Equity Maxims
(1) Equity will not suffer a wrong to be without a remedy.
(2) Equity follows the law.
(3) One who seeks equity must do equity: plaintiffs in equity must fulfil their legal and equitable
obligations before seeking a remedy.
(4) One who comes to equity must come with clean hands.
(5) Delay defeats equity.
(6) Equity is equity.
(7) Equity will not assist a volunteer.
(8) Equity looks to the intent rather than the form.
(9) Equity looks on that as done which ought to be done.
(10) Equity acts in personam: equity could restrain a plaintiff at common law from enforcing a judgment of
that court not for any error or defect in the judgment, but for the hard conscience of the party.
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Equitable Estes and Interests
•
•
•
•
Equitable Rights and Interests in property are those which are recognized only in equity in relation to
property which is legally owned by another.
Equitable rights and interest trump legal rights and interest.
Different types of rights vary in transmissibility, priorities in relation to one another, permanence,
and remedies available to enforce them
Types of property Rights
Common law estate/interest
Legal fee simple
Legal life estate
Legal lease
Legal mortgage
Common Law lien
Legal charge
n/a
n/a
n/a
n/a
Equitable estate / interest
Equitable ownership
Equitable life estate
Equitable lease
Equitable mortgage
Equitable Lien
Equitable charge
Equitable interrst arising from option to purchase
Mortgagor’s equity of redemption
Partner’s interest in partnership ownership
Restrictive covenants over land
•
Priorities: Equitable propriety interest > Mere Equity > Personal Equity
•
Equitable propriety interest
o Rights exercisable against the world at large DKLR Holdings
o Examples per Latec Investments
▪ Beneficiary to a trust
▪ Business partners
▪ Security for a loan which has not been registered (unregistered mortgage)
•
Mere Equity
o Needs court judgement, not a propriety right, may lead to an equitable propriety right
subject to court discretion (laches/acquiescence etc) E.g. Have
o
o Examples
▪ Equity to set aside voidable transaction
• E.g. right of mortgagor to have fraudulent sale set aside, no proprietary
rights prior to exercise of the equity, rights of parties determined by
reference to the contract still afoot Latec Investments Ltd v Hotel Terrigal
Pty Ltd
▪ Equity for rectification
▪ Equity arising from estoppel: right to claim an interest in property, pursuant to
proprietary estoppel principles
▪ Right to obtain enforcement of an oral mortgage, pursuant to the doctrine of part
performance
▪ Right to transfer of land where, as a result of unilateral mistake by vendor, the area
of land transferred exceeded the area stipulated in the contract of sale
▪ Right to a constructive trust, pursuant to principles in Muschinski v Dodds and
Baumgartner v Baumgartner
•
Personal Equity
o Right to bring action in equity. Purely personal and non binding on third party. If third party
has notice, not bound by personal equity.
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Assignment of Property in Equity | Disposition of Property
Assignment: Assignment is the ‘immediate transfer of an existing proprietary right, from the assignor to
the assignee’ Norman v FCT. Equitable assignment is the incomplete transfer of property. A court will
overlook the failure, provided equitable rules are satisfied.
3 Elements
1. For value
2. Voluntarily
3. What which is not assignable
a. Writing requirement – Difficulties due to s23C Conveyancing Act
Types of equitable property
1. Directly
2. Direct trustee to hold for new beneficiary or transfer legal title to new person
3. Declare trust
4. Agree for value to assign equitable property
Rules
1. Is the property assignable?
a. Type of property, is it transferable?
b. Inherently capable of being assigned OR unassignable on public policy grounds
i. Contractual prohibition of assignment
ii. Personal contracts (e.g. life insurance)
iii. Bare right to litigate
• “Bare right” unassignable Glegg v Bromley
• Assignment of property with an incidental right to litigate is valid Trendtex v Credit Suisse
c. If inherently unassignable, no valid dealing at law or equity
2. Presently existing or future property?
a. Future property = right which has not yet been acquired, but may be acquired in the future
i. Royalties / dividends yet to be declared, will of a living person
b. At law, future property is unassignable. Present property assignable in law and equity, got to 3
c. Future property only assignable in equity for valuable consideration. Holroyd v Marshal
i. Valuable consideration as equity does what ought to be done
ii. Equity will compel the party making the K for consideration to perform the K and hold the
beneficial interest upon trust for the other party immediately upon being acquired Norman v
FCT
iii. K of assignment is construed as an agreement to assign the thing when it is acquired
iv. Property must be described with sufficient particularity Tailby v Official Receiver
3. Legal or equitable property
a. Legal property: property rights recognized at CL and equity e.g. land, debts, shares & money
i. Real property: land
ii. Personal property
• Choses in action: “personal rights of property which can only be claimed or enforced by
action, and not be taking physical possession” Torkington v Magee e.g. K rights, shares,
debt, persona right not reduced to possession but recoverable by suit at law, IP, Lottery
ticket
• Choses in possession: “chattels” personal things of which one has possession e.g. taxes
and customs
• If paid = chose in possession
• If unpaid = chose in action
b. Equitable: rights to property only recognized in equity
i. E.g. right of beneficiary under a trust, equitable mortgages, vendor’s lien/purchaser’s lien,
equitable choses in action such as rights under a partnership.
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[ Identified what the property is and what has been given away voluntarily ]
4. What kind of dealing is involved / What requirements are there for that type of dealing with a legal or
equitable interest?
4A Legal Interest in Property
a. Assignment (immediate transfer) of the Legal Interest
Only form of dealing which actually effects a transfer of legal title at law. Other types create
equitable interest, but leave the titleholder as the legal owner of the property
i. Old system Land
o Delivery to donee of Deed of Coneyance: s 23B CA
o Words indicating intention to convey land are sufficient s46 CA
o S23C C: Writing requirements
ii. Torrens title Land
o Registration fo instrument (e.g. executed memorandum of Transfer) ss40-42 RPA
o S23C CA transfer must be in writing
iii. Legal choses in action (e.g. shares, debts)
o Only whole of the chose assignable at law, not partly. 3 i’s irrevocable, immediate,
intention)
o Method of transferring legal chose in action in law )In particular debts) per s12 CA
i. Absolute
ii. In writing
iii. Not by way of charge
iv. Express notice to debtor/trustee although no time limit prescribed. No legal right
for chose in action until notice given
v. Other forms of legal choses in action have their own requirements outside s12CA
including company constitution, ASIC etc. Includes shares, copyright, bills of
exchange, life policies, promissory notes.
iv. Choses in possession
i. Under K for sale of goods: legal title passes according to SOGA rules
ii. A gift at law of a chose in possession may be made wither
• By deliver with intention to give, or
• By deed of gift Cochrane v Moore
v. Legal requirements are not complied (particularly writing requirements)
i. Equity will recognize the assignment in equity when
ii. Voluntary Assignment of legal Property
Need to pass entire control to the party intended to be the beneficiary of the
interest – No 3rd party or Themselves who could frustrate the legal title
- Corin v Paton donor has done all that is necessary to place the legal title
within the control of the done and beyond the recall by the donor. Donor
then holds property on constructive trust for donee pending vesting of title.
iii. For Assignment for Value of Legal Property
- Payment of valuable consideration and the contract is specifically
enforceable Holroyd v Marshall
- Equity won’t permit the writing requirement in s23C CA to be used as an
instrument of fraud Last v Rosenfeld
iv. For Equitable Assignment of Legal Property not assignable at law (i.e. part of a
chose)
- Assignor manifest an intention to make an immediate and irrevocable
transfer Shepherd in language that clearly establishes the assignor intended
to assign the property Dunlop Rubber
- Can be voluntary or for value Norman v FCT
- No particular form is required in intention is clear. Notice is not necessary
for assignment in equity.
b. Agreement to assign the Legal Interest for value in the future
i. Equity regards that as done which ought to be done
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ii. Agreement to assign doesn’t transfer property immediately but states intention to transfer at
some point in the future.
iii. Agreement for sale of land must be in writing per s54A CA to be valid at law. Equity will
recognize agreements not in writing when
1. Consideration is paid under a specifically enforceable agreement to assign an interest in
land, constructive trust arises from the time of payment Holroyd v Marshall
2. Certain circumstances, act as part performance of an agreement to assign an interest in
land which is not in writing will give rise to a right to specific performance of the K
Maddison v Alderson acts must be done under the terms and by force of that contract
and be unequivocally referable to some contract of the general nature of that alleged
Walton Stores.
c.
Declaration of trust of the Legal Interest
i. Where an owner of legal property declares themselves trustee of the property for someone
else, this creates an equitable interest in assignee and the owner remains the legal titleholder
as trustee (i.e. does not affect the legal ownership of the property)
ii. It requires a statement intended to be final and binding that property owned by the settlor is
thereafter held on trust for another. No form of words is required – the question is whether
there is language or conduct which shows requisite intention Re Armstrong
iii. Declaration of trust over legal interest land must be in writing signed by the person making the
declaration s23C(1) CA
iv. Declaration of trust over legal interest in personal property may be oral or inferred from
conduct – not caught by writing requirement of 23C.
4B Equitable Interest in property
What is Equitable Property?
i. Interest of a beneficiary under a fixed trust
ii. Interest of partners in a partnership
iii. Right of a purchaser of land under a valid contract for sale (at least to the extent of the
purchase price which has been paid)
iv. Equity of redemption of a mortgagor of land held under old system title
v. Lien of a purchaser of land over property pending completion
vi. Lien of a vendor over land for the unpaid purchase price
Note that confidential information is not generally regarding as property (JAKL)
a. Assignment (immediate transfer) of the equitable property
i. Absolute assignments of equitable property don’t require consideration. Non-absolute, require
consideration
ii. No formal requirement for equitable assignment of equitable property. Requirement
Clear expression of INTENTION by the donor to make an IMMEDIATE and IRREVOCABLE
disposition: Norman v FCT
iii. There may be writing requirements derived from s23C CA
a. Applying to subsisting equitable interest in land
b. Equitable interest in personalty Adamson v Hayes; PT v Maradona
i. Equitable choses in action (e.g. interest of a partner in a partnership) or equitable
interest in legal choses in action (e.g. equitable interest as a beneficiary under a
trust in shares)
ii. Equitable choses in possession
b. Agreement to assign equitable property
i. Interest in land.
a. s54A CA requires an agreement to assign an “interest in lad” (i.e. including equitable
interest) in writing
ii. Interest in personalty
a. s23C may be a disposition. Oughtred oral agreement to assign ineffective
b. However, where for value, specifically enforceable and consideration is paid, a
constructive trust will arise which is exempt under s23C(2) – so, no writing where a
constructive trust arises (Neville v Wilson; Halloran) so, does not require writing where
consideration is paid
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c.
Declaration of trust of the equitable interest
i. Equitable interest in land – evidence, though not made, in writing under s23C.
ii. Equitable interest in personalty (e.g. shares held on trust) – “disposition” includes a declaration
of trust (Controller of Stamps); therefore writing required under s23C(1)(c) R despite views to
the contrary that not bound by requirements under s23(1)(c) because why in writing if interest
in land only required to be evidenced and not made.
d. Direction by beneficiary to trustee in relation to equitable interest
i. Equitable interest in land – any form of direction which creates or disposes of an interest in
land requires writing under s23C(1)(a) CA
ii. Equitable interest in personalty
iii. Direction to hold on beneficial interest in personalty on trust for third party – disposes of
beneficial interest and therefore requires writing under s23C Grey v IRC
iv. Direction to transfer personal property to a third party – does not require writing as it is a
direction in relation to a legal interest (which carries WITH IT the equitable interest; spo does
not attract s23C(1)(c) and does not relate to land, so does not attract s23C(1)(a) or (b)
Vandervell v IRC
5. Have the above requirement been complied with?
a. Valid dealing, and will be declared as such by a court. If not… Q7
6. Will equity recognize the dealing even without the formalities being complied with?
(1) Rules as to when equity will recognize an informal dealing that ahs not complied with a dealing, and
when it wont
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Construction of Express Trust
Ways to create a trust:
- By declaration: a title holder expresses his intention to hold his property on trust for another;
- By transfer: title is transferred to a person with instruction that it be held on trust for another, can occur
either via inter vivos transaction (perhaps writing or Milroy) or by will;
- By direction, the beneficiary of an existing trust directs the trustee to hold his interest on trust for another.
Three certainties (without all three the trust will fail): (case Just v Young, Western v Western?)
- Intention (important);
- Subject matter/property;
- Beneficiaries/objects.
- e.g. if say “descendants of someone”, it is not certain, as may have more descendants in the future, so may
fail the certainty requirement. But if say “descendants at present”, it is certain
case Justice v Young is the exception to certainty.
case Western v Western: can list the descendants – make every essential enquiry and list substantial
beneficiaries.
Trust composition
1. the trustee — a legal person who holds a vested legal title (or a vested equitable title) in the property,
subject to fiduciary duties;
2. trust property — property in real or personal form which is identified or ascertainable and capable of
being held on trust. The trust property can be legal or equitable property; and
3. the beneficiary (sometimes referred to as the cestui que trust in older cases, or the object of the trust in
modern cases) — a person, or group of persons, who hold a beneficial equitable estate in the property
and on whose behalf the trustee must act.
Types of Express trusts
• Bare
• Charitable
• Non-charitable purpose: pets and tombs
• Commercial / Unit
• Family
Sub types of interests
1. Fixed
2. Discretionary Scaffidi v Montevvento Holding
• Exhaustive. E.g. Income made every year needs to be distributed
• Non-exhaustive Richstar Enterprises; Austaralian Securities and Investments Commission v Carey No 6
Powers of appointment and trust
1. general powers, where the donee is empowered to appoint the property to anyone including himself or herself;
2. special powers, which are powers to appoint the property to specific individuals or classes of objects, not
including the donee;
3. hybrid powers, where the donee can give the property to anyone in the world except for a particular group or
class or individual; and
4. intermediate powers, where the donee can add to the specified class of objects in the power.
e.g Re Gulbenkian's Settlement Trusts
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1. Certainty of intention
An express trust will not be valid unless it is clear that the creator has intended to create a trust. The intention can
also be inferred from conduct.
Resulting trust and constructive trust do not have to satisfy certainty of intention.
(1) If there is no subjective intention, the trust is not valid even though express words of trust were used.
Commissioner of Stamp Duties v Joliffe
- An intention to create a trust at a later time is not an intention Harpur v Levy
- Commissioner of Stamp Duties v Joliffe has now been overruled, intention could be proven by the
objective evidence contained in the acknowledgement or inferred from circumstances. Byrnes v Kendle
- Precatory and illusory words:
• Lambe v Eames: testator gave estate to widow “to be at her disposal any way she thinks best, for
the benefit of herself and her family”. Held: not enough to create trust.
• Mussorie Bank v Raynor: no trust where testator left property to wife “feeling confident that will
act justly to our children in dividing the same when no longer required by her” Modern judicial
attitue is neutral, courts will establish intention as a whole
- Illusory:
• Dean v Cole: testator devised his estate to his wife “trusting to her that she will at some time during
her lifetime or at her death divide in equal shares to children his estate” – “trusting” did not create
a trust, she took absolutely
• Byrnes v Kendle: ‘natural ordinary meaning of words used to rely on relevant intention…not any
other ‘secret, subjective, real or hidden intention of the transferor.
(2) Inter vivos: oral and written evidence allowed
(3) By will: if the creator transfers property and expresses a motive, hope or expectation that the property will
be used in a particular way, the condition will be viewed as precatory and impose no obligation.
2. Certainty of subject matter
The trust property must be reasonably identifiable or ascertainable at the time the trust is created.
(1) “Reasonable income” is certain if the court could quantify the amount. Re Golay’s Will Trusts
- Herdegen v Federal Commissioner of Taxation “5% of 950 shares”, if the subject matter has not been
specifically identified, it is uncertain.
- Hunter v Moss “5% of 950 shares which were of the same class and came from the same company, it is
certain.
- Palmer v Simmonds “The bulk of my estate” failed for uncertainty of subject matter
- Boyce v Boyce quantum of corresponding equitable interest….father cottages to daughter, as daughter
chose and the rest to Charlotte (express trust fails, resulting trusts will take back to estate)
- Re Golay’s Will Trussts; Knight v Knight Note that the court will always try to interpret away the
uncertainty
3. Certainty of objects
Object must be identified with sufficient clarity to satisfy the list certainty rule, which requires that
beneficiaries are “ascertainable” in the sense that they could be listed when the trust comes into operation
3 Types of object uncertainty
1. Semantic uncertainty – “friends” – who is ones’ friend? Loose expressions that have linguistic
uncertainty
2. Administrative uncertainty – too wide to make administration possible
• West v Weston with equal division of his estate amongst such of the issue of living at the
testator’s death of his 4 grandparents
3. Evidential uncertainty – how to establish who qualifies for a certain group in terms of evidence
Bare powers & Trust Powers
Gartside; Re Leek; Hourigan Test for certainty satisfied so long as any selection clearly assesses criterion of
membership for group from which he could have selected
Test for certainty of objects for the exercise of a Power
Now, only one test which is the criterion test – the simpler of the 2 tests – nature of power of appointment
• West v Weston – “no reasonable inquiries could be made which would improve the situation” – note the
decision in this case ahs been criticized, but it seems reasonable in the circumstances.
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(1) Fixed trust and certainty: the beneficiaries must be identifiable to allow the court to draw up a complete
list of the beneficiaries at the time their beneficial interests come into effect.
(2) Discretionary trust and certainty: the trust is allowed to choose from beneficiaries of a particular class.
Creation of trusts
1. Declarations of trust
(1) Legal personal property – no writing, oral declaration is effective. (s23C(1)(c) of CA)
(2) Equitable personal property – writing (s23C(1)(c)) Oral direction
is ineffective (Grey v IRC)
(3) Land – writing (s23C(1)(b)) (Wratten v Hunter)
(4) If A’s direction to B as trustee as trustee of personal property, it relates to both the legal and equitable
interest in the personal property – no writing needed (s23C(1)(c)) (Vandervell v IRC)
- A’s death would not affect the direction (Vandervell v IRC)
- Another opinion: A’s death would revoke the direction, if nothing has been done to give effect to it.
(Parker&Parker v Ledsham)
2. Create a trust by direction
A trust is created when the beneficiary of an existing trust directs the trustee to hold his or her interest on trust for
another. This is a disposition of an existing equitable interest and so needs to be in writing. (Grey v Inland Revenue
Commissioners) (s23C(1)(c) of CA)
3. An agreement to create a trust at a later time
According to s54A of RPA, a contract to create a trust of land on a future date should be in writing. (Khoury v Khouri)
Unable to rely on statutory provision to commit fraud such as s54A and future promises Schweitzer v Schweitzer
4. Secret trust
It is a form of testamentary trust.
(1) Full secret trust: there is no record of the testator’s intention to create a trust in the will.
Half secret trust: the testator indicates his intention that the gift is held subject to some private instruction that
has been communicated by the testator.
(2) Elements of half secret trust (Ledgerwood v Perpetual Trustee)
- The testator must intend to subject the donee to an obligation of trust;
- The testator must communicate the intention to the donee, the time of the communication is immaterial as
long as it occurred before death;
- The donee must accept the obligation before the testator’s death.
(3) Whether a secret trust is a part of the will or arises outside the context of the will
- It is an independent trust that exists separately from the will. (Bathurst City Council v PWC Properties)
- If the secret trust is not part of the will and the trust property is land, writing is not required as it is a
constructive trust.
Secret trusts separate from will
• Re Gardner
• Re Young.
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Some Small Kinds of Trusts or Not Trusts
1. Fiduciary relationships, deceased estates, bailments, agency, debts, securities, retention of title clauses,
powers of appointment, compared to trusts
2. Equitable personal obligation (equitable charge), or conditional gift
It depends on the construction of the words in question whether the arrangement creates a trust for the third
party, a charge in favor of the third party, a conditional gift, or an equitable personal obligation.
(1) Trust (Gill v Gill)
- If the transfer of property indicates a motive, hope or expectation that the property will be used in a
particular way, the condition will be viewed as precatory will be viewed as precatory and imports no legal or
equitable obligation. (the Will of Warren; Verga v Taylor)
- E.g.
(2) Equitable charge
- Transfer of property, which is subject to obligation being fulfilled to third party, will be viewed as equitable
charges. The obligation should be definite. (Re Gardiner; Gill v Gill)
- E.g.
(3) Conditional gift
- If the transfer is made subject to a binding condition precedent or condition subsequent, it is conditional gift.
And the property will be forfeited if the condition is not fulfilled. (Re Gardiner)
- Condition precedent
If the transfer of property is made subject to a binding condition precedent, the transfer will not take place
until the condition precedent is satisfied.
- Condition subsequent
➢ e.g property give to A on trust, on the condition that A is not married to a Catholic. But A has been married
to a Catholic for years.
This is a disposition with a condition subsequent;
At first glance, the gift appears to be valid, it is partial restraint of marriage as the condition restrains
marriage to a person of a particular religious faith; (Seidler v Schallhofer)
But the restraint forces the beneficiary to divorce, it is against public policy, so the condition will be struck
down;
As the condition can be separated from the disposition, A can still take the interest without the condition.
(4) Equitable personal obligation (Gill v Gill)
- Transfer of property, which is subject to obligation being fulfilled to third party, if the obligation is not
definite, this can be viewed as imposing an equitable personal obligation. (Re Moore; Broad v Bevan)
- Equitable personal obligation does not create a property right in the third party. Breach of the obligation will
not give rise to a forfeiture of the gift.
But breach of the obligation may give rise to orders of specific performance, injunction, or equitable
compensation.
- E.g. transfer property to C on the condition to provide board for A. It is equitable personal obligation
enforceable by A in equity.
The enforcement would be against C personally for compensation. A has no proprietary interest in the
property.
(5) Rule of perpetuities
- Modern rule against perpetuities
An interest that is created to vest sometime in the future, must vest within a life in being plus 21 years from
the date the instrument becomes effective.
Life in being + 21 years
- life in being: reference to the life of someone mentioned expressly in the disposition. The life in being must
be human and the person must be alive at the date of the creation of the interest;
More than one person can be employed in a disposition as lives in being;
If there is a class of people, the 21 years runs from the death of the last survivor in the class;
The class should not increase in number when the instrument takes effect; The class should be ascertained at
the date the instrument comes into effect;
If the life in being is an unborn child, the length of gestation is added to the perpetuity period; people are
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presumed to be able to reproduce no matter what age they are.
➢
e.g. I give $200,000 to Lex on trust for A, then for any wife he may marry for life, then to A’s children that attain
25 years.
Whether it offends the rule against perpetuities. For the purpose of calculating the perpetuity period, A must be
the life in being as the future wife and children are not ascertainable at the date the will comes into effect. The
gift to the future wife is valid as it will vest within the life in being, because her interest will vest when she
marries A.
However, the children’s interest offends the rule: it is presumed that Anthony is fertile and that any wife he
marries will also be fertile, regardless of their age. It is therefore possible that A’s wife will bear him a child that
will not reach 25 years of age within 21 years of his death. Therefore, that child’s interest could possibly vest
outside the period.
The gift would be saved by legislation, which automatically reduces the age restriction to bring it within the
perpetuity period. This would have the effect of reducing the age restrictions to 21 years as opposed to 25 years.
Finally the wait-and-see provisions would allow the gift to survive initial uncertainty.
6. Quistclose trust
(1) Usual circumstance of Quistclose trust (Barclays Bank v Quistclose Investments)
- Involve a loan, and
- The key intention that the money advanced is for a specific purpose and only for that purpose, and (Re
Kayford)
- This is the mutual intention of the provider and the recipient of the money.
- How to identify mutual intention: (Re Kayford)
If the business practice has a special customer account, one could establish the intent; If the money is
deliberately deposited into the general account, there is no this intent;
If the money is deposited in the general account because of mere oversight, an argument can be made about
the intent.
(2) If it is not a loan (Barclays Bank v Quistclose Investments)
- The use of Quistclose trust beyond orthodox loans has been questioned. (e.g. Re Miles)
- But still can use the above analysis in (1) if say it is Quistclose trust.
- If it is about payment advanced on the basis of an undertaking for a specific project and for nothing else, it is
the circumstance covered by Quistclose trust. (Twinsectra v Yardley, Shepard v Mladenis)
(3) The intention of the recipient alone may be sufficient to constitute Quistclose trust (Re Kayford; Stephens Travel
Services v Qantas Airways)
- It can arise in circumstances of a travel agent collecting funds for airfares from clients who booked flights
with the travel agent.
(4) If there is Quistclose trust, the provider is entitled to the money held by the liquidator;
If there is no Quistclose trust, the provider is one of the unsecured creditors with claims to a share of the general
account funds.
7. Donatio Mortis Causa
This is an exception to the maxim that equity will not assist a volunteer. Personal property passes from a donor to
a done upon the death of the donor. Elements as follow: (Wilkes v Allington)
(1) There must be a contemplation of death.
(2) The property, or essential indicia of title, must be delivered to the donee.
- Deliver the keys to car is delivery (Woodard v Woodard)
- The retention of a second set of keys may mean that there is no delivery of the car (Re Craven’s Estate (No 1))
- If A gives B keys, without saying anything about the keys or anything that the keys as part of any process of
giving the car, then B is only a bailee of the key. So the possession of the car as a bailee cannot be converted
to a DMC without A’s specific referring to the keys.
(3) The gift is to take effect on death, and there is an intention to revoke the gift on survival.
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Variation & Termination of Express Trusts
Variation of Express Trust:
- Trust instrument can contain powers for trustee to add beneficiaries to a class or change their rights –
intermediate powers of appointment.
- Trust instrument is given its natural an ordinary meaning even where it included a power to vary the identity
of the beneficiaries of the trust: Kearns v Hill (1990).
Inherent Power to Vary Trusts – must go to HC to ask for changes. Emergencies:
- Changes in the nature of investments for infants from personalty to realty, Lord Ashburton v Lady Ashburton;
Re Jackson (;
- Investments in business transactions not authorised by a trust of settled land, Re Collins; Havelock v Havelock
- Payment of maintenance out of income , even where there is a direction to accumulate income, Re New; Re
Tollemache; and
- Compromises in favour of unborn children, Re Trenchard; Salkeld v Salkeld (No 2)
Trustee Act 1925 (NSW), s81
- Allows trustees to make changes to beneficial interest.
- Management & Administration = ‘wide import’ and ‘pick up everything that a trustee may need to do in
practical or legal terms in respect of trust property’: Royal Melbourne Hospital v Equity Trustees
INCLUDING:
- ‘the manner in which trust property is managed, administered, handled, directed or controlled and the actual
carrying out of those functions’: Arakella Pty Ltd v Paton (2004)
- Expediency = in the benefit of the beneficiaries: Riddle v Riddle (1952) meaning ‘advantageous’, ‘desirable’,
‘suitable to the circumstances of the case’: Trust Company Fiduciary Services Ltd v Challenger Managed
Investments Ltd [2008]
NB: Court may refuse to order a variation if not all the beneficial interests have been represented on
the question of expediency: Feeney v Feeney [2008]
Example of Expedient: Where trustee converts unit trusts to shares: Arakella Pty Ltd v Paton; or the
deletion of otiose clauses which had been rendered redundant resulting in more capital growth :
Colonial Foundation Ltd v The Attorney-General [2007].
Intention of the trusts creator?
- The exercise of the court’s discretion should be informed, but not governed by, the intention of the settlor or
testator/trix: Royal Melbourne Hospital v Equity Trustees Ltd.
- The fact that some beneficiaries may be worse off is not a bar on variation: Stein v Sybmore Holdings.
ILLEGALITY
- Usually where trusts are set up to receive welfare or avoid tax.
- Equity will leave the legal title of the property where it sits and not impose a trust: Holman v Johnson
UNLESS
- You must make good on your fraud for equity to find a trust (clean hands): Nelson v Nelson (1995). Women
put unit in trust under daughter and son to take out a war window loan – relied on her not currently owning a
home. Daughter refused to hand over proceeds after the house was sold.
- A ‘presumed resulting trust’ would usually arise creating a resulting trust in favour of the giver, BUT!!
- There is a presumed ‘advancement’ where parents, giving property to children, are presumed to have gifted
the property.
-
In cases where houses have been purchased by foreign nationals the trust would not be struck down BUT the
treasurer would need to be notified: Menezes v Salmon [2009].
Trusts to defeat insolvency:
- If bankrupt 5 years after creating trusts, those trusts will be struck down: Bankruptcy Act 1966 (Cth),s120;
Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako [2012].
Exceptions: payments of tax, maintenance, and debt agreements: s 120(2). Transfers will not be void if they took
place more than two years prior to the commencement of bankruptcy and the t ransferee can prove that at that
Page 14 of 58
time the transferor was solvent: s 120(3).
- Bankruptcy Act 1966 (Cth),s121: Voids any trust, regardless of when trust was created, if that trust was
created for purpose of avoiding creditors – could be 40 years later! Trustees of the Property of
Cummins (a bankrupt) v Cummins (2006): did not pay income tax for 45 years – transferred all interests
to wife to avoid creditors.
Fraudulent Conveyances
Conveyancing Act 1919 (NSW) s37A.
Any transfer with ‘intent to defraud creditors’ is voidable = delay, hinder and defeat creditors: Marcolongo v
Chen (2011). liberal interpretation: Cassegrain v Gerard Cassegrain & Co Pty Ltd [2012] – need not be only
intent!
Agusta v Provident Capital. Sucking of trustee to avoid paying T. Held: no
Family Law
- Family Court has the power to declare the rights and titles that parties to a marriage have to property and it
has the power to make alterations to those rights: Family Law Act 1975 (Cth) ss 78, 79, s85A allows courts to
make orders it thinks are just and equitable in relation to property dealt with by ante-nuptial and post-nuptial
settlements which are made in relation to the marriage.
- Attempts to remove property from jurisdiction of family court is struck down: s106B
- Kennon v Spry (2008): took himself and wife out as beneficiaries of a $4.5million trust – void under s106B as it
was clear this was to remove the interests from the jurisdiction of the family court.
- Kennon v Spry: discretionary trust dissolved to avoid inclusion in marital pool, Held: undid dissolution.
Public policy
- Trusts can be struck down if against public policy.
- Conditional gifts of property should woman continue to live in sin with new party – woman returns to
husband but still claims the gift from new boyfriend – woman claimed the trust would force her to live in sin
– HELD: not void because the state of ‘immorality’ of the relationship was already in existence when the
agreement was struck: Seidler v Schallhofer [1982]
CF
- Ashton v Pratt (No 2) [2012]: Funds on trust 5million for each of her sons should she provide him with
exclusive services – oral agreement only – NO redeeming characteristics as the entire point of arrangement
was sex and thus against public policy to create a trust for such reasons.
- Re Ayles Trust: for future illegitimate children
Marriage and family
- Trusts that completely restrain a person from marrying, or which encourage a person to divorce, are also
void: Re Johnson’s Will Trusts [1967].
BUT!
- The absolute vesting of a gift only upon a marriage ending is not encouraging divorce where the child may
still be receiving the benefit of income from the gift: Ramsay v Trustees Executors & Agency Co Ltd (1948)
BUT AGAIN! Changing attitude to encouraging divorce is unlikely to even be against public policy nowadays:
Ellaway v Lawson [2006]
- Trusts which have the effect of separating parent and child will also offend public policy: Re Boulter; Boulter v
Boulter [1922].
- A trust for one’s widow or widower which ceases on their remarriage is valid: Lloyd v Lloyd (1852).
- Partial restraints on marriage, such as preventing marriage to a person of a particular religious denomination,
race, ethnicity or class, have also been upheld: Seidler v Schallhofer.
- Interest vested upon death of mother - the fact that the children’s interests were delayed was not an
encouragement to hatred or murder. The intention of the testator was to ensure that his ex-wife would not
benefit from his estate: Penfold v Perpetual Trustee [2002].
Racist Gifts
- Kay v SE Sydney Area Health Service [2003]: ‘I give the Children’s hospital at Randwick $10,000 for the
treatment of White babies.’ Racial Discrimination Act s8(2) said racist gifts to charitable organisations OK as
no need for clear certainty of beneficiaries.
- CF Same case but her house was to go to Young, White, Australian couple – None of those terms are defined non charitable trust means there must be a certainty of beneficiaries.
Page 15 of 58
Misrepresentation
Trusts set up under misrepresentation or undue influence are voidable: Johnston v Johnston (1884). Tjiong v
Tjiong [2012]: chinese family – both brother Drs – one brother faked insurance claim against dead brother’s
estate in order to have daughter’s sign over rights to surviving brother having a discretionary trust
Restraints on Alienation
- An absolute gift, given on trust THEN put restraints on how it is used cannot be done.
- A restraint purporting to prevent the sale of the property after it has been given absolutely will be void:
b. Public Trustee v Donoghue [1999].
CF
- A determinable interest (ties in with gift) and automatically ends on the happening of some event. The
interest must contain the limitation itself:
‘to A on trust for B for life, but if B ceases to use the property as a hotel, then to C’ is considered to
contain a restraint on alienation. BUT ‘to A on trust for B for life until B ceases to use the property as a
hotel’, B’s life interest is always limited in time to the event of the property no longer being used as a
hotel.
The rule against indestructible trusts
- A trust which prevents any access by beneficiaries to trust property is void.
- Prevents the trust property from being alienable: Re Cain [1950].
- Also offends the rights of beneficiaries under the rule in Saunders v Vautier.
Rule against indestructible trusts
- prevent the beneficiaries from eventually using and exhausting the capital of the trust funds will be void.
Such a trust is objectionable because it prevents the trust property from being alienable: Re Cain [1950] VR
382 at 391. Such a trust also offends the rights of beneficiaries under the rule in Saunders v Vautier
Perpetuities
- Prevent the forever control of property via trustee via infinite successive interest
- Interest within the life in being plus 21 years from date instrument becomes effective
-
Life in being = a ‘life in being’ is usually a reference to the life of someone mentioned expressly in the
disposition. The life in being must be human and the person must be alive at the date of the creation of the
interest:
-
Steps
•
•
•
•
•
1. Is this a perpetuity problem? IE is there a contingent remainder
2. When is the interest created? (death? Inter vivos)
3. Who is the life in being? (living person or closed class of living persons)
4. Is there any possibility that it will vest outside the period of LIB + 21 years
5. Is there some mitigating rule or statute (will talk about later)
Page 16 of 58
– Rule in Andrews v Partington, as long as one born before the period, then satisfied.
NSW remedial statute
c. Wait and see if
d. Wait 80 years
e. Automatic reduction of age of interest
Page 17 of 58
Charitable Trust
1. If a gift to A, whether the purpose of A is within the definition of charity
(1) Four categories: (Pemsel’s Case)
(2) Compton Test: the “purpose” should meet the requirement of public benefit. (Re Compton)
- e.g. education is public interest.
- it would fail the public interest test, if the receiver of the charitable benefit is linked to contract, employment, or
blood relation.
- preference set in charitable trust does not offend the rule of public interest, as long as it is still available to the
general public (Dingle v Turner)
- a gift stipulates that preference is to be given to a particular group of persons may not to infringe the Compton
Test (Public Trustee v Young)
2. Whether it is a valid charitable trust – four categories (Pemsel’s Case)
(1) Trust for relief of poverty (Downing v FCT)
(a) Compton Test does not apply to trust for relief of poverty. (Dingle v Turner)
(b) But still must be a benefit to the public.
(c) A trust for the relief of the aged may be charitable trust for the relief of poverty; (City of Mandurah v
Australian Flying Corp & Royal Australian Air Force Association)
- if it is a trust to the wealthy aged, it is not charitable;
- so should ask: whether the amounts paid to A exclude all but the very wealthy.
(2) Trust for the advancement of education (Re salvana)
- Conducting and disseminating research fails within education (Taylor v Taylor)
(3) Trust for the advancement of religion (Liberty Trust v Charities Commission, Commission of Taxation v Word
Investments)
(4) Trust for purpose which are beneficial to the community (State Trustees v Attorney-General)
- Gifts to a Community: A gift to Parramatta, to Australia, a gift to mankind, all ok.
- Public Works and Beautification Trusts – General sports ground but not specific sport.
- Wildlife: 4th Category. Not for benefit of animals, but for humans: Re Grove-Grady
- Wilderness: Park/reservation/sanctuary for the purpose of the preservation and conservation of native
Australian flora and fauna is a charitable purpose under either 2 or 4 above: Re Salvana.
- Protection from War and Disaster – earthquake, etc.
- Relief of Taxes – you can pay other’s taxes.
- Public Recreation and Sport – must be attached to education, hospitals, etc. Sporting trust for police would
be fine.
- Public Safety and Defence – police, army, etc.
-
-
-
Public benefit must be established rather than presumed, there is no presumption of public benefit as in
the other three categories. (National Anti-Vivisection Society v IRC) Should weighing up the benefit against
any cost to the public to identify,
If benefit to society is more than detriment to society, it is beneficial.
Trust for political purpose is not charitable: a trust is political when it has the primary purpose of changing
the law; (National Anti-Vivisection Society v IRC)
The political trust argument is likely to go the other way. (Aid/Watch Incorporated v Commissioner of
Taxation of the Commonwealth of Australia)
Trust for animal welfare is generally charitable under the fourth category. (e.g. Re Wedgewood, a trust for
the protection of animals)
They are charitable because of the benefit to mankind, not because they benefit animals. (Re Grove-Grady)
Trusts with Mixed Charitable and Non-Charitable Purposes
- If the gift is worded to give trustee a discretion between charitable and non-charitable purposes, the gift
will fail, e.g. a gift for ‘charitable or benevolent purposes’: Morice v Bishop of Durham
- BUT s23 of Charitable Trusts Act will now allow trust to apply only the charitable purposes and strike out
the non-charitable purposes.
Public Benefit (Must be proven for 4th Category) – COMPTON TEST
Page 18 of 58
-
Benefit must be for the entire public or significant proportion of it.
Presumed to be public benefit if falling within first 3 categories in: Pemsel [1891].
Public benefit need not go back to same jurisdiction in which public is: Kytherian Association of Qld v
Sklavos (1958) – charity for Greek Orphan’s wish cash going to Greece – HELD: Made Australian public
‘morally improved’, thus a public benefit.
Examples of where trusts have failed based upon lack of public benefit:
- Trusts for the advancement of religion where the object favours cloistered or contemplative orders who
have little contact with the outside world: Gilmour v Coats [1946]
- Trusts to stop practice of vivisection (cutting animals whilst alive) have failed because there would be an
overall detrimental effect to the public should such experimentation cease: Anti-Vivisection Society v
Inland Revenue Commissioners [1948]
- Even where thousands of people benefit (-),trust to educate the children of free masons or BHP workers
does not benefit public at large: Oppenheim v Tobacco[1951]
- Charitable Trust only for beneficiaries defined by reference to blood relation, employment or contract:
Re Compton [1945] BUT!! Re Compton DOES NOT APPLY WHERE:
1) A request by creator that family members, others connected by association or contract, be given
preference in the administration of the charity, will not invalidate the trust.
2) Does not apply to trusts for the relief of poverty: Dingle v Turner [1972], I.e. trust for poor cousins!
3) Trusts for people of particular geographic locales don’t offend rule, as they’re applied regardless of
inherent personal characteristics: Re Tree [1948] e.g. Trust for the worthy of Penrith.
4) Trust for dependents of military or ex-military servicemen: Downing v FCT [1971]
TRUSTS FOR POLITICAL PURPOSE, are they charitable?
So long as it’s related to one of the 4 charitable head and tested for public benefit it will be deemed a
charitable purpose trust: Aid/Watch Inc (2010) applied in NZ with Greenpeace declared a charity: Re
Greenpeace of New Zealand Inc [2013] BUT on federal level: A political party or governmental entity
cannot be a charity under: Charities Act 2013 (Cth) s5.
However!!
NSW Henry George Foundation Ltd [2002]: Trust established for purpose of moving away from
personal income tax to land tax (clearly political) but held to be a charitable trust for education.
Enforcement and Administration of Charitable Trusts
- General Administrative Schemes = If you leave money but it’s not really clear how it was intended to be
spent – e.g. $1million to city of Parramatta – council will meet and decide
Enforcement and administration of charitable trusts
• General Administrative Schemes
• Cy-pres Schemes
• Initial Impossibility
• Supervening Impossibility
• Satisfaction of Original Purpose
• Statutory Powers
Cy-pres scheme
(1) If the institution had ceased to exist at the time of donor’s death, prima facie the gift will lapse.
Because such a gift is more indicative of a particular charitable intention, so court is reluctant to order a cy-pres
scheme.
(2) When can order cy-pres scheme: (Re Gillingham Bus Disaster Fund)
- A general charitable intention is required: there is a presumption of general charitable intention. (s10(2) of
Charitable Trusts Act 1993)
If the trust is not charitable: lack a general charitable intention, the gift will fail and result back to the
residuary beneficiary of the will. (Re Abbott Fund Trust)
- (Public Trustee v Cerebral Palsy Association of Western Australia):
If the institution has been wound up and its activities taken over by another institution, the new institution
has substantially similar purpose and objective to the old one,
Page 19 of 58
the court will regard the original charitable purpose as not having lapsed and still continue, albeit by a
different corporate shell.
(3) If the proviso of the gift is religious discriminate, or gender discriminate, and the institution refused to accept, a
cy-pres scheme still may be ordered. (Re Lysaght)
- Racial discrimination and gender discrimination is permissible for gifts that confer charitable benefits.
- But can argue to remove this proviso.
➢ Gift will fail because of impossibility, if the gift is to a non-existing institution - the gift will fail in the absence of
a general charitable intention that can be effected cy-pres.
➢ Gift will fail because of impossibility, if the trust is impractical. (Attorney-General (NSW) v Perpetual Trustee Co
Ltd)
Such as if the condition of the trust property, is unable to satisfy the purpose if the gift.
e.g. to provide farm for Orphans, but the cost of repairing the farm substantially exceeds the value of the farm.
Page 20 of 58
Resulting Trust
1. When resulting trusts arise
No need for writing; Intention (important).
(1) Automatic resulting trust:
- There has been a failure of an express trust, equity imposes a resulting trust by presuming an intention on the
part of the creator for the trust property to revert back to the creator (Hodgson v Marks);
- There is a surplus of trust property, then resulting trust of the surplus back to the creator of the trust (Smith v
Cooke);
- A trust has been terminated.
(2) Presumption of resulting trust: rebuttable by intent at time of actions
Purchase of property in another person’s name
- This presumption applies to both real and personal property. (Buffrey v Buffrey)
- Contributions have been made to the purchase of property, but the contributor has not been given a legal
title. A presumption of resulting trust in favor of the contributor arises. (Napier v Public Trustee (WA))
The presumption of resulting trust will not arise when the purchase money is provided as a loan. It only
arises when the provider of the money acts as a purchaser or directs the purchase take place.
If A contribute 50%, B contribute 50%, put on B’s name, presumption that A have 50% in the property;
If A contribute 100%, put on B’s name, presumption that A have 100% in the property;
If A contribute 30%, B contribute 70%, put in joint names, presumption that it is tenancy in common that
A has 30% and B has 70%.
Legal fees, stamp duty, incidental cost, mortgage are all contributions.
The nature of co-ownership in resulting trusts
- If the parties make equal contributions to purchase price, equity will presume tenancy in common
(Delehunt v Carmody)
- If B paid for the improvement of the house, the extent to which A’s 50% share in the house would be
affected: the court would give rise to an equitable lien in favor of B. (Australian Building & Technical
Solutions v Boumelhem)
- A opened a joint account with B, A provided all the funds for the account. A presumption of resulting trust
in favor of A arises. (Russell v Scott)
However, because it is a joint account, the principle of survivorship rebuts the presumption of resulting
trust. So when A dead, the money passed to B.
- (past) If A makes a gift to B, a presumption of resulting trust may arise that B holds the property on trust
for A.
(now)But s44 of CA, real estate, no presumption of resulting trust will arise in a voluntary transfer of real
estate, unless the transferor expresses an intention to create a use or a trust. (now) personalty, if a gift is
made to a stranger of personalty which can produce income, then a resulting trust will be presumed. If not
produce income, then no resulting trust. (Hendry v E F Hendry Pty Ltd)
(3) If a trust fails for illegality (Nelson v Nelson)
If a trust fails for illegality equity, looks at the specific circumstances of the case and the particular policy behind
the law that had been breached, before determining whether a resulting trust should be applied.
A contribute 50%, but illegal:
- Such conduct did not preclude a person such as A from claiming his beneficial interest. Because the purpose of
the legislation is to help eligible persons purchase a house and not to prevent them from owning more than
one such dwelling;
The court was divided on whether a person such as A would have to reimburse the government any amount
by which the government was defrauded as a result of such conduct: the majority held that such an amount
had to be reimbursed before the beneficial interest could be enforced; the minority disagreed, saying that it
was up to the government to pursue a person such as A for such an amount if it chose to do so
Page 21 of 58
2. How to rebut the presumption of resulting trust
(1) May be rebutted by evidence of actual intention that the beneficial interest is not to result back to A. (Napier v
Public Trustee (WA))
(2) May be rebutted by presumption of advancement:
If the property has been registered in joint names, equity will not interfere with that joint tenancy by creating
disproportionate shares reflecting their contributions.
Arises when:
- Purchase money is provided by a husband to a wife (Cummins v Cummins);
- Or by a parent to a child, not necessarily biological children but someone to whom the provider of funds
stands in the position of a parent. So can be illegitimate or adopted children or other forms of familial
relationship. (Scott v Pauly, Brown v Brown)
But this presumption does not arise between parents-in-law and child-in-law. (Anderson v McPherson)
This presumption also applies to adult children, but gets weaker as the child gains more independence. (Brown
v Brown)
- If it is a de facto relationship (including same sex), there is no presumption of advancement. (Calverley v
Green)
Page 22 of 58
Constructive Trust
Is a trust imposed by law; Intention is irrelevant.
REMEDY vs. PROPERTY INSTITUTIONAL (They can be either)
- Remedial = imposed by law with some discretion by judge.
- INSTITUTIONAL = a type of agreement which imposes a constructive trust, not requiring either the intention of
parties or a judge to impute a remedial discretion (it’s already there).
- PROPERTY INSTITUTIONAL are already found in Express or Resulting Trusts.
- A remedy differs from a property institution in the time of its availability and its discretionary nature.
- If constructive trust is an equitable remedy it will exist from the time that an order is made by the court: Re Polly
Peck International plc (in administration) v MacIntosh [1998]
- A judge could refuse to order a constructive trust if it was a remedy, whereas if the trust was an institution it
would exist independently of the judge’s exercise of discretion.
- ABOUT TIMING – does the trust arise when parties entered agreement or does trust arise when the judge
imposes the trust.
Muschinski v Dodds (1985): De Facto Issue – Dean downplays remedial/institutional dichotomy. Dean allowed
courts to choose the time from which a constructive trust arises, the remedial function of the trust is given
effect through the imposition of the institution of trust. If judge decides to impose a constructive trust
retrospectively, equity regards as done what ought to have been done and the trust is considered to have
existed as an institution from that time onwards, rather than from the time of the order.
BUT
In Parsons v McBain (2001), when discussing the imposition of common intention constructive trusts the Full
Federal Court held that the trust was created by the conduct of the parties and arose at that time, even if
that had the effect of defeating unsecured creditors.
Australian Building and Technical Solutions Pty Ltd v Boumelhem [2009]: Money advanced by parents to plasterer
(son) to build flats on basis they would receive a flat. Presumption of advancement was easily quashed in this
case, as such as resulting trust arose. Also used the land to secure his business to two suppliers as a charge over
his land. HELD: Initial constructive trust – other amounts were secured by equitable liens which could then be
ranked against the other security interests held by the creditors (constructive trust was not imposed). 50% share
in the house would be affected by the improvements and may give rise to an equitable lien: Australian Building &
Technical Solutions Pty Ltd v Boumelhem.
CONSTRUCTIVE TRUSTS vs. express or resulting trusts
- Not necessarily subject to fiduciary obligation as the trustee is often unaware they are subject to a trust at all.
- Constructive trusts are not always subject to the requirement of certainty of subject matter, e.g. If assigning
future property for valuable consideration, as soon as the property comes into existence, assignor becomes a
bare trustee for the assignee (beneficiary), i.e. holds that property on trust as the valuable consideration binds
the conscience of the assignor in equity – Trust arises automatically, when property comes into existence:
Holroyd v Marshall - No actual trust property exists until then!!!
- Timing? at date of behaviour which creates a trust: Parsons v McBain (2001).
TYPES OF CONSTRUCTIVE TRUSTS:
1) Agreements Concerning Property
Incomplete contract for the sale of property - Lysaght v Edwards - equitable conversion
- 3 quals: specific performance, unconditional, identified property.
- Occurs when parties engage in behaviour forming agreement thus purely institutional – not because of what the
court says.
LIKEWISE:
Incomplete Gifts – Corin v; Milroyd v Lord.
- Has assignor done those things that only assignor can do (if can be done by others, not necessary) + ‘beyond the
recall and intervention of assignor’ – If both libs are present the incomplete gift will be enforced but a resulting
trust.
2) Fraud Transactions – Behaviour of one party using statutes to defraud another party who may not have
complied with formal transaction – Constructive trust placed upon property
Avondale Printers and Stationers Limited v Haggie
Page 23 of 58
White City Tennis Club Ltd v John Alexander’s Clubs Pty Ltd
3) Secret trusts – Institutional constructive trust - parties agreeing to be trustees before trust property exists (i.e.
before one party dies) but as a constructive trust the obligations arise automatically upon the death as the
conscience is bound.
4) Mutual Will - wills made as part of an agreement/contract, whereby the parties promise not to revoke their
wills after one of the other parties dies.
1) A & B agree that property will go to C - irrespective of who dies first, agreement not to revoke.
2) This creates a constructive trust over the subject matter, in this case being the property of the party who
dies first: Birmingham v Renfrew (1937).
3) There is a floating obligation over the survivor not to alter will.
E.g. If A dies then B breaks that agreement and changes their mutual will to now leave property to D, D holds that
property on constructive trust back for C: Barns v Barns (2003)
BUT
Should survivor sell property at market value and use proceeds personally (i.e. for nursing home) this is okay:
Healey v Brown.
5) Estoppel – Promissory Estoppel Assumes: Waltons Stores (Interstate) Ltd v Maher (1988)
(a) A Promise – which is both clear and unequivocal: Legione v Hateley (1983) but may be express or implied.
(b) Reasonable & (Generally) Detrimental Reliance: by person seeking estoppel.
(c) Unconscionable Conduct: circumstances making it inequitable; unconscionable or unconscientious for
promisor to retracts promise.
6) Breach of Confidence - Constructive trusts are a major remedy for breach of confidence, not only for breaches
of agreements to keep information confidential, but also for situations where information has been acquired by
stealth (Must be proprietary in nature – Prince Charles’ Diaries.
7) Common intention to deal with property - Where parties have entered into a relationship with a common
intention that property is to be held between them in a particular way, equity may enforce that common
intention by the imposition of a constructive trust. Nothing to do with part performance, nowhere near it but
enough there for eq. to get involved.
- Evidenced of actual agreement or one which could be implied by: statements, payment of mortgage or
extensions on house, etc.
BUT
- Indirect contributions, such as homemaking, will not be considered unless there was an express agreement to
recognise them.
- A finding of expressed common intention can be made on the basis of evidence of intention prior to or at the
time of purpose: Gissing v Gissing [1971].
- Evidence may also be admissible of intention in the immediate aftermath of purchase: Lloyd’s Bank plc v Rossett
- Statements made by the parties such as ‘it’s for you and me’ or ‘this is your house’ our house’ have been taken
as sufficient to prove a common intention to grant a beneficial interest.
Allen v Snyder (1977): Defence house agreement – de facto relationship – woman needed to state she was
financially dependent upon man + was not allowed to be listed on the title – She furnished the house – also
agreement that title would change once married + house would be left to her if he dies. Relationship breakdown
– HELD: agreement was conditional upon getting married or upon him dying.
50% share in the house would be affected by the improvements and may give rise to an equitable lien: Australian
Building & Technical Solutions Pty Ltd v Boumelhem.
Ogilvie v Ryan [1976]: Housekeeper promised to look after old man on promise she would he left a life estate – no
life estate left to her - upheld on the basis that it would be fraudulent to allow the legal title holder to receive the
benefit of care without granting the agreed beneficial interest (she wasn’t getting paid).
Clout v Markwell [2003]: a common intention constructive trust does not require there to have been an actual
denial, it arises because such a denial would be unconscionable.
Page 24 of 58
Constructive trusts to remedy BREACH OF FIDUCIARY DUTY
- The constructive trust that arises in response to a breach of fiduciary duty is institutional - it arises on the
occurrence of the breach, not the court order.
- Historical Exceptions – loans, voidable contracts, bribes and secret commissions BUT no longer the case:
Western Areas Exploration Pty Ltd v Streeter (No 3) [2009].
- The rule in Keech v Sandford- the rule that the trustee of a lease who obtains a right to renew that lease holds
that renewal on constructive trust for the beneficiaries.
Constructive trusts (with Fid Duties) that arise against THIRD PARTIES
Barnes v Addy: Third parties (‘strangers’ to trusts) can be made constructive trustees in three ways:
1. by acting as trustee without authority (trustee de son tort – through own wrong doing);
2. through knowing receipt of trust property; and
3. through actively assisting in a breach of trust.
Trustees de son tort
- To qualify as a trustee de son tort the person must have assumed some measure of control of the trust
property w/o authority – Person cannot then deny obligations.
- Honesty irrelevant.
Knowing Receipt
In cases of knowing receipt the plaintiff must prove:
1. Defendant has received trust moneys;
2. Defendant knew the moneys paid were trust moneys; and
3. Defendant knew circumstances, which made the payment a misapplication of trust moneys. e.g.
where a company director transfers property from company into his wife’s name.
- ‘Receipt’ = to have possession of the trust property for his ‘own use and benefit’ Therefore!
- A Bailee or Banks will not generally be treated as having received of funds placed in accounts, unless they
apply the proceeds to the reduction of an overdraft, or for security: Evans v European Bank Ltd [2004].
- Knowledge = 4 Cat Baden v Societe Generale pour Favoriser le Developpment du Cmmerce et de L’Industrie en
Franc.
Actual:
1) actual knowledge;
2) wilfully shutting one’s eyes to the obvious;
3) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make;
Constructive:
4) knowledge of circumstances which would indicate the facts to an honest and reasonable person;
Not Used in Oz:
5) knowledge of circumstances which would put an honest and reasonable person on inquiry.
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007): Only first 4 categories = knowledge. Council knocked back
development as it needed more land – wife of one of the developers purchased the surrounding land, knowing
she could now demand a higher price from other developers. HELD: Not confidential, no fiduciary duty,
knowing receiot rules thus do not apply.
BUT
What was not discussed was Torrens system registered interests can be set aside if they have been procured
by fraud, where fraud refers to actual fraud, personal dishonesty or moral turpitude, i.e. first 3 categories YET
still 1-4 in Oz.
Knowingly assisting a breach of trust
1) Defendant must know that a dishonest and fraudulent design is being implemented.
2) Defendant must know that his or her acts have the effect of assisting the design.
3) Knowledge of the assistant (or accessory) must be of actual facts and not knowledge of mere claims or allegations
Knowledge = 4 Categories of Baden.
Constructive trusts and STOLEN PROPERTY
- It has been said that a thief holds stolen property on constructive trust for the true owner, even in the absence of a
prior fiduciary relationship: Black v S Freedman & Co (1910)
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- If the thief then makes a gift of the property to a third party, third party will also be held liable to the trust.
BUT
- If the third party provides consideration, the constructive trust will only become effective when the
third party acquires knowledge of the theft
Constructive trusts and moneys PAID BY MISTAKE
Chase Manhattan Bank v Israel-British Bank (London) Ltd [1981]: press send twice on $6million. Held: A trust
arised on the money wrongfully paid.
Wambo Coal Pty Ltd v Ariff (2007): Trust arisen when you know or should have known the mistake.
Constructive trusts and HOMICIDE
- Homicide = murder/manslaughter, any unlawful killing: Troja v Troja (1994)
- In cases of Joint Tenancy you do not get to keep the other share – it severs the tie.
- Forfeiture Act 1995 [2005] = Can be postponed in the interest of justice, e.g. where mum and dad kill each other
but we don’t want kids to miss out.
- Estate of Fitter and the Forfeiture Act 1995 [2005]: husband and kids killed mum – all mentally incapable of
committing crime (no mens rea) – rule applied so as husband and kids don’t get the property.
- Gonzales v Claridades (2003): killed parents and sister in Epping. Needed cash from estate to run case – aunt was
executor of the will and said no - court said forfeiture act could apply giving executor discretion to hold on to funds
until a conviction is recorded or not.
Constructive trusts to remedy UNCONSCIONABLE CONDUCT
- Muschinski v Dodds (1985): Woman paid 10/11 and man paid 1/11 of purchase price on property. Agreement to
turn land into nursery – relationship breaks down and man said I’ll take 50% - registered as Joint Tenants so
presumption of resulting trust rebutted. HC HELD: Constructive trust would arise as
1) entered into Joint Agreement,
2) Agreement had ended with no fault on either side,
3) One party is unjustly retaining property of other.
- Baumgartner v Baumgartner (1987): De facto – woman had made mortgage payment and other sharing of
finances which allowed man to make payments – gave up work to have baby and look after for 6 months (Non
financial contribution). HELD: Muschinski v Dodds approved and applies to both financial and non-financial
contributions - will not look at how many times washing up was done.
West v Mead [2003]
1) There must be both a joint relationship or endeavour, where funds are spend towards a common benefit;
2) The joint relationship or endeavour must have come to an end ‘without attributable blame’; and
3) There must be unconscionability/ unconscientiousness
The effect of legislation on constructive trusts in the family context
• Section 79 of the Family Law Act 1975 (Cth)
• Property (Relationships) Act 1982 (NSW)
• In New South Wales the definition of de facto relationships includes all relationships between two adult persons
who live together as a couple on a genuine domestic basis
Grimaldi v Chameleon Mining NL (No 2) (2012):
Westpac Banking Corporation v The Bell Group (No 3) (2012):
Page 26 of 58
Trustee
Appointment of Trustees
- Trustees are appointed in original trust instrument. Trust instrument may also contain a power to appoint new
trustees. This power may be exercised by the trustee or by a third party (usually referred to as an “appointor”).
- Only a legal person (a natural person or corporation) with the capacity to hold and deal with property can be
appointed as trustee – citizens.
- Corporations can be appointed as trustees, as long as their constitutional documents allow them to be appointed: Re
Levin & Co Ltd [1936].
- In New South Wales and the Australian Capital Territory, the appointment of a minor as trustee is void.
Failure to accept appointment
- Trust will not fail, if appointee does not accept: Re Smirthwaite’s Trusts (1871)
- Testamentary trust, the trustee’s office will fall on the legal personal representatives of the testator’s
estate until a new trustee is appointed.
- Inter vivos trus t, the trust property divests back to the settlor who will hold it on trust until the
appointment of a new trustee: Mallot v Wilson [1903].
ALSO
Statutory Appointments
- Trustee Act 1925 (NSW) s6 – can apply if no power exists within the trust instrument.
- Must be registered with deeds office to take effect: Retravision (NSW) Ltd v Copeland [1997].
ALSO
Court has inherent power to appoint a trustee, where for example: Expedient and practical:
an infant trustee has been appointed; a trustee has become bankrupt; a trustee has been convicted of a felony; a
corporate trustee has been dissolved; a trustee has gone missing; a trustee suffers from mental or physical
incapacity; and a trustee resides permanently outside the jurisdiction.
Trustee Act 1925 (NSW) s70 – expedient
Expedient = Northwest Capital Management v Westate Capital Ltd [2012].
1) Regard for the wishes of the settlor as expressed in the trust instrument or clearly to be collected from it
2) Ensuring that the appointment will not promote the interests of some of the beneficiaries in opposition to
the interests of others
3) Consideration of whether the appointment of a particular person will promote or impede the execution of
the trust.
Disclaimer
• A person cannot be forced to be trustee of an express trust and a proposed trustee can always disclaim the
appointment.
BUT
• disclaimer will be ineffective if the person has impliedly accepted the trust, for example, by dealing with the
trust property.
• Additionally, to be effective, the disclaimer must relate to the entirety of the trust.
• Disclaimers should take the form of a deed, but a disclaimer may be implied from oral declarations and refusals
to act
Death
• If a trust has several trustees and one of them dies, the office is continued by the surviving trustees: Trustee Act
1925 (NSW) s 57
• The death of a sole trustee leaves the office vacant and the trustee’s heirs and assigns have no automatic right
to take up the office.
Retirement
• Trust deeds normally make provision for the retirement of trustees. Most jurisdictions have statutory
mechanism for retirement, should the trust instrument be silent on the issue: Trustee Act 1925 (NSW) s8
• A trustee is normally required to retire with the consent of his or her co-trustees and must retire in writing or via
a deed. All things necessary to vest the trust property in continuing trustees must be done to give effect to the
retirement.
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• A promise or covenant that a trustee will retire in certain situations does not bring about an automatic
retirement when those situations arise: Whitton (1996).
Removal via the trust
• By express powers outlined in the trust instrument – e.g. by vote at general meeting or appointor has power to
remove. If the exercise of the power have not been followed, the removal will fail: Northwest Capital
Management v Westate Capital Ltd [2012].
• Courts examine construction of the language of the power to see if wide enough to allow for the removal of the
trustee and the appointment of a replacement: Montefiore v Guedalla [1903].
• The express power to remove trustees and appoint new ones has often been described as a “fiduciary power”:
Pope v DRP Nominees Pty Ltd (1999) – still negative fiduciary obligation asit must be done in good faith with no
hint of corruption.
Montevento Holdings Pty Ltd v Scaffidi (2012): Power given to appoint by an appointor excluded a beneficiary
being selected as trustee. Removed corporate trustee of which he and members of his family were shareholders
and directors, and appointed a corporation of which he was the sole shareholder and director as the new trustee.
HELD: Trust document precluded natural person beneficiaries as trustees, NOT corporations under control of a
beneficiary (corporation is a separate legal entity).
Removal via the Courts
- Inherent jurisdiction , the welfare of the beneficiaries is the dominant consideration in determining
whether or not it is proper to remove a trustee: Letterstedt v Broers (1884).
- Statutory jurisdiction , the main test is whether the removal of the trustee is “expedient”: Trustee Act
1925 (NSW) s 70
Grounds for Removal
- Trustees act in ways inimical (obstruct or harm) to trust: McLauchlan v Prince [2002].
- Trustees fundamentally misunderstands their duties and responsibilities will be removed, as will be
trustees who are hopelessly conflicted: Mansour v Mansour (2009) 24 VR 498
- Trustees who have disappeared and become uncontactable may also be removed: Kennedy v Kennedy [2011].
- Disagreement not usually grounds for removal: National Westminster Bank Plc v Lucas [2014].
- Arbitration clause to mediate before going court can be upheld. The supervisory jurisdiction of the court is not
ousted unless the clause oust the court entirely: Rinehart v Welker [2012].
The right to reimbursement and exoneration
- Trustees have right to be indemnified for costs/expenses incurred in proper or reasonable
administration of trust: Franknelly Nominees Pty Ltd v Abrugiato [2013].
- Recognised in equity, but also may be expressly conferred by a trust instrument: Franknelly Nominees Pty Ltd v
Abrugiato [2013].
- The right also exists pursuant to statute: Trustee Act 1925 (NSW) s 59(4).
- Indemnity and exoneration
Gatsios Holdings v Nick Kritharas Holdings (in liq) [2002]: Snack company – Trustees (NKH) had made
false/misleading (though not illegal or fraudulent) statements about the snacks – ACCC took them to court and
fined them $400,000 – Trustees were then replaced by Gatsios BUT NKH said the money should still come from
the trust funds as we were acting in the interests of the company. HELD: Proper or Reasonable administration of
the trust = “non-criminal” or “non-fraudulent” Thus, trust funds could be used to pay the bill.
Trustees’ legal expenses
- If trustees are sued (even by beneficiaries) in their capacity as trustees, the trustees are entitled to
defend their conduct as an incident of administration and they can be indemnified for their legal costs:
Bovaird v Frost [2009]; Metropolitan Petar v Mitreski [2012].
NB:
- These rights are proprietary as a charge or lien, thus, even if removed as trustee you have rights to the
trust assets to fund legal expenses relating to functions as the trustee: Octavo Investments Pty Ltd v
Knight (1979).
- Once a person has accepted the beneficial ownership of property, they are locked into the obligation to
indemnify a trustee – this can extend personally to the beneficiary should the trust funds be exhausted:
Hardoon v Belilios.
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The right of contribution
Presumption:
- Co-trustees are jointly and severally liable for losses occasioned by a breach of trust, even where one trustee is
solely responsible for the loss.
- Where two defendant trustees have committed a breach of trust, each is liable to pay compensation to the
beneficiary, measured by the amount of loss attributable to their breach.
BUT
- If only one trustee is available to be sued as a defendant, that trustee will be liable. Even a passive trustee will be
liable, because their inactivity has allowed the co-trustees to breach the trust.
Exception:
Selkirk v McIntyre [2013]:
1) Where one trustee has acted in their professional role (solicitor or accountant) and co-trustees have acted in
reliance of that advice – professional will not be indemnified, whilst others can be.
2) Personal benefit received by one trustee (not by others) – others can claim indemnity.
3) Trustee committing fraud is required to fully indemnify innocent co-trustees (fraudulent trustee rule).
Fraudulent trustees may not obtain contribution from other fraudulent trustees.
4) Trustee who is also a beneficiary benefits from a breach of trust, the value of the trusteebeneficiary’s interest
will be deducted from the amount owed by all the liable co-trustees as compensation to the trust fund. The
remaining sum is then shared equally as an obligation between the co-trustees (trustee-beneficiary rule)
s59(2) of the Trustee Act 1925: A trustee is not liable for other trustee’s deeds just liable for own ‘willful
neglect or default’ = taking unnecessary risks: Dalrymple v Melville (1932) (issuing bearer cheques).
Trustee Act 1925 (NSW) s 85: empowers courts to relieve a trustee from liability for breaches of trust if:
– the trustee has acted honestly;
– the trustee has acted reasonably; and
– the trustee ought fairly to be excused
The right to impound a beneficial interest
- Breach of trust committed by a trustee with consent, advice, or assistance of a beneficiary, the trustee may
impound that beneficiary’s interest and use it to satisfy the loss occasioned to the trust: Fletcher v Collis [1905];
Trustee Act 1925 (NSW) s86(1).
The right to get directions from the court (very strange in our system to allow this!)
- Trustees have a right to seek advice and get directions from the court: Trustee Act1925(NSW)s63, even when
proceedings are non-adversarial: Macedonian Orthodox Church St Petka (2008).
- Courts role in these cases is to determine what should be done in the best interests of the trust estate:
Application by Mary Joy Cottee; Estate of Gwenyth Shirley Smith [2014].
- Once you have that court advice you are immune from being sued.
- Court’s power to give advice is discretionary and may be refused if they see the advice as inappropriate or futile:
Re Atlantis Holdings Pty Limited [2012].
- Inappropriate for courts to use s63 where there is potential for dispute later on: Re Estate Late Chow Cho-Poon
[2013]
Power of sale:
- Trustees DO NOT have a general power to sell the trust property and convert the proceeds, unless expressly or
impliedly granted in the trust deed. WHY? because trustees are charged with the responsibility of preserving trust
property.
- Where trust instrument is silent on sale of trust property – go to Trustee Act 1925 (NSW) s38(1).
- A court order may also grant a power of sale if it is expedient to do so.
Power of/Duty to manage:
- Powers to effect repairs and improvement of property: Trustee Act 1925 (NSW) ss 82, 82A
- Powers to insure the property: Trustee Act 1925 (NSW) s 41
- Powers to settle claims made against the trust: Trustee Act 1925 (NSW) s 49
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Powers of maintenance and advancement: Trustee Act 1925 (NSW) s 43
- Everyday living expenses of beneficiaries from trust funds for:
- Maintenance = periodic payments for goods/services, food, clothes, and medical treatment.
- Advancement = lump sum payments to advance the beneficiary in life, such as payments towards school, trade
or profession.
Duty to obey the terms of the trust:
- Duty to do what the trust says - inform itself properly of the relevant facts; to act in good faith, on a real and
genuine consideration of the material before it and for sound reasons, although it is not obliged to give reasons
for its decision.: Erzurumlu v Kellog Superannuation Pty Limited [2013]
Duty to inquire:
- Duty to locate the assets upon taking office: Hallows v Lloyd (1888)
- Duty to become familiar with trust terms.
- Check if they have title and control over trust property.
- Property should vest in all trustees: Guazzini v Pateson (1918)
Duty to keep accounts:
Byrnes v Kendle (2011):
(i) a duty to keep records,
(ii) a duty to report to the beneficiaries or to the court concerning the administration of the trust,
and
(iii) a duty to pay amounts the trustee is obliged to pay to the beneficiaries.
NB: With respect to (i) and (ii), and as a matter of first principle, a trustee should gain no advantage by
failure to keep proper records and the court will resolve doubts against a trustee who fails to do so.
DUTY TO GIVE INFORMATION TO BENEFICIARIES
- The duty to provide information is not absolute, and is measured alongside all the rights and obligations
created by the trust instrument: Wentworth v de Montfort (1988).
What are trust documents:
- Basic accounts; minuted meetings; trust deed which is not sensitive.
- Documents containing or evidencing the terms of the trust, documents relating to the trust property, and the
accounts of the trust: Hancock v Rinehart [2015].
- Wish letter are given to trustees on fiduciary basis and it is up to trustee to disclose it or not: Breakspear v
Ackland [2009].
- Legal Advice : Where beneficiaries sue a trustee and he seeks legal advice. Beneficiaries do not gain access to
that legal advice as that offends adversarial system: Talbot v Marshfield (1865). Even where trustees cost are
coming out of trust property: Rollo Ventry Wakefield Gray v BNY
BUT
- General Legal Advice – not pertaining to adversarial legal proceeding may be requested: Schreuder v Murray
(No 2) (2009).
HOWEVER!!!
- A beneficiaries right to seek information relates to whether the right is proprietary or discretionary.
- In a FIXED TRUST there is proprietary rights and thus a beneficiary essentially owns the documents: McDonald
v Ellis (2007).
CF:
- In a DISCRETIONARY TRUST they only have a right to be considered for trust property (not proprietary) – their
right to documents is via supervisory access through court UNSETTLED.
DUTY NOT TO PROFIT FROM TRUST: No remuneration
- 3 exceptions:
– Trust deed sets out remuneration
– By agreement
– Court awarded (NSW inherent jurisdiction)
Self-dealing and trafficking:
- Duty not to profit includes: taking a beneficial interest in trust property, or from borrowing from trust funds.
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- If trustee sell property to themselves it’s voidable by any beneficiary as of right – irrespective of
whether market price or above was paid: Fenwick, Kingi and Heke v Narea [2015] NZSC.
Duty to act impartially between beneficiaries:
- Fair between different classes of beneficiaries.
- E.g. Life tenant and remainder – where LT not looking after property causing it to reduce in value for the
remainder. As trustee you might have to agree that life tenants surrender their property and out of proceeds
of sale pay for nursing home accommodation.
- Rule in Howe v Lord Dartmouth (1802): Where Trust Property is ‘Wasting Personalty’, i.e. shares or chattel
dramatically falling in value. Duty to convert trust property into other forms, and when doing this must
accommodate the different beneficial interest groups.
- Apportionment = splitting up property between groups.
Duty to sell trust property:
- Rule in Howe v Lord Dartmouth (1802): Where Trust Property is ‘Wasting Personalty’, i.e. shares or chattel
dramatically falling in value. Duty to convert trust property into other forms.
- trust for sale = where property was to be sold and proceeds set up on trust. Trustee must try and obtain best
price and quickest sale.
Duty to INVEST and LEASE TRUST PROPERTY
- Must invest the property (active duty and thus not fiduciary).
- As a general proposition a trustee is obliged to lease vacant property even if the trust instrument does not
expressly authorise the trustee to do so: Byrnes v Kendle.
- To what standard ? Must take care, diligence and skill of a prudent reasonable person of business when
managing the affairs of other people, a duty not to invest in speculative or hazardous investments: Gerner v
Mattila [2015]; Trustee Act 1925 (NSW) s 14A.
- NB: Government bond would automatically satisfy this requirement.
Cowan v Scargill [1985]: Super Fund - Beneficiaries attempted to force trustees to invest in only union
friendly companies – HELD: that would be a breach of trust as it would not advance the financial interests of
the trustees.
Statutory investment standards
Duty to act personally, unfettered, and unanimously:
- Might be duty to seek advice but that does not mean you can just fully hand over that responsibility.
Must use own discretion unless:
1) delegation permitted by the trust instrument: Re Trusts of Kean Memorial Trust Fund (2003)
2) delegation permitted by statute: Trustee Act 1925 (NSW) s 64; and
3) delegation is a matter of necessity and the agency relates to ministerial acts unconnected with the
trustee’s exercise of discretion.
Duty to consider the exercise of trust = fiduciary powers:
- Trustee has a duty to ‘consider’ using that discretionary power: Re Gestetner Settlement; Barnell v Blumka
[1953].
- Trustees are bound by fiduciary duty to give, from time to time, real and genuine consideration to the issue
by examining the options and determining which one was an appropriate course of action: Fay v Moramba
Services Pty Ltd [2010].
- Discretionary powers must be exercised fairly without conflict between interest or duty (Fiduciary): Re
Beloved Wilkes’s Charity (1851):
- ABSOLUTE DISCRETION does not = whatever you like, it’s still fiduciary: Elovalis [2008].
Fraud on a power:
- Where a power has been exercised, but fraudulently.
- A power must be exercised in good faith for the purpose for which it was given, and not for an ulterior
purpose: Hancock v Rinehart [2015].
Karger v Paul [1984]: Exercise of an absolute discretion cannot be examined or reviewed by a court if:
1) Trustees acted in good faith/without ulterior purpose, and
2) Upon real and genuine consideration.
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Short forma approach
1. Power of the court to remove a trustee
Both inherent and statutory
(1) Inherent power; (2) Statutory power: (s70 Trustee Act)
The welfare of the beneficiaries is the dominant concern in determining whether to remove a trustee (Letterstedt
v Broers)
- The main test: whether it is expedient to remove the trustee. (Hancock v Rinehart) In applying this
test, the welfare of the beneficiaries is a crucial factor.
2. Obligation of trustee
(1) Wide powers of management
- To effect repairs and improvement of property;
A trustee is obliged to lease vacant property, even if the trust instrument does not expressly authorize the
trustee to do so (Byrnes v Kendle)
- To insure the property;
- To settle claims made against the trust.
(2) Duty to obey terms of the trust
(3) Duty to inquire
- Upon taking up the office, trustee is under a duty to inquire as to the state of the trust.
(4) Duty to keep accounts
- Trustees are obliged to keep records of the dealings of the trust, which must be produced to the
beneficiaries when call for;
- Trustees are obliged to allow beneficiaries to inspect trust accounts and documents.
(5) Duty to give information to beneficiaries
- Trustees have a duty to provide beneficiaries with information regarding the trust property.
- Details of the trust deed and financial accounts would be the information that should be handed over.
(Schreuder v Murray (No 2), Re Londonderry’s Settlement, Schmidt v Rosewood Pty Ltd)
- The beneficiaries should be entitled to documents relating to litigation. (Schreuder v Murray (No 2))
3. Right of trustee
(1) Trustees have a right to be reimbursed for costs and expenses incurred in the proper administration of the trust
(the cost includes legal cost).
- Should illustrate whether the expenses are properly incurred according to principles in (Garsios v Nick
Kritharas Holdings, Nolan v Collie, Re Raybould)
(2) Trustee has a right to impound a beneficial interest
- If breach of trust with the consent, advice or assistance of beneficiary, the trustee may impound the
beneficiary’s interest and use it to satisfy the loss occasioned to the trust. (Fletcher v Collis)
(3) Trustee has a right to get directions from the court
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Beneficiary (should check other cases)
Rights of beneficiary
(1) Right to compel performance
- Can seek the aid of the court in compelling the performance of the trust. (Bartlett v Bartlett)
(2) Right to pursue third parties
- Ordinarily, only the trustee can sue third parties who have caused damage to the trust property; Alexander
v Perpetual Trustees.
BUT
- Right to compel performance embraces rights for beneficiaries to sue third parties in ‘exceptional
circumstances’ where trustees refuse to perform their duty to protect the estate or the interests of the
beneficiaries: Hilliard v Eiffe (1874).
- Applies to fixed beneficiaries, but also discretionary: Lewis v Condon (2013).
- Judicature Act now allow both com law and eq. claims.
Exceptional circumstances when ben can sue 3rd parties: Deutsch v Deutsch [2012].
1) the plaintiff is most materially interested in due enforcement of the claims, or would be most seriously
prejudiced if they were abandoned or not duly prosecuted;
2) it is alleged that assets have been handed over to a third party ‘hastily, improvidently, and not in conformity
with their duty’;
3) there exists a substantial impediment to the trustee prosecuting the proceedings;
4) it can be shown there exist recoverable assets which would ‘probably be lost to the estate’ but for such a
suit;
5) the decision by the trustee not to institute proceedings was made by a party against whom the claim may
lie; and
6) due to ‘the nature of the assets or the position of the personal representative, it would be either
impossible, or, at least, seriously inconvenient for the representatives to take proceedings’
(3) Right to restrain a breach by injunctions (Howden v Yorkshire)
(4) Right to possession of trust property
- If the trustee is passive in the management of the property, and the beneficiaries are sui juris and
absolutely entitled, the beneficiaries have a right to the possession of the property; (Turner v Noyles)
- If the trustee is active, the right to possession does not arise.
(5) Beneficiary’s right to get access to trust information (case London Settlement?)
- Trust account includes the information of trust document;
- Legal advice is also part of trust document. There is no legal professional privilege. So beneficiary should
have access to the information.
(6) Right to approach the court
Beneficiaries have a statutory right to approach the court which is similar to the trustee’s right to seek
directions.
(7) Right to information: as per T’s duty to disclose
(8) Right to extinguish the trust Rule: (Saunders v Vauntier)
- If all beneficiaries are sui juris, legally capable and with a vested and indefeasible interest, a trust can be
terminated; but if a beneficiary is a minor, prima facie the rule cannot be invoked,
- If the property is divisible and the proposed division would not detrimentally affect the remaining beneficial
interest, a partial termination of the trust of shares can be achieved,
-
-
As long as you are an adult and absolutely entitled to property you can collapse the trust.
- Beneficiary must have a vested interest = either possession or immediate right to possession. The transfer
must not have imposed any conditions upon them turning 18: Gosling v Gosling (1859).
E.G.!!!
‘each grandchild shall take this gift as they reach their 45th birthday’. Indicates the interest is not vested, but
Page 33 of 58
-
conditional upon reaching 45: Arnott v Kiss [2014].
Presumption all adults are legally competent – this presumption must be rebutted: Newton v The Public
Trustee [1999].
Contingent interests - Perpetual Trustee Co (Canberra) Ltd v Rasker (1986) – Son was not vested as trust stated
he must survive 10 yrs longer than testator, or else it goes to someone else.
Discretionary Beneficiaries can also use rule to shut down trust if all agree, are of age, class is not likely to
increase, all are identified: Sir Moses Montefiore Jewish Home v Howell & Co (No 7) [1984].
- NB: trustee in this case was obliged to distribute
(9) Transfer of property:
- The rule in Saunders v Vautier is a right to take the property in species: Seagar v Seagar [1949], i.e. if it’s a
house you get house, shares you get shares, money you get money, etc.
- Even if trust states property must be sold, if you collapse trust under Saunders v Vautier you get the actual
property in species: Feeney v Feeney [2008].
(10) Some of the beneficiaries but not all:
- the ‘rule’ allowed a beneficiary to take his or her aliquot (divisible or proportionate not real property or
valuable chattels) share of the trust property even if some beneficiaries are not of age or capacity: Whakatane
Paper Mills Ltd v Public Trustee (1939).
- The proposed division must not have a detrimental effect on the remaining beneficial interests: Re Horsnaill
- Including what would otherwise be aliquot shares if, for example, the sale of shares would cause the control
of a company to be lost by trustee: Lloyd’s Bank v Duker [1987].
REMEDIES FOR BREACH:
Some are personal = against trustee personally, some are proprietary = locating and getting property back.
Personal: Can sue trustee for eq. compensation for breach of trust.
ACCOUNT OF PROFITS
- In the context of breach of trust, an account of profits is ordered where the trustee has made an
unauthorised profit from his or her office or where a breach of trust has allowed the trustee to make personal
gain.
- Just allowance
COMMON ACCOUNT
- Beneficiary asks ‘what’s been happening with trust fund’?
SURCHAGES = Beneficiary asserts Trustee has received more than is shown in accounts.
FALSIFY = Beneficiary asserts Trustee spent moneys improperly: Chong v Channell [2009]
- Once proved, trustee to make good the loss, either by returning the value of the trust assets at the date of
the judgment or restoring them in specie: Bilyak v Pesor [2012]. ‘Substitutive compensation’ is required: AIB
Group (UK) Plc v Mark Redler & Co Solicitors [2015].
- Intervening acts such as exchange rates changing meaning trustee must pay more is irrelevant, they must
restore the fund to the point is was at: Re Dawson (dec’d) [1966].
BUT there are Defences!!
- the trustee might prove assets were discharged to an appropriate person in accordance with the trust: Re
Windsor Steam Co (1901);
- assets were lost or destroyed through no fault of the trustee: Re Gasquoine [1894];
- assets had since been restored by trustee so as to completely satisfy liability: Scott v Scott (1936).
ACCOUNT FOR WILLFUL DEFAULT
- Not available as of right but only after the beneficiaries have proved an instance of a willful default that has
caused loss to the estate: Meehan v Glazier Holdings Pty Ltd (2002).
- Willful Default = passive breaches, e.g. failure to act or omissions to do things which ought to have been
done: AIB Group (UK) Plc v Mark Redler & Co Solicitors. It does not require any intention or recklessness: In Re
Ellis [2015].
THUS
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- Active breaches of trust should therefore be dealt with under common accounting principles.
- Once proved, trustee must account for all trust assets including those lost through inaction, e.g. a missed
investment opportunity for example: Re Tebbs; Redfern v Tebbs [1976].
BUT there MAY be Defences!!
- More akin to common law assessment like tort damages as you are paying for something which is yet to
come into existence. May be negligence in some cases as intention or recklessness not an element.
- The onus of disproving negligence lies with the trustee, once a breach and resulting harm have been
established: Re Brogden (1888)
NB: NOW POSSIBLE TO SUE TRUSTREE DIRECT W/O ORDERS FOR ACCOUNT CAUSATION:
- For breach of trust, plaintiff must prove that a breach occurred and caused the loss suffered.
- In cases of common account it’s strict liability, i.e. if you can show fraud happened the funds must be
returned, C.F.
- Wilful Default which is akin to negligence, thus arguments might be brought in.
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003): funds held by trustee solicitors for purpose if buying
share on strict instructions that funds could only be released upon receiving the bear certificate. Shares wen
bad and money was lost. HELD: Strict liability - It was up to the trustees to disprove the connection between
the breach and the loss and this they failed to do. Irrespective of whether the funds would have been lost
anyway should they have received the bearer certificate.
Target Holdings Ltd v Redferns [1996]: Solicitors holding funds on trust with strict instructions to release only
after receiving certain securities. Released early before receiving security BUT then got the security interest
(bearer certificate). Investment failed and so beneficiary claimed breach of trust. HELD: In terms of causation
the loss resulted from a bad investment as they actually had the security interest, would have made no
difference if they’d received security prior. ‘but for’ arguments also available to active breaches, essentially
creating a new defence of ‘lack of causation’ which is available to both active and passive breaches of trust
EXCLUSION CLAUSES:
- A trust instrument may exclude a trustee from liability but there are limits to the extent to which liability can
be excluded.
BUT
Armitage v Nurse: There is an irreducible core of obligations (not acting fraudulent/dishonesty) owed by the
trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. The duty
of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the
minimum necessary to give substance to the trusts.
An exclusion clause in a trust instrument that ‘would in effect render the trustee immune from any liability
for breach of trust, whenever or however occurring … would in effect destroy the trust’: Rinehart v Welker
[2012].
Page 35 of 58
Confidential Information
Principle from Coco v An Clark consolidated in Optus Networks v Telstra
(1) Necessary quality of confidence about it.
• Not entered the public domain & become common knowledge (Saltman Engineering)
• Private area does not make it confidential automatically (ABC v Lenah Game Meats)
• Personal Information
• Marital & De facto relationships. (Argyl)
• Details of sexual preference or activity communicated in private
• Private for post people as regarded confidential due to general embarrassing nature
of the behaviour (Stephens v Avery; Mosley v News Group)
• Bare fact of the exitance of the sexual or familial relation is not necessary
confidential (Gordon Ramsey’s father in law case)
• Depth and length of relation relevant
• Commercial info / trade secrets
• Balance of IP rights v inhibiting competition
• Trade secret factors (Del Casale)
• Extent info known outside of business
• Extent it is know by employees or others involved int eh business
• Extent of protection measures
• Value of info to competitors
• Amount of effort/money expended in developing information
• Ease/difficulty to properly acquire/duplicate info
• Awareness that the info obtain was confidential
• Usage & practices of industry support confidential nature
• Permission to share info due to position / responsibility
• Information readily identified
• Employee ‘know-how’ free to use accumulated knowledge, skill & experience (Fccenda
Chicken)
• Trivial info – publicly available, not protected
• Confidential information until termination of employment, then becomes employee
know-how
• Highly confidential protected by courts even after termination
• If unsure: Employee know-how preferred over highly confidential
• Government secrets
• Government has heavy onus to show why information should be treated as confidential &
protected ∵ it’s in public interest to be informed of government activities. (Cth v John Fairfax &
Sons Ltd)
• Public interest ‘something which is of serious concern and benefit to the public’ (British Steel
Corp v Granada TV)
(2) Duty or Obligation of Confidence
• Objective Test “reasonableness”: Information communicated under an obligation of confidence. ‘if the
circumstances are such that any reasonable man standing in the shoes of the recipient of the information
would have realized that upon realized that upon reasonable grounds the information was being given to him
in confidence’ (Coco v A N Clark)
• Person of ordinary intelligence in all the circumstances of the case would recognize that the information was
imparted in confidence. Including (10 relationship between the parties, (2) the nature of the information, and
(3) the circumstances of the communication. (Deta Nominees v Viscount Plastic Products)
• Expressly stated that communication is confidential (Spycatcher)
• Inferred from relation between the parties (Argyll)
(3) Breach of Obligation
Test (Coco v A N Clark): whether or not the information was disclosed for a limited purpose.
Alt test (Smith Kline): Unconscientious use of the information i.e. unfair advantage taken of the information
Detriment? Mix authority if detriment needed (Holyoake Industries)
• Smith Kline, Gummow J “obligation of conscience is to respect the confidence, not merely to refrain from
causing detriment to the plaintiff”
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• John Fairfax & Sons, Mason J → detriment was an essential ingredient.
(4) Defenses
• Public interest not automatically trump public interest in preserving private confidence (Allied Mills
Industries)
• Forced disclosure
• Delay general defence available (Heinemann Publishers)
• Clean hands
• Change of position
(5) Remedies
- Injunction: primary remedy, not an option where information moved into public domain
- Equitable compensation: no strict formula
• Exemplary damages are not available ∵ punitive (Common law damage). However, aggravated damages
which related to damage to plaintiff’s dignity may be available (Giller)
- Constructive trust: when confidential information is property ∵ the imposition of a trust requires that there is a
property to be held on trust
- Springboard doctrine: no commercial benefit for getting a ‘head-start’ on competitors, ‘has made use of
confidential information’.
• Granted for a limited period to prevent commercial advantage.
• Imposes restriction on making approaches or further approaches to customers which is additional to the
restraint on making use of the confidential information.
- Delivery up: court order defendant to delivery up the property (Blockbuster Australia)
- Account of profits: breach that is purely contractual and ahs not resulted in damage (Blake)
Page 37 of 58
Fiduciary Obligations
Fiduciary obligations are obligations of trust and confidence imposed by equity upon a person, known as the ‘fiduciary’,
who has taken to act for, or on behalf of, a ‘principal’. The duty to the principal must come before any personal
interest. It is necessary to define the SCOPE of the relationship, as not all duties in a relationship will be fiduciary.
Obligations in Australia are proscriptive only, and cannot prescribe a fiduciary to do anything positively. It does not
matter whether there is loss, there can still be a breach of fiduciary obligations.
Elements of Fiduciary Obligations
1. Is there a fiduciary duty?
a. Generally accepted fiduciary relationships Breen v Williams
i. Trustee and Beneficiary Keech v Sandford
• Youyang v Minter Ellison Morris Fletcher: discretionary trust no directions. Held
moneys paid in breach of trust.
ii. Agent and Principle
• McKenzie v McDonald
• Pedersen v Larcombe
• Beach Petroleun NL v Abbot Tout Russell Kennedy
iii. Solicitor and Client Phipps v Boardman
• Unauthorized profits
• Conflict with other clients
a. Maguire v Makaronis chicken farm
b. Prince Jefri Bolkiah v KPMG. KPMG did full audit, firewall between auditors
and solicitors for B. Held: cannot act against client, and confidential
information protection, not just reasonable steps.
c. Rigg v Sheridan prevents lawyers from acting for third parties when the
interest of third parties conflict with the clients.
iv. Employee and Employer
• Consul Developments case no fiduciary duty owed by the clerk for law practice in
relation to property undertakings
• Warman International v Dwyer undermined business on way out and took JB with the
business. Held: breach
v. Director and Company
• Regal Hastings no need to prove loss
vi. Director and Shareholders: No Joinery Products Pty Ltd v Imlach
• Except if ‘a special factual relationship between the directors and the shareholders
exists. Peskin v Anderson
• Must advise fully and frankly of relevant information necessary to make an informed
decision at a general meeting Chequepoint Securities v Claremont Petroleum
• Duty to disclose assessed in a practical, realistic way having regards to the complexity
of the proposal ENT v Sunraysia Television
vii. Directors to creditors: No R v Spies
• Maybe if company involved and interest of creditors take over interest of
shareholders. Angas Law Services (in liq) v Carabelas
viii. Partner and Partner: Horizontal duties, partner  → partner
• Birtchnell v Equity Trustees “no stronger relationship than partners… cased on mutual
confidence that will act for joint advantage only”
• Chan v Zacharia business partner is a rebuttable presumption of fact
• Friend v Brooker move from partnership to company structure
ix. Joint Ventures
• United Dominions Corporation v Brian prospective JV, by analogy with partners.
Failure to disclose debts means no profit from partnership. No K remedy as before
contract. Fiduciary duty in partnership
x. Commercial transactions
• Entered at arms length, No fiduciary duty
• Hospital Products Ltd v United States Surgical Corporation
Page 38 of 58
•
•
United Dominions Corporation v Brian
John Alexander Clubs v White City Tennis Club Memorandum of understanding to
create tennis club with possible option to purchase. New owner purchased option
unconditional. No fid duty breach. Done with knowledge.
xi. Doctor and Patient
• Breen v Williams some fiduciary aspects
xii. Guardian and Ward: Vertical duties, guardian → ward
• Trevorrow v State of South Australia (No 5)
• Bennett v Minister of Community Welfare
• Countess of Bective v Federal Commissioner of Taxation
• M(K) v M(H) incest by father. Parents owed fid duty to protect child’s well-being and
health. Held: parental obligation “refrain from inflicting personal injury upon one’s
child”.
• Tusyn v Tasmania sexual abuse in foster care HELD fid duty existed.
xiii. Financial adviser and client Calvo v Sweeney
• Daly v Sydney Stock Exchange. FA has financial interest in the product being advised.
• Pilmer v Duke Group Limited (in liq) company buying another and directors had
interest in the purchased company. Accountants no fiduciary duty, no prior or
concurrent engagement or undertaking by any member of the accounting firm
b. Mason’s Test per Hospital Products v United Stated Surgical Corporation, Mason J at 40
i. Critical feature of relationship is
• Fiduciary undertakes or agrees to act for or on behalf of or in the interest of another
person
• In the exercise of a power or discretion which will affect the interest of that other
person in a legal or practical sense
• Need to consider the facts and circumstances
o Key features: loyalty, trust, confidence, vulnerability, undertaking
o Policy consideration:
ii. Economic power/free hand of market, equity
iii. Equity’s intervention distorts economic activity
iv. Should equity be reluctant to intervene?
2. Scope of the fiduciary relationship
a. Obligation in relation o a defined are of conduct. Exempt in all other aspects. Noranda Australia v
Lachlan Resources
b. Subject matter of obligation determined by the character of the venture or undertaking. Birtchnell v
Equity Executors and Agencies Co Ltd
i. Not limited to express agreement
ii. Includes subject matters from the course of dealing actually pursued.
3. Define the breach of fiduciary duty
a. Proscriptive only, of a negative nature – No positive action required
b. Chan v Zacharia – no conflict no profit
i. No conflict: of personal interest and fiduciary duty or a significant possibility of such conflict
ii. No profit: requires fiduciary to account for an benefit or gain obtained or received by use of
their fiduciary position or of opportunity or knowledge resulting form it
4. Defences
a. Informed Consent
i. Specific, fully informed consent to the specific action/conduct. Must disclose ALL information
and relevant facts that could affect decision to give consent.
ii. Cases
• Maquire v Makaronis
• Phipps v Boardman Who is the trust? Min 3 trustees, may need beneficiaries,
unanimous consent
• Farah Constructions v SaydDee Business partners had declined proposal amenable to
Page 39 of 58
minor corrections. One partner independently send updated proposal and purchased
property. Obtained full consent from contextual consent.
NZ Netherlands Society ‘Oranje” v Kuys: cannot induce consent
•
b. Ratification
i. By shareholders
5. Remedies
These varies from injunction to equitable compensation. Most common
• Account of profit
• Equitable compensation
• Administration of a constructive trust
• Rescission
• injunction
6. If 3rd parties involved, then consider next section
Example Cases
• Unauthorized remuneration
o Reading v R Sergeant in Egypt as security point. Took money to assist with contraband good
transportation. Sargent owed duty to crown and amount recoverable
• Assuming double character
o Armstong v Jackson Instructed stockbroker to buy shares. Transfer his own shared of that company to
requestor. Breach of fiduciary duty. Cannot sell own shares unless full disclosure made with full
knowledge of the change in position.
• Benefits derived by fiduciary to the exclusion of another. Two types
o 1. Breach undertaking sub-rule: Fiduciary derives no profit/benefit that should have gone to the person
whom fiduciary duties are owed; and
▪ Clark Boyce v Mourat. Solicitors for mum and son in venture. Mom sued solicitors, they had advised
mom to seek independent legal advise. Held: no duty as not within scope
▪ Phipps v Boardman: Solicitor disclosed plan to beneficiaries of trust of the plan to takle over
company but one. Not full disclosure.
o 2: Misuse of position sub-rule: Fiduciary is not to gain a profit or benefit through the misuse of their
position as a fiduciary
o Regal (Hastings) v Gulliver: Cinema subsidiary, then started to make a profit for the directors.
Held: Profit made y reason and in virtue of their fiduciary office as directors.
o Victoria University of Technology v Wilson. Student approach teachers of universities to dev
software and they made money. Held: professors breach of obligations owed to university by not
presenting it to the university and exploiting it for themselves
Page 40 of 58
Liability of Third Parties for Breach of Fiduciary Duty or Trust
Extends the lability to others. Those who have knowingly received or have knowingly assisted.
• Action against the third party by the person who was owed fiduciary duty. Independent of any action
against trustee or fiduciary.
• Note: consider scope of one’s duties carefully
3rd parties liable per Barnes v Addy either by
1. Knowing receipt of trust property. 4 elements
a. A trust of fiduciary duty owed by one party to another. Not to the third party
b. A breach of trust or of the duty by the fiduciary
i. Note: Information not trust property, easily obtainable unless trade secrets
c. Beneficial receipt by a third party
i. Property actually comes to the third party for their benefit or use. Not enough to come into
bank account, actual title or beneficial use.
d. Knowledge of the breach on the part of the third party. 4 types in Australia Badens case
i. Actual knowledge
ii. Willfully shitting ones’ eyes to the obvious
iii. Willfully and recklessly failing to make such inquiries as an honest and reasonable person
would make
iv. Knowledge of circumstances which would indicate the facts to an honest and reasonable
person
v. Constructive knowledge not enough per Farah Constructions.
2. Knowing assistance in fraudulent breach of trust or fiduciary duty
a. A trust or other fiduciary relationship. Not primary not 3rd party
b. A dishonest or fraudulent design
i. Level of conscious fraud involved
ii. Consul Developments trust property by a trustee which trustee knew to be inconsistent with
the terms of the trust
iii. Belmont Finance the words mean dishonest and fraudulent and just that.
c. 3rd party “agent” must assit in the dishonest and fraudulent design
i. Without the acts of the 3rd party, the breach by the fiduciary could not have occurred or have
been implemented. Not necessary to prove that involvement so essential that breach would
have failed without involvement
ii. May be essential action or simply part of a chain of events
iii. No need to inevitably lead to loss Badens case
iv. Profit motive irrelevant
d. Agent must act with knowledge of this design
i. Actual knowledge
ii. Willfully shitting ones’ eyes to the obvious
iii. Willfully and recklessly failing to make such inquiries as an honest and reasonable person
would make
iv. Knowledge of circumstances which would indicate the facts to an honest and reasonable
person
v. UK moved beyond Barnes v Addy strictly applied categories and the Baden scale and replaced
it with a test of “dishonesty” per Royal Brunei Airlines
3. Defences
a. Informed Consent
i. Specific, fully informed consent to the specific action/conduct. Must disclose ALL information
and relevant facts that could affect decision to give consent.
ii. Cases
1. Maquire v Makaronis
2. Phipps v Boardman Who is the trust? Min 3 trustees, may need beneficiaries,
unanimous consent
3. Farah Constructions v SaydDee Business partners had declined proposal amenable to
Page 41 of 58
minor corrections. One partner independently send updated proposal and purchased
property. Obtained full consent from contextual consent.
4. NZ Netherlands Society ‘Oranje” v Kuys: cannot induce consent
b. Ratification
i. By shareholders
4. Remedies
a. Liable as constructive trustees – personal liability
b. Court orders
i. Account fo profit
ii. Equitable compensation
iii. Administration of a constructive trust
Page 42 of 58
Defences
(1) Unclean hands
• Must have an immediate & necc relation to the equity sued for
• Test Dering v Earl of Winchelsea
i. A depravity in a legal as well as a moral sense
ii. Whether the disentitling conduct had a suff close rela to the equity sued for.
• Black Ulans v NSW Crime Commission
i. A mbr of motorcycle club stood to have his property forfeited as a result of his conviction for drug
trafficking. Clubhouse was in his name. Ques: was it to be forfeited along with the rest of his property?
ii. Club→ they provided part of the fund used to acquire clubhouse
iii. CC→ club could not invoke principle of resulting trust ∵ it did not come before ct with clean hands. They
were implicated in Wilson’s false application for a loan which provided the balance of the purchase price.
iv. Ct→ club’s fraudulent activity did not deprive it of its entitlement pursuant to the principle of resulting
trust ∵ conduct related only to how Wilson obtained the loan & not to the club’s contribution to the
funds for the purpose of the clubhouse
• Pomeroy Limited v Scale: injunction sought, D had stopped the conduct and not to continue. Injunction granted
• Plath v Plath, relief granted subject to a condition that addresses P’s misconduct.
• Carantinos v Magafas: equitable relief not denied where P and D involved in scheme designed to defraud tax
authorities. Account of profits subject to disclosure.
(2) Acquiescence: Shaw v Applegate
• Shaw had benefit of a covenant attached to land, terms of which prevented A from using land as amusement
arcade. Over a period of time, A brought onto property gaming tables, amusement machines, & eventually
began operate amusement arcade.
i. Shaw→ injunction to restrain breach of covenant.
ii. A→ acquiescence
• CoA→ although Shaw had full knowledge of what A had been dong, S was unsure aw to when A’s conduct
amounted to a breach of the covenant.
i. However, delay of 3 yrs in commencing proceedings would have severely prejudiced A if injunction
had been granted. ∴ injunction refused on ground of laches.
ii. Ordered that eq damages be assessed pursuant to provisions of Lord Cairns’ Act Ie. a CL claim ∴ CL
damages.
(3) Statute of limitations
• Direct application of limitation statutes to eq claims
i. Broad express limitation periods for eq remedies
ii. Where limitation legislation has little direct application to eq remedies –
• NSW legis expressly states that stat limitation periods do not apply to claims for eq relief. S23
Limitation Act 1923, except land interests. S47-48 time limitations for actions against trusts
• Declaratory relief s75 of SC Act, follow limitations of SC Act for declaratory relief
•
Limitation statutes by analogy & claims in eq’s exclusive jurisdiction
i. In the absence of express statutory provision, where claim is in eq’s exclusive juris, eq applies
statutory limitation periods if an analogous CL right exists which would have been succ defended by a
plea of the statute Salvation Army (South Australia Property Trust) v Rundle per s23 of Limitation Act.
• Eg. claim for eq comp for breach of fiduciary obligations is analogous to CL claim for damages in
tort/contract Sloan v Arnold Thomas & Becker (No 2)
• The liability of a fid to a/c for bribes was the eq equivalent of liability of a D that’s sued at CL on an
action for money had & received. Metropolitan Bank v Heiron
• P’s claim for breach of fid duty was statute barred by analogy to Tas’ limitation legislation relation
claim for breach of contract – Spaulding v Adams
ii. Different from laches in that limitation by statute not by unconscionability of delay. Laches may be
applicable before statuary limitation period. Gerace v Auzhair Supplies Pty Ltd
iii. Parallel between CL and eq not enough, sufficient different in any material respect. John v John
iv. Reliance in statutory limitation may be unconscionable. Gerace v Auzhair Supplies Pty Ltd
Page 43 of 58
•
Limitation statutes by analogy & claims in eq’s auxiliary jurisdiction
i. P & O Nedlloyd BV v Arab Metals Co (No 2). CL damage for breach of K not analogous to equitable
relief of SP.
ii. Alec Finlayson Pty Ltd v Royal Freemason Benevolent Institution of New South Wales Nominees Ltd. SP
not analogous to action on K breach. Nature of relief completely different. S14 of Limitation Act
doesn’t apply.
iii. Liggins v Park Trent Properties Group Pty Ltd. Based on Gerace v Auzhair Supplies, SP = CL limitation
unless unconscionable
(4) Equitable set-off exists when D is able to successfully plea that she has a countervailing claim against P that
absolves her, wholly/partially, from liab to P.
• Distinguished from counterclaim – 2 sep, independent claims. Counterclaim is not a def. Countercalim
continues if dispute ceased, Eq set-off doesn’t.
• Impeachment test → crossdemand must go to the very root of P’s claim British Anzani (Felixstowe) Ltd v
International Marine Management (UK) Ltd
i. Tooth v Brisbane City Council. Cross-claim must flow out of, and be in separately connected with the
dealings and transactions which give raise to the claim.
ii. Hamilton Ice Arena Ltd v Perry Developments Ltd Link between respective demands of P and D
interdependent.
iii. Forsyth v Gibbs Crossclaims, sufficient connection and unfair
• Examples
i. Set-off damages allowed for delay of defective work vs moneys due under building contract Young v
Kitchin
ii. Set-off damages allowed for failure to complete construction railway vs claim for payment of a subsidy
Government of Newfoundland v Newfoundland Railway Company
iii. Allowed claim for damages for loss of stored vehicle against charges for storing a number of vehicles
Morgan & Son Ltd v Martin Johnson & Co Ltd
iv. Builder claim for damages for refusal of access to site allowed against damages for defective work
Hanak v Green
v. Landlord breach of covenant to repair, leased premises set-off vs landlords unpaid claim Knockholt Pty
Ltd v Graff
vi. Damages for defective building work vs P Hill Corcoran Constructions Pty Ltd v Navarro
(5) Illegality
• What about transactions that may be illegal ∵ they are associated with some illegal purpose, even though the
transaction/acts per se are not prohibited
i. Nelson – daughter was not entitled to any interest in the proceeds of the sale of the property ∵ they
held it on resulting trust for their mother.
• Equitable relief should not be refused on a/c of illegal purpose, if granting such relief would not
frustrate purpose of the relevant legis.
▪ Esp if legis provided some mech for dealing with illegal purpose
• However, where granting of eq relief would frustrate purpose of such legis, but the threat could
be met by moulding appro relief, then ct should grant such relief.
▪ ∴ Mrs Nelson was entitled to proceeds of sale, subject to being denied the benefit that she
obtained by her unlawful conduct
(6) Hardship: SP will be refused if the order would result in unconscionable hardship upon D.
• Court must balance potential hardship to D if SP as granted with potential hardship to P is SP was refused.
If the 2 cancel out, SP will be ordered, despite the hardship to D.
• Based on circumstances known to exist & known likely to occur at the time the order for SP is made
• Includes hardship to third party in close connection with D. Patel v Ali
• Includes hardship due to terms of the contract
• Falcke v Gray: rare china. SP of an option to purchase rare china jars at 80% below MV declined on ground
of hardship to D.
i. Court had jurisdiction to award SP ∵ K for rare & special chattel & CL damages to P would
have been inadequate. However, hardship to D → refuse grant of relief in the exercise of its
discretion.
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(7) Laches.
• Unreasonable delay in instituting proceedings…renders it unjust that the claim should be allowed to
proceed (Bester v Perpetual Trustee. Even a delay of 20yr did not prejudice the case
• Lindsay Petroleum Co v Hurd, 2 types of circumstances in cases of undue delay
i. Length of the delay, and
ii. Nature of the acts done during that interval
• Doctrine whether there would be practical injustice in the grant of relief. Gerace v Auzhair Supplies Pty Ltd;
Herrod v Johnson
• Fitzgerald v Masters & Eastern Services Ltd v No SP = after 26 years.
• P & O Nedlloyd BV v Arab Metals Co (No 2): Court may regard inequitable to allow a claim, after a very long
period of delay, even in the absence of evidence that D or 3rd party had not altered position. Extent of the
reasons and consequences, and equity of granting relief.
• Lindsay Petroleum Co v Hurd. Time P knows of the facts and equitable remedy available.
• Knowledge, question of fact and degree. Crawley v Short
• Lamshed v Lamshed. Q is whether P has acted sufficiently promptly subject to facts and circumstances
• Laches may arise before statutory limitation period ends.
(8) Acquiescence. R refers to standing by in a way that suggest that agree or have accepted the other person’s
conduct (Allcard v Skinner, partial relief)
• Archbold v Scully. P, express or implied, assented to D’s conduct
• Byrnes v Kendle, calculation of deliberate and inform inaction / standing by, P denied relief.
• Shaw v Applegate, overtime land use converted. Rejected acquiescence, D’s conduct breach of covenant,
delay in action laches for injuction.
(9) Waiver where a party has made a conscious decision to relinquish right to an available remedy.
• Be clear & unequivocal terms & must be comm to all parties. Waiver will only occur if party waiving has
knowledge of all material facts
• Agricultural and Rural Finance Pty Limited v Gardiner.
i. Intentional act done to with knowledge by a person that abandons by acting in a manner
inconsistent with that right.
ii. Must be in clear and unequivocal terms
iii. Must be communicated to the other party
iv. Except if no knowledge of all material facts
• Foote v Barton Property Partnership No 2. Estoppel v Waiver
i. Waver = unilateral abandonment or association of a right
ii. Estoppel prevents the unjust departure by one party from an assumption adopted by the other party
as the basis for an act or omission unless the assyumption is adehere to would operate to the
detriment.
• Badat v DTZ Australia (WA) Pty Ltd significant overlap, independent defences.
(10) Unconscionable dealings / undue influence. Deal with both types
•
Undue influence: 2 types Barclays Bank
i. Class 1: Actual undue influence / No special relationship
• Recipient engaged in acts or conduct that constituted undue influence such as pressure. Johnson v
Buttress
• Unfair and improper conduct, coercion from outside, overreaching, cheating, and generally personal
advantage by a recipient in some close and confidential relationship to the donor. Includes threats to
end relationship or badger until a acquiescent. Allcard v Skinner.
• Test
▪ Capacity to influence
▪ Use of that influence
▪ Influence was undue
▪ Transfer the result of exercise of undue influence
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ii. Class 2: Presumed undue influence
• c2A Recognized relationships of influence giving rise to a presumption of influence
iii. Parent/child, guardian/ward, trustee/beneficiary, solicitor/client, Doctor/patient, religious
leader/follower.
iv. Not husband/wife but possibly fiancé and fiancée. Thorne v Kennedy
v. Difficult rebutting presumption but Royal Bank of Scotland v Ettridge (No2) not followed
“irrebuttable presumption”
vi. Benefit from weaker to stronger party
• c2B Undue influence factor in the relationship
i. Party benefiting form the K assumed a position of influence of another or a dependence or
trust of the other
ii. Elements of relationship: trust AND confidence
iii. Johnson v Buttress: J carer for B (67, illiterate, less than avg IQ, no Bx skills, no independent
legal advice), changes to will and land transfer at J’s lawyers office. Transfer as gift, however, J
unable to negate undue influence
• K voluntary and well0understood act of the donor.
• Independent legal advise not essential but most obvious to establish such proof
• Harder to discharge where donor illiteracy or weak-minded
• Quantity given, more the harder to rebut
iv. Other relationships (no presumption)
a. Wife’s guarantee. Yerkey v Jones principle
i. Elements AND
1. W enter K/guarantee w/o understanding the K
2. W entered w/o dealing with the other party personally
3. W does not benefit from K
• G (physio) mortgage guarantor for husband Bx, ‘no danger’. Divorce, G
wanted guarantees void. No undue influence despite repeated ‘fool’ and he
expert, and saving marriage. Principle applied. Garcia v National Australian
Bank Ltd. Bank aware G married to debtor and took no steps to inform G.
•
b. Family members (as per husband / wife)
c. Banker over client
i. ‘manifest disadvantage’ in the transaction for undue influence to be proven.
National Westminster Bank v Morgan
ii. Not stablished in OZ
• Agree Farmers Co-Operative v Perks
• Disagree Badurin v Badurin
d. Soldier and superior officer. R signed K, not undue influence. Facts of the case. R v
Attorney-General for England and Wales
•
Unconscionable dealings
Elements: Commercial Bank of Australia v Amadio
(1) Special disadvantage of one party: poverty, age, sex, sickness, infirmity of body or mind, drunkness,
illiteracy, lack of education, lack of assistance or explanation where it was necessary. Blomley v Ryan
(2) Knowledge
a. Actual or constructive knowledge Amadio
b. Third party knew of the special disadvantage
(3) Unconscionable exploitation where it was necessary
a. Self evidence. Inference that disability + KB flows from transaction, onus flows from D to show
that no advantage taken. Commercial Bank v Amadio; Louth v Diprose
Special Disadvantage can be ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunk,
illiterate, education or lack of assistance or explanation where assistance or explanation is necessary’.
Principle: whether stronger party is to retain the benefit to the transaction.
Page 46 of 58
•
•
•
•
•
•
•
Commercial Bank of Australia Ltd v Amadio. A asked to provide security for short term, actually for all
debts. A knew little english, no indep advise, lack of business experience (thinking profiting) = special
disadvantage. Bank aware, but persisted with K.
Elkofairi v Permanent Trustee Company Ltd. Semiliterate, Husband made decisions, E signed mortage with
H’s sols explanation without interpreter. E’s lack of experience, semi-literate, bank’s knowledge of E no
income and still lent a lot of money. No legal advise or interpreter where required.
Bridgewater v Leahy. Emotional dependence as special disadvantage following Williams v Maalouf. Bill
sold land to N undervalued and then forging the difference.
Gifts can also be set aside. Williams v Maalouf.
Da Yun Xu v Fang Lin. No unconscionable conduct, Escort merely accepted the benefit without dishonesty.
Kakavas v Crown Melbourne Limited. Gambler, high roller. Restore licence = exploit gambling addiction. No
inequality between parties.
Louth v Diprose. L manufactures ‘atmosphere of crisis’ emotional dependence and influenced as to
disregard own interests entirely.
Rebutting the presumption
• Adequacy of consideration
• Independent advice – the most effective way to rebut presumption (even where advice is ignored, Inche
Noriah)
• Advice must be adequate (solicitor must be informed of all the facts)
• Opportunity to make further enquiries
• Independence of the advice (Own solicitor? Defendant present at the time?) Union Fidelity Trustee Co
of Australia v. Gibson; Inche Noria v Shaik Allie Bin Omar; Royal Bank of Scotland v Etridge; Bester v.
Perpetual Trustee Co Ltd)
• Lack of improvidence – left completely destitute? Only where the enormity of transaction is so substantial,
will courts intervene with an otherwise valid contract or gift (Bester v Perpetual Trustee)
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Remedies
Equitable Estoppel: Walton Stores v Maher
Promise which is both clear & unambiguous, may be express or implied. Standards higher between
experienced commercial parties vs. lower for unsophisticated contracts between ordinary folk.
Elements:
1) P assumes a legal relation or expects one to arise.
2) D has induced P to adopt that assumption or expectation.
3) P acts or abstains from acting in reliance of that assumption or expectation
4) D knew or intended him to do so.
5) Reasonable & Detrimental Reliance: by P seeking estoppel.
6) D has failed to act to avoid P having detriment.
In summary:
1) A Promise– which is both clear and unequivocal: Legione v Hateley (1983) but may be express or implied Low v
Bouverie
2) Reasonable & (Generally) Detrimental Reliance: by person seeking estoppel.
3) Unconscionable Conduct: circumstances making it inequitable; unconscionable or unconscientious for
promisor to retracts promise.
Difficult to bring up in commercial setting operating at arms length. Austotel Pty Ltd v Franklins Selfserve Pty Ltd
Relief: Fulfil the expectation generated by the representation. Giumbelli v Giumelli
• Milling v Hardie Moved to homestead and made improvements but paying no rent but paying taxes.
Expectation that able to occupy property for lifetime of Mr Milling.
• Giumbelli v Giumelli. Son moved to property and made improvements and missed opportunities on
promise that own the property. Expectation was the monetary compensation.
Specific Performance
•
•
In personam in nature: Richard West Inverness
SP may be refused on discretionary grounds & will be denied on jurisdictional grounds
- If denied on jurisdictional grounds, P is confined to recovering damages at CL for breach of contract
- If refused on discretionary grounds, court can still award equitable damages
Jurisdictional grounds precluding an order for SP
• Binding contract for valuable consideration: no SP if not supported by valuable consideration
- Valuable consideration is not nominal consideration. It needs to be considerable, otherwise volunteer.
Colman v Sarrel affirmed in Roxbury vs. Rothmans HCA.
- CL will recognize contract based upon nominal consideration. However, enforcement of contracts in equity is
by notion of unconscientiousness. Owen in the Western Australian Supreme Court.
• Inadequacy of damages at CL: no SP if adequate damages at CL. Determined by date of order for SP not contract
- Damages would be inadequate if damages would not give the party the compensation to which they are
entitled – i.e. not put them in a situation as beneficial to them as if the agreement were specifically enforced.
• SP can give more complete & perfect justice to P than damages
- Significant difficulty in assessing quantum of damages / enforcing an award for damages / damages
inadequate
- Primary obligation of a party is to perform it. SP not secondary to damages.
- Dougan v Lee: compensation entitled not put P in a situation as beneficial compared to had the K being SP’d.
Taxi license.
- Wilson v North Hampton and Banbury: SP when dmgs will not perfect P.
• Contracts for sale of personalty: generally, CL damages will be adequate remedy
- Adelaide v Dixon: SP not a distinction of realty and personalty but dmgs at law not a “complete remedy”
- Generally, chattel/shares etc not SP if readily available in open market.
- K for “unusual beauty or rarity” or “special or sentimental significance to the purchaser” Falchi v Gray.
• Contracts involving land: generally SP granted, land = unique
- Person may want more than receipt of money on completion of sale. Be legally divested of their interest. , CL
Page 48 of 58
damages not adequate.
Cf Union Eagle v Golden Achievement Limited: question of uniqueness of land for CL damages, no distinction
between land sale contract & other type of contracts.
Contracts conferring benefit on 3rd party: B suing A in relation to A’s obligation to pay C. C cannot sue A, not privy
to contract, not given consideration. IF B sues, only nominal damages as no loss by B.
- Complete and perfect justice to a promise may require that promisor to perform their promise to 3rd party:
Coulls
- Beswick: P contract with J to transfer business, in return J to enjoy P for life until death, and pay P’s wife
annuity for life. P died, J refused to make payments to wife. Action for SP for annuity. Held: CL damages
inadequate. P to perform K obligations, unjust otherwise. Denying SP aiding wrongdoer.
- Note: Generally, P cannot recover damages for losses suffered by 3rd party. If P could recover damages for 3rd
party losses, then damages would be adequate remedy and no duty to order SP.
-
•
Discretional factors for refusing order for SP
• Personal services contracts: generally courts won’t enforce it ∵ it would force D to maintain a personal
relationship with P. Greys
- However, courts may enforce K which contains an obligation to enter into a contract for personal services:
Giles v Morris
• K that contains personal services doesn’t automatically mean it won’t be enforced in equity
- Can be awarded in employment Ks where the relationship doesn’t involve any meaningful mutual trust and
confidence between employer and employee. Turner v ACSEF
• Constant court supervision: Ks in which parties obligations are imprecisely defined ∵ obligation to be enforced
must be sufficiently certain & precise to make D’s duty, in complying with the SP order, clear.
- Argyll Stores: P soughgt SP to get supermarket to perform lease obligation and keep operating. HeldL no SP,
Enforcement of obligation to carry business would require constant supervision of the court.
• Cases where the obligation concerned the ongoing carrying on of activities
▪ Obligation of an ongoing nature
▪ SP not generally awarded ∵ the threat of repeated litigation arising from disputes as to
whether D complying with SP order vs obligation related to achieving a result
- Patrick Stevedores No 2: more flexible approach – generally endorses Hoffman L’s approach in Argyll.
Constant supervision by court by itself is no longer an effective/useful criterion for refusing a decree of SP
- Diagnostic X-Ray: distinguished Argyll on the facts. Tenant was ordered to carry on business until such time
as it found another tenant to take on the business.
• Note: A compromise. SP was not granted for the full period of the lease
• Hardship: SP will be refused if the order would result in unconscionable hardship upon D.
- Court must balance potential hardship to D if SP as granted with potential hardship to P is SP was refused. If
the 2 cancel out, SP will be ordered, despite the hardship to D.
- Based on circumstances known to exist & known likely to occur at the time the order for SP is made
- Includes hardship to third party in close connection with D. Patel v Ali
- Includes hardship due to terms of the contract
• Falcke v Gray: rare china. SP of an option to purchase rare china jars at 80% below MV declined on
ground of hardship to D.
▪ Court had jurisdiction to award SP ∵ K for rare & special chattel & CL damages to P would have
been inadequate. However, hardship to D → refuse grant of relief in the exercise of its
discretion.
• Vitiating factors: P’s conduct/actions
- E.g. contracts induced by P’s misrep, mistake, duress, UI, unconscionable transactions
• Lack of mutuality: SP not available to P unless D could also have obtained relief against P.
- Cannot be raised by D if the reason D cannot get equitable relief against P is ∵ of D’s own conduct / default.
E.g. if D had misrep, UI, unconscionable conduct, laches
- Price v Strange: as at the time of SP order, irrelevant that no mutuality prior.
- K with minors: minor unable to receive order of SP against other person if person unable to insist their rights
against the minor
- Exception: K for land/interest in land that are required to be in writing IOT be enforceable
• Vendor has necessary document signed by the purchaser but purchase does not have the written doc
signed by vendor. Mutuality clearly does not exist. Purchaser unable, due to do
• P in substantial breach & not ready, willing & able to perform own obligation: at the time the equitable relief is
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sought Mehmet v Benson
- Substantial breach: enable other party to terminate contract for that breach
- P will be entitled to equitable relief if other party has affirmed the K & elected not to terminate
Injunctions
Jurisdiction: Equitable but now s66 SC Act
• Expressed with precision, what parties need to do or not do. ICI Australia Operation v Trade Practices Commission
- May use extrinsic evidence if the language of the order is ambiguous or susceptible of more than one
meaning. Ross v Lane Cove Council
• Not ordered if no evidence of violation of O’s rights: ABC v Lenah Game Meats
- Paton: injunction refused to a father who sought to prevent wife having an abortion ∵ no legal right at law or
equity to prevent the abortion. No jurisdiction over foetuses Talbot & Norman
- Vic Park Racing and Recreation Grounds Company calling races on radio. Held reduction of attendance figures
were not illegal as they did not constitute a trespass.
• Inadequacy of dmages
- Only available if dmgs are inadequate Lucas Stuart v Hemmes Hermitage
- Test: “is it just, in all the circumstances, that a plaintiff should be confined ot his remedy in damages?” Evans
Marshall & Co v Bertola.
- Damages inadequate if difficulty to assess or if it involves speculative ascertainment of the value of a loss of a
chance. Covanta Energy v Merseyside Waste Disposal Authority
- If K limits damages, more likely to “grant of an injunction to prohibit the breach in the first place”. Primary
obligation to perform K, paying dmgs 2ry obligation. AB v CD
• Equity’s exclusive jurisdiction: injection ranted in aid of equitable rights
• Equity auxiliary jurisdiction: injunctions granted in aid of CL rights
- P must establish that damages at CL are inadequate remedy
- Inadequacy of damages same as for remedy of SP
• Test: Whether it is just, in all the circumstances that P should be confined to his remedy in damages:
Evans Marshall
• May be inadequate if damages are difficult to assess
Types
Mandatory / prohibitive injunctions
• Redland Bricks v Morris
1) Show ‘very strong probability on the facts that grave damage will accrue to [to the plaintiff] in the future”
2) Damages at common law inadequate
3) Cost of D preventing future occurrences need to be taken into account. If acted ‘wantonly’ or ‘unreasonably’
even if cost of remedial work is out of proportion to the actual gain flowing to the P from such an expenditure
a. IF D acted “reasonably’ cost of complying with the injunction and the hardship it creates for the D
weighed against loss suffered by P
4) If granted, must be clearly worded so “the defendant knows exactly in fact what he has to do”
• Restorative injunction: compels D to repair the consequence of some wrongful act already committed
• Enforcing injunction: compels D to do some +ve action that he/she has promised to do for valuable consideration,
same as SP. Court needs to be satisfied that agreement is specifically enforceable & that in all the circumstances,
it is just & equitable to grant the injunction.
• Jessica Estates v Lennard. D almost completed construction in violation of restrictive covenant. Factors
considered
- Knowledge of wrongful nature of the acts; hastened completion of the wrongful act so as to steal a march on
the Court or P; hardship would be caused by P’s refusal of an injunction; the hardship would be caused to the D
by grant of an injunction; extent injuries suffered by P compensable by dmgs award.
Interlocutory / perpetual injunctions: period of time to which the order will remain in place Papas v Grave
• Perpetual injunction: granted after a full hearing of the claim on its merits. Intended to finally settle relations
between parties. Not necessarily one that will remain permanently in place. E.g. enforcing a restraint of trade.
• Interlocutory injunction: granted before the court has had the opportunity to assess the merits of the application.
In force until trial of the action / further order of the court.
- Does not involve a trial on the merits of the case
Page 50 of 58
-
-
-
Test: 2 requirements: Beecham Group (HC)
(1) Whether P has made a prima facie case, evidence remains as it is, there is probability that the action
would hold P entitled to relief
(2) Whether the inconvenience / injury which P would likely suffer, if injunction refused outweighs or is
outweighed by the injury which D would suffer in injunction granted
▪ Take into account effects of its decision on the interested third parties. Patrick Stevedores v
Maritime Union of Australia
If test satisfied, P usually gives undertaking as to damages
• Given to court for enforcement by the court. Binds P to compensate D for any damage suffered by D
on account of granting of the interlocutory injunction, should the court later rule that the
interlocutory injunction should not have been granted.
• A satisfactory 3rd party can provide the undertaking
Loss must flow from the granting of the IL. D must show that the granting of the IL was the cause, and not
merely a cause, of the loss.
Injunctions and contracts: Reverse of SP. Generally courts adverted to grant injections forbidding an individual from
working for a competition.
- Test:
(1) What is the effect of the injunction?
(2) Does it indirectly coerce D to work for P?
(3) Does it leave D with a real choice?
- Lumley v Wagner: effect of injunction only to prevent signer from appearing at Covent Garden *& did not
require her to fulfill her obligation to P at Her Majesty’s Theater which cannot be directly enforced. Only
forcing her to comply with promise of inactivity
- Warner Bros v Nelson: WB v Bettle Davis preventing from starring in movies by other studios for 3yrs. Could
make movie with WB, no grounds for refusing injunction as not forcing BD to make movies for WB.
• DB intelligent and capable woman who could readily obtain alternative employment if she didn’t want
to work for WB.
• Alternative employment less financially rewarding irrelevant.
- Hawthorn Football Club v Harding: D qualified dental tech, retrained from playing any other club for 3yrs.
- Curro v Beyond Productions: would not force D to choose between performing K or remain idle. K with 60’
was a flagrant & opportunist breach of K.
- Whitwood Chemical v Hardman. Manager of Whitwood for 10yrs. K promised to work exclusively. Injunction
refused ∵ if granted it would tantamount to specifically enforce D’s obligation to work for Whitwood as only
choice being idle or working for W. Distinguished by length of restriction, this case 5-6 years.
- Page one records v Britton: Injunction refused. Preventing D from engaging another manager & agent ∵
injunction would render D idle perform those positive covenants. Court doubted D would continue to
function w/o services of manager & agent or able to see other employment.
- Duty to disclose: Orpen v Tarantello
(1) Duty owed by P seeking Ex Parte order to place before the Court, all material facts and matters
(2) Duty is absolute and one owed to the courts
(3) Disclosure of all material facts must be both full and
(4) No excuse for P to say they were not aware of the importance of a particular material fact
(5) Party fails this obligation “unless he supplies the place of the absent party to the extent of bringing
forward all the material facts which that party would presumably have brought forward in his defence
to that application”.
(6) Materiality decided by Court, not P or legal advisers
(7) P must disclose any defence he has reason to anticipate may be advance. A high standard of candour
and responsibility is required of those who seek ex parte orders
Injunctions in aid of statutory rights: does legislation permit the injunction?
- Legislation, express/implied/ exclude any remedy other than those provided. May exclude injunction
- May directly confer person/category of persons the right of enforcement
- Standing: Test in Boyce b Paddington
• The infringement of statute also amounts to infringement of some private right of P; or
• P has special interest in having the statute enforce by means of injunction.
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Quia Timet (since he fear) Injuctions: future infringements
• Injunction in relation to future infringement of rights. Granted on the basis that there is a threat that the P’s
rights will be infringed. Prevent a wrong from being committed per Prctor v Bayle
• Types Redland Bricks v Morris
1) No harm to D yet, but it is threatened or intended, and
2) Harm by earlier actiosn of D, and P has been compensated, but P fears future wrongs by D.
• Test as to likelihood of infringements of P’s rights
- Reasonably certain FCA finance v Moreton Central Sugar Mill
- Very strong probability in Redland Bricks v Morris
• Test as to threat of loss or damage, “grave damage” Thunne v Petrie; “substantial” FCA Finance v Moreton Central
Sugar; “very substantial” in Hooper v Roger
Freezing & Search Orders / Mareva Injuction
Granted in exceptional circumstances. Purpose is to protect courts against D bent on dissipating/secreting their
assets/evidence.
Freezing Orders: ‘mareva injuction’
• Freeze D’s assehttps://en.wikipedia.org/wiki/File:Ukraine_under_russian_occupation_grey.svgts, pending hearing
& determination of P’s cause of action
• Jurisdiction based on
- Inherent court jurisdiction
- S23 SC Act – the stat interpretation of court’s inherent jurisdiction
- Court rules
• 3 Elements / requirements for granting freezing order: Glenwood Mgt
- 1. P has a good arguable case
• Good arguable case
• A serious ques or fairly arguable case
• A prima facie cause of action against D
- 2. Risk of dissipation/secretion of assets so as to render any judgement which the P may obtain nugatory
• Must be a real danger that D will default if judgement is obtained against him
- 3. Balance of convenience favours granting of freezing order
• Includes discretionary factors. E.g. delay, whether there’s been full & frnak disclose by P
• Normally granted Ex Parte ∵ duty of disclosure higher than most other circumstances
- Disclose extends to facts which P would have known if he/she made proper inquiries
• P is usually required to give undertaking as to damages
• P must have a cause of action justiciable within the jurisdiction
Search orders: ‘anton piller order’
• Prevent D from destroying evidence related to P’s case
• Jurisdiction: court’s inherent, statute, court rules
• 3 Elements / essential requirements: Anton Piller
- 1. Extremely strong prima facie case
- 2. Damage, potential/actual must be very serious
- 3.Clear evidence that D have in their possession incriminating docs/things & that there is real possibility that
they may destroy such material
• Any application inter partes can be made
• Failure to comply = contempt of court
• May lead D to raise the privilege against self-incrimination so as to resist compliance with the order
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Monetary Orders
• Equitable compensation: Inherentent jurisdiction of equity to remedy purely equitable wrongs,
- e.g. breach of fiduaciary duty: Nocton
• Equitable damages: by statute, order of damages to be substituted for (or in addition to) SP / injunction, where
remedies sought in respect to K / torts / wrongful act.
Equitable compensation
• Purpose: To make restitution, to compensate P by putting him in as good position pecuniarily, had the equitable
obligation not been breached
• The lection bet equitable compensation & a/c of profits is made by the court
• Date of order used for calculation equitable compensation
• Relationship to CL damages
- Liability under equity for breach of trust/fiduciary obligation more absolute than CL of K/tort.
- Better to frame damage in equity ∵ easier for relief. No need to show causation, remoteness, foreseeability,
mitigation. Standard liability generally strict in respect of liability for equitable compensation: O’Halloran
Equitable damages s68 SC Act / Lord Kansas
• Equitable damages in addition to specific relief usually when those specific reliefs are not stuff to address P’s loss
• Equitable damages in lie of specific relief: available when
• Specific relief denied on discretionary grounds e.g. laches Sayers v Collyer
• Specific relief once order becomes impossible due to intervening circumstances. Johnson v Agnew
• No discretionary bar to specific relief but D claims equitable damages should nevertheless be granted
to P
• At CL, no dmg until breach of P’s rights ∵ repeated / continuing breaches required fresh proceedings
▪ Equitable dmgs allow D to buy out the consequences of continuing breaches of CL
▪ Equitable dmgs only in exceptional circumstances
▪ Shelfer v City of London Electric Lighting Co: “good working rule” to award equitable
damages in lieu of injunction (not exhaustive description of circumstances.
1. If the injury to P’s rights is small
2. Is one which is capable of being estimated
3. One which can be adequately compensated by a small money payment
4. The case is one in which it would be oppressive to D to grant an injunction
▪ Watson v Croft Promosport CoA → no dmgs in lieu of injunction in circumstances relating to
nuisance caused by an adjoining landowner using adjoining land for motor car racing
o Injunction was ordered liming racing to 20days/yr
o Interests of the public (proving entertainment & employment for public in
circumstances where there were limited locations where car racing could take place.
• Lawrence v Fen Tigers: criticized Watson
• UKSC principles in Shelfer no longer adequate approach. In Shelfer based on courts
object to sanctioning a wrong by allowing D to pay for the right to go on doing it. An
unduly moralistic approach to disputes & on its face, would justify the grant of
injunction in all cases.
• Discretionary nature: even if court has jurisdiction to order equitable dmgs, it can refuse to do so on
discretionary grounds.
- Dmgs before injury: CL dmgs not available for an anticipated break of P’s rights. In permitting eq damages be
granted in lieu of specific relief. Lord Claim’s Act enables P to recover a monetary remedy for threatened breach
of their rights. E.g. in lieu of a quia timet injuction
- Contracts not evidenced in writing: 2 circumstances where K for sale of land will not be enforceable
• Not in writing
• Fraud
• ∵ cannot be enforced by an award of CL damages
• However, if doctrine of part perf is satisfied, SP of the K is available & ∵ equitable dmgs may be
awarded
- ‘Wrongful acts’ in equity: Wentworth v Woollahra Council HC → affirmed that Lord Carin’s Act damages are
available for purely equitable claims
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Account of Profits
Ordered where the trustee has made an unauthorised profit from his/her office or where a breach of trust has allowed
the trustee to make personal gain.
Receivers
•
•
Out of court appointment of a receiver - express
Court appointment – if just or convenient to do so.
o Generally, an applicant must show a right which will be protected & enforced by the appointment and
that no other avail remedy is adequate for that purpose.
o An extraordinary & drastic remedy, to be exercised with utmost care & caution & only where ct is
satisfied there’s imminent danger of loss of it is not exercised
o Receiver’s duty is to act impartially. Owes fid oblig to all persons interested in the subject property.
o Not an agent of any of the parties
∴ if he contracts, he does so as a principal & is thus personally liable on any such contract
o If receiver causes existing contract to continue to be performed, there’s no personal liab attached
to receiver in relation to events arising out of that contract
o Property is not vested in the receiver. ∴ no right of action in his/her own name for recovering property
subject to the receivership.
Rescission
Rescission Armstrong v Jackson
- Restore to original position; contract set aside void ab initio
- Applies when contract is brought about through the exercise of undue influence or unconscionable conduct
- Applies in equity to all dispositions and transactions, not just formal contracts
Affirmation
• Alati v Kruger. Fruit business. Rescission, pay conveyancing and stamp duty and cost of action, A to reassign the lease and reasonable rent. Business discontinued with efforts but did not act unconscientiously
didn’t lose lease, goodwill, abandon premises…
• Coastal Estates v Melevende. No affirmation, payments made without legal consult and aware of right to
rescind.
Restitution impossible
• Vadasz v Pioneer Concrete. Personal guarantor not only for future but all credit. Equity, only guarantor for
future credit.
Third parties
• Car and Universal Finance Co Ltd v Caldwell. Vehicle sold, fraud cheque, onsold to third person before
recission. Could have reported vehicle stolen etc.
Lapse of time
• Leaf v International Galleries. Time lapse not enough to wave right to rescind, but indication as to
affirmation. 5 years, multiple opportunity to examine authenticity.
Seddon’s Case Rule
• Seddon v North Eastern Salt Co. No rescinding for innocent/negligent misrep once K fully executed. Land
and some shares.
o Single judge decision
o Other reasons given
o Case relied, auth for land sale for shares.
o Except
▪ K statement excluding pre-contractual statements
▪ Clause precluding a right of rescission for non-fraudulent misrepresentation. Byers v Dorotea.
Rescission – bars
• Innocent misrepresentation: not at CL, but equity does
• Executed contract: no rescission without fraud
• Misrep = K term: mix auth may rescind even if misrep is term, not only breach of K.
• Notification: only misrep if communicated to Representor. Unless impossible to communicate the
rescission.
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•
Equitable compensation
• Similar to common law damages, but differences in policy and the way it works
• Awarded in relation to economic loss only
• No exemplary equitable compensation rewards
• Assessed as at date of trial
• Concepts of causation are relevant
• Hartigan v International Society for Krishna Consciousness
•
Constructive trust
• Hold property on constructive trust to give back to the plaintiff in proportion to the interest of
money paid into it McCullogh v Fern
•
Statutory regulation (e.g. s51AA of TPA / Contracts Review Act
Page 55 of 58
Tracing
•
•
•
Property claim ∴ Always preferred to a personal claim
CL & Equitable remedy
o Equitable tracing differs from CL tracing in that equity recognition that B retains their property rights over
trust property in cases where trust property in mixed with other property / converted into a new type of
property. Under CL, only damages
Definition: Trust property mixed with other funds or converted to purchase a new property. Claim against holder of
new property or mixed funds, once tracing successfully demonstrated
Elements:
(1) Prior fiduciary relationship Agip (Africa) v Jackson
(2) Claimant has equitable (beneficial) interest in the property prior to the breach & that the property now lies in the
hands of the D. It doesn’t matter that it has been mixed with other funds or that it has been used to purchase
another property: Re. Halletts; Re Diplock
Prior fid rela?
• Prior fiduciary duty ∵ unjust enrichment of thief if no prior existing relationship. In AU tracing protects property
rights rather than enforcing fiduciary relationships Saleh
What breaks the chain of tracing
• Partnership assets: Raulfs v Fishy Bite → money paid to partnership, it became partnership asset & no longer P’s
• Overdrafts: money paid to overdraft account (exhausted/overdrawn account) or to make payment of CC
• Backwards tracing: Money used to reduce overdraft so further funds can be withdrawn to purchase an asset
Conlan
Tracing property into the hands of trustees: T misappropriates trust property & use it exclusively to purchase other
property in their own name
• Election: B can chose to enforce their beneficial interest in the new property by either asserting beneficial interest
of it, or by bringing a personal claim against the T for breach of trust
• Profit: B chooses a charge/lien over the property * the property has appreciated in value, B entitled to the profit
Mixed property
• Rule in Re Hallett’s Estate: presumption that onced funds mixed in any a/c, any following transactions come from
T’s personal funds first, any funds remaining the a/c are treated as trust funds.
o Case: Solicitor-trustee sold trust property & mixed funds from sale with his own money in a bank account.
Solicitor died insolved. Held: B had a right to trace proceeds of sale into remaining account funds
• Lowest intermediate balance rule: When a/c balance fluctuates ∵ deposits & withdrawals are made over time. B’s
claim is limited to the lowest a/c balance in the time period from date of mixture to date of claim against a/c.
o James Roscoe Debt collect deposited £400 client’s money into own accounts, number of transactions over a
period of time. Solicitor later died insolvent, dispute between creditors and estate about remaining money in
account. Held: B right to trace proceeds of sale into remaining account funds
• Valuable purchases: Fiduciary makes a purchase of valuable property from the mixed fund & then proceeds to
dissipate the rest of the account the fiduciary is not entitled to use the rule in Re Hallet’s Estate to prevent tracing
into the valuable property
When trustee is pinching from more than 1 trust
• General approach – pari passu – a/c proportion of loss Re French Caledonia Travel
o Travel agency insolvent then liquidation. Had funds on trust with inadequate records. Claims of $1.43m, trust
a/c had $97,000 + deposit a/c $75k. Directions as to how to distribute the funds
o Held: Clayton’s rule dismissed as a matter of principle regardless of how much information available. Rule not
applicable as money withdrawn from a/c to pay for traveller’s expenses.
• Alt approach – funds taken from trust a/c in breach of trust but only part of funds taken can be attributed to
particular beneficiaries, then court may attribute that loss to the B’s interest which can be identified, but then
distribute the balance of the remaining funds on a proportionate basis Australian Securities Commission v Buckley
• Rule in Clayton’s Case – where mixed funds held in bank a/c, subject to ‘first in, first out’. Not applicable in AU.
Page 56 of 58
Difficult to apply where facts concern large complex bank accounts or many beneficiaries.
Tracing property into hands of 3rd parties
• Bona fide purchaser for value w/o notice of the breach of trust are immune from tracing claim: Boscawen
• Saleh: principles of recovery against 3rd parties
o Trust property transferred to volunteer who takes w/o notice, and there is no question of mixing, then
volunteer will hold the property on trust for the rightful beneficiaries
o Where money used to pay off a secured creditor, trust was not entitled to be subrogated to the rights of the
secured creditor who was repaid. Boscawen courts don’t like to trace into mortgages
o Volunteer purchased property w/ mixed fund including trust moneys then beneficiary would be allowed a
charge over the property in order to secure repayment of the trust moneys used for the purchase
o If asset purchased with mixed funds and it increased in value, beneficiary will not be entitled to any
proportionate share in that increase in value. Careful consideration as to renovations or improvements made
upon real property.
• Foskett v Keown development scheme to buy plot lands in Portugal. People could purchase land and proceeds held
on trust. Land not transferred within two years, money had to be repaid with interest. 220 people invested, funds
dissipated. Life insurance policy paid in part with trust moneys with wife (10%) as beneficiary and three children
(30%ea) right from 2nd premium purchased paid.
o Held: limited amount in restitution to equivalent amount of the premiums together with interest.
Beneficiaries denied a proportionate share of policy proceeds. No causal link between the misappropriation
of funds and the right to policy proceeds, as the right to whole-of-life cover arose after the first two
premiums, and was not causally related to the misappropriated funds.
• Re Diplock can trace into mixed funds of a volunteer.
o Diplock created executions discretion to distribute large sums to 100 charaties+. Moneys mixed with charities
own funds or used to improve assets (renovations / discharging debts). Settlement vs executors, but B’s bring
recovery against charitable recipients.
o Held: able to recover sums against charities who still held funds separately; and
▪ Entitled to recover proportionate amount from mixed funds and valuable purchases from mixed funds
▪ Other moneys expended on capital improvements or debt reduction not recoverable as inequitable.
Cannot trave into a mortgage
• Rule in Re Diplock questioned but Boscawen (UK) and (Saleh) accepts Re Diplock.
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Declarations
Statutory remedy. 2 prelim questions
1) Can it be made in the absence of evidence?
2) Can parties make order in the absence of evidence. Parties can agree by consent as to the facts
Court’s consideration: Ainsworth
1) Declaration must be directed to the determination of legal controversies & not to the resolution of abstract /
hypothetical question
2) Person seeking relief must have ‘real interest’
3) Declaration must produce foreseeable consequences for the parties
Standing
• Declaration is of practical importance to the applicant – they had a real commercial interest in obtaining it
• Genuine & legitimate interest in the matter Milebush Properties
• Public rights
o Individual seeks to raise a public right against Crown
▪ Approach AG → bring suit in official capacity (ex officio) or in relation to rights of private
individuals concerned (ex relatione). AG has automatic standing but cannot be compelled
o If AG refused, individual may approach court directly to assert the public right – provided that they
meet at least 1 of the 2 threshold tests for standing. Boyce
1) Where the interference with public right is such as that some private right of his is at the same
time interfered with
2) Where no private right is interfered but P, in respect of his public right, suffers special
damages peculiar to himself from the interference of the public right
• 2nd limb extended by a broader “special interest” test Aust Conservation Foundation
standing of an org dedicated to environmental protection to challenge the
government decision allowing tourism development to proceed
o HC→ rather than insist upon ‘special damage’ request from Boyce, court said
applicant only need to show ‘special interest’ in the matter. Interest must be
one with tangible consequence, not a mere emotional / intellectual concern
• Onus v Alcoa Australia Aboriginal tribe was given standing to protect their relics from
interference – tribe members had a ‘special interest’ in that they were custodians of
the relics, which they actually used & were of cultural & spiritual importance to them.
Applicants stood to suffer a palpable disadvantage / loss in their action failed.
Foreseeable consequence – utility
• Must have some effect on the rights & obligations of the parties to the proceedings ACCC v Francis
Defences
• ∵ the juris to grant mere declaration relief now comes from statute, traditional equitable def (e.g. unclean hands,
laches) have arguably been eliminated
• However, where a declaration is sought as ancillary to other equitable remedies, the usual equitable defences
apply
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