Property Notes (Alex)
Property Notes (Alex)
Property Notes (Alex)
Co-ownership of property
Co-ownership
A. General
There are two main ways to own property in common with other owners at common law:
1. Joint tenancy; and
2. Tenancy in Common.
Use of the word „tenancy‟ in this context embraces all forms of proprietary rights.
B. Joint Tenancy
Each joint tenant owns the entire interest, subject only to the rights of all other joint tenants e.g.
married couples are usually joint tenants of the matrimonial home.
A joint tenant is not considered to own any distinct share in the property.
Two distinct features of the joint tenancy are: the four unities, and the right of survivorship (or jus
accrescendi)
o The Four Unities – all 4 are required for a joint tenancy to exist
Unity of Possession:
o Each joint tenant must be entitled to unity of possession.
o It refers to the right of each tenant to enjoy possession of the entire interest.
o This is the only requirement that is shared with tenancies in common.
o If one co-owner occupies the entire property, the other cannot sue in trespass in the
absence of „ouster‟ – no co-owner can lawfully exclude the other co-owner or co-
owners from occupation of the entire property.
Unity of Interest:
o All joint tenants must hold the same interest in the property.
o For example, if A is given the fee simple of Blackacre and B is given a life estate over
the same, there can be no joint tenancy – A and B will hold a tenancy in common while
B is alive.
o It is possible, however, for two joint tenants to be given a joint leasehold even if one is
also entitled to the reversion on the expiry of the lease.
Unity of Title:
o Each tenant must acquire his or her right to possess and his or her unity of interest by
virtue of the same instrument or act of adverse possession.
Unity of Time:
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o The time of vesting of the interest must be the same for each co-owner; otherwise a
tenancy in common, not a joint tenancy, will arise.
o For example, a transfer „to A and B in fee simple when they reach 18‟ will result in a
tenancy in common if A and B do not share the same date of birth.
o The Right of Survivorship
This is the right of all joint tenants to have their rights enlarged on the death of a co-joint
tenant simply be being freed of the rights of the deceased (Corin v Patton).
This prevents the deceased co-owner leaving his or her interest by will, as the interest of a
joint tenant is extinguished on death (Gould v Kemp).
Apart from this, a joint tenant has an unrestricted freedom to dispose of an interest inter vivos
by severance.
Where there is doubt as to the time of death of joint tenants, e.g. car crash, the younger joint
tenant is presumed to have survived the older, so that the right of survivorship works to the
younger‟s estate (Conveyancing Act 1919, s 35).
C. Tenancy in Common
Requires only one unity
o Unity of possession.
While A and B may have distinct shares in the interest (eg ¼ and ¾), each has a right to
occupy the whole territory
Even when all the unities are present, however, there is no right of survivorship in the case of
a tenancy in common: the size of each tenant‟s share is fixed from the time of creation of the
interest or by subsequent dealings.
On the death of a tenant in common his or her share passes by will or, if there is no valid
will, by intestacy.
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At Law
1. A joint tenancy or tenancy in common can be created by express words – words such as „to A
and B jointly‟ or „to A and B as joint tenants‟ will create a joint tenancy.
2. Prior to the introduction of the Conveyancing Act, in the absence of words demonstrating an
express intention, the common law presumed a joint tenancy. The joint tenancy was the
default position unless: one of the four unities was not present, words of severance were used, or
an intention to create a tenancy in common was evinced.
3. Words of severance are express words that indicate that each co-owner is to take a distinct share
in the property, as opposed to owning the entire interest jointly, e.g. „to A and B in equal shares‟
(Payne v Webb) or „to be divided between‟ (Peat v Chapman).
In equity
In contrast, equity presumed a tenancy in common. Particularly in the following situations:
o Co-owners contributing different amounts to the purchase price –
A resulting trust will usually arise so that they will hold shares as tenants in common in
equity in proportion to their respective contributions.
This principle applies regardless of how the legal estate is held, so that if B‟s name was
not on the conveyance or certificate of title and, therefore, A was the sole proprietor of
the legal estate, A would still hold on trust for them in proportion to their respective
contributions.
If land is conveyed to A and B as joint tenants they will take as joint tenants; but if their
respective contributions are ¼ and ¾ of the purchase price, equity will presume that they
hold the legal estate on trust for themselves beneficially as tenants in common, with A
entitled to ¼ and B ¾ (Bull v Bull). By contrast, if they contributed equal amounts,
equity would follow the law and they would be presumed to be joint tenants in equity
(Jackson v Jackson).
All these presumptions are rebuttable by contrary intention (Pink v Lawrence).
Also, presumption of resulting trust can be rebutted where a presumption of advancement
arises. E.g. Trustee of the Property of John Daniel Cummins v Cummins – where the
parties to a marriage contribute different shares to the purchase of the matrimonial home,
and are expressed to take as joint tenants, it can usually be assumed that they intend to
take equal shares, rather than the proportionate shares that would be required between
parties that are not in a requisite relationship (Brown v Brown).
o Co-owners advance money on mortgage:
Where two or more co-owners advance money on mortgage, equity will presume a
tenancy in common.
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The reason for this is that co-owners would wish to get back their own investment
(Morley v Bird) – thus, equity will presume tenants in common in proportion to the
contributing amounts.
This presumption is also rebuttable.
o Partnership Assets:
Property acquired as part of a joint business venture is deemed to be held in equity under
a tenancy in common (Lake v Caddock).
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Mortgage
o under old system, the creation of a mortgage severs the joint tenancy as the mortgage of old
system land involves a conveyance of legal title. On reconveyance after the loan has been
repaid, the mortgagor steps into the mortgagee‟s shoes to become tenant in common.
Under Torrens title, mortgages operate as a charge over the mortgaged land, not a transfer
(Re Forrest Trust), thus severance does not occur. In the event that the mortgagor dies
before the mortgage is discharged, the right of survivorship will take precedence over the
mortgagee‟s right and the property will cease to be encumbered by the mortgage (Lyons v
Lyons).
Lease
- lease granted by a joint tenant does not sever the joint tenancy (Frieze v Unger). The grant
of the lease suspends the joint tenancy, such that the right of survivorship will be deferred
to the time the lease terminates if the joint tenant landlord dies during the currency of the
lease (Frieze v Unger). The right to enforce the covenants under the lease for the balance
of the term will pass to the joint tenant‟s heirs (Frieze v Unger). If a joint tenant landlord
survives the tenancy, the joint tenancy revives. Where the co-owned property is a lease,
the grant of a sublease by one co-owner will sever the joint tenancy for the entire lease
(Frieze v Unger).
Alienation to Self
o By ss 24 and 44(2) CA a person may transfer land to him/herself in order to sever the joint
tenancy – i.e. unity of title will be broken – with the result that her or she will become a
tenant in common of that share.
o Not possible to be effective in equity because it is impossible to hold on trust for oneself
(DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)).
o Thus, a transfer of this nature must be effective at law or not at all. In the case of old system
land, a deed is required (s 23B (1)) and for Torrens title land, the transfer is only effective on
registration (Freed v Taffel).
Declaration of Trust
o Under s 23C (1)(b) CA, a person entitled to an interest in land may by writing signed by him
or her make a declaration of trust of any interest in that land. This applies to both old system
and Torrens title.
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2. A Mutual Agreement among the Joint Tenants
o A joint tenancy will be severed if all the joint tenants mutually agree to hold as tenants in
common.
o Once this occurs the joint tenancy is severed in equity (Lysaght v Edwards). The co-owners
will continue to hold the legal estate as tenants in common.
o Severance, once effected, is irrevocable, even if the agreement is subsequently repudiated.
o An agreement to make mutual wills will sever a joint tenancy (Re Wilfords’s Estate).
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o The principle, known as the „forfeiture rule‟, applies to all cases where the joint tenant
dies as a result of the felonious acts of a co-joint tenant. The severance arises indirectly
as a result of the imposition of a constructive trust.
o By ss 4 and 5 of Forfeiture Act 1995 (NSW), in cases of unlawful killings, with the
exception of murder, the Supreme Court is given power to vary the forfeiture rule if „it is
satisfied that justice requires the effect of the rule to be modified‟.
6. Severance on Bankruptcy
o Bankruptcy of a joint tenant entails the vesting of his or her property in the trustee in
bankruptcy (s 58(1) of Bankruptcy Act 1966). This process is known as involuntary
alienation. Its effect is to sever the joint tenancy in favour of the trustee.
o On declaration of bankruptcy, all joint tenants hold the legal estate on trust for the trustee
in bankruptcy as tenant in common. This equitable interest cannot be defeated by
registration because of the fiduciary duty owed to the trustee in bankruptcy.
Right to Possession
The unity of possession which all co-owners enjoy entitles each of them to occupy the whole of
the property (Thrift v Thrift). This right can be transferred to a third party, but the transferee
cannot be given a right which the co-owner does not have, such as a right to exclude other co-
owners (Frieze v Unger).
A co-owner who has been excluded from possession, or „ousted‟, may sue the ousting co-owner
in trespass. This right extends to acts of destruction of the property, as where one co-owner
removed large amounts of soil and turf from the land without the consent of the other co-owners
(Wilkinson v Haygarth). The excluded co-owner will be entitled to an „occupation fee’ which is
in the nature of mesne profits (Biviano v Natoli).
Obtaining an AVO which prevents a co-owner going near the property will not be an ouster for
the reason that it is not a legal wrong and, therefore, gives no right to sue in ejectment (Biviano v
Natoli).
There is no ouster where one co-owner upgrades and slightly enlarges a common access strip
causing disturbance during construction work (Ferguson v Miller).
Biviano v Natoli
The excluding must be „a legal wrong‟ – Luke v Luke.
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There are two circumstances where equity will consider an occupation fee:
1. In a partition suit, if there has been an exclusion, the tenant in occupation will be charged
with an occupation fee – equity follows the law;
2. If the owner in occupation claims an allowance in respect of improvements effected by him,
equity will permit such an allowance only on terms that he is accountable for an occupation
fee – he who comes to equity must have done equity.
An ouster = „an express denial of the title and right to possession of fellow tenants, brought
home to the latter openly and unequivocally‟.
Result: The court found that the AVO did not amount to an ouster as there was no legal wrong –
personal rights should, in a proper case, be given priority over rights of property (Davis v
Johnson). An ouster did not occur at the time court proceedings were commenced either.
However, the „wife‟ persisted in her denial of the husband‟s title to the property during
proceedings, and this amounted to an express denial of his rights as c-tenant which constituted an
ouster.
Calculation of the occupation fee: an occupation fee = mesne profits. The onus of establishing
the quantum falls on the party claiming a fee. It would be inequitable for the excluded co-tenant
to claim the rental value of the whole property because there is already a co-tenant in occupation.
A starting point is 50% of the rental value from the time the ousting occurred.
G. Termination of Co-ownership
Co-ownership can be brought to an end in two ways:
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Joint tenancy – when a sole survivor succeeds to the shares of the others.
Also, when all co-owners jointly transfer their several interests to a third party; or acts of adverse
possession by one co-owner against another (s 38(5) Limitation Act 1969 NSW); or when the co-
owners partition the property to reflect their respective shares, each becoming entitled to sole
proprietorship of a fraction of the original property.
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Gifts and Sales
Week 8
Assignments
Assignments
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against the assignor. This is because the assignor cannot assign more than he/she owns, and so
the assignee cannot take a better title than the assignor.
S 12 Conveyancing Act 1919 (NSW) requirements for a valid statutory assignment of a chose in
action, are:
o Absolute – the assignment must be absolute, in that all the assignor‟s rights in the chose
in action are unconditionally transferred to the assignee. Assignments by way of a charge
only, subject to a condition precedent or of part only of a debt do not satisfy the statutory
requirements.
o Writing Signed by the Assignor – the assignment was be in writing signed by the
assignor, but need not have the assent of the assignee.
o Express Notice – express notice must be given in writing to the debtor (although it need
not be given by the assignor) because the debtor must know the identity of the legal
owner of the debt in order to pay that person.
Future choses in action cannot be assigned at law, only in equity if there is some consideration.
Legal chose in action has been interpreted to mean „lawfully assignable chose in action‟, which
includes equitable choses in action (Federal Commissioner of Taxation v Everett).
Land
Old System
Assignment of legal property at law (under old system title) requires a deed – s 23B (1)
Conveyancing Act.
Torrens Title
S 41 Real Property Act specifies that assignments of legal property are effectual at law upon
registration.
Choses in Possession
There are three recognised methods for making a valid assignment of a chose in possession – s
22 Sale of Goods Act 1922:
1. Deed
2. Declaration of trust
3. Delivery with an intention to assign (actual, constructive, or symbolic [where
property is too bulky to deliver – Rolenson v Mort]).
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Gifts of Chattels
There are three recognised methods for making a valid gift of a chose in possession, such as a
painting, inter vivos:
1. deed
2. declaration
3. delivery
The main prerequisite for equitable assignments is an intention to assign and where future
property is assigned there must be consideration also.
The presence or absence of notice to the debtor may be important, but it does not impact upon
the validity of the assignment.
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Intention to Assign
An assignment that does not comply with the statutory formalities may still be valid and
effective in equity, because „equity looks to intent not form‟.
Provided the assignor has the intention to assign, no particular form is required.
An intention to assign may appear on the face of the document or it may be proved by extrinsic
evidence.
The requisite intention is an intention to transfer a chose to the assignee in a manner binding the
assignor e.g. transfer to A of „all my right title and interest‟ in a debt or other chose in action
(Shepherd v FCT).
Notice
Notice is not a requirement of an effective equitable assignment, but there are two practical reasons
why notice is desirable:
1. Third Party not Bound until Notice is Given – a debtor who has received no clear and
unambiguous notice of the assignment cannot be expected to pay the assignee, but
legitimately continues to pay the assignor. Thus, for an equitable assignment in the
full sense, notice must be given to the third party. Once the relevant notice has been
furnished, the debtor must now pay the assignee, or otherwise face the risk of being
sued by the assignee for the money already paid over to the assignor. The notice need
not be in a particular form, but it must plainly and unambiguously convey to the
debtor that there has been an assignment and that there is a sense of peril for ignoring
the request to pay (Squires v SA Steel and Sheet Pty Ltd).
2. Priority of Assignees Dependant on Order of Notice – where there are successive
dealing with a chose the priority between those claiming as assignees is determined
prima facie by the order in which those assignees gave notice of their assignment to
the debtor, not by the order in which the assignments were made = rule in Dearle v
Hall (an exception to the usual equitable interest priority rules).
Consideration
Consideration is only required in equity for the assignment of future property. Whether
consideration is required depends on the distinction between legal and equitable choses in action.
o Legal Choses:
As „equity will not perfect an imperfect gift‟ and will not assist a volunteer, a voluntary
assignment of a legal chose in action that fails to comply with s12 CA requirements
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cannot be upheld in equity unless the assignor‟s conscience is bound to hold the
property for the assignee. This will be the case where (Olsson v Dyson):
Assignor has furnished consideration,
Alleged assignor, although not complying with all statutory requirements, has
done all that is required to be done by her/him under the statute to effectuate the
assignment. E.g. notice is required to be given, but it need not be given by the
assignor, so if the other requirements are met then the assignment can
nonetheless take effect as an equitable assignment.
Assignor encourages/induces intended assignee to act to his/her detriment on
the footing that the subject of the assignment has become the assignee‟s such
that it is unconscionable for the assignor to withhold the interest from the
assignee – estoppel.
2. According to the Nature of the Property – everything that must be done is determined
according to the nature of the property (Jones v Locke). Thus, the transferor must use the
appropriate mode of transferor according to the nature of the property involved. For example:
Gifts of Leases = assignment (Richards v Delbridge),
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Gifts of Cheques = endorsement to its beneficiary (Jones v Locke),
Gifts of Chattel capable of passing by delivery = delivery to the intended trustee or
execution and delivery of a deed of gift (Anning v Anning),
Gifts of Shares = signature of a donor on the share transfer form as prescribed by
statute and a duly executed instrument of transfer should be delivered as a matter of
prudence (Re Rose),
Gift of Torrens Land = execution of an instrument of transfer and delivery of it to the
intended donee and possibly the certificate of title (s 46 RPA 1900). Registration is
unnecessary as the intended donee/trustee can effect it (Corin v Patton),
Gift of Money in a Bank Account = a person must not only open an account in another‟s
name, they must hand the passbooks to the purported beneficiary and thereafter consult
that beneficiary on the basis that the latter is the beneficial owner of the moneys (or of
some interest in them) – Kauter v Hilton. Where the alleged trustee/donor retains
possession of an item that is essential to the right to have any money paid over, the trust
is incomplete (Haythorpe v Rae).
o Requirements for a Will - For a will you need writing, signed by testator and two witnesses
who are present at the same time of the signing and who attest the will in the presence of the
testator – if this is not done the testator has not done all that he/she can. (A donatio mortis
causa overrides a will; the rule in Strong v Bird, also overrides the will)
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Test for Determining whether a Gift of RPA Land under an Unregistered Transfer was Complete
and Effective in Equity…
Twofold:
o Whether the donor has done all that is necessary to place the vesting of the legal title
within the control of the donee; and
o Beyond the recall or intervention of the donor.
Once that stage is reached, the gift is complete and effective in equity, and the equitable interest
in the land vests in the donee, thus, the donor is bound in conscience to hold the property as
trustee for the donee pending the vesting of the legal title.
„Necessary‟ in the context of this test = those things which only the donor could do to effect a
transfer of legal title.
The execution and delivery of the transfer and the delivery of the certificate of title would
constitute a completed gift. In Corin v Patton, the donee need to have authorised the bank to
produce the CT - s 96(2) CA 1919 requires the mortgagee to release and lodge the CT at the
Registrar-General‟s upon request from the mortgagor.
The necessity of action by a third party, neither assignor or assignee, is not fatal to the
completeness of the gift.
E.g. in Re Rose a gift of shares in a company was held complete , notwithstanding that the
company had yet to register it, where the transfer was in the prescribed form duly signed by both
transferor and transferee and lodged with the relevant share certificates. In Anning v Anning, the
further action was within the power of the assignee, namely in giving notice to the debtor of the
assignment, so that the assignee was placed in a position where without anyone else‟s
intervention it could effect the assignment.
Conclusion
P has 50% interest as tenant in common, in equity.
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a) No interest in land can be created or disposed of except by writing signed by the person
creating or conveying the same, or by his/her agent thereunto lawfully authorised in
writing, or by will, or by operation of law;
b) A declaration of trust respecting any land or any interest therein must be manifested and
proved by some writing signed by some person who is able to declare such trust or by
his/her will;
c) A disposition of an equitable interest or tryst subsisting at the time of the disposition,
must be in writing signed by the person disposing of the same or by his/her will, or by
his/her agent thereunto lawfully authorise in writing.
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Disposition Type of Property Writing Comments
Requirements
Land New Interest in Adamson v Hayes
Land = Writing holds that s 23C (1)
required under s (a) applies to both
23C (1) (a). legal and equitable
interests in land.
Subsisting Interest
in Land = Writing
required under ss
23C (1) (a) and (c).
Personal Property New Interest = no Pt Ltd v Maradona
writing requirement s 23C (1) (c)
applies to both
Subsisting Interest realty and
= writing required personalty.
under s 23C (1) (c).
S 23C (1) (b) requires that a „declaration of trust‟ of property relating to an interest in
land be evidenced in writing. So, although a trust relating to land can be created
orally, its enforceability is premised on it being evidenced in writing by some
document signed by the settlor (Kauter v Hilton). The document need not be in any
particular form provided the terms of the trust, the trust property and the
beneficiaries can be ascertained (Hagan v Waterhouse). Also, the writing may be
made subsequently to the time the trust is declared (Secretary, Department of Social
Security v James). Writing that predates the declaration and makes no reference to it
cannot evidence a declaration (Benjamin v Leicher). The signature of an agent is
insufficient and there must be a signature from both parties (Equuscorp Pty Ltd v
Jimenez).
In Equity
The equitable assignment of equitable property has three elements (discussed above):
o Intention to assign
o Notice (in order to bind the debtor and secure priority)
o Consideration (required for future property and to escape the 2 volunteer maxims).
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If the equitable interest is an equitable chose in action, look to see whether it can be assigned
under s 12 CA. Otherwise, an intention to assign must be present.
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Week 9
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Exceptions 3: Estoppel
„A donor will not be permitted to change his or her mind if it would unconscionable, in the eyes
of equity, vis-à-vis the donee to do so‟ (Pennington v Waine). E.g. where the trust is almost
completely constituted at the time of the settlor‟s death.
Result
Plaintiffs succeed.
Although Mrs Beaney may have intended to transfer the house to Valerie, the facts suggest that
Mrs Beaney did not have a full understanding of the nature of the transaction – and such
understanding is required, given that the house was her only asset.
Undue Influence/Unconscionability
Louth v Diprose
Facts
Diprose was infatuated by Louth – they had an on-off relationship. Louth didn‟t want to see him
anymore, until she became depressed/suicidal and got in contact with him again. Diprose made
many gifts to Louth and sometimes paid unpaid bills.
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Diprose bought Tranmere house but by agreement following threats that she would kill herself,
the house was registered in Louth‟s name.
Unconscionability Elements
Three factors must be present for equity to set aside a gift procured by unconscionable conduct
(Amadio factors):
1. a relationship between the parties which, to the knowledge of the donee, places the
donor at a special disadvantage vis-à-vis the donee;
2. the donee‟s unconscientious exploitation of the donor‟s disadvantage ; and
3. the consequent overbearing of the will of the donor whereby the donor is unable to
make a worthwhile judgement as to what is in his/her best interest.
Unconscionability looks to the conduct of the stronger party.
Undue Influence
Undue influence is similar to unconscionability, but it looks to the quality of consent of the
weaker party, whose will must be overborne.
It prevents an unconscientious use of any special capacity or opportunity that may exist or arise
of affecting the alienor‟s will or freedom of judgement in reference to such a matter.
An antecedent relationship (doctor/patient, lawyer/client and parent/child) gives rise to a
rebuttable presumption that of undue influence, but where no antecedent relationship exists, the
claimant bears the onus of proving actual influence over the mind of the alienor.
Result
Diprose discharged the onus of proof – Louth took advantage of Diprose‟s special disadvantage
(infatuation) in relation to her, such that Diprose was unable to make a worthwhile judgement as
to what is in his best interest.
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Lesson Plan #5: Issues in the Law of Express Trusts
Week 10
Classification of Trusts
Express Trusts
Where settlor has expressed an intention (which may be inferred from the facts) to create a trust
and the certainties and formalities are met, an „express trust‟ arises.
Express trusts can be classified in a variety of ways:
o Private v Public express trusts – private = where trust is intended to benefit one or more
persons; public = trust recognisable as charitable in law.
o Fixed v Discretionary trusts – beneficiaries of fixed trust have fixed interest in the
income/capital of the trust property, thus they can enforce both the administration and
distribution of the property trust. Trustees of a discretionary trust have an absolute discretion
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to apply the income to the beneficiaries, thus the beneficiaries have no enforceable claim to
the income/capital of the trust until the trustees elect to exercise the discretion in their favour;
o Bare trusts = the trustee holds the property without any interest in it other than existing by
reason of the legal title of trustee, and without any duty to perform, except to convey it upon
demand to the beneficiaries or as directed by them.
Non-Express Trusts
Equity can either imply or impose a trust:
o Resulting trusts (implication) = arise where one person (settlor) confers title to property to
another person but the settlor is presumed to retain beneficial ownership of the property;
o Constructive trusts (imposition) = the court imposes a constructive trust where no trust has
been declared, but where, according to the principles of equity, it would be a fraud for the
person upon whom the court imposes the trust to assert a beneficial ownership.
History of Trusts
The trust as an institution developed within the exclusive jurisdiction of equity – it is a direct
descendant of the medieval „use‟, where land was transferred by common law conveyance, to A
(the „feoffee to use‟, the modern trustee) to the use of B (the „cestui que use‟, the modern
beneficiary).
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The trust has similar characteristics to a number of other legal relationships – but different legal
consequences flow.
Trust and Debt
Debt relationship arises where a sum of money is due from one person, debtor, to another,
creditor.
Distinction between trust and debt is important because in the case of insolvency of a trustee, trust
property will not be divisible amongst the insolvent trustee‟s creditors.
Generally, the intention of the parties is the distinguishing factor.
Henry v Hammond holds that:
o „if the terms upon which the person receives the money are that he is bound to keep it
separate…and to hand that money so kept as a separate fund to the person entitled to it, then
he is a trustee of that money…if he is not bound to keep the money separate, but is entitled to
mix it with his own money and deal with it as he pleases, and when called upon to hand over
an equivalent sum of money, then…he is not a trustee of that money, but merely a debtor‟.
However, where the existence of a trust is explicit, the absence of an express obligation to keep
trust money separate does not deny the trust (Associated Alloys Pty Ltd v CAN 001 452 106 Pty
Ltd)
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Trust or Debt?
It is the intention of the parties that separates a trust from a debt.
A weighty factor is whether the person to whom the money is advanced is required to keep it
separate or can mix it with his or her own funds.
In Re Australian Home Finance Pty Ltd a company received periodic payments form prospective
house purchasers to be used to finance house purchasers. These payments were deposited into a
separate „progressive purchase fund account‟. On liquidation of the company, it was held that
the money in that account was held in trust for the purchasers in proportion to their contributions,
and was not available to meet the claims of the company‟s creditors.
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which fills the gap when some part of the beneficial interest is undisposed of and
prevents it from being „in suspense‟”.
This construction would, however, entitle the lender to demand repayment of the money at any
time prior to the fulfilment or failure of the stated purpose.
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Trusts and Powers
Powers
A power (or mere power) = an authority to dispose of real or personal property irrespective of
any existing estate or interest in the holder of the power.
Donee of the power (or appointor) = person who exercises the authority.
Objects (or appointees) = persons to whom the property is disposed pursuant to this authority.
Donor of the power (or settlor) = the person who confers upon the donee the said authority.
Donees of a general power are entitled to appoint any person they wish including themselves –
thus equivalent to unencumbered title of the property.
A special power, on the other hand, allows the donee to appoint in favour of some or all of the
persons within the class of objects specified by the terms of the power. Generally, not to
themselves.
A trust instrument must vest in the trustees two kinds of dispositive discretions:
2. discretions the trustee must exercise (trust powers); and
3. discretions the trustee may exercise but have no duty to exercise (mere powers).
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Trust powers – trustees are bound to distribute the income but have discretion as to how it should
be divided between the beneficiaries.
Mere powers – trustees have two discretions e.g. discretion whether or not to distribute the
income, and discretion as to how to divide the income between the beneficiaries.
Requires an inquiry as to the settlor‟s intention; a question of construction (Re Leek).
Where the language of the disposition impose a clear duty on the donee of the power to distribute
the funds amongst at least some of the class of potential beneficiaries, the discretion extending
merely to who to appoint and not to deciding whether or not to appoint, a trust power is created
(Hourigon v Trustees Executors and Agency Co Ltd).
2. Certainty of Intention to Create a Trust – settlor must have an intention, whether express or
inferred, that the property be held on trust. Absent such intention, the transfer may be
construed as a gift, or will revest. An express trust can be created in one of two ways;
By transfer, where the settlor transfers legal title to property to a trustee to hold the
property on trust, or
By declaration, where the settlor retains legal title to the property in question, but
declares that he or she intends to hold the that property on trust.
Construction – ‘equity looks to intent rather than form‟, thus, no particular words are
necessary provided the words bear an imperative meaning e.g. „hope‟, „belief‟, „desire‟,
„understanding‟, „wish‟ are merely precatory and don‟t give rise to a trust, absent
intention.
Inferring an Intention to create a trust – an intention to create a trust may be inferred
(but not imputed) where this reflects the true nature of the relationship entered into by
the parties, even if they did not realise that they were creating a trust or understand its
nature and effect. For example, the intention to create a trust may be inferred where its
presence could overcome problems with contractual privity – protecting the interest of
a third party – Bahr v Nicolay – also where trustee is insolvent.
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3. Certainty of the Subject matter of the Trust – the property of a trust must be defined and
identifiable, or the trust will be void for uncertainty (Federal Commissioner of Taxation v
Clarke). Also, the quantum beneficial interests taken by beneficiaries in the trust property
must, other than in the case of a discretionary trust, be certain.
Nature of the property – any interest in property (real, personal, choses in action,
choses in possession, legal, equitable) may be the subject of a trust. However, a mere
expectancy is not property, so cannot be the subject of a trust. Nor can an object of a
mere power, or a beneficiary of a discretionary trust, be trust property. Also, future
property cannot be the subject of an immediate trust.
Quantum of interest – where the settlor fails to precisely define the actual beneficial
interest to be taken, the trust will be void for uncertainty. Uncertain phrases include,
„the bulk of my estate‟, „the remaining part which he does not want‟, or „most of my
houses‟ – Boyce v Boyce. Where the words used are capable of being interpreted with
certainty by the court, such as where there is some objective criteria to calculate the
quantum, there will be no difficulty with certainty of subject matter. In Re Golay, a
disposition in a will of „a reasonable income‟ was upheld on the basis that the testator
had prescribed an objective yardstick.
By Will:
The Rule against Delegation of Testamentary Power
Classic statement of the testamentary non-delegation rule comes form Houston v Burns:
o „a testator can defeat the claim of those entitled by law in the absence of a valid will to
succeed to the beneficial interest in his estate only if he has made a complete disposition
of that beneficial interest. He cannot leave it to another person to make such a
disposition for him unless he has passed the beneficial interest to that person to dispose
of as his own. He may, indeed, provide that a special class of persons…are to take in
such shares as a third person may determine, but that is only because he had disposed of
the beneficial interest in favour of that class as his beneficiaries‟.
Usually under a discretionary trust, the trustee is left with the discretion to decide who will be
within the specified class. When you have a discretionary trust established under a will, and it is
criterion certain, it may still offend the rule against delegation of testamentary power (e.g. „…to
who the trustee thinks fit‟). This is because the testator is leaving it to another to dispose of the
benefit.
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This is not the case with fixed trusts, as for these to be valid there must be list certainty, thus the
testator has already selected the beneficiaries.
S 44 Succession Act aligns the requirements of certainty of object under a will with the
requirements inter vivos. If the testator died after 1 March 2008, you would only look to
criterion certainty and ignore the common law rule against delegation of testamentary power.
Gregory v Hudson held that the non-delegation rule does not apply:
o To bequests for charitable purposes
o To gifts of property by will to a pre-existing trust or to constitute a completely constituted
trust
o Where secret trusts are used
Purpose Trusts
The General Rule
Trusts for charitable purposes satisfy the beneficiary principle because they are enforceable by
the relevant Attorney-General.
A trust for non-charitable purposes, as distinct from a trust fro individuals, is clearly void
because there is no beneficiary (Re Recher’s Will Trusts) – thus it is often argued that a trust
either fosters a charitable object or is for individual beneficiaries.
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Committee for the time being‟ of an unincorporated association, was upheld on the basis
that it was a gift for persons. As a joint tenant, members can sever the joint tenancy and
can claim a share even if the cease to be a member.
2. By construing the gift as for the existing members subject to their respective contractual
rights and liabilities towards one another as members of the association. In such a case,
each member can ensure that the subject matter of the gift is applied in accordance with
those rules, but cannot sever his/her share, which accrues to the other members on his/her
death or resignation.
3. By construing the gift as for the continuing purposes of the association, in which case it
takes effect as a trust for those purposes. Thus, in accordance with the beneficiary
principle, those purposes must be charitable for a gift so construed to be valid.
As a starting point, the courts ordinarily assume that the second construction is what the donor
intended. This presumption is rebuttable by evidence that shows the donor intended to foster the
continuing purposes of the association rather than benefiting its members directly.
In Leahy v Attorney-General (NSW) the validity of a gift to a selected order of nuns was at issue.
It was held that the form of the gift, the number and geographical spread of members of the
order, and the subject matter of the gift (a grazing property), indicated that it was likely that the
testator intended to benefit the continuing purpose of the order. Hence, the gift would be valid,
as a trust, only if it was for a charitable purpose.
In Bacon v Pianta a gift „to the Communist Party of Australia‟, an unincorporated association,
was held to be for the purposes of the Party. The prima facie presumption favouring a gift to the
members of the association was displaced due to the form of the gift (to the Communist Party
„for its sole use and benefit‟), the extensive membership of the Party that was subject to
substantial fluctuation, and the fact that at the time when the bequest became operative the
members of the Party had no capacity to put an end to their association and distribute its assets.
As the purpose was political, it could not take effect as a valid charitable trust.
The Succession Act validates gifts to unincorporated associations in wills – and only if the
testator dies after I March 2008.
A lot of associations get around this by incorporating.
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Week 11
Charitable Trusts
Ask is this a trust for persons or a purpose. If for a purpose, does it come within the heads of Pemsel? If
in the first 3 heads there is rebuttable presumption of public benefit, if in the fourth head you have to
prove both public benefit and that it comes within the spirit of the Preamble. Both qualitative and
quantitative public benefit must be shown.
Perpetuities Rules
Must satisfy the perpetuity rule.
A gift that vests in a charity within the perpetuity period is valid even though its actual
application in carrying the charitable purpose into execution awaits an event that may not happen
within the perpetuity period.
Gifts over from one charity to another are exempt from the rule against perpetuities.
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Meaning of ‘Charitable’ at Law
For present purposes, defining what is „charitable‟ as understood by the law is important as trusts
for non-charitable purposes are void because there is no individual person capable of enforcing
the terms of the trust (like the A-G for charitable purpose trusts).
Charitable Purposes
To define charity courts have historically been guided by the Preamble of the Elizabethan Statute
of Charitable Uses 1601, which contains the following list of charitable purposes:
Relief of aged, impotent and poor people;
Maintenance of sick and maimed soldiers and mariners, schools of learning, fire schools
and scholars in universities;
Repair of bridges, ports, havens, causeways, churches, sea banks and highways;
Education and preferment (advancement) of orphans;
Relief stock or maintenance of houses of correction;
Marriages of poor maids;
Support aid and help for young tradesmen, handicraftsmen and persons decayed;
Relief or redemption of prisoners or captives; and
Aid or ease of any poor inhabitant concerning payment of fifteens, setting out soldiers
and other taxes.
Courts look at whether a trust is within the spirit of the Statute.
Lord Macnaghten in Pemsel grouped the charitable objects into four heads of charity, which is
applied in modern charity law: (start with these categories in an exam).
The relief of poverty, age and impotence;
The advancement of education;
The advancement of religion;
Other purpose beneficial to the community.
Extension of Charitable Purposes Act impacts Commonwealth legislation only – includes
child care, contemplative religion etc.
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o Quantitative – Oppenheim test – does it exclude people based on some personal tie or
elitist characteristic.
It must be for the „benefit of the community or an appreciably important class of the community‟
(Verge v Somerville).
A class of ultimate beneficiaries under a proposed charitable trust linked by „blood, contract,
family, association membership or employment‟ does not constitute the „public‟ for the purposes
of the public benefit test (Oppenheim v Tobacco Securities Trust Co Ltd – here the class was
dependent upon employment with the Tobacco company; even though it was a trust for
education). What about a trust for genetic disabilities where all are related? Strathalbyn says
that there is a public benefit for such a trust. A request that family members get preference is ok.
Public benefit is usually presumed in the first three heads of charity, subject to contrary
evidence, but it must be positively established under the fourth head.
Trusts for the relief of poverty are an exception to the public benefit requirement.
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Relief of Impotence (need public benefit)
Impotent = physically weak, disabled or helpless.
Gifts for hospitals and like institutions that do not generate private profit for their owners are
charitable under this head (Le Cras v Perpetual Trustee Co Ltd – trust for St Vincent Private
Hospital was charitable).
‘Advancement’ of Education
Advancement includes the establishment, maintenance and contribution to educational
institutions, establishing teaching positions, and providing scholarships ad academic prizes for
students.
Zoological, botanical gardens, museums and art galleries, public libraries and observatories are
also educational charities.
Research having as its object the increase of useful knowledge comes within the advancement of
education (Taylor v Taylor – a trust for the „advancement of scientific research generally‟ was
upheld). Trusts for medical research have also been upheld as valid charitable trusts. Will not
be valid if the subject of the research is useless (Humelton).
If a sport is attached to an educational institution, it will be a valid trust for the advancement of
education.
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3. Trusts for the Advancement of Religion
The Meaning of ‘Religion’
According to Church of the New Faith v Commissioner of Pay-roll, the legal definition of
religion involves:
o Belief in a supernatural being, thing or principle; and
o The acceptance of cannons of conduct in order to give effect to that belief.
Broad scope – does not have to be a recognised denomination.
It cannot be a mere parody or sham, and a religion cannot involve beliefs or activities that are
contrary to the law or public policy.
‘Advancement’ of Religion
Must advance religion to be valid.
To advance religion = to promote it, spread its message, and take some positive steps to sustain
and increase religious belief, in pastoral or missionary ways.
Public benefit
Requisite public benefit must be met.
If the purposes are found to be religious in nature, the court will generally presume a public
benefit unless contrary evidence is established.
This assumption reflects the courts‟ reluctance to assess the comparative worth of different
religions, and also the view that religion itself generates benefit to the public.
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Two-Stage Test
Dispositions under the fourth head of charity must satisfy a two-stage test as a prerequisite of
validity:
1. the purpose in question must be beneficial to the community, or some section of it; and
2. the purpose must fall within the spirit of the Preamble of the Elizabethan Statute of
Charitable Uses 1601.
In the leading Australian case of Incorporated Council of Law Reporting of the State of
Queensland v Federal Commissioner of Taxation, Barwick CJ reasoned that „the production of
law reports is…beneficial to the whole community because of the universal importance of
maintaining the socially sustaining fabric of the law‟, and was within the spirit of the Preamble
because „the sustenance of the law is a benefit of a material kind which ensures for the benefit of
the whole community‟.
Locality Cases
A gift with reference to a particular district or locality is generally considered charitable as
importing the necessary element of public benefit even though a specific purpose is not stated.
E.g. gift for the beautification of a locality is for the edification and enjoyment of the community
as whole; not private individuals (Monds v Stackhouse).
Relief of Distress
The relief of human distress is a valid charitable purpose, often arising out of natural disasters
and wars (Re Darwin Cyclone Tracy Relief Trust Fund).
Gifts for institutions providing emergency services may also be valid under this class.
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The relief for the benefit of Australian aborigines is a example of a gift that may carry the
inference that its aim is the relief of human distress – a group judicially described as „in need of
protection and assistance‟ (Re Matthew (deceased)).
Political Purposes
Generally, trusts for the promulgation of political views or agitation for legislative change are
invalid. This is because it is difficult for the Court to determine whether a proposed change in
the law will or will not be for the public benefit (Bowman v Secular Society Ltd).
A political purpose trust will be valid only where the political purpose is ancillary or incidental
to an established charitable object, such as education (Attorney-General v Ross – where attached
to an educational institution).
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Gifts for Purposes of Associations
This depends on the objects and activities of the association. If its main purpose is charitable the
association is a charity – thus courts have to distinguish the main from the ancillary or incidental.
In Congregational Union of NSW v Thistlethwayte, the associations objects included the
maintenance of philanthropic agencies, and the preservation of civil and religious liberty. The
High Court held that when viewed in the context of the constitution as a whole, these non-
charitable objects were ancillary to the association‟s religious objects – the constitution was
construed by the court in a way that suggested the maintenance of philanthropic agencies needed
to be conducive to the achievement of its main religious object.
Alternative and Cumulative Expressions
Except where validated by legislation, gifts expressed to be for charitable or alternatively non-
charitable objects, will fail (Chichester Diocesan Fund and Board of Finance v Simpson – trust
for „charitable or benevolent purposes was invalid).
Gifts that an be construed as specifying cumulative requirements in addition to a charitable
object, will generally be upheld (Smith v WA Trustee Executor & Agency Co Ltd – „charitable
institutions, bodies and organisations‟, where charitable was construed as qualifying each of the
following words).
Saving Legislation
In NSW, s 23 Charitable Trusts Act 1993 (NSW) addresses the problem of mixed charitable and
non-charitable purposes – the trust is construed as giving effect only to the charitable purposes;
no invalid purposes should be deemed to have been directed or allowed. So long as there is a
general charitable intention.
Alternative Purposes – the legislation severs the non-charitable purpose („blue pencil‟
approach).
Compendious Purposes – a gift involving an expression that connotes charitable and non-
charitable purposes, such as „benevolent purposes‟, will be validated where its object is so
predominately charitable as to evidence a charitable intention on the part of the settlor. E.g. in
Re Ashton the court saved a gift of a church „to help in any good work‟ by restricting the
application of the trust funds to „good and charitable work‟ – charitable purposes. Vague and
uncertain expressions that disclose no general charitable intention are not saved by the
legislation.
Application to Associations – a trust for institutions whose objects are predominately charitable
may be saved from failure – in Leahy v Attorney-General (NSW) a gift „to orders of nuns‟ was
saved by confining it to orders of nuns considered charitable in law.
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Enforcement of Trusts
Cy-pre`s Schemes
Where the intended purpose of a trust is impossible, impractical or illegal, the question arises as
to the destination of the trust fund.
By setting a cy-pre`s scheme, it is possible for the court to apply the available funds to objects
that are as near as possible to the testator‟s original intention. Again, there must be a general
charitable intent; if there is a specific intent that it is assumed that the settlor intended the funds
to return to him/her if the institution did not exist.
The cy-pre`s doctrine does not apply where:
o The trust instrument makes provision for the use of the property in the event of failure of
the particular purpose;
o The evidence indicates that the testator has misdescribed the institution the subject of the
gift, in which case the most appropriate course for the trustee is to seek directions from
the court to apply the fund to the institution intended (Re Chanter).
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Subsequent Impossibility
Where a valid charitable trust has become impossible or impractical after it has commenced its
operation, the court will apply its property cy-pre`s. This is because the gift has already become
the subject of charity, not due to any general charitable intention (Re Slevin). Thus, no proof of a
general charitable intention is required in the case of subsequent impossibility.
S 12 Charitable Trusts Act provides the A-G power to approve cy-pres scheme where property < $5500
Statutory Cy-Pre`s
Court do not have an unrestricted cy-pre`s jurisdiction, thus legislation was introduced -
Charitable Trusts Act 1993 (NSW) ss 9-11.
A general charitable intention is presumed absent evidence to the contrary in the trust instrument.
Ss 12-22 confers upon the Attorney-General a limited power to settle cy-pre`s schemes.
Administrative Schemes
Where a donor has made a gift for charitable purposes but has failed to specify a means by which
it is to be applied, the court can provide an administrative scheme. In NSW, the A-G may settle
administrative schemes in circumstances prescribed by statute: Charitable Trusts Act 1993
(NSW) ss 12-22.
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Week 12
Trustees
Capacity to Act as Trustee
Persons legally capable of holding property in their own right have the capacity to be a trustee.
A beneficiary can act as a trustee, but a sole beneficiary cannot be a sole trustee, otherwise the
trust disappears as the separate legal and equitable estates merge.
A company may act as a trustee – „corporate trustee‟.
A trust is not invalidate if a settlor attempts to vest property in a person who cannot legally hold
it, as equity will not allow a trust to fail for want of a trustee – the court will appoint another
trustee.
Types of Trustees
Trustee Companies
Trustee Companies Act 1964 (NSW) governs the creation and operation of „trustee companies‟.
As well as acting as executors and administrators of estates and the trustees, trustee companies‟
main role concerns the investment and management of funs on behalf of clients.
Public Trustees
The Public Trustee is empowered by statute to administer wills, small estates and act as trustee
of estates of mentally incapacitated persons (Public Trustee Act 1913 (NSW)).
Bare Trustees
A bare trustee – person who holds the property on trust for the absolute benefit and at the
absolute disposal of beneficiaries who are of full age and capacity, but has no interest in that
property other than by reason of legal title as trustee, and has no further duty to perform in
respect of that property other than to convey it upon demand to the beneficiaries or as directed by
them (Herdegen v Federal Commissioner of Taxation).
The presence of active duties of management distinguishes „active‟ from „bare‟ trustees – but this
should not be applies to rigidly (Herdegen v Federal Commissioner of Taxation).
This is the highest form of equitable interest you can have.
Appointment of Trustees
Trustees can be appointed to replace or increase the number of trustees pursuant to:
o The terms of the trust instrument;
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o Statute;
o The court.
Number of Trustees
The original number of trustees need only be maintained if the instrument so directs (Re Mayne).
There is no limit on the number of trustees that may be appointed pursuant to an express power
of appointment.
In NSW (s 6(5)(b)), the statutory power to appoint cannot be used to increase the number of
trustees beyond four.
Disclaimer by Trustee
A person appointed as trustee may disclaim the trust office before doing any act or performance
amounting to the acceptance of that trust (Lady Naas v Westminster Bank Ltd).
A trustee who accepts the office cannot disclaim, but may leave under the retirement provisions.
The disclaimer must be of the whole trust and must be within a reasonable time after
appointment, preferably in writing (Re Lord and Fullerton’s Contract).
If a sole trustee disclaims, the trust property revests in the settlor as trustee until the appointment
of a new trustee (Mallott v Wilson), or the court may appoint a trustee in his/her place.
Retirement of Trustees
Trustees may retire from a trust:
o Pursuant to a provision of the trust instrument;
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o Pursuant to trustee legislation – provided there are 2 trustees left (or a trustee company),
or where the other trustee consents – s 8.
o With the consent of all beneficiaries being of full legal capacity, but the beneficiaries
cannot direct the continuing trustees to appoint a new trustee.
o With the consent of the court e.g. \grounds of sickness, infancy or where the trustee is
carrying on the testator‟s business at a loss (Will of Phillips).
Removal of Trustees
Often proceedings to appoint new trustees are concurrent with efforts to remove a trustee. Thus
trusts may be removed:
o Pursuant to an express power in the trust instrument, which will be strictly construed
(Werner v Boehm);
o Pursuant to statutory provisions concerning the replacement of trustees;
o By the court, pursuant to its inherent jurisdiction to administer trusts.
Breaches of Trust
Breach of trust doesn‟t necessarily result in the court ordering the removal of the trustee
(Quinton v Proctor).
The court will remove a trustee whose breach amounts to negation of the trust, or whose conduct
is likely to jeopardise the security of trust property, or where there is evidence that the trust will
not be properly executed in the interests of the beneficiaries.
In Craven-Sands v Koch the court ordered the removal of trustees where the evidence (trustees
had written blank cheques, lost records, had a confrontational approach and tolerated delay) had
a „cumulative effect on the disintegration of the trustee‟s capacity to carry out their duties‟.
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Potential Conflict of Interest
Conflict of interest carries considerable weight.
In Hunter v Hunter the court ordered removal where the evidence shoed that there was a conflict
between interest and duty; the trustees had failed to recognise this conflict and take steps to
ensure that their interest should not prevail as against their duty; the trustees had disregarded the
interests of infant beneficiaries; and a state of hostility existed between the trustees and the
immediate possessor of the trust estate which worked against the interests of te trust.
If it is evident that the settlor/testator had contemplated the conflict of interest in appointing that
person as trustee, the court will only remove in a situation where allowing that person to
continue as trustee endangers the security of the trust property (Monty Financial Services Ltd v
Delmo).
Duties of Trustees
Basic Duties
Trustees must first ensure that the property is brought under their control and vested in them.
This may include taking proceedings against a co-trustee, a former trustee of a third party who is
liable to redress a breach of trust or otherwise owes a present liability to the trust.
Trustee must ensure that the documents of title are kept in a safe place and safeguarded from
unauthorised access or use.
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Trustees must familiarise themselves with the terms of the trust deed and carry out their
obligations dutifully so as to give effect to the settlor‟s intention.
A trustee will not be bound to carry out the terms of the rust instrument where:
o Unanimously directed by absolute beneficiaries of full age and capacity;
o An illegality will occur as a consequence of obedience;
o Statute or court order warrants this departure;
o The deviation is sanctioned by the court.
Standard of Care
That of an ordinary prudent business person (Re Speight).
Professional trustees, like trustee companies, may be subject to a higher standard of care because
they hold themselves out as having special expertise and charge for their services (Bartlett v
Barclays Bank Trust Co Ltd).
S 14A Trust Act imposes higher standard for trustee companies – the standard of care required is
that which a prudent person engaged in that profession would exercise in managing the affairs of
others.
No Right to Reasons
Trustee has no duty to explain how the trust is managed or reasons for particular decisions – such
a duty would add to the trustee‟s already onerous obligations and might embitter the relationship
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between trustees and beneficiaries or the beneficiaries themselves (Re Londonderry’s
Settlement).
In terms of legal proceedings, however, if plaintiff puts forward a prima facie case that the
trustees‟ discretion has miscarried, the absence of reasons and the absence of any evidence
before the court as to what happened will tend to make that prima facie case a „virtual certainty‟
(Maciejewski v Telstra Super Ltd).
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Duty Not to delegate and its Exceptions
The duty to act personally prohibits a trustee from delegating the exercise of his/her powers,
authorities and discretions arising under the trust, either to a co-trustee or a third party
Delegation is permitted where the trust instrument allows it.
Appointment of Agents
Unlike delegates, who actually exercise the trustee‟s power, discretion ad authority, agents are
employed merely to carry out or implement decisions properly taken by the trustees.
Agents may be appointed where the trust instrument, the general law or statute permits this.
Fiduciary Duties
The relationship between trustee and beneficiary is fiduciary, thus, trustees are subject to the dual
fiduciary rules of „no conflict‟ (the trustee must refrain from engaging his/her own interests in
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any activity that may conflict with the duties as trustee) and „no profit‟ (the trustee may not take
an unauthorised profit from the trust) – designed to ensure loyalty to the trust.
Trustee’s Remuneration
A trustee who is renumerated prima facie profits from the position of trustee, therefore, the
payment of remuneration is generally precluded.
There are three situations where the trustee will be allowed remuneration:
3. Court-Awarded Remuneration
The court may allow remuneration where the work is time-consuming and the remuneration is
required to ensure proper services are obtained from the trustee (Re Queensland Coal and oil
Shale Mining Industry).
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Purchases Prior and Subsequent to Appointment
Trustee‟s retirement from the rust for the purpose of purchasing or leasing trust property is
subject to the purchase rule because the decision to purchase or lease was been taken whilst
acting as trustee, and using information received in the capacity of trustee (Gould v O’Carroll).
Duty to Invest
Trustees must invest trust moneys even where the trust instrument does not direct them.
This duty must be exercised by the trustee in the manner authorised by the trust instrument,
statute or court order.
Trust Instrument
If a trust instrument gives the trustee power to invest „upon such investment as to them seem fit‟,
such discretion is circumscribed by the ordinary prudent person standard of care.
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The ordinary prudent standard of care operates both to prevent speculation by the trustee and to
make the trustee personally accountable for failing to actually invest trust moneys for the
purpose of ensuring a return.
Statute
S 14 Trustee Act 1925 (NSW) provides that a trustee may, unless expressly prohibited by the trust
instrument, invest trust funds in any form of investment, and vary such an investment at any
time. Thus, the list of authorised investments has gone.
This power is controlled by the general law standard of care: „a trustee exercising any power of
investment shall exercise the care, diligence and skill that a prudent person of business would
exercise in managing the affairs of others‟.
In the case of a professional trustee, the standard of care required is that which a prudent person
engaged in that profession would exercise in managing the affairs of others.
Court – pursuant to ‘expediency’ jurisdiction
Likely to arise only where the trust deed expressly prohibits certain investment avenues available
to the trustees.
Investment for Financial Advantage of the Trust
Subject to provisions in the trust deed, trustees must be concerned primarily with the financial
advantage to the trust, in carry out their duty to invest (Cowan v Scargill).
Trustees must put then own personal interest asides.
The opinions of beneficiaries cannot justify an investment strategy that reduces financial
advantage to the trust.
Where the subject of a profitable investment would be inconsistent with the views on moral and
social activities strictly held by adult beneficiaries, it may not be for the „benefit‟ of those
beneficiaries to know that they are receiving larger financial returns under the trust by reason of
investment in those activities than they would have received by investing in other investments.
This situation is most likely to arise in the context of charitable trusts.
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estate has suffered a quantifiable loss, the trustees will be liable to compensate the trust fund for
that loss whether or not the real value of the fund has been maintained.
Powers of Trustees
Powers must be exercised within the trustee‟s scope and authority.
Excess exercises of power are severable, leaving the execution as effective as it may be.
Powers are conferred upon trustees by the trust instrument, statute or the court.
Sources of Trustees’ Power
Common for trust instrument to specify extensively the various powers of the trustee. The
powers conferred will reflect the nature and duration of the trust created. For example, a
testamentary trust calls for less extensive powers than an inter vivos trust; charity trustees will be
vested with a different range of powers than trustees of private trusts.
Trustee Act also confers powers. Such provisions usually contain a provision specifying that the
power so conferred is subject to the trust instrument.
Courts may, pursuant to their jurisdiction to act for reasons of ‘expediency’, confer upon trustees
the necessary power to effect a transaction that could not otherwise be effected by reason of the
absence of a power for that purpose in the trust instrument.
Trustee’s Discretion
The exercise of most powers contained in trust instruments is at the discretion of the trustee.
This must be exercised in accordance with the purpose for which it was conferred and it must not
be exercised irresponsibly, capriciously or wantonly, in order to fulfil the good faith and real and
genuine consideration requirements (Karger v Paul).
Court’s Assessment of Trustee’s Discretion
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A court will only interfere with a discretionary decision of a trustee where bad faith can be
shown (Karger v Paul).
Heavy onus lies upon person seeking review of a trustee‟s decision – otherwise, the trustee, who
usually undertakes heavy responsibilities for no financial reward, would be burdened.
Honest blundering, carelessness or gross negligence in a trustee exercising a discretion ≠ bad
faith.
Fraud, making a decision for an ulterior motive, the absence of fair consideration of the issues,
and refraining from further inquiry for fear of confirming a suspicion that something is wrong =
bad faith.
The court may intervene where it is satisfied that the trustee has not given real and genuine
consideration to the exercise of the discretion e.g. where a trustee does not familiarise
him/herself with the trust deed, so doesn‟t even know that there is a discretion to exercise, and
relies on directions of others regarding the trust estate, does not exhibit real and genuine
consideration (Turner v Turner).
Court will examine evidence of the trustee‟s inquiries, the information he/she had, and the
reasons for/manner of the exercise of the discretion.
Court will set aside an errant exercise of discretion, and direct the trustee to re-exercise the
discretion correctly. The court may also substitute its own decision for that of the trustee where
it is established that the trustee is unlikely to properly fulfil the relevant duty (Minehan v AGL
Employees Superannuation Pty Ltd).
Views of Beneficiaries
Beneficiaries cannot direct trustees in the performance of their trust (Re Brockbank); otherwise
they would fetter the trustee‟s discretion.
Rights of Trustees
Right to Indemnity and Recruitment
As the legal owner of the trust property, a trustee is personally liable for debts he/she incurs in
performing the trust.
Because trustees manage the trust property for the benefit of beneficiaries, they can indemnify
themselves out of the trust property to satisfy the debts incurred on the trusts behalf (Vacuum Oil
Co Pty Ltd v Wiltshire + s 59 Trustee Act), instead of expending their own funds and
subsequently seeking reimbursement.
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For the purposes of enforcing the indemnity, the trustee possesses a charge or equitable lien over
trust assets. The equitable charge of the trustee over the trust assets, will take priority over the
beneficiaries equitable interest, in situations where the trustee is out of pocket as a result of the
management of the trust property – until the charge has been satisfied (Octavo Investments Pty
Ltd v Knight).
This right of the trustee to indemnity does not, however, deny the equitable ownership of the
beneficiary in whom the trust fund is vested in interest and possession (Arjon Pty Ltd v
Commissioner of State Revenue).
The fact that the trustee‟s right to indemnity represents an equitable proprietary interest with
priority over the claims of the beneficiaries, means that (Octavo):
o The right passes to the trustee in bankruptcy/liquidator where the trustee is insolvent.
o A successor trustee with notice takes the trust assets subject to any unsatisfied charge.
o The trustee‟s creditors may be subrogated (entitled) to the trustee‟s charge.
The right is proprietary in nature so it survives the trustee‟s loss of office – the former trustee‟s
claim for indemnity would be against the new trustee in whom the trust assets are vested, who
takes the trust property subject to the right of indemnity of the former trustee.
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Thus, if T is bankrupt, if there is an increase in the value of the property, or if the property
remains in the hands of the trustee, one should seek to make a proprietary claim. On the other
hand, if the asset is in the hands of another, one should seek personal remedies against the trustee
and/or the 3rd party receiver.
3rd party: a personal action against persons who receive trust property as volunteers is available
where the distribution was in breach of trust and all possible remedies against the trustee have
been exhausted (Re Diplock 1948)
Compensation for Gain that would have been made through Reasonable Diligence
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Compensation must be made for any gain that a trust fund would have made had the trustee acted
with reasonable diligence.
E.g.
o Where T effects an unauthorised sale of an asset that later rises in value, the beneficiaries
are entitled to the gain that would have accrued to the trust had the property not been
prematurely sold (Re Bell’s Indenture),
o Where T fails to purchase assets and it is his/her durty to buy, and these assets would
have profited the trust, the beneficiaries can sue for the gain that would have been made
had the duty been fulfilled (Elder’s Trustee and Executor Co Ltd v Higgins),
o If T retains assets that should have been sold, the beneficiaries may claim compensation
for any subsequent fall in value (Hicks v Trustees, Executors and Agency Co Ltd).
Interest
A trustee who has occasioned loss to the trust estate through breach of trust is liable to make
good the loss together with interest (Re Dawson).
This can also apply to an account of profits.
An award of interest is founded upon stripping a trustee of profits rather than compensating the
beneficiary for loss suffered (Wallersteiner v Moir (No 2)).
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A constructive trust can be imposed over property purchased in breach of trust even if the
errant trustee/fiduciary has not profited from that transaction.
The imposition of a constructive trust „obliges the holder of the legal title to surrender the
property in question, thereby bringing about a determination of the rights and titles of the parties‟
(Giumelli v Giumelli). The constructive trust is more like a bare trust, and unlike an express trust
it does not create an enduring relationship but is aimed at securing a particular result.
The constructive trust arises at the time the breach occurs – this has implications for priority
disputes. The principal of a constructive trust has the earlier equitable interest, and will take
priority over interests created later in time, as long as the purchaser is not a bona fide purchaser
for value of the legal estate without notice.
Attorney-General for Hong Kong v Reid (1994)
Facts: Mr Reid accepted bribes in breach of a fiduciary duty owed to the Crown. Mr Reid‟s assets include
three properties purchased with the bribes.
Principles:
o At law, the money constituting the bribes belongs to the recipient. The legal estate conveyed to the
false fiduciary also vests in him.
o In equity, the fiduciary who receives the bribes becomes a debtor in equity for the amount of that bribe
and also for any benefits, namely, the increased value of the property representing the bribe.
o When a bribe is accepted by a fiduciary in breach of duty, he/she holds that bribe in trust for the
person to whom the duty was owed. If the property decreases in value the fiduciary must pay the
difference between that value and the initial amount. If the property increases in value, the fiduciary
is not entitled to any surplus in excess of the initial value because he/she cannot profit from a breach.
o * Property which a trustee obtains by use of knowledge acquired as trustee becomes trust property.
o * The recipient of a bribe hols that bribe and the property representing the bribe on trust for the injured
person.
o In the event of insolvency of trustee, any moneys mistakenly invested by the trustee, together with any
profits, which ought to be payed to the beneficiaries, and any bribes and profits which ought to be
payed to the beneficiaries, should be withdrawn from the unsecured creditors as soon as the mistake it
discovered.
o The bribe and property representing the bribe (or another breach) are held on constructive trust for the
person injured. The fiduciary/trustee remains personally liable for the bribe/breach if the value of that
property then recovered by the injured person proved to be less than that amount.
Tracing
Nature of Tracing
Tracing is the „process by which the plaintiff traces what has happened to his property, identifies the
persons who have handled or received it, and justifies his claim that the money which they
handled or received (and if necessary which they still retain) can properly be regarded as
representing his property‟ (Boscawen v Bajwa).
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Tracing or itself confers no rights, but may be a precondition for the exercise of rights.
Tracing in Equity
Available where the claimant can establish the Re Diplock requirements:
1. Breach of fiduciary duty;
2. Change in ownership (succession) to the property contrary to the trust/fiduciary
relationship;
3. Property in question remains identifiable (not been dissipated), even though it may have
changed form or have been mixed with other property; and
4. That the legal estate has not been acquired by a bona fide purchaser for value without
notice or has not been registered without fraud (Farah v Say-Dee)
Tracing in equity enables the claimant to establish a right to a pre-existing equitable proprietary
interest, which pre-dates the claims of third party recipients. This is advantageous where the
defendant is insolvent and a personal remedy, such as compensation, lacks practical value.
The claimant may also obtain the benefit of increases in the value of the property (or in the case
of mixed funds, at least a proportionate share of the increase).
Tracing is an „in rem‟ remedy, but it can support a personal remedy for recipient liability or
accessory liability.
Proprietary claims (beneficial interest) will usually be asserted where the value of the traceable
proceeds exceeds that of the original asset, or the defendant is insolvent and it is desirable to
secure priority over other claimants. Otherwise, personal claims for compensation or an account
of profits are effective remedies for the beneficiaries. Where, on the other hand, the trust money
represents only part of the cost of acquiring the new asset the beneficiary may, at his/her
election, tale a proportionate part of the new property secured by way of an equitable charge.
Where Single Trust Fund is mixed with Trustee’s own Money and thereafter Converted…
The principal task to identify the trust money.
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Apply Re Hallet: the court presumes that where trust funds are mixed in the trustee‟s own bank
account, and a trustee withdraws money, the trustee is acting honestly, such that the trustee
withdraws and expends his/her own money first, leaving the beneficiary to claim any balance
remaining. (T can‟t use this as a defence to deny B‟s interest in any property bought with money
from the mixed funds account – Re Oatway).
Lowest intermediate balance rule – equity limits the beneficiary‟s proprietary claim to the lowest
balance in the account between the date of the wrongful deposit and the date the claim was made,
unless it can be inferred that the trustee intended to restore funds to the depleted trust (James
Roscoe (Bolton) Ltd v Winder).
Re Hallet applies to other property, such as shares (Brady v Stapleton).
Where the trustee has used the mixed funds to purchase other property the beneficiary is put to
an election to either:
o Claim a proportionate part of the property; or
o Claim a charge/lien against the trustee equal to the trust‟s contribution (Foskett v
McKeown). Where a loss has been suffered, beneficiaries would not want to claim an
interest in the property, so they can cliam a charge/lien securing repayment of their
respective contributions to the purchase price.
If the trustee realises an unauthorised gain, the beneficiaries are entitled to at least a proportional
amount of the profits (Scott v Scott).
1. „Pari Passu’ (the proportionate approach) – where the property of more than one trust is
mixed, the general rule is that the beneficiaries of the several trusts have an interest in the
mixed fund in proportion to their contribution to it. (Windsor Mortgage Nominees v
Raymond Griffith Cardwell (1979) E.g. if B1 contributed $3,000 and B2 contributed
$1,000 to the mixed funds, the beneficiaries will have an interest in the proportion of 3:1.
2. ‘First in, First Out’ Approach – an exception to pari passu has been recognised in cases
where the funds have been mixed in a bank account.
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Re French Caledonia Travel Service Pty ltd (2003): The court held that as a matter of
principle, the rule should not be used to allocate losses suffered by beneficiaries
whose funds are mixed.
In such a case, the rule in Clayton’s Case applies and it is assumed that the sum first
paid into the account is first withdrawn. This rule doesn‟t apply:
To transactions entered on the same day (it applies to the balance at the end of the
day) – Re Laughton
Where there is a specific contrary agreement – Barclays v Quistclose
Where specific withdrawals are earmarked as belonging to a particular trust,
although the court is not bound by a defaulting trustee‟s intentional allocation of
loss to specific beneficiaries – Re Global Finance Group.
Pari passu is generally preferred, as the first in first out approach leads to complications.
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A beneficiary may seek a court order, against a 3rd party innocent volunteer or a purchaser with
notice, to convey the property to the beneficiary or a newly appointed trustee.
Delay/Laches
Delay in bringing a claim (laches) may evidence acquiescence or it may render the pursuit of the
claim inequitable even in the absence of acquiescence.
Essence of laches is not knowledge, it is delay. Therefore, laches may be pleaded whether or not
the beneficiary had knowledge of the breach of trust.
S 48(a) Trustee Act (NSW) limits the time in which a person can bring an action against a trustee
for „innocent‟ breaches of trust to 6 years. S 47(1) (e) Trustee Act prescribes a 12 year limitation
period for fraud, fraudulent breach of trust or the retention or conversion of trust funds or
property.
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„Reasonableness‟ is the most difficult hurdle; harder for professional trustees, though. Grossly
negligent behaviour or carelessness, or a clear fiduciary breach, will undermine any case based
on reasonableness of the trustee‟s conduct. A plea of relying on the advice of others will not be
accepted as „reasonable‟ unless such reliance is justified. E.g. where a trustee properly engages a
solicitor experienced in the field and relies on that advice, which proves to be incorrect, that
trustee is likely to be entitled to relief from a resultant breach of trust for having acted reasonably
(Re Investa Properties).
The „ought fairly to be excused‟ is the final hurdle. A court may decline an honest and
reasonable trustee relief where to do so would cause undue prejudice to the beneficiaries, or there
is another discretionary equitable bar to relief, such as delay (Hagan v Waterhouse).
Termination of Trust
Termination by Revocation
A power of revocation may be included in the trust instrument that allows the settlor, the trustees
or a third party to revoke the trust.
Unless such a power is included in the instrument, no right to revoke arises and the trust is
treated as an irrevocable disposition of property (Mallott v Wilson).
Termination by Beneficiaries
The rule in Saunders v Vautier holds that the beneficiaries of a fixed trust may, if they all
consent and are all of full capacity, terminate the trust, even if this defeats the settlor‟s intention.
This principle operates only where the entitlement to the beneficial interest is unrestricted, that
is, where the objects of a trust are entitled to the trust property indefeasibly and absolutely.
Also, a beneficiary absolutely and indefeasibly entitled to an aliquot share of the trust may
terminate the trust in respect of that share and call for payment; provided that there is no contrary
intention in the trust deed, and provided that the beneficiary does not owe a liability to the trust
estate (Whakatane Paper Mills v Public Trustee).
The court retains an overriding discretion to deny the right to terminate a trust of an aliquot share
where the nature of the trust property is not conveniently divisible (Manfred v Maddrell).
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Termination by Distribution of Trust Property
The terms of the trust ordinarily provide for its duration. It duration may be fixed by reference to
a certain event in the case of a strict private trust or, in the case of a discretionary trust, by the
due exercise of the trustee‟s discretion.
In any case, the trust is terminated by the distribution of trust property to the beneficiaries in
accordance with the terms of the trust.
Settlement of Outstanding Claims
Trustees must settle outstanding claims against the trust estate prior to distributing the trust
property at the trust‟s termination.
The beneficiaries‟ entitlement is confined to so much of those assets as is available after the
liabilities have been discharged or provision has been made for them.
Possibility of Additional Beneficiaries Coming into Existence
Where there is a possibility of other beneficiaries coming into existence, trustees should seek
leave of the court to distribute trust property for the purposes of terminating the trust.
The court must be satisfied that there is a strong probability that no further beneficiaries will be
added to the class.
The court will consider the possibility of an unborn, adopted or illegitimate child, or a future
spouse, entitled to benefit under the trust, so as not to deprive existing persons, including the
next of kin of the testator or settlor, of their rights (Trustees Executors & Agency Co Ltd v
Margottini).
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