is contemplating the possibility that the power may not be exercised. (A gift over is where the property is given to someone with the power of appointment and if the special power is not exercised or is not fully exercised then the property will be solely given to another person - (eg. X appoints Y for children A,B,C in equal shares, and if they don’t then to his sister Z – If children are passed over then Z gets a gift over)). Where there is no gift over, the position is unclear. Whether the special power is a mere or trust power depends on the terms of the instrument as a whole and the circumstances surrounding the conferment of the power. In reality, it is often difficult to be certain but the Court must ultimately decide.
Hybrid Powers (TP or MP)
Hybrid or intermediate powers enable the property to be appointed to anyone in the world except particular
persons or classes of persons . It is a hybrid power, as it resembles both general and special powers. It resembles a general power because the class of potential beneficiaries is not defined by means of any criteria. It resembles a specific power in that the donee of the power is restricted as to whom he may appoint the property to. Re Manisty’s Settlement (Book p75) is an example of a hybrid mere power conferred inter vivos.Horan v James (Book p80-82)
is an example of a hybrid trust power conferred by will, if Hybrid Power = Hybrid Trust or Mere Power then trustees are impliedly excluded unless expressly included. . Old judicial authority suggested that a hybrid power was a special power as the class of persons could be defined by way of exclusion or by way of inclusion but this view has been judicially abandoned.
Where exceptions exist, ask: 1. Is the exception valid? (if not then can’t be enforced), and 2. if exception is proven to ‘not mean anything’ then is the rest of the statement valid?
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HREEC
ERTAINTIESREQUIREDFORTHECREATIONOFANEXPRESSTRUST• An express trust is a trust created by express intention.
• A resulting trust or an implied trust is created by implied intention.
• A constructive trust is not a trust created by intention. It is imposed by a Court to avoid the consequences of unconscionable conduct, designed to prevent people from benefiting from their own unconscionable conduct. In Knight v Knight (Book p61), an express trust was held by Lord Langdale MR to have three certainties:
• Certainty of intention to create trust
• Certainty of subject matter of trust, namely certainty of the trust property
• Certainty of objects , namely certainty of the beneficiary or beneficiaries under the trust although this is not applicable to charitable trusts which do not have objects or human beneficiaries.
If any one of the three certainties is missing, then there is no express trust. A constructive trust has certainty of objects and certainty of subject matter. There is no requirement for certainty of intention. A resulting trust has certainty of object, certainty of subject matter and certainty of implied intention. An automatic resulting trust may exist where no intention is required although this is controversial.
