LAWS2205 2013 Exam response
Total Score: 51/65 ≈ 78.5%
Question 1:
Total Score: 34.5/45 ≈ 76.5%
Part A: 9/10
Joe’s announcement
To form a valid trust, Joe’s announcement must comply with the three certainties (Foreman) []
(i)
Certainty of intention
Whilst using the words ‘to hold on trust’ will not automatically give rise to a trust (Walsh Bay), there
is no alternative construction on the facts. As such Joe intends to create a trust. []
(ii)
Certainty of subject matter:
The property included in the trust must be identifiable (Hunter v Moss). In this instance, the
Treetops property is certain. However, there is uncertainty regarding what Joe means by ‘the best
two’ artworks in his collection. []
In Golway, the court concluded that a lack of objectivity in the wording would lead to uncertainty.
Here, we are not sure if Joe means the best two works by value, or the best two by aesthetic quality,
or the best two by artist. Unlike the determination of a reasonable income, the ‘best two’ artworks
import a very high degree of subjectivity, which cannot be settled objectively by looking at the wider
circumstances or intentions of the settlor (Galoway) [ v good]
As such, the paintings must not be included as trust property, although Treetops shall be.
(iii)
Certainty of objects
The recipients of the trust property must be certain (Morice). Here, it is a fixed trust in favour of his
grandchildren. There is no evidence that this group of beneficiaries is uncertain. []
Does the trust comply with statutory formalities?
The disposition of an interest in land must comply with s.23C(1)(b) of the NSW Conveyancing Act.
[] This requires Joe to put the trust instrument in writing and sign it [DPP v Jones]. However, the
written component can be made as evidence affirming the earlier trust. Here, Joe has noted that the
trust exists in part 2 of his will, noting that the property is ‘held on trust for his grandchildren’. As
such, Joe will have complied with the formalities. [great!]
Part B: 5/7.5
Joes rights against Stan (‘S’)
Joe lent $20K to Stan. If Joe can show that the money was held on trust, then he may be entitled to a
CT over Stan’s shares.
Normally, lending money will merely create a debtor-creditor relationship, not a trust type
relationship. However, the courts have recognised that money lent for specific purposes can create a
concurrent trust relationship between parties (Quistclose) []
The relevant enquiry is whether Joe intended the $20K to become part of the general assets of Stan
(Quistclose), determined by looking at the language, and relevant circumstances of the loan (AETT).
Here, Joe makes it very clear that ‘Stan shouldn’t use the money for any non-business expense’. This
is similar to Stephens, when the money was held ‘exclusively for a certain purpose’. However, in
Stephens, the trust also states that money would ‘immediately be property of Qantas’ [].
Furthermore, it was a very specific purpose in that case, where as it appears that this loan is closer
to a ‘general business loan’, than a loan for a specific purpose. However the clear intention that it
‘not be used for anything else’ may be enough to enable Joe to declare a trust over the 20K in his
favour [need more discussion]
Can Joe trace through to the shares?
As S is nearly bankrupt, Joe will want to impose a CT (‘constructive trust’) over liquidated assets, to
maximise his return. []
If you accept that a trust exists over the loan, then there is a fiduciary relationship, which has been
breached by Stan’s misappropriation of the trust funds (Re Diplock).
There is no indication that the funds were mixed to purchase the shares. As such, Joe may impose a
CT over the shares, and seek a personal remedy against Stan for the remaining 5K. []
Part C: 6.5/7.5
Entitlements to the proceeds of sale:
Resulting trusts:
The presumption of a resulting trust means that a person who purchases property in the name of
another, retains beneficial title to the property (Westdeutsche). []
In this instance Joe, in paying 100% of the purchase price, will be entitled to 100% of the beneficial
interest, despite retaining only 50% of the legal title. This can be rebutted by the presumption of
advancement or by contrary evidence regarding the intention of the parties. []
Presumption of advancement:
This would not apply in this instance, as the relationship between Joe and Evie (‘E’), does not fit any
category [ will court develop further?]
However, there may be an argument that Joe is acting ‘in loco parentis’, however more information
is required (Bulakoff) [ unlikely]
Did the parties intend for E to retain 50% of the beneficial interest?
As the presumption of advancement does not apply, Evie must show that the actual intention of
both parties was to leave her with a 50% beneficial interest (Muschinski) [ only J’s intent!]
The timing of the intention must be before or at the time of purchase (Shephard). Here, the parties
‘planned to live together’. Furthermore, they the day after purchasing the house, maning that any
actual intention regarding the division of beneficial ownership was done prior to or at the time of
purchase [].
The ‘plan’ was that E and Joe have joint title and that E repay her half after the purchase, following
her family law settlement. In Muschinski a similar arrangement to provide varlue for a portion of the
property’s value was held to be valid evidence that the parties intended to divide the beneficial
interest, even though the value was to be performed after the transaction [], and despite it never
actually occurring. [] Furthermore, the fact that Joe and E arranged to hold the property as
tenants in common does not indicate that they intended to keep their interests divisible and
separate. [] This requirement for joint title was also considered material in finding the parties
intended to keep a beneficial interest in the property in Muschinski [].
As such, the presumption of a resulting trust would be rebutted and E would be entitled to a
beneficial interest in the property [good!].
Can Joe’s estate obtain a proportion or entire amount of E’s interest through a remedial CT?
Firstly, for Joe’s estate to establish a CT over E’s beneficial interest in the property they must show
that E and Joe’s purchase of the house was part of a ‘joint relationship’ (Muschinski). This requires
that E+Joe aim to add the party’s material wealth for mutual benefit, rather than a relationship
based on love and affection (Muschinski). Here, there is clearly an arrangement for E and Joe to pool
funds to pay for the house in Terregal. This helps augment their wealth to purchase a valuable asset,
indicating the existence of a joint relationship/endeavour. [unlikely]
Would it be unconscionable for E to retain 50% of the beneficial interest?
The joint endeavour has failed without attributable blame (Payne). Therefore the enquiry must ask
whether it would be unconscionable for E to retain a 50% beneficial interest?
The terms of the joint relationship clearly indicate that each party is to retain a 50% beneficial
interest in the property which can be separated.
Joe’s estate may argue that retaining such an interest is unconscionable, as E never paid her share of
the estate, meaning that if she obtains the 50% share of the proceeds, she will actually obtain
$500,000 more than she would be entitled to if the terms of the JR were fulfilled.
However, in Muschinski, a situation occurred where one party had not upheld the pre-arranged
agreement and performed work on the house, this was not fatal to them retaining an interest in the
property.
As such, no CT is likely to be imposed over E’s estate. Overall, E’s estate will be entitled to $500,000
and Joe’s estate will be entitled to $500,000. []
Part D: 14/20
In both clauses, Joe is attempting to create a trust.
The three certainties for both clauses must be fulfilled (Forman).
Clause 1
There is clearly an intention to create a trust over the $100,000, as Joe has said ‘on trust’, thereby
satisfying certainty of intention and subject matter. []
Certainty of objects?
There must be certainty of recipients (Morice). The trust is clearly fixed, as the distribution is not at
the discretion of the trustees. [ Broadway] As such, the rule in West v Weston will apply: [is this
solid law?] ‘The trustees must within a reasonable time be able to list the substantial majority of
beneficiaries’.
Here, it is possible to identify 20 firefighters who were regarded as fighting from 11/10 – 14/10.
However the trust gives money to ‘volunteers’, not ‘volunteer firefighters’. As such the locals who
were fighting fires must also be included. [] Furthermore, fighting fires may include a whole range
of activities done remotely (such as water bombing). Given that it is unknown whether the 20
firefighters would represent a ‘substantial majority’ of all those who voluntarily fought fires the trust
is likely to be void due to uncertainty of objects [need more discussion here].
Clause 2:
Certainty of intention?
The trust may not create a trust in favour of fire readiness due to uncertainty as to intention.
Precatory words will not bear an imperative meaning to create a trust (Deane). [] In that case, the
court noted that the word ‘hope’ was not enough to impose legal obligations upon the trustee. Here,
Joe has a ‘fervent hope’ for the trustee to exercise the trust in favour of ‘fire readiness’. []
However, hope clearly contemplates that she may not, and that she is free to do as she wishes. The
fact that it is a ‘fervent hope’, may, however ben enough to impose a legal obligation on the trustee
[probably not – esp where he used the word ‘trust’ earlier]
Certainty of subject matter?
As this is the remainder of the trust, you need certainty as to which paintings are to be included (see
above). []
Certainty of objects:
Assuming there is certainty of subject matter and intention, the court must consider whether
recipients of the property are certain (Morice). []
Although the homeowners of the fire prone houses in Whitemour may be clear beneficiaries the
trust is for the purpose of improving fire readiness to better withstand fire, making it a trust for
purposes (Leahy). []
A trust for purposes may still be valid if the purpose is charitable (Gillespe Jones).
Here, the purpose would come under the fourth head of the Statute of Elizabeth as ‘a purpose
deemed beneficial to the community’ (Pemcil). []
In Darwin Cyclone, the court considered disaster relief a valid purpose. However in this instance, the
money is being used to prepare houses for a disaster, which is yet to occur. However, gifts to
promote safety will be valid (Chesterman). Clearly this aims to increase fire-readiness to improve
safety. []
Is the purpose public?
The gift must benefit the community in general (Somerville) and via an impersonal relationship to
where they live (Oppenheim). As such it is not a gift for private benefit. []
Is there a benefit? (Aidwatch)
By reducing fire risk, the gift may reduce fire related death and property destruction. This has an
obvious benefit for the mental health of society, but also for the reduction in general insurance
premiums, and costs of emergency disaster relief (ICL reporting).
Question 2:
Total Score: 16.5/20 = 82.5%
Part A: 12/15
Can Sig (‘S’) be held personally liable as a third party?
S has not received any of the misappropriated money and is therefore only liable to the extent that
he is found to have been an accessory (Consol). [ good]
(i)
Is Fred a trustee or fiduciary?
Trustee and fiduciary breaches on behalf of the errant trustee or fiduciary will be acceptable to
ground a claim for third party accessory liability (Consul) []
As a director of Paytown, Fred is a fiduciary. It is a breach of fiduciary duty to misappropriate funds
for personal use (Moss). [] However, for third party liability this breach must be dishonest or
fraudulent (Farah).
Here, Fred has gone out of his way to instruct S to perform a series of very complex transactions
personally to hide his breach. Furthermore, Fred has knowledge, as director, that steeling company
funds is dishonest. [] S will therefore be liable if he provided assistance.
(ii)
Has S provided assistance?
Assistance will be provided when it furthers the trustee’s dishonest or fraudulent purpose (Quince).
Alternatively the ‘but for’ test may be adopted to consider whether S is liable. In this instance, but
for S’ conduct, Fred would have been unable to transfer the amounts from Paytown’s accounts to his
own. []
However, for S to be liable it must be shown that he had knowledge that amounts stolen were trust
property (Bell). However, as he is not a lawyer, it may be sufficient that S knew that the amounts
were not at the free disposal of Fred [] (Twinsectra) [is this test applicable in CT?]
Did S have an appropriate level of knowledge?
In Australia, knowing assistance will be met where it can be shown that S had the knowledge that
could be categorised on the Basen scale as lying in categories 1-4 (Consol). []
(i)
The first transaction:
S transfers both amounts in the same way, however it is not known whether he transfers $50,000
from a Paytown account. []
Assuming he is not, then S may only have knowledge that would put a reasonable man on enquiry,
as the reason for the secrecy is ‘for Fred’s recently divorced wife not to know.’ There is no indication
that it is being stolen from Paytown. As such, the knowledge is unlikely to suffice. []
(ii)
The second transaction:
In this instance, S knows the amount is to be paid from Paytown into a sham personal account of S
and then immediately transferred in what S admits to be a ‘complex series of transactions’. These
circumstances would indicate to a reasonable person, particularly one with an accounting
background, that the money was not at the free disposal of Fred. As such it is enough to classify as at
least Baden level four. []
Therefore, assuming the court accepts the content of knowledge test advanced in Twinsectra, S may
be personally liable to Paytown for the transfer of the second $50,000. Furthermore if the
transactions are identical, he may be liable for the entire amount. [good ]
Part B: 4.5/5
Has Faere (‘F’) made a valid assignment?
F has attempted to assign property to Aurora (‘A’). An assignment of future property is not valid
(Norman). However, an assignment of a right to future property will be valid (Shepard). []
Here, F has assigned ½ of the rights to future interest payments. The court will have regard to the
drafting of the assignment( Norman). In that case the assignor was merely entitled to future income.
In Shepherd, the court validated the assignment of a present right to future income. [] Here, A is
receiving such a right. However, the court in Norman also made a point that a reason for preventing
assignment was the fact that repayments were changeable at will. Here, compound interest may
change accordingly to fixed or floating charges. However, it is safe to assume that it is fixed and the
amounts are periodically granted. As such it is property. []
There is no policy reason to prevent assignment. The assignment is for a legal chose in action. [] As
such, it must comply with s.12 of the Conveyancing Act (Norman). []
Here the rights are shared equally, meaning it is not absolute.
The assignment may still be valid if F had a clear and present intention to assign the rights
(Shepherd). []
Here, there is a statement that she wishes A to ‘enjoy’ the rights and that they are handy for both
women. Such word may be sufficient, as they demonstrate that F wishes to alienate a portion of her
rights to A. [] However, it may also be argued that as she has take no steps to legally enforce the
assignment, it may not (Corin). [not strictly relevant]
However the fact of notice is probably sufficient in itself. [ good]