Law Extension Committee
Equity and Trusts Practice Questions
Assignments & Dispositions
1. In a voluntary deed Andrew assigned to Brian the verdict of his pending
accident compensation claim against Charles. Two weeks later Andrew obtained
a verdict of $50,000-00 against Charles. Andrew then repudiated the deed
between Brian and himself.
Advise Brian of his rights (if any) in relation to the verdict proceeds.
2. Discuss the validity of the following assignments set out in a deed and for
which no consideration has been given:
(a)
‘Half of my contractual right to receive royalties from Oxford Publishers
in relation to my book entitled Principles of Equity’. (At the time of the
assignment Oxford Publishers had gone into liquidation without having yet
printed the book and it is unlikely that it will be printed at all.)
(b)
‘Half of my right to receive interest in relation to my loan to Jack Smith’.
(The loan is repayable immediately on demand with interest to be paid to the
date of repayment.)
(c)
‘The first $ 800-00 of the yearly net income to accrue to me as dividends
from my shares in Acme Industries Ltd’.
(d)
‘All the shares in Fastbuck Enterprises Ltd that I stand to inherit pursuant
to my mother’s will when she dies’.
3. Mrs Dole was the absolute beneficial owner of 10,000 shares in Macquarie
Mines Ltd (MML). The registered holder as trustee of the shares was MML’s
bank and it was obliged to transfer the legal title to the shares to Mrs Dole at any
time if called upon to do so by Mrs Dole. One week ago Mrs Dole called the
manager of the bank and said to him: ‘I want my son Bob to have my shares in
MML. Please transfer them to him’. The manager replied: ‘Very well’. Two days
later, and before any steps were taken by the bank manager to carry out Mrs
Dole’s instructions, Mrs Dole died. In her will she left her entire estate to her
husband Eric.
Eric seeks your advice as to who is entitled to the shares in MML.
4. Mark is the trustee of shares in Blue Diamonds Ltd under a bare trust in which
Kelly is the beneficial owner. Kelly telephones Mark and directs him to hold the
shares on trust for Kelly’s friend Catherine.
What is the effect of Kelly’s direction to Mark?
5. Bill was the sole beneficiary under a trust of a painting by the famous English
artist Constable. Bill agreed to transfer his interest in the painting to Frank for a
nominal sum. Bill died leaving his entire estate to Charles.
Charles seeks your advice as to the extent (if any) of his interest in the painting.
6. Janine is the registered proprietor of Torrens title land known as Greenacre.
She was also the registered shareholder of 2000 shares in Concrete Constructions
Ltd. Janine wanted to make a gift of property to her niece Eva. To do this she
made an oral declaration to the effect that she held Greenacre and the shares on
trust for Eva.
A few days after Janine’s declaration Eva, in a letter to her sister Margot, wrote: ‘I
give to you any interest I have in Greenacre’. In a telephone conversation with
Janine on the same day Eva said: ‘I want Margot to have my shares in Concrete
Constructions Ltd. Transfer them to her as soon as possible’.
Eva died the next day. Without knowing of the death, Janine transferred the
shares to Margot and the share transfer was duly registered in Margot’s name. A
few days later Margot, claiming to be the beneficial owner of Greenacre, wrote to
Janine and demanded that she be given the certificate of title to Greenacre and an
executed transfer, transferring Greenacre into her name. Janine ignored this
letter.
Margot seeks your advice as to the effect of these transactions on the legal and
equitable ownership of Greenacre and the shares.
Confidential Information
1. Ken worked for Carmel in Carmel’s phone counselling business, ‘Phone-aFriend’. The business provided personal counselling for clients who registered
with the service and paid a fee of each half-hour of telephonic counselling. The
business was very successful primarily because it provided a particularised
service that catered for the individual needs of its clientele. Records were kept of
counselling sessions. The records included details such as the client's personal
history and preferred method of payment.
Carmel worked hard to make the business a success and decided to take a
holiday. She left Ken in charge of the other employees. When she returned she
found no one at work and some of the client records appeared to be missing. She
then contacted some of the clients and they told her that they were informed by
Ken that the business was closing but reopening under a new name, ‘Telephone
Mates.’ After some hurried searches Carmel discovered that ‘Telephone Mates’
was being run by Ken. All the employees had crossed over to work for him. After
a period of weeks Carmel's business closed permanently as she had no clients
left. What rights does Carmel have to bring an action in for breach of confidence?
Fiduciary Obligations
1. John Smith owns a 1976 Aston Martin sports car. He has been taking the car to
Bob Nurk for servicing and repairs ever since he bought it. It has now become
too small for his needs and he decides to sell it. The next time he takes the car to
Bob Nurk for a service, he mentions this to him. Bob Nurk knows the car is in
good order and thinks it is a good buy. He offers John Smith $ 10,000 for the car,
which he suggests is a fair price. John Smith accepts, but later discovers that the
market value for a 1976 Aston Martin is $ 15,000.
Advise John Smith.
2. Rowena is a prominent real estate agent in Campbelltown. Silvester is a
developer who has plans approved by the local council to build a block of four
town-houses on one of the few parcels of land in Campbelltown zoned for such
purposes. Due to a cash-flow problem, Silvester decided to sell two of the townhouses “off the plan” before construction had commenced. Silvester engaged
Rowena to find buyers for these two town-houses. After discussions between
Rowena and Silvester on the question of a sale price, a figure of $ 150,000 per
town-house was agreed.
Rowena advertised the sale in the local press and was approached by Zelda.
Zelda, who had only $ 150,000 to invest, was interested in purchasing one townhouse, but only if the town-house was likely to appreciate by at least 25% by the
time it was actually built. Zelda instructed Rowena to make enquiries along these
lines. Rowena discovered that once completed, the town-houses would each
fetch $ 225,000. She further discovered that $ 170,000 each was the then current
market value of the proposed town-houses. Rowena advised Zelda of the results
of her enquiries, and Zelda immediately contracted to buy one town-house for $
150,000.
Rowena, with Zelda’s consent, also contacted an old friend Walter. Walter is a
retired politician who was seeking to invest his superannuation payout. He had
asked Rowena to keep an eye open for a “good deal” if one came along. Rowena
told Walter:
I have a town-house for sale “off the plan” for $ 150,000 which by the time it is
built will fetch $ 225,000 on the open market.
Walter immediately contracted to purchase the second town-house from
Silvester.
Rowena did not at any time inform Silvester of the information she discovered as
a result of the enquiries pursued on behalf of Zelda.
Contracts for both sales were completed a few days after Silvester completed the
building of the town-houses.
Silvester has now discovered everything that happened and feels terribly
cheated. He seeks your advice as to remedies, if any, that he may have available
to him.
3. Joe formed Metal Mines Pty Ltd together with Keith who was a major figure in
Australian business and financial circles at the time. Metal Mines was formed for
the purpose of exploiting certain uranium deposits in Queensland. Joe became
the company's managing director. Keith was, inter alia, to provide, through his
own companies, financial support for the development of this project. Whilst
acting as managing director of Metal Mines, Joe commenced negotiations with
the Tasmanian government for the issue of exploration licences, in connection
with a scheme for exploiting some of Tasmania's iron ore deposits. Negotiations
were carried out through the offices of Metal Mines even though that company
had been formed for a different purpose. Financial difficulties confronted Keith
and his companies and they were unable to support Metal Mines any longer. It
had been previously agreed by the board of directors of Metal Mines and Keith
that, if such a situation would arise, the company would be 'mothballed', that is,
kept in being, but inactive, until circumstances changed and it again became
possible to continue with the exploitation of the relevant uranium deposits in
Queensland.
In the meantime Joe continued with his negotiations with the Tasmanian
government and earned significant profits as a result. Later he resigned as
managing director of Metal Mines and this was communicated to the Tasmanian
government.
Joe now seeks your advice as to whether he is liable to account for the profits that
he has made, and is likely to make in the future, as a result of his work with the
Tasmanian government in the issue of exploration licences?
Introduction to Trusts
1. Characterise the following dispositions contained in John's will:
a.
I give my Rolls Royce to Eric, and on the condition that Eric pays my
debts to Christos;
b.
I give my house in Brewarina to Cathy absolutely, with the hope that she
shall allow my mother to live there until she dies.
c.
I give $25,000 to Mark, to be used for the costs of educating Penelope and
to be hers absolutely when she attains 21 years.
d.
I give the residue of my estate to Francine who may, at her absolute
discretion, give such residue to anyone she thinks fit, barring herself, Eric, and
Cathy. If Francine fails to dispose of the residue in her lifetime, it shall become
the property of Penelope.
2. Alain covenants with Bruce that he will settle existing property on Bruce as
trustee for Claude. Only Alain and Bruce are party to the deed, and no
consideration has been provided by either Bruce or Claude. Alain later refuses to
settle the property.
(a)
Can Claude require Bruce to sue Alain on the covenant?
(b)
Will Bruce be allowed to sue Alain on the covenant?
(c)
If Bruce can sue, what will his remedy be? If he obtains damages on what
basis will they be assessed, and will he be allowed to keep them for
himself?
Express Trusts
1. Jock, a wealthy oil tycoon, is happily married to Ellie. During the Vietnam
War, while stationed at Darwin, Jock had an affair with Wendy. As a result of
that affair Jock and Wendy had a son named Ray. Jock’s past is unknown to Ellie.
Jock was concerned that Wendy and Ray were satisfactorily provided for in his
will. Jock thus made a will, in 1980, and clause 7 of the will read as follows:
I leave $ 500,000-00 to my son Bobby feeling confident that my express wishes in
relation to this money will be carried out.
By Clause 15 of Jock’s will, Ellie was named as beneficiary of the residue of his
estate.
On 1 April 1997 Jock showed his will to his son Bobby and handed him a sealed
envelope. He said to Bobby: 'I want you to carry out the instructions contained in
this letter after I die. You are not to tell your mother about it.' Bobby said nothing
in response but nodded to indicate that he agreed to abide by his father’s wishes.
On 1 May 1997, Wendy died in an automobile accident. Upon hearing of the
news of Wendy’s death Jock suffered a heart attack and eventually died on 1
June 1997.
After his father’s death Bobby opened the envelope he had been given in April
1990. In the letter Jock stated that the $ 500,000-00 referred to in Clause 7 of his
will was to be held on trust for Wendy. In trying to locate Wendy, Bobby
discovered that she had died and had left a will appointing her son Roy as
executor and beneficiary of her entire estate.
Bobby seeks your advice as to what is to happen to the $ 500,000-00 referred to in
Clause 7 of Jock’s will.
2. Anita Constructions Ltd is in financial difficulties. Its managing director Mr
Hawke, thinks that liquidation can be staved off if five major creditors, who are
owed a total amount of $ 100,000 are paid. Mr Hawke arranges for a loan of $
100,000 from an associated company, Paul Acceptance Ltd. Paul Acceptance Ltd
sends a cheque for $ 100,000 to Anita Constructions Ltd with a covering letter
which says, inter alia:
This sum is lent to you on the following conditions:
(a)
(b)
It is repayable on demand,
It will bear interest until repayment of 10% per annum,
and,
(c)
It is to be used only for the purposes of discharging your indebtedness to
the five major creditors.
Anita Constructions Ltd pays the cheque to the credit of a new account opened
with a bank with which it had not previously dealt with and which was not
aware of the terms on which the cheque had been received. Before any further
steps were taken Anita Constructions Ltd went into liquidation.
The five creditors, Paul Acceptance Ltd and the liquidator of Anita Constructions
Ltd all claim that the amount outstanding to the credit of the new bank account.
Advise the bank as to who is entitled to the amount in the bank account.
Variation and Termination
1. Each of the following dispositions fails the modern rule of perpetuity. Why?
(a)
An inter vivos gift ‘to A on trust for B for life, and then to any of B’s
children that marry.’
(b) A gift of a gravel pit on trust to A to use until the pit is exhausted, and then to
be sold and divided equally among the testator’s living issue.
(c) A gift ‘to A on trust for B for life, then to anyone who may become B’s wife for
life, then for B’s eldest son then living.’
(d) A testamentary gift ‘to A, my wife, for life, then to A's children for life, then
for such of any children of my brother and sister who attain 21.’
(e) A testamentary gift to ‘A for life, then for such of A’s grandchildren that are
alive at my death, or born within five years after, who attain the age of 21.’
2. Bronwyn died leaving a farming property and a large bank account. Under her
will Bronwyn appointed her brother Brian as executor and trustee of her estate.
Bronwyn was a prejudiced woman and disliked Catholics immensely. Clause 4
of her will stated:
I give the farm to Brian on trust for Sonya for life, on the condition that Sonya is
not married to a Catholic.
Clause 8 of her will states:
I give $200,000 to Brian on trust for Owen, then for any wife he may marry for
life, then to Owen’s children that attain 25 years.
At the time of Bronwyn’s death, Sonya had been married to Lucas (a Catholic)
for five years. Bronwyn had been aware of the marriage and did not approve.
Owen was aged 65 and had not yet married or had any children. He was,
however, considering marriage to Rosie, his girlfriend who was aged 70. Analyse
the validity of these trusts
Charitable Trusts
1. Consider the following gifts to trustees in the will of Melina:
(a)
$ 200,000 to the Industrial Relations Committee of the Campbelltown
Branch of the One Nation Party of Australia, for the benefit of the said
branch.
(b)
$ 200,000 to establish a sanctuary for the preservation of the native flora
and fauna of New South Wales.
(c)
$ 200,000 for the general purposes of St Vincent’s Private Hospital.
(d)
$ 200,000 to those of my friends who are poor.
(e)
$ 200,000 for the building of a recreation centre for the benefit of workers
in the tobacco industry.
(f)
$ 200,000 for the education in the Greek language of police officers of the
NSW Police Department.
(g)
$ 200,000 for the promotion of croquet in the private schools of New South
Wales.
(h)
$ 10,000 to the Greek Orthodox Archbishop of Australia for masses for the
repose of the souls of my husband and my parents and my sisters and also
myself when I die.
2. At the end of World War II, Milan Petrovic, a Serbian peasant farmer, left his
birthplace in Yugoslavia and emigrated to Australia. He settled on a farm he
purchased near Leppington. The farm was in a very run-down condition when
he purchased it. Milan devoted all his time, energy and resources to establishing
his beloved farm which he named “Flat Tops” (a translation in to English of the
Serbian village in which he was born).
In 1989 Milan contracted leprosy and ultimately had to have his left leg
amputated. As a result of his affliction Milan came into contact with the NSW
Leprosy Research Council, an unincorporated body, which was engaged in
research for an effective cure for leprosy, and which had its research centre and
headquarters in Leppington. In April 1990, the NSW Leprosy Research Council
was effectively dissolved, but its functions were taken over by a newly formed
body called the Leprosy Research Institute of NSW. At all relevant times the only
other institution concerned with leprosy in NSW was the Newcastle-based NSW
Anti-Leprosy League.
As a result of Milan’s suffering he was unable to work his farm and it proceeded
to decline rapidly. In May 1997 Milan died. At the time of his death the “Flat
Tops” farm was worth $ 350,000, but had ceased to generate any income at all.
In his will Milan appointed his nephew Stanislav as executor and trustee as well
as residuary beneficiary.
Consider the following provisions left by Milan to his trustee in his will:
(a)
$ 50,000 to the Leppington Anti-Leprosy Centre.
(b)
The whole of my beloved “Flat Tops” farm for a training farm for orphan
lads being Australians.
3. Consider the following gifts to trustees by will:
(a)
$ 200,000 to establish a training farm in Pakistan for refugee boys from
Afghanistan.
(b)
$ 200,000 to establish a Catholic weekly newspaper.
(c)
$ 200,000 for such Order of Nuns of the Catholic Church whether active or
contemplative, as my trustees shall select
Resulting Trusts
1. Jack and Jill entered into a de facto relationship in 1975. In 1976 they had a
child named Zac. In 1987 they purchased a house in Richmond for $ 150,000. The
purchase price was paid by Jack, the money coming to Jack as an inheritance
from the estate of his late uncle. At the time of purchase Jack decided to have the
property registered in his, Jill’s and Zac’s names as tenants in common and in
equal shares. In 1994, when Zac reached his majority age Jack opened a bank
account with the Western Sydney Bank Ltd in the joint names of Jack and Zac.
Jack told Zac that he would be making all the deposits into the account and
would withdraw from the account whenever it may become necessary. However,
he also said that if anything should ever happen to him (ie Jack) the money then
in the account would belong to Zac.
Two weeks ago Jack & Jill died in a car accident. In his will Jack left his entire
estate to Lucy, his daughter that he had fathered in 1972 before he had met Jill. In
her will Jill left her entire estate to Zac. At the time of their deaths the Richmond
property was worth $ 300,000, and the bank account at Western Sydney Bank Ltd
had a balance of $ 5,000.
Lucy seeks your advice as to whether she has any entitlements in the Richmond
property and the bank account, and if not who is entitled and to what extent.
Constructive Trusts
1. Carmel and Brian were brother and sister. Both were raised on the land and
wanted to be farmers. In 1965, Brian he bought a farm at Queensland with
$20,000 of his own money and a loan from Carmel of $5,000. Unfortunately, the
farm was very run down and in the early stages of its running Brian had to call
upon the aid of his sister (who was a qualified carpenter) to upgrade and
maintain the farm. At first Carmel would work on the farm on weekends and
holidays, but eventually Brian invited Carmel to work on the farm full time in
return for her living expenses being paid. She agreed but she stated that she
expected to receive some part-ownership of the farm should she stay for some
time. Brian stated that he would always make sure that Carmel was ‘taken care
of.’
Carmel and Brian continued to live and work on the farm. In 1978 Brian fell in
love with Ronald, his old school sweetheart, and Ronald moved onto the farm to
live. After Ronald moved in, the parties very quickly fell into a pattern of work
whereby Carmel and Brian would labour on the farm and Ronald would take
care of the household, by cooking, cleaning and organising the siblings and their
affairs, including the farm's accounts. Ronald gave up his job at a country
newspaper to devote his time to helping Brian and Carmel on the farm. Brian
never stated that Ronald would receive an interest in the farm.
Brian and Ronald relationship deteriorated in 1998 and Ronald eventually left
the farm. Carmel left soon after, as she believed that Ronald was unfairly treated
by Brian. Brian indicated that both Carmel and Ronald would never receive any
interest in the property. What constructive trusts might arise to give Carmel and
Ronald a beneficial interest in the farm?
2. Tom and Millie, who were husband and wife, orally agreed that each would
make a will leaving the whole of his or her estate to the survivor, who would in
turn leave his or her estate to Millie’s sister Fay. After Millie died leaving the
whole of her estate to Tom, Tom married Nancy and used all of his assets,
including Millie’s estate, as the full purchase price for a mansion at Point Piper,
title to which was transferred to his and Nancy’s name as tenants in common in
equal shares. Tom executed a will leaving all of his estate to Nancy, but,
tormented by scruples, he later told Nancy that he expected her to devise the
mansion to Fay. Nancy said nothing. Tom then died, without changing his will,
and Nancy inherited his estate. Then Nancy died, leaving the whole of her estate
to her brother Bob. Fay has just discovered the facts.
Advise Fay of her rights, if any, in respect of the Point Piper mansion
3. Alain makes, in the United States, high quality ski-boots. His know-how is not
patented. Brian has successfully distributed Alain’s ski-boots in Canada for many
years and is respected by Alain as an energetic and loyal distributor. Alain
confides to Brian that he wants to expand into the Australian market. Brian
successfully persuades Alain to engage Brian as his exclusive distributor for
Australia. The arrangement is that Brian will purchase the ski-boots and
promotional material from Alain and then market the product in Australia by
himself. There is no contract recording this arrangement. Brian stresses that the
arrangement for Australia will be like his previous dealings with Alain and that
it will work to their mutual benefit and advantage.
Brian then builds and equips a factory in Australia using his own funds. He
plans to identify Alain’s know-how by “reverse engineering” and then to begin
manufacturing his own ski-boots for Australian distribution. This he does to
great advantage. He winds down the sales of Alain’s product to a negligible
level.
Alain becomes aware of Brian’s activities and terminates Brian’s exclusive
distributorship arrangement. Alain’s solicitor writes to Brian and threatens, in
non-specific terms, the institution of legal proceedings against Brian. Brian then
sells the plant, goodwill and undertaking of his ski-boots business to Claude.
Claude is aware that Brian once had a close business relationship with Alain and
that Alain is now threatening legal proceedings of some kind against Brian.
Claude is not aware that Brian was Alain’s exclusive distributor for Australia.
Claude makes no further enquiries.
Advise Alain of his rights and remedies in respect of the activities of Brian and
Claude.
Rights and Responsibilities
1. Paul was a busy solicitor, who had an unfortunate habit of cutting corners.
Paul’s practice, Paul & Co, had a large trust account of which he was the trustee.
Paul was also a co-trustee of the Landwall Family Trust which had two
beneficiaries, Nicole and Marc. The other co-trustee was Richard, who was an
old family friend of the Landwalls and was a retired landscaper. The
management of the family trust was, as a matter of practise, left in Paul’s hands
and Richard had very little to do with the decision-making.
Paul had dreams of developing a large landholding into an industrial area but
was in desperate need of capital. The Landwall Trust instrument granted limited
investment powers and forbade speculative investments in land.
On Monday 4 February, Paul was made an offer for the land that he could not
refuse. He drew $1 mil from the firm’s trust account and deposited into his own
personal account. The next day he transferred another $1 mil from the Landwall
Trust into the personal account. He knew that both actions were serious breaches
of ethics and law, but he believed that he would able to repay the loans from
development within a year. Paul then used $1.5 mil to purchase the land in his
name. Richard was oblivious to the entire event.
Six months after these transactions Paul’s withdrawal of money from the Paul &
Co trust account was made known. The authorities launched an investigation,
discovering numerous serious breaches of professional standards and they
threatened to strike Paul off. Paul became depressed and killed himself. Paul was
insolvent at the time of his death, owing $700,000 to unsecured creditors. At the
time of Paul’s death, his personal account had a balance of $100,000 and the
value of the land was $2 mil.
Discuss what remedies are available to the beneficiaries of the Landwall Family
Trust and to the beneficiaries of the Paul & Co trust account.
2. Gordon died on the 1 January 2000. In his will Gordon appointed his sister,
Phyllis, as trustee of his estate and granted his wife, Frances, a life estate, and his
three children, Ken (aged 21), Jocelyn (aged 19) and Ronnie (aged 15) an equal
beneficial interest in the remainder. The estate consisted of two main assets: a
collection of rare China plates and a farm property in Clunes, in northern New
South Wales. The farm was being leased to Bob, who paid an annual rent
payable on 30 June every year. The trust provides that the children are not
entitled to their interests until they reach the age of 25 years.
Discuss possible solutions to the following scenarios:
(a)
Upon taking up her office, Phyllis was given advice to the effect that the
market for Gordon’s China plates is falling dramatically and she is fearful that
the plates will be worthless in the future.
(b) Tragedy struck a second time on 1 May 2000. Frances died in a car accident.
She left her entire estate to the Dog Homes Ltd, a statutory corporation, set up to
care for dogs. Dogs Home Ltd are claiming part of the income from the farm
rental but Phyllis does not know how much is owed to Phyllis, if anything.
Phyllis’ records indicate that Frances had not receive any amounts for rent from
the farm in 2000.
(c) After Frances’ death all three children began demanding that they be given
their beneficial interests in the farm. Phyllis refuses to give them the property on
the grounds that it would be a breach of the trust.
3. Ken is the sole trustee of the Croydon Family Trust (“the Trust”).
The trust has three discretionary beneficiaries. They are Kevin (aged 25), James
(aged 21), and Carmel (aged 17). The Trust property consists of a very large
investment account at the Western Bank. The Trust provides that Ken shall have
the discretion to pay income each year to the beneficiaries from the interest
earned on the account. Ken is obliged in the trust deed to distribute all the
income every year but he can choose to whom it is distributed. The Trust deed
also gives ken the widest powers to invest the money as he sees fit to get the best
return.
Ken wishes to remain as trustee. However the beneficiaries are not happy with
his management of the trust as Ken has taken some of the money from the
account for himself. Ken believes he has done nothing illegal. He used trust
funds to reimburse himself for costs spent in getting advise about how to invest
the trust funds properly.
The beneficiaries are also angry at Ken’s decision to invest with the Western
Bank. The beneficiaries object to this as the Western Bank was responsible for
environmental degradation in Nuigini. The beneficiaries would prefer the funds
to be invested with the Green Bank (which has strict environmental policies),
even thought this would mean that there would be less returns on the
investment.
Ken is worried that the beneficiaries will seek to call on him the distribute all the
funds and terminate the trust. He is unsure of whether the beneficiaries have the
power to make that decision. He is also worried that they will sue him for the
reimbursement monies or force him to invest in the Green Bank.
Discuss and analyse.
Combined Trust Questions with Answer Guides
1. The facts of this question are set in NSW.
Alex, a successful industrialist and founder of Busy Corporation, died on the 1
January 2008. His will contained two trusts with a residuary beneficiary.
The first trust was for $5 million to be held for ‘the education of employees of
Busy Corporation, their children and dependants.’
The second trust was worded as follows:
I give my property at Rex Lex to my sister Juliette on trust for my children
for life, and then to any of my grandchildren that marry, on the condition
that the grandchildren not marry a Scot.’
The property at Rex Lex was a large cattle station in western NSW worth $100
million. At the time of Alex’s death, Alex’s children were Michael (aged 50), John
(aged 32) and Peter (aged 28). At the time of his death Alex had one grandchild,
Penelope, who was unmarried but had been dating Cameron from Scotland.
The residuary beneficiary in the will was Patricia, Alex’s estranged wife. Patricia
sought to challenge the validity of the Busy Corporation trust.
At the same time Juliette, who had possession of the certificate of title, saw an
opportunity to become very rich, very fast. Before the sons could collapse the
trust and get possession of the title deeds she entered into a contract for sale of
the property with Nidal. It was common knowledge that the property was held
by Alex’s family in a trust for the sons. Nidal realized that the circumstances
were suspicious but he decided that the best thing to do was basic title searching
and settle the transaction as soon as possible. Nidal became the registered owner
on 1 June 2008 and Juliette then disappeared.
Answer each of the following
(a) Can Patricia have the Busy Corporation trust struck down and, if so, on
what basis? If the trust fails what trust mechanism could be used to bring
the funds back to the estate and into Patricia’s possession.
The first issue is whether the trust fails as a charitable trust. Education
is a valid head of charity but it fails the Compton test of public benefit.
The facts are similar to Re Oppenheim
The second issue here is whether it could survive as a private express
trust. The trust appears to be certain according to the criterion certainty
test in McPhail v Doulton.
The mechanism, for saving it is the automatic resulting trust
(b) Discuss the wording of the second disposition and whether it offends the
rule against perpetuities and/or public policy.
On perpetuities, it fails the modern rule. The lives in being are the
children. The grandchildren could get married more than twenty five
years after the death of the last child. Class closing cannot apply
because the condition is not age related. The Perpetuities Act 1984
would save the disposition from initial uncertainty and the waiting time
would be 80 years. (3 marks)
The restriction on marriage would be upheld: Seidler v Schallhofer
[1982] 2 NSWLR 80. Therefore the disposition survives. (3 marks)
(c) Can Rex Lex be recovered by the sons?
The issue of David’s registration is whether he can claim indefeasibility
from the knowing receipt of the trust property. The rule in Barnes v
Addy applies to knowing receipt. Of interest is David’s state of
knowledge which seems to match category 4 of the Baden categories of
knowledge. In Australia both categories satisfy the requirement for
knowing receipt but the question here is complicated by the Torrens
system. The High Court has said that outside of fraud knowing receipt
does not apply to Torrens: Farah Constructions Pty Ltd v Say-Dee Pty Ltd
[2007] HCA 22. The most probable answer is that he has indefeasibility
and that tracing will be ineffective.
2. This question occurs in NSW. Luke and Robert were brothers. They purchased
a house together with each providing 50% of the purchase price but Luke did not
want the house to be in his name because he wanted to later access a government
scheme for ex-servicemen where they could borrow money from the government
for their first house at a cheap rate. Luke had fought in the First Gulf War. The
house was registered in Robert’s name. Luke earned income through providing
loans to small businesses.
Luke later won the lottery and with the money decided that he would like to
provide for his friend Owen who was in dire financial straits. Luke decided to
give Owen 50% of his (Luke’s) right to receive interest on a large loan he made to
a colleague named Jack Smith. The loan was repayable immediately on demand
with interest to be paid to the date of repayment. Luke also had a large holding
of shares in AusSteel Pty Ltd and decided to also give Owen ‘Every year for the
rest of Owen’s life, the first $1000 of the yearly net income to accrue to me as
dividends from my shares in AusSteel Pty Ltd’. Finally Luke also gave Owen ‘all
the rights and moneys owed to me as mortgagee pursuant to an equitable
mortgage that I have with Clary Bruce.’ Clary Bruce was another borrower who
had borrowed money from Luke and executed an equitable mortgage in favour
of Luke as security for the loan. All the gifts to Owen were recorded in a deed.
Luke also wrote a will which contained the following clauses:
I give $500,000 to my brother Robert, on conditions that he will be made
aware of.
I give the residue of my estate to my sister Lisa who may, at her absolute
discretion, give such residue to anyone she thinks fit, barring herself, and
Robert. If Lisa fails to dispose of the residue in her lifetime, it shall become
the property of my nephews, Ethan, Lachlan and Bryce.
Three days after writing the will Luke gave a letter to Robert and asked him to
follow the instructions in the letter, but only after he died. Robert agreed with a
wink and wry smile.
Luke died three months later in a motorcycle accident. Robert opened the letter
and found that it instructed him to track down his illegitimate son, Terry, who
was born in Saudi Arabia during Luke’s service, and give the $500,000 gift to
him.
(a) Does Luke’s estate have a claim on the house?
The facts of this are similiar to Nelson. The resulting trust will be upheld for
Luke’s estate because the policy of the law has not been offended. Luke’s
estate may have to reimburse the government for any payments they
wrongfully received, on the basis of clean hands
(b) Were the gifts to Owen effective or do they form part of Luke’s estate
The first gift is similar to Shephard and is successful. All these parts deal with
whether the property being assigned is present or future property, given that
the assignments are for no consideration. Present property can be assigned for
no consideration, but not so future property. Students must know Shepherd
and Norman in particular. The key to this type of question is to make clear that
there is a distinction between assigning an existing right to receive future
property (present property) as opposed to the future property itself. The tree
and fruit metaphor is often used. In cases of presently existing rights to future
property being assigned it doesn't matter that it may not ever come to fruition,
so to speak: See Shepherd.
The second fails because it can only be an equitable assignment given it is
future property, and it’s a gift.
The third gift is the voluntary transfer of a subsisting equitable interest. Its
needs to be in writing as per s 23C(1)(c).
(c) Of what kind is the disposition to Lisa and is it effective?
This disposition is a mere hybrid power of appointment. The disposition is a
mere power because there is no obligation to exercise the power. This is
indicated by the words 'may,' and 'absolute discretion'. Additionally, the
disposition contains a gift in contemplation of default, which is the hallmark
of a mere power. The power is hybrid because the donee is able to choose
anyone as the beneficiary of the power, apart from a named group of persons.
Note also that because the disposition contains a gift over it satisfies the rule
against delegation of testamentary power (Tatham v Huxtable). Tatham should
be discussed at length. But it has now been removed via the new Succession
Act 2006
(d) Is the gift to Terry effective?
This question concerns a half-secret trust, as the testator has indicated that the
donee is not to hold the property beneficially. To be binding the trust must
satisfy the three requirements of intention, communication and acceptance:
Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532 at 535, per
Young J.
Given the statement made by Luke, there is no controversy that a trust was
intended. Further circumstantial evidence could be led if necessary to prove
intention on the balance of probabilities: Voges v Monaghan (1954) 94 CLR
231.
A problem might arise in relation to communication, given that Luke did not
speak with Robert regarding the trust until 17 years after the will was made.
Older authority suggested that communication needed to occur before or at the
time of the will for a half secret to be valid: Guest v Webb [1965] VR 427.
However, in Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532, it
was held that communication could occur at any time until death. It is of no
relevance that the terms of the trust were not communicated until after death:
Re Boyes (1884) 26 Ch D 531.
Robert has accepted the trust by nodding. Express acceptance of the
obligations are not necessary: Ottaway v Norman [1972] Ch 698; [1971] 3 All ER
1325. A valid secret trust has therefore been created.
3. This question occurs in NSW.
Colin was a busy industrialist who was involved in refinancing of small to
medium sized businesses. He was married to Belinda. Colin also has a son
named Roger, who was of school age. Roger’s mum, Loane, had been a former
girlfriend of Colin’s but they were no longer romantically involved. Belinda did
not know that Roger was Colin’s son.
In an effort to save for Roger’s future, Colin opened a joint bank account in his
and Roger’s names and made regular contributions to it. Belinda did not know
about the account.
Colin died on the 1 January 2005, from a recurring cancer that he fought for
many years. One month before he died he made a loan of $100,000 to Gilbert, a
newsagent who ran a newsagency at Windang. The purpose of the loan was set
out in a letter to Gilbert which read:
This sum is lent to you on the following conditions:
(a)
(b)
(c)
It is repayable on demand,
It will bear interest until repayment of 10% per annum, and,
It is to be used only for the purposes of discharging your
indebtedness to your two largest creditors.
The sum of money was deposited in an account to which Gilbert was a signatory.
The account was called the ‘Gilbert creditor a/c’.
On the same day he loaned money to Gilbert, Colin spoke to his friend Alex and
gave him an envelope. He told Alex that he wanted Alex to follow the
instructions in the envelope and Alex agreed. Colin said that Alex was not to
open the envelope until after Colin’s death.
When Colin died his will granted Alex $100,000. Alex opened the envelope and
the letter inside said that the money was to be held on trust for Roger. The will
left the rest of the estate to Belinda. When Belinda confronted Alex about the
money Alex told her about Colin being Roger’s father. She was extremely upset.
She became enraged when she discovered the bank account Colin had set up for
Roger’s future.
(a)
Does Belinda have the right to inherit the entire Bank account in Colin’s
and Roger’s names? (8 marks)
This is a resulting trust question. Resulting trusts can be applied to bank
accounts: Russell v Scott. Even though Roger made no contributions there is a
presumption of advancement which counteracts the presumption of resulting
trust in Colin’s favour. As such Roger gets to keep the half in his name. He
may also get to keep the other half if the account was held in a joint tenancy
(due to the right of survivourship), but there is no evidence of what was
intended so the statutory presumption in favour of tenancy in common will
probably apply. See Radan Stewart and Lynch [21.3.10- 11]
(b)
Can Belinda challenge the disposition to Alex? Will Roger be able to
beneficially enjoy the $100,000? (6 marks)
This is a secret trust question. This question concerns a fully secret trust, as the
testator has not indicated that the donee is not to hold the property
beneficially. To be binding the trust must satisfy the three requirements of
intention, communication and acceptance: Ledgerwood v Perpetual Trustee Co
Ltd (1997) 41 NSWLR 532 at 535, per Young J.
Given the behaviour of Colin and the letter, there is no controversy that a trust
was intended. Further circumstantial evidence relating to Colin’s approach to
the care of Roger could be led if necessary to prove intention on the balance of
probabilities: Voges v Monaghan (1954) 94 CLR 231.
A problem might arise in relation to communication, given that Colin did not
speak with Alex regarding the trust until after the will was made. Older
authority suggested that communication needed to occur before or at the time
of the will for a half secret to be valid: Guest v Webb [1965] VR 427. However,
in Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532, it was held
that communication could occur at any time until death. It is of no relevance
that the terms of the trust were not communicated until after death: Re Boyes
(1884) 26 Ch D 531.
Alex clearly accepted the trust when being given the envelope. Express
acceptance of the obligations are not necessary: Ottaway v Norman [1972] Ch
698; [1971] 3 All ER 1325. A valid secret trust has therefore been created which
Roger get enjoy beneficially.
(d) After Colin’s death Gilbert was bankrupted. The funds were still in the
bank account. Will Belinda, Gilbert’s two largest creditors, or Gilbert’s
trustee in bankruptcy get the money? (6 marks)
This is a Quistclose trust question. This question is obviously based on
Quistclose and deals with the debt-trust distinction. The loan has an initial
purpose which fails hence the initial trust for the creditors fails. A secondary
trust is created with the funds being held on trust for Colin. The bank holds
this money on trust and the funds should not be made available to the trustee
in bankruptcy.
Interestingly the courts have not found that the primary trust gives the right to
the creditors. If the Quistclose trust is meant to be an express trust with two
limbs then why don’t the creditors get it? Lord Millet’s solution is to call the
trust a resulting trust but this has been rejected by the NSW Court of Appeal
in Salvo v New Tel Ltd.