Equity and trusts [4th edition.] 9780409332759, 0409332755

Citation preview

LexisNexis

AUSTRALIA

ARGENTINA AUSTRIA BRAZIL CANADA CHILE CHINA CZECH REPUBLIC FRANCE GERMANY HONGKONG HUNGARY INDIA ITALY JAPAN KOREA MALAYSIA NEW ZEALAND POLAND SINGAPORE SOUTH AFRICA SWITZERLAND TAIWAN UNITED KINGDOM USA

LexisNexis Butterworths 475-495 Victoria Avenue, Chatswood NSW 2067 On the internet at: www.lexisnexis.com.au LexisNexis Argentina, BUENOS AIRES LexisNexis Verlag ARD Orac GmbH & Co KG, VIENNA LexisNexis Latin America, SAO PAULO LexisNexis Canada, Markham, ONTARJO LexisNexis Chile, SANTIAGO LexisNexis China, BEIJING, SHANGHAI Nakladatelstvi Orac sro, PRAGUE LexisNexis SA, PARIS LexisNexis Germany, FRANKFURT LexisNexis Hong Kong, HONG KONG HVG-Orac, BUDAPEST LexisNex is, NEW DELHI Dott A Giuffre Edi tore SpA, M1LAN LexisNexis Japan KK, TOKYO LexisNexis, SEOuL LexisNexis Malaysia Sdn Bhd, PETALING JAVA, SELANGOR LexisNexis, WELLINGTON Wydawnictwo Prawnicze LexisNexis, WARSAW LexisNexis, SINGAPORE LexisNexis Butterworths, DURBAN Staempfli Verlag AG, BERNE LexisNexis, TAIWAN LexisNexis UK, LONDON, EDINBURGH LexisNexis Group, New York, NEW YoRK LexisNexis, Miamisburg, OHIO

National Library of Australia Cataloguing-in-Publication entry: Author: Title: Edition: ISBN: Series: Notes: Subjects: Other Authors/Contributors: Dewey Number:

Cockburn, Tina. Equity and Trusts. 4th edition. 97804093327 I I (pbk). 9780409332759 (ebk). LexisNexis Questions and Answers. Includes index. Corporations law - Australia - Textbooks. Carver, Tracey. Matthews, Anne. 346.94004

Contents Preface Table of Cases Table of Statutes

Vll lX

xxv

1

Chapter 1

The Nature and History of Equity

Chapter 2

The Classification of Equitable Interests 9

Chapter 3

and Priorities Equitable Assignments: The Requirements

17

Chapter 4

of Writing Equitable Assignments: The Requirements of Form

29

Fiduciary Obligations Third Party Liability for Breach of Fiduciary

43

Obligation

55

Confidential Information Unconscionable Transactions: Undue influence

65

and Unconscionable Bargains

93

~ Chapter 6 ~ Chapter 8 Chapter 9

© 2014 Reed International Books Australia Pty Limited trading as LexisNexis.

Penalties and Forfeiture

107

Estoppel Determining Ownership of Property in Equity:

121

Resulting and Q;;instructive Trusts

141

Equitable Remedies: Specific Performance

157

Second edition 2000. Reprinted 2003, 2004, 2007, Third ed ition 2009. This book is copyright. Except as permitted under the Copyright Act I 968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific WTitten permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers.

Chapter 13

Injunctions and Declarations

175

Typeset in Bembo and GillSans. Printed in China.

G~ter

onetary Remedies The Nature, Description and Classification

197

of Trusts

217

Visit LexisNexis Butterworths at www.lexisnexis.com.au

Chapter 12 14 Chapter 15

I

-v-

LexisNexis Questions and Answers: Equity and Trusts

Chapter

The Creation of Express Trusts: The Constitution

229

of Trusts Chapter 17 /

The Creation of Express Trusts: The Three Discretionary Trusts and Powers

245 259

The Legality of Trusts

277

Purpose Trusts

289 305

Certainties Chapter 18

Charitable Trusts The Office of Trustee: Capacity, Appointment and Removal of Trustees

(

Chapter 23

~hapter 24

325

The Office of Trustee: Powers, Duties

335

and Discretion The Office of Trustee: Rights, Liabilities

Chapter 25 1 The Beneficiary: Rights and Remedies

345 353

Index

363

-

and Defences

Preface As with previous editions, we hope that this book will serve as a useful resource for students and others with an interest in equity and trusts. This fourth edition incorporates and highlights recent developments and trends. It contains a new range of problem and essay-style questions across all the major areas. We have aimed to provide readers with a concise analysis of legal principles, and an insight into how to apply these principles to legal problems and structure answers so as to improve exam performance. Writing this text has provided us with a valuable opportunity to share both our substantive knowledge and our combined teaching experience in a student-focused way. We also hope that, by making this area of law more accessible, readers will be inspired to know more and, in particular, to read the major cases and the writings of leading commentators so as to develop a deeper understanding of the principles in this conceptually challenging area, thereby enhancing their learning experience, rather than simply focusing on passing exams. In this edition, Tina Cockburn and Tracey Carver are very pleased to welcome our long-term colleague Anne Matthew as a co-author, in place of Melinda Shirley, whose work on earlier editions (with Wendy Harris) is gratefully acknowledged. The authors would also like to acknowledge and drank our past and present colleagues at the Queensland University of Technology (QUT) Faculty of Law. As in earlier editions, we particularly thank Emeritus Professor Malcolm Cope and Barbara Hamilton, for sharing their legal acumen and for their collegiality and friendship over many years of working together. We would also like to acknowledge the other members of the present equity and trusts teaching team, including Kelly Purser, Anne Overell, Damien Cooling and Stafford Shepherd, who together with a dedicated team of sessional staff, including most recently Ben McGlade, Andrew Fraser, Hugh Carter, Melanie Jackson, Simone Fraser and John Lamont, have made valuable contributions to the teaching of Equity and Trusts at QUT. We have been very fortunate to have worked with such inspiring colleagues who have generously shared their insights into this fascinating area of law in numerous discussions over the years, and we are extremely grateful for their support.

-vi-

-vii-

LexisNexis Questions and Answers: Equity and Trusts

Finally, we thank the team at LexisNexis Butterworths, for working with us and managing this project. This book is dedicated to our families, who have provided encouragement and tolerated our dedication to completing this task with good humour.

Table of Cases

Tina Cockburn Tracey Carver Anne Matthew Brisbane, October 2013

All references are to paragraphs A

Av B pie (2003) .... 7-28 Av Hayden (No 2) (1984) .... 7-4 Abjornson v Urban Newspapers (1989] .... 3-8 ACOA v The Commonwealth (1979) .... 13-4 Adamson v Hayes (1973) .... 3-8, 3-10, 3-15, 3-18, 3-24, 3-25 Adderley v Dixon (1824) .... 12-13 Aid/Watch Inc and Commissioner of Taxation, Re (2008] .... 21-2 Aid/Watch Inc v Commissioner of Taxation [2010] .... 21-1, 21-2, 21-21, 21-25 Ainsworth v Criminal Justice Commission (1992] .... 13-9, 13-10 Allen v Snyder (1977] .... 11-20 Altson, Re (1955] .... 17-13 Ambridge Investments Pty Ltd (in liq) v Baker [2010] .... 13-9, 13-10 Ambrose (Trustee) in the matter of Poumako (Bankrupt) v Poumako (2012] .... 19-9 American Cyanamid Company v Ethicon Ltd (1975] .... 13-36 AMEV-UDC Finance Ltd v Austin (1986) .... 9-4, 9-23, 9-24, 9-25 Anderson v McPherson (No 2) (2012] .... 8-2 Andrews v Australia and New Zealand Banking Group Ltd (2012] .... 9-2, 9-21, 9-27 Annacott Pty Ltd v Konann Pty Ltd (2012] .... 13-10, 13-15 Ansell v Roads Corporation (t/as VicRoads) [2008] .... 13-7, 13-36

- v iii -

Ansell Rubber Company Pty Ltd v Allied Rubber Industries Pty Ltd (1967] .... 7-2, 7-5, 7-12, 7-13, 7-25, 7-27, 7-36, 7-46 Anton Pitier KG v Manufacturing Processes Ltd [1976] .... 13-1 ANZ Banking Group Ltd v National Mutual Life Nominees Ltd (1977) .... 2-25 Aquaculture Corporation v New Zealand Green Mussel Company Ltd (1990] .... 1-8, 7-5, 7-28, 14-3, 14-27 Armstrong, Re (1960] .... 17-2 Arthbuthnot v Norton (1846) .... 4-2 ASA Constructions Pty Ltd v Iwanov (1975] .... 14-35 Ashton, In the Marriage of (1986) .... 18-6, 18-20 Ashton v Pratt (No 2) (2012] .... 10-3 Attorney-General v Chaundry (1971] .... 13-5, 13-22 Attorney-General v Guardian Newspapers Ltd (No 2) (1990] (Spycatcher case) .... 7-2, 7-35, 7-44 Attorney-General (Ex rel Meat and Allied Trades Federation of Australia) v Beck (1980] ..... 13-5, 13-18, 13-19, 13-22, 13-23, 13-27 Attorney-Genera l (NSW) v Fulham (2002] .... 21-8, 21-19 -v NSW Henry George Foundation Ltd (2002] .... 21-21 - v Perpetual Trustee Company Ltd (1940) .... 21-1, 21-8, 21-19

-ix-

LexisNexis Questions and Answers: Equity and Trusts Attorney-General (UK) v Heinemann Publishers Australia Pry Ltd (1987) .... 7-3, 7-4, 7-35 - v Jonathan Cape Ltd [1976] .... 7-4, 7-35 Austin v Khaliffe [1966] .... 25-28 Austotel Pry Ltd v Franklins Selfserve Pry Ltd (1989) .... 10-15 Australian and New Zealand Banking Group Ltd v Widin (1990) .... 12-27 Australian Boot Trade Employers' Federation v The Commonwealth (1954) .... 13-15 Australian Broadcasting Corporation v Lenah Game Meats Pry Ltd [2001] .. .. 7-2, 7-4, 7-12, 7-13, 7-18, 7-28, 7-35, 7-36, 7-40, 13-2, 13-3, 13-7, 13-18, 13-33, 13-36 - v O'Neill [2006] .... 7-21, 13-7, 13-36 Australian Competition and Consumer Commission v Francis [2004] .... 13-15 Australian Conference Association Ltd v Mainline Constructions Pry Ltd (1978) .... 15-30 Australian Conservation Foundation Inc v The Commonwealth of Australia (1980) .... 13-5, 13-9, 13-20 Australian Crime Commission v Gray [2003] .... 10-4, 10-14 Australian Elizabethan Theatre Trust, Re (1991) .... 15-6, 15-34, 16-16, 17-2, 17-16, 20-2, 20-15, 20-25 Australian Executor Trustees Ltd v Attorney-General (SA) [2010] .. .. 21-8, 21-16, 21-19 Australian Executor Trustees Ltd v Ceduna District Health Services Inc [2006] .... 21-7, 21-8 Australian Executor Trustees (SA) Ltd v Mark Korda [2013] .... 17-4, 17-24 Australian Football League v The Age Company Ltd [2006] .... 7-4, 7-5, 7-19, 7-27, 7-35, 7-41, 7-49 Australian Football League v The Age Company Ltd (No 2) [2006] .. .. 7-5

Australian Olympic Committee Inc v Big Fights Inc (No 2) (2000) .. .. 22-11, 22-21 Australian Postal Corporation v Lutak (1991) .... 25-13 Australian Securities and Investments Commission v Mauer-Swisse Securities Ltd [2002] .... 13-2 - v Nelson (2003) .... 25-28 Avanes v Marshall and Others (2007) .. .. 23-26 Avon Finance Company Ltd v Bridger [1985] .... 8-4 B Baburin v Baburin [1990] .. .. 8-22 Bacon v Pianta (1966) .... 20-3, 20-7, 20-10, 20-12, 20-17, 20-18, 20-24, 20-31 Baden v Sociere-Generale pour Favoriser le Developpement du Commerce et de L'industrie en France SA [1992] .... 6-3, 6-4, 6-5, 6-6, 6-8, 6-11, 6-12, 6-13, 6-14, 6-15, 6-16, 6-17, 6-19, 6-21, 6-22 Baden's Deed Trusts, Re; McPhail v Doulton [1971] .... 15-23, 17-8, 18-3, 18-4, 18-8, 18-9, 18-12, 18-14, 18-15, 18-16, 18-19, 18-20, 18-28, 18-30, 18-31, 18-32, 21-35 Baden's Deed Trusts (No 2), Re [1972] .. .. 17-8, 18-4, 18-27 Baden's Deed Trusts (No 2), Re [1973] .... 17-8 Bahr v Nicholay (No 2) (1988) .... 16-16 Baker v Archer-Shee [1927] ... . 15-14 Baloglow v Konstandis (2001) .... 3-8 Bank of New South Wales v Rogers (1941) .... 8-4 Bank of New Zealand v New Zealand Guardian Trust Company Ltd [1999] .... 14-3, 14-20, 14-27 Barbagallo v J & F Catelan Pry Ltd [1986] .... 14-8-14-10, 14-35 Barclays Bank v Quistclose Investments Ltd [1970] .... 15-6, 15-30, 15-31, 17-2, 17-27 Barclays Bank pie v O'Brien [1994] .... 2-24

-x-

Table of Cases Barlow Clowes International Ltd v Eurotrust International Limited [2005] .... 6-7, 6-17 Barnes v Addy (1874) .... 6-2, 6-5, 6-6, 6-7, 6-10, 6-11, 6-12, 6-13, 6-14, 6-16, 6-17, 6-18, 6-22, 7-49 Barnes v Alderton [2008] .... 10-2, 10-14, 10-26 Basham, Re [1986] .... 10-2, 10-9, 10-11, 10-18, 10-26 Bateman's Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd [1998] .... 13-5, 13-20 Baumgartner v Baumgartner (1987) .... 11-10, 11-11, 11-16, 11-18, 11-21, 11-22, 11-24, 11-28, 11-37, 11-38, 11-40, 11-41, 11-49, 11-50 Beath v Kousal [2010] .... 23-25 Beckbessinger, Re [1993] .... 17-7 Beecham Group Ltd v Bristol Laboratories Pry Ltd (1968) .... 7-21, 13-7, 13-36 Beloff v Pressdram Ltd [1973] .... 7-19, 7-41 Benbrika v R (2010) .... 20-3, 20-9, 20-23 Bennett v Minister of Community Welfare (1992) .... 14-3 Benzlaw and Associates Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] .... 5-20, 5-22, 5-24, 6-21 Bicycle Victoria Inc and Commissioner of Taxation, Re (2011) .... 21-1, 21-2 Billington, Re [1949] .... 23-3 Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) .... 14-14 Black v S Freedman & Co (1910) .... 25-22 Black Uhlans Inc v New South Wales Crime Commission (2002) .... 1-19, 11-2 Blackburn v Yarra Vale Properties Pry Ltd [1980] .... 19-4, 19-14, 19-18, 19-28, 19-29 Blackwell v Blackwell [1929] .... 16-7, 16-28, 16-29 Blausten v Inland Revenue Commissioners [1972] .... 18-15, 18-30

Blomley v Ryan (1956) .... 8-5, 8-15, 8-17, 8-19, 8-23 Blyth, Re [1997] ... . 18-2, 18-4, 18-5, 18-11, 18-12, 18-15, 18-25, 18-26, 18-30, 21-4, 21-5, 21-14, 21-18, 21-22-21-24 Boardman v Phipps [1967] .... 5-15, 14-6, 14-19 Bowen Central Coal Pry Ltd v Aquila Coal Pry Ltd [2011] ... . 13-7, 13-36 Bowman v Secular Society Ltd [1917] .... 21-21 Boyarsky v Taylor [2008] .... 12-18 Boyce v Paddington Borough Council [1903] .. .. 13-5, 13-20 Boyes, Re (1884) ... . 16-7, 16-28, 16-30 Bradley v The Commonwealth (1973) .... 13-19 Bradto Pty Ltd v State of Victoria; Tymbook Pry Ltd v State of Victoria [2006] .... 13-7 Brady v Stapleton (1952) .... 25-23 Brandon v Robinson (1811) .... 19-2 Breadner v Granville-Grossman [2001] .... 18-2, 18-11, 18-26 Break Fast Investments Pry Ltd v PCH Melbourne Pry Ltd [2007] .... 14-9, 14-38 Breskvar v Wall (1971) .... 2-11, 2-13, 2-22, 2-24 Brickenden v London Loan & Savings Co [1934] .... 14-3, 14-21, 14-27 Bridgewater v Leahy (1998) .... 8-5, 8-28 ~ Bridgewater Care Group (Inc) v Rossiter [2009] .... 13-10, 13-16 Bristol and West Building Society v Mothew [1998] .... 14-20 British Red Cross Balkan Fund, Re; Red Cross Society v Johnson [1914] ... . 25-28 Brockbank, Re [1948] .... 23-3 Brooks v Wyatt (1994) .. .. 14-8 Broomhead v Broomhead [1985] see JW Broomhead (Vic) Pry Ltd (in liquidation) v JW Broomhead Pry Ltd [1985] Brown v Pourau (1995) ... . 16-7, 16-28 Brownton v Edward Moore lnbucon Ltd (1985] .... 4-2, 4-32, 16-22 Brusewitz v Brown [1923] .... 8-30

-xi-

LexisNexis Questions and Answers: Equity and Trusts Bryson v Bryant (1992) .... 11-28 Bulldogs Rugby League Club Ltd v Williams (2008] .... 13-3, 13-8, 13-18, 13-33, 13-37, 13-39 Burke v Frasers Lorne Pry Ltd (2008] .... 13-7 Burnitt v Pacific Paradise Resort Pry Ltd (2005] .. .. 12-13 Burrough v Philcox (1840) .... 18-3, 18-19 Businessworld Computers Pry Ltd v Australian Telecommunications Commission (1988) .... 13-6 Byrnes v Kendle (2011) .... 17-4, 17-24, 23-15

c C v Band W (2006] .... 18-6, 18-20 Calverley v Green (1984) .... 11-3, 11-4, 11-6, 11-34, 11-44, 19-20, 19-28 Cambridge Credit Corporation Limited v Surfers' Paradise Forests Limited (1977] .... 7-44, 13-7, 13-36 Cameron v Hogan (1934) .... 20-14 Campbell v MGN Ltd (2004] .... 7-2, 7-19, 7-28, 7-35, 7-41 Campbells Cash & Carry v Fostif (2006] .... 4-2 Cannon v Hartley (1949] .. .. 16-6, 16-14, 16-25 Canson Enterprises Ltd v Boughton & Company [1991] .... 14-3, 14-27 Canterbury Orchestra Trust v Smitham (1978] .... 21-15 Cardile v LED Bui lders Pry Ltd (1999] ... . 13-2, 13-3, 13-18, 13-33 Cassis v Kalfus (No 2) (2004] ... . 14-21 Castlemaine Tooheys Limited v The State of South Australia (1986) ... . 13-7 Castro! Australia Pry Ltd v Emtech Associates Pry Ltd (1980) .. .. 7-4, 7-15, 7-19, 7-27, 7-41 Caton v Caton (1866) .... 12-22 CB Darva ll and Darvall v Maloney (No 2) (2007] .... 24-2 Central Bayside General Practice Association Ltd v Commissioner of State Revenue (2006] .... 21-1, 21-2, 21-21

Central London Property Trust Ltd v High Trees House Ltd (1947] .... 10-2, 10-27 Chameleon Mining NL v Murchison Metals Limited (2012] .... 6-4, 6-18, 6-21 Chan v Zachariah (1984) .... 5-14, 5-24 Chartered Secretaries Australia Ltd v Attorney General (NSW) (2011] .... 21-8, 21-20 Cheese v Thomas (1994] .... 1-18 Chirnside v Fay (2006] .... 14-6, 14-18, 14-19 Church of Scientology v Kaufman (1973] .... 7-19 Ciaglia v Ciaglia (2010] .... 12-20, 12-23, 12-24 CIBC Mortgages Pie v Pitt (1994] .... 8-24 Citicorp Australia Ltd v Hendry (1985) .... 9-23, 9-24 Clay v Clay (2001) .... 17-1, 17-12 Clayton's case (1816) see Devaynes v Noble; Baring v Noble (1816) (Clayton's case) CMA Recycling Victoria Pry Ltd v Doubt Free Investments Pry Ltd [2011] .... 7-44, 13-7, 13-8, 13-36 Cochrane v Moore (1890) .... 4-5 Coco v AN Clark (Engineers) Ltd (1969] .. .. 7-3, 7-11, 7-12, 7-15, 7-17, 7-34, 7-35, 7-38 Cohen v Cohen (1929) ... . 15-6, 15-32, 15-34, 17-2, 17-17, 17-23, 17-27 Coles Supermarkets Australia Pry Ltd v Stateland Developments Pry Ltd (2008] .... 13-7, 13-8, 13-36 Collinge v Kyd (2005] .... 23-9 Combe, Re (1925] .... 18-2, 18-11, 18-26 Commercial & Accounting Services (Camden) Pry Ltd v Cummins (2011] .... 7-14 Commercial Bank of Australia Ltd v Amadio (1983) .... 8-1, 8-5, 8-14, 8-15, 8-16, 8-17, 8-27, 8-28, 8-29, 8-30 Commissioner of Stamp Duties v Livingston (1960) .... 2-4, 15-16

-xii-

Table of Cases Commissioner of State Revenue (Vic) v Viewbank Properties Pry Ltd (2004] .... 18-12 Commissioner of Taxation v Bargwanna (2012] .... 21-1, 21-6 Commissioner of Taxation v Everett (1980) ... . 4-10, 4-11, 4-16, 4-18, 4-26 Commissioners for Special Purposes of Income Tax v Pemsel (1891] .... 21-2, 21-9, 21-11, 21-13 Commonwealth Bank of Australia v Carotino (Australia) Pry Ltd (2011] .... 10-2, 10-3, 10-14, 10-15 v Smith (1991) .... 14-3 Commonwealth of Australia v John Fairfax & Sons Limited (1980) .... 7-1, 7-2, 7-3, 7-4, 7-17, 7-19, 7-35, 7-38 - v Verwayen (1990) .... 10-2-10-6, 10-10-10-12, 10-16-10-19, 10-21, 10-23, 10-25, 10-28-10-32, 10-34 Compton, Re (1945] .... 21-5, 21-9, 21-11, 21-14, 21-23, 21-26, 21-27, 21-28, 21-29, 21-31, 21-32, 21-34, 21-35 Comptroller of Stamps v Howard-Smith (1936) .... 4-3, 4-12, 4-16, 4-25, 15-6, 15-33, 15-34, 17-2, 17-25 Congregation of the Religious Sisters of Charity of Australia v Attorney-General (Qld) (2011] .... 21-8, 21-18, 21-20 Conroy v Lowndes (1958] .... 14-35 Consul Development Pry Ltd v DPC Estates Pry Ltd (1975) .... 5-8, 5-20, 6-6, 6-8, 6-11, 6-14, 6-15, 6-16, 6-18, 6-19, 6-21 Cook's Settlement Trusts, Re (1965] .... 12-5, 16-6, 16-10, 16-11, 16-14, 16-16, 16-18, 16-26 Cooney v Burns (1922) .... 12-24 - v The Council of the Muncipality ofKu-ring-gai (1963) .... 13-5, 13-18-13-20, 13-22 Cooper v Moloney (No 6) (2012] .... 7-44, 13-7, 13-8, 13-36 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd (1998] .... 12-17, 12-36

Corin v Patton (1990) .... 1-12, 1-22, 1-25, 4-7, 4-17, 4-25, 4-27, 4-34, 4-38, 16-5, 16-12 Cowan v Scargill (1985] .... 23-15 Crane v Gething (2000] .... 13-16 Crouch v The Commonwealth (1948) .... 13-10, 13-16 Crowle Foundation v NSW Trustee and Guardian (2010] .... 22-11, 22-21 Crowther v Brophy (1992] .... 20-11 Cruise v Multiplex Ltd (2008] .... 13-15 Currie v Hamilton (1984] .... 11-4, 11-34 Curro v Beyond Productions Pry Ltd (1993) .... 13-37, 13-39 Cypjayne Pry Ltd v Sverre Rodskog (2009] .. .. 18-6, 18-20, 18-31 D

Da Yun Xu v Fang Lin (2005] .... 8-26, 8-29, 8-30 Dalswinton Pastoral Company Pry Ltd v Cole (2006] .... 12-19 Dalton v Ellis; Estate of Bristow (2005] .... 16-14 Daly v Sydney Stock Exchange (1986) .... 2-4 Dart Industries Inc v The Decor Corporation Pry Ltd (1993) .... 14-5, 14-17 Davenport v Bishopp (1843) .... 16-2, 16-13, 16-24 David Securities Ptf Ltd v Commonwealth Bank of Australia (1992) .... 7-42 David Syme & Company Ltd v General Motors-Holden's Ltd (1984] .... 7-19 Davies v Perpetual Trustee Co Ltd (1959] .... 21-34 Dawson (deed), Re (1966] .... 14-2, 14-3, 14-20, 14-22 Day v Couch (2000] ... . 19-8 Day v Mead (1987] .... 14-3, 14-27 Dean, Re (1889) .... 20-4, 20-28 Dean v Cole (1921) .. .. 17-13 Dearle v Hall (1828) ... . 4-20, 16-29 Del Casale v Artedomus (Aust) Pry Ltd (2007] .... 7-2, 7-10, 7-12, 7-14, 7-27

-xiii-

LexisNexis Questions and Answers: Equity and Trusts Delaforce v Simpson-Cook [2010) .... 10-4, 10-14, 10-16, 10-18, 10-19, 10-20, 10-31, 10-34 Denley's Trust Deed, Re [1969) .... 20-2, 20-3, 20-15, 20-25, 20-32 Devaynes v Noble; Baring v Noble (1816) (Clayton's case) .... 25-16, 25-28 DFT v TFD [2010) .... 7-28 DHJPM Pry Ltd v Blackthorn Resources Ltd (formerly called AIM Resources Ltd) [2011) .... 10-2, 10-4, 10-17, 10-27, 10-32 Diagnostic X-Ray Services Pry Ltd v Jewel Food Stores Pry Ltd (2001) .... 12-17 Dillwyn v Llewelyn (1862) .... 10-2, 10-11, 10-26 Dingle v Turner [1972) .... 21-5, 21-14, 21-23, 21-27, 21-32, 21-33, 21-35 Diplock, Re; Diplock v Wintle [1948) (Diplock's case) .... 25-17, 25-22 Dixon v Barton [2011) .... 12-33 Docker v Somes (1834) .... 25-9 Doe v Australian Broadcasting Corporation [2007) .... 7-28 Doherty v Allman (1878) .... 13-4, 13-37 Donis v Donis [2007) .... 10-4, 10-15, 10-16, 10-18 Dougan v Ley (1946) .... 12-13, 12-27, 12-28, 12-33, 14-41 Douglas v Hello! Ltd (No 3) [2003) .... 7-2, 7-28, 14-27 Dowsett v Reid (1912) .... 12-18 Duchess of Argyll v Duke of Argyll [1967) .... 7-2, 7-35, 7-39 Duic v Duic [2013) .... 10-4, 10-15, 10-16 Dunlop Pneumatic Tyre Company v New Garage & Motor Company [1915) .... 9-3 Dunne v Turner [1996) .... 11-11, 11-23, 11-28, 11-38 Dunworth v Mirvac Queensland Pry Ltd [2011] .... 12-7, 14-31 Durham Bros v Robenson [1898] .... 4-16 E

Eastern Services Ltd v No 68 Ltd [2006) .... 12-20

Edmonds v Donovan; Disctronics Ltd v Kingston Links Country Club Pry Ltd [2005) .... 14-2, 14-5, 14-6, 14-18, 14-20, 14-24 Eiszele v Hurburgh [2011] .... 14-3, 14-21 Eider's Trustee & Executor Co v Higgins (1963) .... 23-14 Ellaway v Lawson [2006) .... 19-2 Elliott v Seymour (1993) .... 13-5, 13-22 Ellison v Ellison (1802) .. .. 16-2, 16-13 Emeco International Pry Ltd v O'Shea [2012) .... 13-33, 13-36 Endacott (deed), Re; Corpe v Endacott [1960] .... 20-30 Engwirda v Engwirda [2000] .... 11-11, 11-28 Equititrust Ltd v Franks [2009] .... 10-2 Equuscorp Pry Ltd v Jimenez [2002) .... 16-5, 16-12 Esanda Finance Corporation Ltd v Plessnig (1988) .... 9-3, 9-21, 9-23, 9-25, 9-27 Esquire Nominees Ltd v Federal Commissioner of Taxation (1972) .. .. 23-2 ETK v News Group Newspapers Ltd [2011) .... 7-28, 7-35, 7-49 European Bank Ltd v Robb Evans of Robb Evans & Associates [2010) .... 13-7 Evans (deed), Re [1957] .... 21-34 Everist v McEvedy [1996] .... 14-21

F Faccenda Chicken Ltd v Fowler [1987] .... 7-2, 7-14, 7-27 FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) .... 1-19 Farah Constructions Pry Ltd v Say-Dee Pry Ltd (2007) .... 5-8, 5-20, 6-4, 6-5, 6-6, 6-8, 6-10, 6-11, 6-13, 6-14, 6-16, 6-17, 6-18, 6-19, 6-21, 11-24 Fay v Moramba Services Pry Ltd [2009] .... 18-3, 18-6, 18-17, 18-18, 18-20, 18-28, 18-31, 18-32 Federal Commissioner of Taxation v Vegners (1989) .... 18-2, 18-25, 18-26

-xiv-

Table of Cases Films Rover International Ltd v Cannon Film Sales Ltd [1987] .... 13-7 Filshie, Re; Raymond v Butcher [1939) .... 20-4, 20-30 Financial Integrity Group Pry Ltd v Farmer [2009) .... 7-2, 7-10, 14-8 Fitzgerald v FJ Leonhardt Pry Ltd (1996) .... 19-23 - v Masters (1956) .... 12-20 Fletcher v Fletcher (1844) .... 16-6, 16-11, 16-14, 16-15, 16-16, 16-26 Flight v Bolland (1828) .... 12-37 Flinn v Flinn [1999) .... 10-14 Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd [2011) .... 18-25 Foran v Wight (1989) .... 10-32 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012) .... 7-5 Ford-Hunt v Raghbir Singh [1973) .... 14-9 Forster v Hale (1798) .... 3-5, 3-15 - v Jododex Australia Pry Ltd (1972) .... 13-10 Foster v Mountford & Rigby Ltd (1976) .... 7-21 Franklin v Giddins [1978) .... 7-5, 7-13, 7-25, 7-36, 7-46 Franklins Pry Ltd v Metcash Trading Ltd [2009) ... . 10-17 Fraser v Evans [1969) .... 7-4, 7-19, 7-39, 7-41 Fraser Edmiston Pry Ltd v AGT (Q ld) Pty Ltd [1988) .... 14-4 French Caledonia Travel Service Pry Ltd (in liq), Re (2003) .... 25-16, 25-28 Fung Ping Shan v Tong Shun [1918) .... 2-25 Futuretronics.com.au Pry Ltd v Graphix Labels Pry Ltd [2009) .... 7-14 G Garden Clubs of Australia Inc v Eyres

[2002) .... 20-18 Gardner (No 2), Re [1923) .... 16-7 Gartside v Inland Revenue Commissioners [1968) .... 15-24; 18-3, 18-6, 18-20, 18-31 Gascoigne v Gascoigne [1918) .. .. 19-19 GE Healthcare Australia Pry Ltd v Medica Radiology & Nuclear

Medicine Pry Ltd [2013] .... 10-2, 10-10, 10-25, 10-27 Gibson v South American Stores Ltd [1950] .... 21-5, 21-14, 21-23, 21-32 Giles & Company Ltd v Morris [1972) .... 12-35, 12-36 Gilgandra Marketing Co-Operative Ltd v Australian Commodity & Merchandise Pry Ltd [2011) .... 12-13 Giller v Procopets [2008] .... 7-2, 7-5, 7-23, 7-24, 7-27, 7-28, 7-35, 7-45, 7-49, 14-3, 14-7, 14-9, 14-10, 14-25, 14-35 Gillett v Holt [2001) .... 10-14 Gilmour v Coats [1949) .. .. 20-11, 21-5, 21-14 Gissing v Gissing [1971) .... 11-14, 11-20 Giumelli v Giumelli (1999) .... 8-31, 10-3, 10-4, 10-6, 10-13, 10-15, 10-16, 10-18, 10-19, 10-30-10-32, 10-34, 11-8, 11-9, 11-13, 11-26, 11-42, 14-4 Glegg v Bromley [1912) .... 4-2, 4-9, 4-32, 16-22 Golay, Re [1965] .... 17-5, 17-15 Gold & Copper Resources Pry Ltd v Newcrest Operations Ltd [2013) .... 7-1 Goodchild v James (1994) ... . 20-28 Goodson (deed), Re [1971) .... 20-14, 20-25 Goodwin v NGN Ltd [2011) .. .. 7-28 Gosling, Re (1900) .... 21-32 Gouriet v Union of Post Office Workers [1978) .... 13-20 Graham v KD Morris & Sons Pry Ltd [1974) .... 13-18 Grasso v Love [1980] .... 13-1 Green v Sommerville (1979) .... 12-19 Green and Clara Pry Ltd v Bestobell Industries Pry Ltd [1982) .... 5-11 Greenpeace New Zealand Inc, Re [2011) .... 21-21 Gregory v Hudson (1997) .... 18-5, 18-25 Grey v Australian Motorists & General Insurance [1976] .... 4-16, 4-27

-xv-

Table of Cases

LexisNexis Questions and Answers: Equity and Trusts -

v Internal Revenue Commissioners [1960] .... 3-8, 3-9, 3-24 Grimaldi v Chameleon Mining NL (No 2) [2012] .... 14-5, 14-6, 14-18 Grundt v Greater Boulder Pry Gold Mines Ltd (1937) .... 10-25 Gulbenkian's Settlement Trusts, Re [1970] .... 18-2, 18-3, 18-4, 18-8, 18-11, 18-12, 18-13, 18-17, 18-25, 18-26, 18-27, 18-28, 18-32

H

Hagan v Waterhouse (1991) .... 3-5, 3-8, 3-15, 3-24 Haira v Burbery Mortgage Finance & Savings Ltd (in rec) [1995] .... 14-21 Hallett's Estate, Re (1879) .... 1-24, 25-15, 25-28 Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) .... 3-8 Hamdan v Widodo (No 2) [2010] .... 12-7, 14-31 Hanchett-Stamford v Attorney-General [2009] .... 20-14, 21-16, 21-21 Harcourt v White (1860) .... 1-20 Hardoon v Belilios [1901] .... 15-6, 15-32, 22-20, 24-4, 24-16, 24-17 Harmer v Pearson (1993) .... 11-23 Harpur v Levy [2007] .... 17-2 Harris v Digital Pulse Pry Ltd (2003) .... 1-4, 1-5, 1-5, 1-6, 1-7, 1-8, 1-9, 5-13, 7-24, 14-3, 14-25-14-27 Hartigan v International Society for Krishna Consciousness Inc [2002] .... 8-5 Hatfield v TCN Channel Nine Pry Ltd [2010] .... 13-7 Hegarty, Re [2011] .... 20-1, 20-4, 20-8, 20-22, 20-28, 21-12 Heid v Reliance Finance Corporation Pry Ltd (1983) .... 1-16, 2-7, 2-14, 2-15 Henderson v Miles [2005] .... 11-13, 11-26, 11-42 - v - (No 2) [2005] .... 10-4, 10-19 Henry v Hammond [1913] .... 15-30 Herdegen v Federal Commissioner of Taxation (1988) .... 17-14, 18-12 Hibberson v George (1989) .... 11-23

Hill v Hill [2005] .... 11-10, 11-23, 11-37 - v Rose [1990] .... 14-2, 14-3, 14-20 Himmelhoch, Re (1928) .... 18-2, 18-11, 18-26 Hirst Estate, Re [2010] .... 21-8, 21-19 Hohol v Hohol [1981] .... 11-14, 11-20 Holman v Johnson (1775) .... 19-4, 19-15 Holroyd v Marshall (1862) .... 4-9, 4-21, 4-36, 12-13, 12-33, 16-16 Horan v James [1982] .... 18-2, 18-5, 18-8, 18-12, 18-15, 18-25, 18-30 Hosking v Runting [2005] .... 7-28 Hospital Products Ltd v United States Surgical Corporation (1984) .. .. 5-5, 5-11, 5-12, 5-22 Huang v Australian Postal Corporation [2009] .... 13-7, 13-36 Hungerfords v Walker (1988) .... 14-3, 14-26 Hunter v Moss [1994] .... 17-5, 17-14, 17-15, 17-18 Hussey v Palmer (1972) .... 11-20 Hyatt of Australia Ltd v Coolum Resort Pry Ltd [2012] .... 13-7, 13-36 Hyde v Holland [2003] .... 18-12 Hyhonie Holdings Pty Ltd v Leroy [2003] .... 17-2, 17-4, 17-24 HZD Pty Ltd v Mcinnes [2007] .... 13-7, 13-36

!merman v Tchenguiz [2010] .... 7-36 Imperial Tobacco Ltd v Attorney-General [1981] .... 13-10, 13-16 Inche Noriah v Shaik Allie Bin Omar [1929] .... 8-12 Income Tax Acts (No 1), Re [1930] .... 21-23 Incorporated Council of Law Reporting for England and Wales v Attorney-General [1972] .... 21-15 Incorporated Council of Law Reporting of the State of Queensland v Federal Commissioner of Taxation (1971) .... 21-2, 21-15 Independent Schools Council v Charity Commission for England and Wales [2012] .... 21-5, 21-14, 21-28

-xvi-

Inland Revenue Commissioners v Broadway Cottages Trust [1955] .... 17-7, 18-12 Integral Home Loans Pry Ltd v lnterstar Wholesale Finance Pry Ltd [2007] .... 9-2, 9-21 lnterfirm Comparison (Aust) Pry Ltd v The Law Society of NSW (1975) .... 7-23, 7-45

J J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) .... 2-14 Janson v Janson [2007] .... 8-2 Jarvis (dec'd), In re [1958] .... 14-6, 14-18 JC Williamson Ltd v Lukey and Mulholland (1931) .... 12-4, 12-12, 12-15, 12-17, 12-32, 12-35, 12-36, 12-37, 13-4, 13-8, 13-37 Jeffereys v Jeffereys (1841) .... 12-5 Jing v Yang [2008] ... . 11-14, 11-20 ]NJ Investments Pry Ltd v Sunnyville [2006] .... 2-24 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] .... 10-4, 10-18 Johnson v Agnew [1980] .... 12-7, 14-9, 14-10, 14-31, 14-32, 14-37, 14-38 - v Ba ll (1851) .... 16-7, 16-29 - v Buttress (1936) .... 8-2, 8-3, 8-10, 8-11, 8-12, 8-26 Jones v Badley (1868) .... 16-7, 16-28 Jones v Krawczyk [2011] .... 19-2 Jorden v Money (1854) .... 10-2, 10-24, 10-25 JW Broomhead (Vic) Pry Ltd (in liquidation) v JW Broomhead Pry Ltd [1985] ... . 22-20, 24-16, 24-17 K

Kakavas v Crown Melbourne Limited [2013] .... 8-5, 8-16, 8-30 Karam v ANZ Banking Group [2001] .... 8-31 Kauter v Hilton (1953) .... 17-4, 17-24 Keen's Estate, Re [1937] .... 16-7, 16-28, 16-29 Kell v Harris (1915) .... 12-37 Kennon v Spry; Spry v Kennon (2008) .... 18-3, 18-6, 18-17, 18-18, 18-20, 18-28, 18-31, 18-32, 19-3

Khan v Khan (2004) .... 8-4 Khoury v Khouri (2006) .... 3-8, 12-23, 12-25, 12-27 Kibby v Registrar of Titles [1999] ... . 20-3 Kinslea v Caldwell (1975) .... 17-7, 18-27 Klemke v Lustig [2010] .... 18-5, 18-25 Knight v Knight (1840) .... 15-23, 17-1, 17-12 Kolb's Will Trusts, Re [1962] .. .. 17-18 Kriezis v Kriezis [2004] .... 11-10, 11-23, 11-37 Kytherian Association of Queensland v Sklavos (1958) .... 21-18 L

Labelmakers Group Pry Ltd v LL Force Pry Ltd [2012] .... 7-2, 7-3, 7-5, 7-14, 7-17, 7-25, 7-27, 7-38, 7-46 Lamshed v Lamshed (1963) .... 12-20, 12-27, 12-28 Lapin v Abigail (1930) .... 2-24 Lashmar, Re [1891] .... 3-10, 3-19 La tee Investments Ltd v Hotel Terrigal Pry Ltd (1965) .... 2-4, 2-7, 2-13 Latimer v Commissioner of Inland Revenue [2002] ... . 21-35 Laughton, Re [1962] .... 25-28 Leading Synthetics Pty Ltd v Adroit Insurance Group Pry Ltd [2011] .... 10-17 Leahy v Attorney-General (NSW) (1959) .... 20-1, 20-3, 20-4, 20-6, 20-7, 20-8, 20-10, 20-11, 20-14, 20-15, 20-17, 20-18, 20-22, 20-24, 20-25, 20-28, 21-4, 21-12, 21-22 Ledgerwood v Perpetual Trustee (1997) .... 16-7, 16-29 Leek (deed), Re [1967] .... 18-2, 18-11, 18-26 Legione v Hateley (1983) .... 9-1, 9-7, 9-10, 9-14, 9-15, 9-16, 9-20, 10-2, 10-11, 10-14, 10-15, 10-27 Letterstedt v Broers (1884) .... 22-11 Lighting by Design (Aust) Pry Ltd v Cannington Nominees Pry Ltd [2008] .. .. 12-4, 12-22, 12-23, 12-24, 12-27 Lind, Re [1915] .... 4-9, 4-10

-xvii-

LexisNexis Questions and Answers: Equity and Trusts Links Golf Tasmania Pty Ltd v Sattler (No 3) (2012] .... 14-2, 14-22 Lion Laboratories Ltd v Evans (1984] .... 7-19, 7-41 Lipinski's Will Trusts, Re (1976) .... 20-3, 20-15, 20-25, 20-32 Liquidity Financial Services Pty Ltd v Prime Capital Securities Pty Ltd (2012) .... 12-19, 12-33 Lloyd's Bank Ltd v Bundy (1975) .... 8-2, 8-11, 8-26 Locker's Settlement, Re; Meachem v Sachs (1978) .... 23-7 Logan, Re the Will of, [1993) .... 17-13 Londonderry's Settlement, Re (1965) .... 23-26 Lord and Fullerton's Contract, Re (1896) .... 22-20 Louth v Diprose (1992) .... 8-5, 8-28, 8-30, 8-31 Lovell, Re [1985] .... 20-3, 20-16 Lowe v Pascoe (No 4) [2012] .... 14-4 Lucas Stewart Pty Ltd v Hemmes Hermitage Pty Ltd (2010) .... 13-3, 13-18, 13-33 Lumley v Wagner (1852) .... 13-33 Lutheran Church of Australia South Australia District Inc v Farmers' Co-operative Ex-ecutors and Trustees Limited (1970) .... 18-3, 18-5, 18-17, 18-25 M

McBride v Sandland (1918) .... 12-23 McCracken v Attorney-General (1995] .... 18-4, 18-12, 18-15, 18-30 McCrohon v Harith (2010) .... 14-3, 14-20 McDonald v Dennys Lascelles Ltd (1933) .... 9-6, 9-13 Macduff, Re (1896) .... 21-15 McGovern v Attorney-General (1982] .... 21-21 Mackay, Re; Griessemann v Carr (1911] .... 24-22 McKenzie v McDonald (1927] .... 14-2, 14-22 Mackintosh v Johnson (2013) .... 8-28, 8-30 McLean, Re (1930) .... 18-3, 18-17, 18-28

McLean v Burns Philp Trustee Company Pty Ltd (1985) .... 24-14, 24-16, 24-17, 24-19 McNally v Harris [2008) .... 6-21 - v -(No 3) (2008) .... 14-3, 14-22 McPhail v Doulton (1971) see Baden's Deed Trusts, Re; McPhail v Doulton (1971) Madden v Kevereski (1983] ... . 14-10, 14-38 Maddison v Alderson (1883) .... 12-6, 12-22, 12-23, 12-27 Maguire v Makaronis (1997) .... 14-3, 14-20, 14-21 Maher v Attorney-General (Qld) (2011) .... 21-7 Mahoney, Re [1918] .... 18-3, 18-17, 18-28 Maiden v Maiden (1908) .... 12-16, 12-23, 12-35 Manglicmot v Commonwealth Bank Officers Superannuation Corporation (2010) .... 23-4 Manisty's Settlement, Re (1974) .... 18-4, 18-15, 18-30 Manns v Attorney-General (NSW) (2010] .... 21-4 Manser, Re [1905) .... 21-17 Mantonella Pty Ltd v Thompson (2009] .... 14-3, 14-20, 14-21 Marchesi v Apostolou (2007) .... 4-7, 4-25 Maritime Union of Australia v Patrick Stevedores No 1 Pty Ltd (1998) .... 12-36 Martin v Martin (1959) .... 19-4, 19-14, 19-18, 19-28 Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009) .... 12-22 Maxted v LC Smith & Company Pty Ltd (2008] .... 10-14, 10-15 Mayfair Trading Company Pty Ltd v Dreyer (1958) .... 13-10 Mehmet v Benson (1965) .... 12-19 Melbourne Anglican Trust Corporation v Attorney-General (Vic) (2005] .... 21-8, 21-19 Mense and Ampere Electrical Manufacturing Company Pty Ltd v Milenkovic (1973) .... 7-15

-XVIII-

Table of Cases Meshakov-Korjakin (deed), Re Will of [2011] .... 21-7, 21-15 Mettoy Pension Trustees Ltd v Evans (1990) .... 18-3, 18-17, 18-28, 18-32 Miller v Cameron (1936) .... 22-11 Millett v Regent (1975) .... 12-24 Mills (dec'd), In re (1981) .... 21-34 Mills v Ruthol Pty Ltd; Tricon (Aust) Pry Ltd v Ruthol Pty Ltd (2004) .... 14-9, 14-10, 14-35, 14-38 Milroy v Lord (1862) .... 3-3, 4-7, 4-17, 4-25, 4-27, 4-34, 4-38, 16-4, 16-5, 16-12, 16-22 Minister for Immigration and Citizenship v Kumar (2009] .... 7-1, 7-4, 7-19, 7-41 Mizzi v Reliance Financial Services Pty Ltd (2007) .... 16-14 MLW Technology Pty Ltd v May (2005) .... 12-7 Moffett v Dillon (1999) .... 2-24 Moorgate Tobacco Company Ltd v Phillip Morris Ltd (No 2) (1984) .... 7-1, 7-10, 7-33 Morice v Bishop of Durham (1804) .... 15-21, 17-6, 18-3, 18-20, 18-31, 20-1, 20-8, 20-15, 20-22, 21-12, 21-22 Morris v Morris (1982) .... 11-13, 11-26, 11-42 Mosley v News Group Newspapers Ltd (2008] .... 7-2, 7-5, 7-19, 7-28, 7-41, 7-49, 14-3, 14-27 Moss (deed), Re; Hobrough v Harvey (1949) ... . 20-27, 21-16 Moyes v J and L Developments Pty Ltd (No 2) (2007) .... 24-2 Murphy v Lush (1986) .... 7-21, 13-7, 13-36 Murray v Schreuder (2009] .... 23-26 Muschinski v Dodds (1985) .... 1-15, 10-19, 11-9-11-12, 11-16-11-21, 11-24, 11-28, 11-37-11-39, 11-41, 11-45, 11-49, 11-50 Mussoorie Bank Ltd v Raynor (1882) .... 15-23, 17-3, 17-5, 17-13

(1948) .... 21-5, 21-14, 21-18, 21-21 National Provincial Bank v Ainsworth (1965) .... 2-3 National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd (1905) .... 24-22 Neace v Parfit (2006] .... 12-19 Neeta (Epping) Pty Ltd v Phillips (1974) .... 13-10 Nelson v Nelson (1995) .... 11-6, 11-46, 19-5, 19-7, 19-14, 19-16, 19-22, 19-23, 19-24, 19-28 Neville Estates Ltd v Madden (1962) .... 20-14, 20-25 Nicholls v Michael Wilson & Partners Ltd [2010) .... 14-2, 14-3, 14-22, 14-25 Nocton v Lord Ashburton (1914) .... 14-2, 14-20 Nolan v Collie (2003) .... 24-3 - v Nolan (2004) .... 6-2, 6-12 Nonferral (NSW) Pty Ltd v Taufia (1998) ... . 19-23 Norman v Federal Commissioner of Taxation (1963) .... 3-1, 4-1, 4-3, 4-8, 4-10, 4-12, 4-16, 4-19, 4-22, 4-23, 4-36, 4-39 North Coast Environmental Council Inc v Minister for Resources (1994) .... 13-5, 13-20 North Queensland Conservation Council Inc v f.xecutive Director, Queensland Parks and Wildlife Service (2000) .... 13-20 NP Generations Pty Ltd v Feneley [2001) .... 7-14, 7-15, 7-17, 7-38 NSW Masonic Youth Property Trust v Attorney-General (NSW) (2009) .... 21-5, 21-14, 21-18, 21-32 NSW Trustee and Guardian v Attorney-General in and for the State of New South Wales (2012) .... 21-6

0 N National Anti-Vivisection Society v Inland Revenue Commissioners

Oatway, Re; Hertslet v Oatway (1903) .. .. 25-15, 25-28 Octavo Investments Pty Ltd v Knight (1979) .... 24-17

-xix-

LexisNexis Questions and Answers: Equity and Trusts O'Dea v Allstates Leasing System (WA) Pry Ltd (1983) .... 9-3, 9-21, 9-22, 9-23, 9-25, 9-27 Ogilvie v Ryan [1976) .... 12-25, 12-27 Ogle v Comboyuro Investments Pty Ltd (1976) .... 12-8 O'Halloran v RT Thomas & Family Pty Ltd (1988) .... 14-3 O'Neill v Williams [2006) .... 10-4, 10-18 Onus v Alcoa of Australia Limited (1981) .... 13-5, 13-20 Oppenheim v Tobacco Securities Trust Company Ltd (1951] .... 21-5, 21-14, 21-23, 21-26, 21-27, 21-30, 21-31, 21-33, 21-34, 21-35 Orleans Investments Pry Ltd v Mindshare Communications Ltd [2009] .... 13-1, 13-4, 13-23 O'Sullivan v Management Agency and Music Ltd [1985] .... 8-13 Otway v Otway (1888) .... 1-19 Oughtred v Inland Revenue Commissioners [1960] .... 3-8, 3-11, 3-16, 3-19, 3-20 Owners Strata Plan 22724 v Owners Strata Plan 30403 [2012] .. .. 10-4 Owners Strata Plan No 4085 v Mallone [2006] .... 13-1, 13-3, 13-6, 13-8, 13-18, 13-21, 13-33 p

P v D [2000] .... 7-28 Page One Records Ltd v Britton [1968] .... 13-37 Palette Shoes Pty Ltd v Krohn (1937) .... 4-10 Palinkas v Pa linkas [2009] .... 11-13, 11-26, 11-42 Pardoe, Re [1906] .... 21-17 Parij v Parij (1997) .... 11-11, 11-23, 11-28 Parry-Jones v Law Society [1969] ... . 7-4 Pascoe v Boensch (2008) .... 3-5 Patel v Ali [1984] .... 12-18 Pateman v Heyen (1993) .... 23-14, 23-24 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Austra li a (1998] .... 13-7, 13-23, 13-36

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] .... 12-36 Patros v Patros (2007) .... 23-22 Paul v Constance [1977] .... 3-9 PC Developments Pty Ltd v Revell (1991) .... 9-26 Pearson v Inland Revenue Commissioners [1981] .... 15-24 Pedulla v Nasti (1990) .... 20-4, 20-28, 20-30 Percival v Dunn (1885) .... 4-16 Permanent Building Society (in liq) v Wheeler (1994) .... 14-3 Perpetual Executors and Trustees Association of Australia Ltd v Wright (1917) .... 19-4, 19-8, 19-14, 19-18 Perpetual Trustee Company Ltd v John Fairfax & Sons Pty Ltd (1959) .... 17-15 - v Tindal (1940) .... 18-2, 18-11, 18-26 - v Wittscheibe (1940) .... 20-11 Perpetual Trustees Queensland Limited, Re (1999] .... 21-15 Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] .... 7-5, 7-23, 7-45, 14-5, 14-17 Pettingall v Pettingall (1842) .... 20-4, 20-28 Pianta v National Finance & Trustees Ltd (1964) .... 12-13 Pilmer v Duke Group Limited (in liq) [2001] .... 14-3, 14-23 Pitt (deed), Re Estate of; Aston v Mt Gambier Presbyterian Charge (2002] .... 21-8, 21-20 Platzer v Commonwealth Bank of Australia (1977) .... 2-24, 2-25 Pobjoy v Reynolds (2013] .... 10-4 Price v Strange [1978) .... 12-16, 12-37 Princess Ann of Hesse v Field [1963] .... 22-11 Prosper v Wojowicz [2005] .... 17-7, 18-27 Pryce, Re [1917] .... 1-5, 1-8, 16-6, 16-14, 16-15, 16-16, 16-26 PT Ltd v Maradona Pry Ltd (No 2) (1992) .... 3-10, 3-15, 3-25

-xx-

Table of Cases Public Trustee v Attorney-General of New South Wales (1997) .... 21-21 Public Trustee v Donoghue [1999] ... . 19-2 Public Trustee of Queensland v Rutledge [2010) .... 21-8, 21-16, 21-19 Public Trustee (Qld) as Litigation Guardian for ADF v Ban (No 2) [2012] .. .. 4-7, 4-25 Pullan v Koe [1913] .... 16-2, 16-13, 16-24

Q Queensland Industrial Steel Pry Ltd v Jensen [1987] .. .. 7-21, 13-7, 13-36, 13-39 Queensland State and Municipal Orchestra Endowment Fund, Re [1999] .... 21-8, 21-19 Quinn v Bryant [2012] .... 10-4, 10-15 R R v District Auditor; ex parte West Yorkshire Metropolitan County Council (1986) .... 18-30 R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) .... 18-3, 18-19, 18-31 Raine (deed), Re; Walton v Attorney-General [1956] .... 21-8, 21-19 Ralli's Will Trusts, Re [1964] .. .. 16-5, 16-12 Ramsden v Dyson (1856) .... 10-2, 10-9, 10-11, 10-26 Ready Constructions Pty Ltd v Jenno [1984] .... 12-18 Redgrave v Hurd (1881) .... 1-5, 1-8 Redland Bricks Ltd v Morris (1969] .... 13-6 Regent v Millett (1976) .... 12-23, 12-24 Registered Securities Ltd, Re (1991] .... 25-28 Registrar of the Accident Compensation Tribunal v Commissioner of Taxation (1993) .... 18-12 Resch's Will Trusts, Re [1969] .... 21-18 RG Munro Futures Pty Ltd (in liq) v Starport Future Trading

Corporation [2008] .... 7-44, 13-1, 13-7, 13-36 Riches v Hogben (1985] .... 10-2, 12-21, 12-23, 12-25 Riches v Hogben (1986] ... . 10-4, 10-9, 10-11, 10-15, 10-18, 10-19, 10-26 Richstar Enterprises Pty Ltd, Re; ASIC v Carey (No 6) (2006] .... 18-2, 18-3, 18-6, 18-18, 18-20, 18-32 Rigg v Sheridan [2008] .... 14-3, 14-20 Ringrow Pry Ltd v BP Australia Pry Ltd (2005] .... 9-3, 9-21, 9-23, 9-27 Robb v Green (1895] .... 7-10, 7-12, 7-14 Robins v Robins (2006] .... 19-7, 19-14, 19-22 Rochefoucauld v Boustead (1897] .... 3-11, 16-5, 16-12 Romanos v Pentagold Investments Pry Ltd (2003) ... . 9-6, 9-13, 9-16 Ronowska v Kus (2012] ... . 10-4, 10-18 Rowe v Attorney-General (NSW) [2012] .... 21-7 Royal Brunei Airlines Sdn Bhd v Tan (1995] .... 6-7, 6-17 Royal North Shore Hospita l of Sydney v Attorney-General (NSW) (1938) .... 21-21 Ruthol Pry Ltd v Mills (2003) .... 2-7

s S & D International Pty Ltd (No 4 ), Re (2010] .... 2-7, 2-14 Saltman Engineerin~ Company Ltd v Campbell Engineering Company Ltd (1948) .... 7-1, 7-3, 7-4, 7-10, 7-12, 7-16, 7-33, 7-37 Salvo v New Tel Ltd (2005] .... 15-6, 15-30, 17-2, 17-16 Samsung Electronics Co Ltd v Apple Inc (2011] .... 13-2, 13-3, 13-7, 13-36 Saul v Lin (No 1) (2004] .... 22-11, 22-21 - v - (No 2) (2004) .... 22-11, 22-21 Saunders v Vautier (1841) .... 17-14, 22-22, 25-5 Say-Dee Pry Ltd v Farah Constructions Pty Ltd [2005] .... 14-6, 14-18, 14-19 Scaffidi v Montevento Holdings Pty Ltd [2011] .... 18-6, 18-20, 18-31

-xxi-

Table of Cases

LexisNexis Questions and Answers: Equity and Trusts Scarisbrick's Will Trusts, Re [1951] .. .. 18-2, 18-11, 18-26, 21-5, 21-14, 21-23, 21-32 Schmidt v Rosewood Trust Ltd [2003] .... 18-3, 18-4, 18-13, 18-14, 18-18, 18-19, 18-27, 18-31, 18-32, 23-26 Schwabacher, Re (1908) .... 12-33 Scott v Scott (1963) .... 25-12, 25-23 Seager v Copydex Ltd [1967] .... 1-5, 1-8, 7-2, 7-3, 7-22, 7-23 - v - (No 2) [1969] .... 7-23, 7-45 Secretary, Department of Social Security (SDSS) v James (1990) .... 3-5, 3-8, 3-15, 3-24 Segelman (deed), Re [1996] ... . 21-5, 21-14, 21-23, 21-32 Seven Network (Operations) Ltd v Brown [2013] .... 13-37, 13-39 - v Warburton (No 2) [2011) .... 10-1, 10-14, 12-35, 13-34 Shaw, Re [1957] .... 21-21 Sheikholeslami v Tolcher [2011] .... 19-7 Shelfer v London Electric Lighting Company [1895] .... 14-9 Shepherd v Doolan [2005] .... 11-14, 11-20 Shepherd v Federal Commissioner of Taxation (1965) ... . 4-3, 4-8, 4-10, 4-16, 4-18, 4-19, 4-21, 4-22, 4-27, 4-36, 4-39 Shepherd Homes Ltd v Sandham [1971] .... 13-7 Shields, Re [1912) .... 16-28 Silkman v Shakespeare Haney Securities Ltd [2011] .... 23-26 Silovi Pty Ltd v Barbaro (1988) .. .. 10-2, 10-3 Simpson (deed), Re [1961] .... 21-7 Skids Programme Management Ltd v McNeill [2012] .... 7-5, 7-28, 7-35, 14-3, 14-27 Sky v Body (1970) .... 23-25 Skywest Airlines Pty Ltd v Northern Territory of Australia (1987) .... 12-17, 12-36, 12-37 Smith v Glegg [2004] ... . 8-2 - v Smith [2004) .... 10-16 - v - [2006] .... 22-21

Smith Kline & French Laboratories (Aust) Ltd v Department of Community Services and Health (1990) .... 7-3, 7-11, 7-34 Smyth v Jessep [1956) .... 9-13 Smythe v Thomas [2007] .... 12-13, 14-41 Sorochan v Sorochan (1986) .... 11-24 South Australian Perpetual Forests Ltd 1964; IOOF Australia Trustees Ltd Trust Deed (1995) .... 23-14 South Eastern Sydney Area Health Service v Wallace [2003] .... 20-4, 20-28, 20-29, 20-30, 21-17 Southcott Estates Inc v Toronto Catholic District School Board (2012) .... 12-1.) Southern Equity Pty Ltd v Timevale Pry Ltd [2012] .... 14-6 Southern Real Estate Pty Ltd v Dellow [2003] .... 5-17 Spong v Spong (1914) .... 8-12 Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] .... 18-6, 18-12 Stanley v Layne Christensen Company [2006) .... 16-14 State of Victoria v Nine Network [2007] .... 7-4 Steadman v Steadman [1976] .... 12-22, 12-23, 12-27 Steel Wing Company Limited, Re [1921] .... 4-16, 4-18, 4-22 Stephens v Avery [1988] .... 7-2 Stephenson Nominees Pty Ltd, Re (1987) .... 11-24 Stern v McArthur (1988) ... . 9-1, 9-7, 9-14, 9-15, 9-16 Stevens v Premium Real Estate Ltd [2009] .... 14-3, 14-4, 14-16, 14-20, 14-21 Stininato v Auckland Boxing Association (Inc) [1978] .... 14-35 Strathalbyn Show Jumping Club Inc v Mayes [2001] .... 20-2, 20-15, 20-25, 21-34 Strong v Bird (1874) .... 16-5, 16-12 Sui Mei Huen v Official Receiver for Official Trustee in Bankruptcy (2008) .... 11-7 Sunbird Plaza Pty Ltd v Maloney (1988) ... . 12-7, 14-31

-xxii-

Sweetenham v Wild [2005] .... 11-10, 11-23, 11-37, 11-42 Swindle v Harrison [1997] .... 14-21 T

Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) .... 7-21, 13-7 Tadrous v Tadrous [2012] .... 10-4, 10-14 Tailby v Official Receiver (1888) ... . 4-9, 4-10 Talacko v Talacko [2009] .... 14-2, 14-24 Talbot v General Television Corporation Pty Ltd [1980) .... 7-5, 7-12, 7-23, 7-27, 7-45, 14-2, 14-7, 14-22 Tanwar Enterprises Pty Ltd v Cauchi (2003) .... 9-1, 9-7, 9-10, 9-15, 9-16 Target Holdings Ltd v Redferns (a firm) [1996] .... 14-3, 14-20 Tasmanian Seafoods Pty Ltd v Kossman [2005] .... 14-3-14-6, 14-18, 14-26 Tatham v Huxtable (1950) ... . 18-2, 18-5, 18-25, 18-26 Taylor v Princess Margaret Hospital for Children Foundation Inc (2012) .... 20-4, 20-28, 21-8, 21-20 Tegra (NSW) Pty Ltd v Gundagai Shire Council (2007) .... 13-5, 13-18, 13-19 Tennant Ltd v Uhlen [2009] .. .. 13-1 Terrapin Ltd v Builders' Supply Company (Hayes) Ltd [1967] .... 7-4, 7-12 Terry v Persons Unknown [2010] .... 7-28 Tesoriero v Tesorieo [2007] .... 19-7 TF Industrial Pty Ltd v Career Tech Pty Ltd [2011] .. .. 7-3, 7-11, 7-34 Theodore v Mistford Pty Ltd [2003] .. .. 3-8 - v - (2005) .... 1-23, 3-8 Thiess Watkins White Ltd v Equiticorp Australia Ltd [1991] ... . 15-30, 15-34 Thomas v SMP International Pty Ltd (No 4) [2010] .. .. 14-3

Thompson v Federal Commissioner of Taxation (1959) .. .. 21-5, 21-14, 21-23, 21-34 - v Palmer (1933) .... 10-1 - v White [2000) .... 3-24 Thorner v Major [2009] .... 10-14 Tidex v The Trustees Executors and Agency Company Ltd [1971] .... 20-2, 20-15, 20-25 Tilley's Will Trusts, Re; Burgin v Croad [1967] .... 25-14 Timber Engineering Co Pty Ltd v Anderson [1980] .... 25-9 Tinsley v Milligan [1994] .. .. 19-5, 19-6, 19-14, 19-16, 19-17, 19-20, 19-21, 19-24, 19-28 Tipperary Developments Pty Ltd v Western Australia [2009] .... 10-4, 10-18, 10-31 Tomasevic v Jovetic [2011] .... 21-6 Trendtex Trading Corporation v Credit Suisse [1982) .... 4-2, 4-32, 4-39, 16-22 Trevenar v Ussfeller [2005) .... 8-6, 8-22 Tribe v Tribe (1995) .... 19-19 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) .... 16-6, 16-14, 16-16, 16-26, 17-2 Trust Company (Australia) Ltd as trustee of Kyle Williams Home Trust v Attorney-General of New South Wales (No 2) [2012] .... 21-8 Trustees of Church.Property of the Diocese of Newcastle v Ebbeck (1960) .... 19-2 Trustees of the Property of Cummins (a bankrupt) v Cummins [2006] .... 11-7, 19-9 Turner, Re; Barker v Ivimey [1897] .... 24-12 Turner v Bladin (1951) ... . 12-5 Twinsectra v Yardley [2002] .... 6-7, 6-17

u Union Bank of Australia Ltd v Whitelaw [1906) .... 8-2 Union Eagle v Golden Achievement Ltd [1997] .. .. 9-14 United Dominions Corporation Ltd v Brian Pty Ltd (1985) .... 5-22

-xxiii-

LexisNexis Questions and Answers: Equity and Trusts

v V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd [2013) .... 14-2, 14-3, 14-5, 14-6, 14-17, 14-19, 14-20, 14-22 Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) .... 1-18 Van Dyke v Sidhu [2012) .... 10-4 Van Dyke v Sidhu [2013) .... 10-2, 10-4, 10-14, 10-16, 10-27, 10-31 Vandervell v Inland Revenue Commissioners [1967) .... 3-8, 3-15, 3-25, 3-26, 3-30, 16-21 Varma v Varma [2010) .... 11-12 Vatcher v Paull [1915] .... 18-3, 18-17, 18-28 Vaughan, Re (1886) .... 21-17 Visnic v Sywak [2009) .... 14-5 Volkswagen Aktiengesellschaft v Garcia [2013) .... 7-4

w Walker v Corboy (1990) .... 15-6, 15-32, 15-34, 17-2, 17-17, 17-23, 17-27 Wallgrave v Tebbs (1855) .... 16-28 Walsh v Lonsdale (1882) .... 1-5, 1-8, 1-23 - v Walsh [2012] .... 10-4 Walsh Bay Developments Ltd v Federal Commissioner of Taxation (1995) .. .. 17-4, 17-24 Waltons Stores (Interstate) Ltd v Maher (1988) .... 10-1-10-5, 10-9-10-13, 10-17-10-19, 10-23, 10-25, 10-27, 10-28, 10-30--10-32, 10-34, 12-5, 12-27 Ward, Re (1984) .... 4-19 Warman International Ltd v Dwyer (1995) .... 5-15, 7-20, 7-43, 8-31, 12-2, 14-4-14-6, 14-16-14-19 Wedgwood, Re [1915) .... 21-16 Weekes' Settlement, Re [1897) .... 18-2, 18-11, 18-26, 18-29 Wentworth v Woollahra Municipal Council (1982) .... 13-25, 14-7, 14-9, 14-34, 14-35 West v Weston (1998) .... 17-7 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996) .... 11-2

Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012) .... 5-1, 6-4, 6-18, 6-21, 25-23 Wheatley v Bell [1982) .... 7-3, 7-39, 7-42 White v Neaylon (1886) .... 12-24 - v Shortall [2006) .. .. 17-1, 17-5, 17-14, 17-18 Wilcox v Wilcox [2012) .... 10-14 Williams, Re [1897) .... 17-3 Williams v Commissioner of Inland Revenue [1965) .... 4-10 Willmott Forests Limited v Fernandes [2012) .... 17-2 Wilson Parking Australia 1992 Pty Ltd v Rush [2008) .... 7-5, 7-21, 13-7, 13-36 Windridge Farm Pty Ltd v Grassi [2011) .... 7-2 Wirth v Wirth (1956) .... 11-6 Wolseley Investments Pty Ltd v Gillespie [2007] .... 12-5 Wolverhampton and Walsall Railway Company v London and North Western Railway Company (1873) .. .. 12-36, 13-4, 13-34 Woodward v Hutchins [1977) .... 7-41 Workcover Queensland v AMACA Pry Limited (2012) .... 4-32 Wright v Gasweld Pty Ltd (1991) .... 7-2, 7-12, 7-14, 7-27 Wroth v Tylor [1974) .... 14-38 y Yard v Yardoo [2006] .... 3-24 Yeomans v Yeomans [2005) .... 18-6, 18-12, 18-20, 18-31, 20-1, 20-2, 20-8, 20-15, 20-22, 20-25, 21-12 Young, Re [1951) .... 16-7, 16-28 Young v Lalic [2006] .... 10-4, 10-19 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] .. .. 14-3, 14-20, 14-22, 14-27

z Zamet v Hyman [1961] .... 8-3, 8-12, 8-26

Table of Statutes All references are to paragraphs Commonwealth

Australian Consumer Law SS 20-22 .... 8-6, 8-22 Bankruptcy Act 1966 .... 19-2, 19-9 s 120 .... 19-9 s 121 .... 19-9 Competition and Consumer Act 2010 Sch 2 .... 8-6, 8-22 Constitution .... 7-40 Corporations Act 2001 Pt 5.7 .... 19-10 s 1071B .... 4-6 s 1324 .... 13-2 Defence Service Homes Act 1918 .. .. 19-2 Extension of Charitable Purpose Act 2004 .... 21-3 s4 .... 21-3 s 4A .... 21-3 s 5 .... 21-3 s 5(1)(b) .... 20-11 Family Law Act 1975 .... 11-15, 11-25 s 34 .... 13-2 s 78 .... 19-3 s 79 .... 19-3 s 85A .... 19-3 s 114 .... 13-2 Federal Court of Australia Act 1976 s 21 .... 13-9, 13-14 s 23 .... 13-2 Income Tax Assessment Act 1936 .... 19-2 Patents Act 1990 s 122 .... 13-2

Australian Capital Territory

Civil Law (Property) Act 2006 s 204 .... 12-6 -xxiv-

Conveyancing Act 1919 s 12 .. .. 4-6 Court Procedures Act 2004 s 62 ... . 13-2 Court Procedures Rules 2006 r 2900 .... 13-9 Domestic Relationships Act 1994 s 15 .... 11-15, 11-25 Human Rights Act 2004 .... 7-28 Land Titles Act 1925 s 73 .... 4-4 Sale of Goods Act 1954 s 22 .... 4-5 Trustee Act 1925 .... 22-1, 24-1, 25-1 s2 .... 15-16 s SA .... 20-3, 20-16 s 6 .... 22-9 s 6(1) .... 22-18 s 6(2)(e) .... 22-11 s 6(6)(b) .... 15-16 s 8 .... 22-10 s 14 .... 23-15 s 14A .... 23-15 s 14A(4) .... 23-15 s 14C(l) .... 23-15 s 14C(2) .... 23-15 s 36 .... 23-21 s 38(1) .... 23-22 s 41 ... . 23-14, 23-24 s 57 .... 22-8 s 59(2) .... 22-19, 24-22, 24-22 SS 64-65 .... 22-19 s 70 .... 22-11, 22-21, 23-5 s 85(2) .... 24-12 s 86(1) .... 24-9 s 89 .... 23-15 s 94A .... 21-7 s 104 .... 21-2 Dictionary ... . 15-16

-xxv-

LexisNexis Questions and Answers: Equity and Trusts Wills Act 1968 s 8 .... 17-12 s 9 .... 16-7, 17-12 s 14A .... 18-5, 18-25 s 15 .... 16-28 New South Wales

Charitable Trusts Act 1993 Pt 3 .... 21-8 Pt 4 .... 21-7 s 12(1) .... 21-8 s 10(2) .... 21-8 s 23 .... 21-4 Contracts Review Act 1980 .... 8-22 Conveyancing Act 1919 s 12 .... 4-6 s 23C(l) .... 3-4 s 36C .... 16-6, 16-14 s 54A .... 12-6 s 151A .... 17-12, 22-17 Environmental Planning and Assessment Act 1979 .... 13-18 Imperial Acts Application Act 1969 s 9(2)(a) .... 21-2 Minors (Property and Contracts) Act 1970 s lO(l)(b) .... 17-12, 22-17 Property (Relationships) Act 1984 s 20 .... 11-15, 11-25 Real Property Act 1900 s 46 .... 4-4 s 51 .... 4-4 Sale of Goods Act 1923 s 22 .. .. 4-5 Succession Act 2006 s5 .... 17-12 s 6 .... 16-7, 17-12 s 10 .... 16-28 s 43 .... 20-3 s 44 .... 18-5, 18-25 Supreme Court Act 1970 s 66 .. .. 13-2 s 68 .... 5-15, 14-8, 14-34 s75 .... 13-9 Trustee Act 1925 .... 22-1, 22-10, 24-1, 25-1 s 5 .... 15-15, 15-16, 15-19 s 6 .... 22-9, 15-20 s 6(1) .... 22-18 s 6(2)(e) .... 22-11

s 6(5)(b) .... 15-16 s 14 .... 23-15 s 14A .... 23-15 s 14A(4) .... 23-15 s 14C(l) .... 23-15 s 14C(2) .... 23-15 s 36 .... 23-21 s 38(1) .... 23-22 s 41 .... 23-14, 23-24 s 57 .... 22-8 s 59(2) .... 22-19, 24-22 SS 64-65 .... 22-19 s 70 .... 22-11, 22-21, 23-5 s 85(2) .... 24-12, 24-22 s 86(1) .... 24-9 s 90 .... 22-17 Northern Territory

De Facto Relationships Act 1991 s 18 .... 11-15, 11-25 Law of Property Act 2000 s 5 .... 12-6 s 10 .... 3-4 s 12 .. .. 16-6, 16-14 s 62 .... 3-4, 12-6 s 182 .... 4-6 SS 184-5 .... 4-4 Sale of Goods Act 1972 s 22 .... 4-5 Supreme Court Act 1979 s 18 .... 13-9 s 69 .... 13-2 s 70 .... 4-6 Supreme Court Rules 1987 r 23.05 .... 13-9 Trustee Act 1893 .... 23-5, 23-14, 24-1, 25-1 Trustee Act 1907 .... 22-1, 25-1 s 3(1) .... 22-19 s 5 .... 23-15 s6 .... 23-15 s 6(3) .... 23-15 s 8(1) .... 23-15 s 8(2) .... 23-15 s lOE .... 23-15 s 11 .... 22-9, 22-11, 15-16, 15-20 s 11(1) .... 22-11, 22-18 s 12 .... 22-10 s 18A .... 23-14, 23-24 s 23 .... 22-8 -xxvi-

Table of Statutes s 26 .... 22-19, 24-22 s 27 .. .. 22-11, 22-21, 23-5 s 49A .... 24-12 s 49A(b) .... 24-22 s 50(1) .... 24-9 s 82 .... 15-15, 15-16, 15-19 Wills Act 2000 s7 .... 17-12 s 8 .... 16-7, 17-12 s 12 .. .. 16-28 s 42 .... 20-3 s 43 .. .. 18-5, 18-25 Queensland

Associations Incorporation Act 1981 .... 20-18 Civil Proceedings Act 2011 s 8 .... 14-8 s 9 .... 13-2 s 10 .... 13-9 Equity Act 1867 s 62 .... 14-8 Land Title Act 1994 s 181 .... 4-4, 4-24 s 182 .... 4-4, 4-24 Powers of Attorney Act 1988 s 87 .... 8-2 Property Law Act 1974 Pt 6, Div 4 .... 9-7 Pt 19 .... 11-15, 11-25 s 3 .... 3-8, 3-24 s 6 .... 12-6 s 11 .... 3-4, 3-8, 3-15, 15-16 s ll(l)(a) .... 3-8, 3-18, 3-24, 3-29 s ll(l)(b) .... 3-9, 3-24, 3-29 s ll(l)(c) .... 3-10, 3-15, 3-19, 3-24, 3-25, 3-26, 3-27, 16-21 s 11(2) .... 3-8, 3-11, 3-16, 3-19 s 13 .... 16-6, 16-14 s 59 .... 3-4, 3-7, 3-18, 12-6, 12-13, 12-21 s 199 .... 4-6, 4-16, 4-18, 4-26, 4-27, 4-33, 4-35, 4-36, 4-37, 16-22 s 200 .... 4-7, 4-17, 4-25, 4-34, 4-38, 16-5, 16-12, 16-22 Sch 3 .. .. 3-8 Sale of Goods Act 1896 Pt 3 .... 4-5 s 20 .... 4-5 s 22 .... 4-5

Succession Act 1981 .... 24-1 s 9 .... 17-12 s 10 .... 16-7, 17-12 s 11 .... 16-28 s 33Q .... 20-3, 20-16, 20-26 s 33Q(l) .... 20-16 s 33Q(6) .... 20-16 s 33R .... 18-5, 18-25 s 63 .... 20-3, 20-16 s 64 .... 18-5, 18-25 Trusts Act 1973 .... 22-1, 22-14, 24-1, 25-1 Pt II .... 22-3 s 5 .... 15-15, 15-16, 15-19 s6 .... 17-12 s6(1) .... 22-17 s 8 .... 22-9 s 10 .... 22-3 s 12 .. .. 15-20, 22-9 s 12(1) .... 22-18 s 12(1)(d) .... 22-11 s 12(1)(e) .... 22-11 s 12(2) .... 22-18 s 14 .... 15-20, 22-10 s 16(1) .... 22-8 s 16(2) .... 15-20 s 21 .... 23-15 s 22(1) .... 23-15 s 22(3) .... 23-15 s 24(1) .... 23-15 s 24(2) .... 23-15 s 30B .... 23-15 s 32 .. .. 23-21 s 32(l)(a) .... 23-~2 s 36 .... 22-11 s 36(1b) .... 22-11 s 47 .... 23-14, 23-24 s 56(1) .... 22-19 s 71 .... 22-19, 24-22 s 76 .... 24-12, 24-22 s 77(1) .... 24-9 s 80 .... 22-11, 22-21, 23-5 s 80(2) .... 22-11 s 103(1) .... 21-2 s 103(2) .... 21-4 s 103(3) .... 21-4 s 104 .... 21-4, 21-22 s 105 .... 21-8, 21-20 s 105(1)(a)(iii) .... 21-20 s 105(2) .... 21-20 s 106 .. .. 21-7

-xxvii-

LexisNexis Questions and Answers: Equity and Trusts South Australia

De Facto Relationships Act 1996 SS 9-11 .... 11-15, 11-25 Law of Property Act 1936 s 15 .... 4-6 s 26 .. .. 12-6 s 29(1) .... 3-4 s 34(1) .... 16-6, 16-14 Real Property Act 1886 s 96 .... 4-4 Sale of Goods Act 1895 s 17 .... 4-5 Supreme Court Act 1935 s 29 .... 13-2 s 30 ... . 14-8 s 31 .... 13-9 Trustee Act 1936 .... 22-1, 24-1, 25-1 s 4 .... 15-15, 15-16, 15-19 s 4(3) .... 20-3, 20-16 s6 .... 23-15 s 7 .... 23-15 s 7(3) .. .. 23-15 s 9 .... 23-15 s 13C ... . 23-15 s 14 ... . 15-20, 22-9 s 14(1) ... . 22-11, 22-18 s 15 .... 15-20, 22-10 s 17(1) .... 22-19 s 25 .... 23-14, 23-24 s 25C .... 23-21 s 28B(l) .... 23-22 s 32 .... 22-8 s 35(1) .. .. 22-19, 24-22 s 36 .. .. 22-11, 22-21, 23-5 s56 .... 24-12 s 56(b) .... 24-22 s 57 .... 24-9 SS 60-69 .... 21-7 s 69A .... 21-4 s 69B .... 21-8 s 69C .... 21-4 Wills Act 1936 s 5 .... 17-12 s 12 ... . 16-7, 17-12 s 17 .... 16-28

s 60(2) .... 3-4 s 61 .... 16-6, 16-14 S 86 .... 4-6 Land Titles Act 1980 s 58 .... 4-4 Relationships Act 2003 s 40 .... 11-15, 11-25 Sale of Goods Act 1896 s 22 .... 4-5 Supreme Court Civil Procedure Act 1932 s 11(12) .... 13-2 s 11(13) .... 14-8 Supreme Court Rules 2000 r 103 .. .. 13-9 Trustee Act 1898 .... 22-1, 24-1, 25-1 s 4 ... . 15-15, 15-16, 15-19 s 6 .... 23-15 s7 .... 23-15 s 7(3) .... 23-15 s 8(1) .... 23-15 s 8(2) .... 23-15 s 12D .. .. 23-15 s 13 .. .. 15-20, 22-9 s 13(1) .... 22-11, 22-18 s 14 .... 15-20, 22-10 s 21 .. .. 23-14, 23-24 s 25AA{l) .... 22-19 s 27(1) .... 22-19, 24-22 s 32 .... 22-11, 22-21, 23-5 s 50 .... 24-12, 24-22 s 53 .... 24-9 Variation of Trusts Act 1994 s 4(1) .... 21-4 s 4(2) .... 21-4 s 4(3) .... 21-4 SS 5-11 .. .. 21-8 Wills Act 1992 s 10 .... 16-7, 17-12 Wills Act 2008 s6 .... 17-12 s 12 ... . 16-28 s 58 .... 18-5, 18-25 s 57 .... 20-3 Victoria

Tasmania

Conveyancing and Law of Property Act 1884 s 36 .... 12-6

Administration and Probate Act 1958 s 38 .... 23-21 s 44 ... . 23-21 s 45 .... 23-21 -xxviii-

Table of Statutes Charities Act 1978 Pt 1 .... 21-8 s 7M .... 21-4 Charter of Human Rights and Responsibilities Act 2006 .... 7-28 Goods Act 1958 s 22 .... 4-5 Instruments Act 1958 s 126 .... 12-6 Property Law Act 1958 s 35(1) .... 23-21 s 40 .... 23-21 s 53(1) .... 3-4 s 56(1) ... . 16-6, 16-14 s 134 .... 4-6 s 285 .... 11-15, 11-25 Settled Land Act 1958 SS 41-43 .... 23-21 Supreme Court Act 1986 s 36 .. .. 13-9 s 37 .... 13-2 s 38 .... 14-8 Supreme Court (General Civil Procedure) Rules 2005 r 23.05 .... 13-9 Transfer of Land Act 1958 s 27E .. .. 4-4 s 40 .... 4-4 Trustee Act 1958 .... 22-1, 24-1, 25-1 s 3 .... 15-15, 15-16, 15-19 s5 .... 23-15 s 6 .... 23-15 s 6(3) .... 23-15 s 8(1) .... 23-15 s 8(2) .... 23-15 s 12C .... 23-15 s 20(1) .... 23-22 s 22 ... . 22-8 s 23 .... 23-14, 23-24 s 30(1) .... 22-19 s 36(1) .... 22-19, 24-22 s 40 .... 15-16 s 41 .... 15-20, 22-9 s 41(1) .... 22-11, 22-18 s 42{l)(c) .. .. 22-18 s 44 .... 15-20, 22-10 s 48 .... 22-11, 22-21, 23-5 s 67 .... 24-12, 24-22 s 68 .... 24-9 Wills Act 1997 s5 .... 17-12

s 7 .... 16-7, 17-12 s 11 .... 16-28 s47 .... 20-3 s 48 .... 18-5, 18-25 Western Australia

Charitable Trusts Act 1962 s 5 .... 21-4 SS 7-7B .... 21-8 s8 .... 21-7 Family Court Act 1997 s 205ZG .. .. 11-15, 11-25 Law Reform (Statute of Frauds) Act 1962 s 2 .... 12-6 Property Law Act 1969 s 11(1) .... 16-6, 16-14 s 20 .... 4-6 s 34(1) .... 3-4 Rules of the Supreme Court 1971 0 18, r 16 .... 13-9 Sale of Goods Act 1895 s17 .... 4-5 Supreme Court Act 1935 s 25(6) .... 13-9 s 25(9) .... 13-2 s 25(10) .... 14-8 Transfer of Land Act 1893 s 82 .. .. 4-4 Trustees Act 1962 ... . 22-1, 24-1, 25-1 s 6 ... . 15-15, 15-16, 15-19 s 7 .... 15-20, 22-9 s 7(1) .... 22-18 s 7(l)(d) .... 22-11 s 7(1)(e) .... 22-11 s 7(2)(a) .... 15-16 s9 .... 22-10 s 17 .... 23-15 s 18 .... 23-15 s 18(3) .... 23-15 s 20(1) .... 23-15 s 20(2) .... 23-15 s 26B(d) .. .. 23-15 s 27 .... 23-21, 23-22 s 45 .... 22-8 s 46 .... 23-14, 23-24 s 54(1) .... 22-19 s 70 ... . 22-19, 24-22 s 75 .... 24-12 s 76(1) .... 24-9

-xx ix -

LexisNexis Questions and Answers: Equity and Trusts

Belize

Trusts Act 2000 s 15 .... 20-18 International

European Convention for the Protection of Human Rights and Fundamental Freedoms (1953) Art 8 .... 7-28 Art 10 .... 7-28 New Zealand

Charities Act 2005 s 5 .... 21-3

Chapter 1

United Kingdom

Trustees Act 1962 - cont'd s 77 .... 22-11, 22-21, 23-5 s 94 .... 22-9 s 102 .... 21-4 Wills Act 1970 s7 .... 17-12 s 8 ... . 16-7, 17-12

Charities Act 2011 sl .... 21-3 s 2 .... 21-3 s 3 .... 21-3 Human Rights Act 1988 .... 7-28 Judicature Act 1873 .... 1-3, 1-6, 1-7, 1-8, 12-1, 12-12, 12-32, 13-1, 13-9, 13-14 Law of Property (Miscellaneous Provisions) Act 1989 s2 .... 12-27 Lord Cairns' Act .... 5-15, 7-23, 7-45, 7-48, 13-13, 13-24, 13-25, 13-26, 13-28, 13-30, 13-38, 13-39, 14-1, 14-9, 14-10, 14-11, 14-15, 14-30, 14-32, 14-34, 14-37, 14-38, 14-42 s 2 .... 14-7 Statute of Charitable Uses 1601 (the Statute of Elizabeth) .... 21-2 Statute of Frauds 1677 .... 12-22 s 4 .... 12-6, 12-21 s 7 .... 3-4

The Nature and History of Equity •

Key Issues 1-1 The body of law known as equity is usually defined as the principles and rules developed by the Court of Chancery in England as distinguished from the courts of common law. 1-2 In its formative stages, equity developed to mitigate the strict application of common law. Early decisions of the Court of Chancery reflected moral principles of the early ecclesiastical chancellors. These decisions were motivated by popular conceptions of natural justice and mercy.

Over time, as the role of chancellor was filled by lawyers, the doctrine of precedent was introduced to the Court of Chancery and a body of principles and rules developed which became known as equity. In order to best understand modern equitable doctrines, it is necessary to examine the development of equitable principles against the historical

background of the emergence of this body of law. 1-3 Before tackling these questions, check that you are familiar with the following:

.f .f

the Judicature Act 1873 (UK);

.f

the maxims of equity.

the fusion fallacy; and

,;.~'' Question 1 1-4 Judges should not be deterred by fear of a false 'fusion fallacy' charge. They should act boldly, remembering (in Lord Jessel MR's words) that the rules of equity ' have been established from time to time altered, improved, and refined from time to time': Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at (341] per Mason P. What is the 'fusion fallacy' that President Mason refers to? Discuss with examples from the cases. Time allowed: 40 mins

-xxx-

-1-

LexisNexis Questions and Answers: Equity and Trusts

w + N

Answer Plan 1-5 This question offers you an opportunity to focus on those cases you know well in describing and evaluating the fusion fallacy concept. You should plan your writing time to ensure that you cover both historical examples and the comprehensive analysis in Harris v Digital Pulse Pty Ltd. Some cases you may choose to use as examples are:

• • • • •

Redgrave v Hurd (1881) 20 Ch D 1; Walsh v Lonsdale (1882) 21 Ch D 9; Re Pryce, Nevill v Pryce [1917] 1 Ch 234; Seager v Copydex Ltd [1967] 2 All ER 415; and Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298.

Answer The fusion fallacy 1-6 Prior to 1873, common law and equity were administered in England by two separate courts, the Common Law Court and the Court of Chancery. The common law did not recognise equitable rights or interests; defendants in common law proceedings could not plead equitable defences. Matters could not be transferred between jurisdictions if other issues arose. This caused difficulties in determining the appropriate court in which to commence proceedings. These problems led to the enactment of the Judicature Act 1873, which brought about major reforms by fusing the administration of common law and equity. The old courts were abolished, and a new High Court was created, vested with all jurisdiction previously exercised by the separate courts. That meant that the new High Court could administer both bodies of law. The traditional view is that fusion only extended to the administration and procedure - it did not fuse the bodies of law so that causes of action and remedies could be mixed. In Harris v Digital Pulse Pty Ltd, Spigelman CJ explained at [306]: The heart of the 'fusion fallacy' - as it has come to be called in Australia - is the proposition that the joint administration of two distinct bodies of law means that the doctrines of one are applicable to the other. That is no more true of equity and common law that it was and is true of tort and contract within the common law coMext. That is not to say that one body of law does not influence the other. It is only to say that they remain conceptually distinct.

The Nature and History of Equity

of a purely equitable obligation. Yet, in Harris v Digital Pulse Pty Ltd, Mason P, in dissent, was supportive of the notion that, where piecemeal fusion has taken place, it should not be automatically rejected on historical grounds if those cases have promoted the development of a unified legal system, which was the intention of the Judicature Act. 1-8 The following cases illustrate both sensible and difficult distinctions which lend force to both sides of this debate.

In Redgrave v Hurd, Jessel MR suggested that as a result of the passing of the Judicature Act, and the elimination of the difference between the common law and equity, damages may be awarded for the equitable cause of action of innocent misrepresentation. Shortly after, in Walsh v Lonsdale, Jessel MR also held that a lease which entitled its holder to a grant of specific performance in the Court of Chancery was enforceable as if it were a registered lease following the introduction of the Judicature Act, saying at [14]: There is an agreement for a lease under which possession has been given. Now since the Judicature Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court and equity rules prevail in it. (Emphasis added)

This reasoning has been criticised on the grounds that the Judicature Act only provides for equity to 'prevail' over the common law in circumstances where there is a conflict between them, not in all cases, and that to argue otherwise would lead to the elimination of any distinction between the two doctrines, which is clearly not the intention of the Act. Eve J's decision in Re Pryce, Nevill v Pryce is another difficult example of the fusion fallacy concept. In that case an enforceable action under common law was frustrated through the application of the equitable maxim 'equity will not assist a volunteer'. In determining a dispute over the enforceability of a marriage covenant by a volunteer, His Lordship reasoned (at 241) that damages could not be awarded: '"Volunteers have no right whatever to obtain specific performance of a mere covenant which has remained as a covenant and has never been performed" ... Nor could damages be awarded either in this Court or, I apprehend, at law, where, since the Judicature Act, the same defences would be available to the defendant as would be raised in an action brought in this court for specific performance or damages.'

The dilemma presented by the fusion fallacy is that decisions have been reached which would not have been possible under one system or the other; for example, the award of common law damages for breach

Seager v Copydex Ltd is often cited as an example of the fusion fallacy. The English Court of Appeal awarded what appeared to be common law damages for equitable breach of confidence. Interestingly, while this decision has been criticised by some academics, the same award has been made by the New Zealand Court of Appeal in Aquaculture Corporation v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 at 301-2 in circumstances where compensatory damages did not adequately punish the defendant. Some commentators argue this approach enables equity

-2-

-3-

1-7

LexisNexis Questions and Answers: Equity and Trusts

and the law to work together to provide a combination of remedies that best suits the justice of the case. The issue that faced the court in Harris v Digital Pulse Pty Ltd was the appropriateness of awarding exemplary damages for breach of fiduciary duties. The majority overruled the first instance decision of Palmer J on the grounds that there was no power in the law of New South Wales to award exemplary damages for equitable wrongs. As the quote contained in this question suggests, Mason P's dissenting judgment examines the concept of the fusion fallacy at length, lending a modern voice to the historical debate. Mason P took the opportunity to disagree with the traditional view adhered to by Meagher, Gummow and Lehane, that the fusion fallacy was doctrinally unsound, and espoused the view there is no 'fallacy' because the fusion and interaction of the bodies of law underlie our system of modern law. He opined that ignoring the substantive effects of that interaction to preserve the importance of past distinctions would be 'a barrier against the orderly development of a simplified and unified legal system which fusion was intended to advance': at [154]. 1-9 Many academics argue that the development of the fusion fallacy has harmed equity; however, the cases suggest that dual administration of the bodies of law has led to a degree of convergence over time in respect of a number of doctrines and this is considered to be 'improvement' and 'refinement' by some members of the judiciary including Mason P.

p

Examiner's Comments 1-10 This sort of essay question allows you to focus on cases you are most comfortable with, as long as they are relevant to the question. It is also likely in questions such as this that you may be asked to adopt one side of this debate and argue whether you believe the fallacy to be an outdated notion following the Harris v Digital Pulse Pty Ltd decision. If you are asked to take a side, don't be frightened to do so. In such questions the examiner is looking for a persuasive argument that demonstrates an understanding of the cases, irrespective of the view taken. There are no tricks to this question and students have either done the necessary reading or they haven't. If you have read the set material, this sort of question also offers you an opportunity to demonstrate your overall understanding of the development of equitable doctrines.

Keep in Mind 1-11

Here is an important point to keep in mind:

• Do not assume that the first week of the course is irrelevant and unexaminable! An understanding of the history of equity is essential to understanding the development of equitable doctrine and, as it is not conceptually difficult, this topic ought to be included in your exam revision. -4-

..

The Nature and History of Equity

' Question 2 1-12 In Corin v Patton (1990) 169 CLR 540 at 557; (1990) 92 ALR 1 at 12, Mason CJ and McHugh J said: 'Like other maxims of equity, it is not a specific rule or principle of law. It is a summary of a broad theme which underlies equitable concepts and principles. Its precise scope is necessarily ill-defined and somewhat uncertain.' How have the maxims of equity affected the development of equitable doctrine? Give examples from the cases. Time allowed: 40 mins

Answer Plan 1-13 The maxims of equity are a guide to the way that courts exercise equitable jurisdiction. The maxims help explain concepts that have influenced the development and refinement of equitable doctrine. The 12 maxims should be listed and discussed with reference to examples of each from the broad range of case law you have studied.

Answer The maxims of equity 1-14 As the principles of equity developed over the centuries, so did a set of equitable maxims. They are general guidelines, which have been followed by courts of equity in applying equitable principles and devising equitable doctrine. They are not specific rules or principles of law. While some maxims are no longer of much practical relevance, they give a good indication of the nature of equity, its historical development and its relationship to the common law throughout that period.

(1)

Equity will not suffer a wrong to be without a remedy

1-15 This maxim reflects the traditional role of equity to meet the deficiencies of the common law remedies. There are many examples of remedies devised by equity where the common law was lacking.

The constructive trust is a good example of a discretionary equitable remedy that has been used by the courts both to recover property and to apportion joint property in an equitable way when the common law did not provide a remedy. An example of this is Muschinski v Dodds (1985) 160 CLR 583 (discussed in Chapter 11 ). A de facto couple bought a cottage as tenants in common in equal shares, on the understanding that the woman would pay the purchase price and the man would spend a substantial sum of his own money on the property in undertaking certain works. When their relationship ended, part of the agreed work had been carried out. However, the woman had contributed about 90 per cent of the overall -5-

LexisNexis Questions and Answers: Equity and Trusts

cost of the project. Although there was no remedy available at law, the High Court developed equitable doctrine to declare that the cottage was held on a constructive trust: see Deane J at 612-19. In Muschinski v Dodds, the constructive trust gave effect to the rights and obligations of the parties by recognising that, following the collapse of both the commercial and personal relationship, each party was entitled to insist upon realisation of the joint property, repayment of their contribution and distribution of any surplus.

(2)

Equity follows the law

1-16 Equity has always recognised legal estates, rights and interests, and titles and will not deny them. But equity will step in and prevent a legal owner from exercising legal rights in an unconscionable way. To this extent equity has been described as a 'gloss on the law' because it floats over the top of the common law, only impacting upon its operation when necessary.

A good example of this maxim at work is the operation of the rules determining priority between competing interests. Where there is competition between a prior legal interest and a later one, the prior interest will generally prevail unless there is some conscious act or fault on the part of the prior holder which justifies equity's intervention: Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326. (3)

Where there is equal equity, the first in time prevails

1-17 This maxim forms the basis of the equitable rules governing priority between competing equitable interests, where, if the equities are equal, the first in time will prevail. (For a full discussion of this principle, see Chapter 2.)

(4)

They who seek equity must do equity

Because equitable remedies are discretionary, the court can look at the conduct of the plaintiff and can impose conditions on giving the plaintiff a remedy or refuse the relief if the plaintiff is not prepared to carry out his or her own obligations. For example, a court will not decree specific performance to a plaintiff who has not done all that the contract requires of them. 1-18

The Nature and History of Equity (5)

They who come to equity must come with clean hands

1-19 This maxim requires that a plaintiff in equity not be guilty of some improper conduct in relation to the transaction that is in dispute, otherwise relief may be denied. This maxim does not, however, relate to general bad conduct and is limited to conduct associated with the transaction in dispute such as in PAI Insurances Ltd v Pioneer Concrete Services Ltd (1997) 15 NSWLR 552.

In that case (at 558), Young J considered the historic application of this maxim, commenting that the central idea was to provide a defence that would prevent the plaintiff's action succeeding when the plaintiff had acted dishonestly in bringing the action. Citing Otway v Otway (1888) 13 PD 141, his Honour gave an example from ecclesiastical law of a defence available in matrimonial cases where, if there was a petition for divorce on the grounds of adultery, the petitioner's own adultery would bar relief. In Black Uhlans Inc v New South Wales Crime Commission (2002) 12 BPR 22 at [181], Campbell J emphasised that even if the pre-conditions for application of the maxim are satisfied, equitable relief is always discretionary, and other factors can influence its exercise.

(6)

Equity assists the diligent and not the tardy

1-20 Mere delay is not normally a bar to equitable relief. However, equity has developed the defences of !aches and acquiescence, which operate where the plaintiff has acquiesced or unduly delayed in seeking equitable relief, to give the court a discretion to refuse to grant such relief. The Limitation Acts in each jurisdiction do not affect these equitable defences. In fact, !aches may be raised as a defence to equitable relief even within the statutory limitation period: Harcourt v White (1860) 54 ER 382. (7)

Equity is equality

1-21 Equity generally looks to proportionate equality, that is, it distributes losses and gains proportionately to the claims of the parties. In the tracing of equitable proprietary claims, most of the recent cases have leaned towards a pari passu approach as distinct from the application of technical rules and presumptions regarding ownership of property.

(8)

Equity looks to intent rather than form

Another example of this maxim at work can be found in Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 (quoting from Cheese v Thomas [1994] 1 WLR 129 at 136), where the High Court unanimously decided that, by seeking the rescission of a guarantee, Vadasz was seeking the assistance of a court of equity; and they who seek equity must do equity. The court looked at what was practically just for both parties, and enforced the guarantee to the extent of future indebtedness, which was what the plaintiff was prepared to undertake independently of any misrepresentation.

1-22 Where the common law is concerned with technical accuracy and compliance with form, equity may look to the substance of the transaction and allow a deviation from form. This maxim forms the basis of the doctrine of rectification and is well illustrated by the decision in Corin v Patton (1990) 169 CLR 540, where equity treated an assignment of property as effective even though the technical requirements of form had not been satisfied.

-6-

-7-

(9)

Equity regards as done that which ought to have been done

1-23 Equity may regard as done an obligation that some p~rson .was legally obliged to carry out. An example of this is where a party is entitled

LexisNexis Questions and Answers: Equity and Trusts

Chapter 2

to specifically enforce a contract, and the court may regard the contract as having been specifically performed in order to determine the rights of the parties, as in Walsh v Lonsdale (1882) 21 Ch D 9.

The Classification of Equitable Interests and Priorities

The close link between this maxim and 'equity looks to intent rather than form' was noted in Theodore v Mistford Pty Ltd (2005) 221 CLR 612 at 622, where the High Court stated per curium, 'by looking at the intent rather than the form, equity is able to treat as done that which in good conscience ought to be done'. (10)

Equity imputes an intention to fulfil an obligation

1-24 An example of this maxim is the presumption that arises from Re Hallett's Estate (1879) 13 Ch D 696, where a trustee who mixes trust funds with their own in a mixed account and then makes a withdrawal from that joint account is presumed to have withdrawn their own money first. (11)

Equity will not assist a volunteer

1-25 Equity will generally only step in where there has been consideration paid, as that is what binds the conscience of the other party. In the law governing the assignment of interests, this maxim is demonstrated through cases such as Corin v Patton. (12)

Equity acts in personam

1-26 Originally this maxim reflected the fact that equitable interests were non-proprietary and personal. Historically, the maxim was true in that equity made orders against the conscience of the party concerned and enforced its orders against the person by imprisonment (for example, by injunction). However, this maxim has lost its relevance in modern times, where equitable remedies are now often directed towards property.

p

Examiner's Comments 1-27 This question requires a basic knowledge of the maxims of equity. It then offers students an opportunity to answer the question using any case examples they feel are appropriate. The advantage of this type of question is that you can take examples from the areas of the course with which you feel most comfortable, since there is no one correct answer.

Keep in Mind 1-28

Here is an important point to keep in mind:

• Again, do not assume that the first week of the course is irrelevant. The operation of the maxims of equity is a popular choice for an essay question in equity exams. As it is not conceptually difficult, this topic ought to be included in your exam revision. -8-

•

Key Issues 2-1 The nature of an equitable interest is determined by the extent to which a court of equity will protect it by granting equitable remedies. The wide range of equitable estates and interests that may be classified differently for different purposes is a reflection of the flexible and discretionary nature of equitable remedies. 2-2 The classification of equitable interests involves a two-stage approach: ( 1) Is the right personal or proprietary? (2) Where does it fit in the hierarchy of interests? 2-3 Generally, personal rights are only enforceable against the person; proprietary rights are those affecting property, giving a claimant an interest in that property or a right affecting it: National Provincial Bank v Ainsworth [1965] AC 1175.

2-4 Equitable interests are classified according to a... hierarchy, which establishes three levels of equitable rights: (1) proprietary interests; (2) equitable mere equities; and (3) personal equities. The place of any equitable interest in this hierarchy is determined by the extent to which proprietary indicia are present. At the top of the hierarchy is the equitable proprietary interest where the holder has rights that can be exercised directly against the property itself and against some third parties: see, for example, Commissioner of Stamp Duties v Livingston (1960) 107 CLR 411. In the middle is the mere equity, which is not a full right to property, but a right in the nature of a chose in action which is ancillary to a right in property: Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265; Daly v Sydney Stock Exchange (1986) 65 ALR 193. -9-

LexisNexis Questions and Answers: Equity and Trusts

At the bottom is the personal equity, which is a right of access to a court of equity for a remedy and has no proprietary indicia at all. 2-5 Equity is flexible in the classification of equitable estates and interests, and often the classification may depend upon the nature of the problem before the court. The same classification is not necessarily adopted for all purposes. For example, an equitable right to set aside a conveyance does not necessarily constitute an equitable interest for the purpose of determining priorities, but it may constitute an equitable interest for the purpose of divisibility. 2-6 In equity, a priority is a legal precedence or the right to enforce a claim in preference to others. Where two parties claim an interest in the same property at the same time, the rules governing priorities are applied to determine who has the first right to the property. The first step is to classify the interests, after which you should determine and apply the appropriate legal rules.

Priorities disputes generally arise in one of the following three situations: (1) competing prior equitable and later legal interest; (2) competing prior legal and later equitable interest; and (3) two competing equitable interests. In each situation there is a general rule to determine priority; there are also exceptions to the general rules which need to be considered in light of the facts of each case. 2-7 Before tackling these questions, check that you are familiar with the following:

The Classification of Equitable Interests and Priorities At settlement, Henny noticed that there was a typographical error in the transfer. Xavier offered to correct it and send it to her later. Henny agreed and handed over the purchase price. Xavier commented that he was not surprised that Henny had no lawyers and asked if she would ever get around to registering the transfer documents. Henny said she would be putting her trust in karmic forces and that there was no rush getting the transfer to her. In time, Henny completely forgot about the transfer document and it was never registered. Two years later, Xavier received an offer from Ming Yang, who was returning from abroad and wanted to purchase Xavier's house at 31 Sort Street. Xavier, being an unreputable sort, signed a contract to sell the house to Ming Yang for $1,200,000. Ming Yang searched the legal title to the property, revealing that Xavier owned the property free of other interests. Settlement took place; Ming Yang received the transfer and paid Xavier in full. Within hours Xavier was struck by a guilty conscience and confessed to Henny that he had sold her house to Ming Yang because he was desperate for money. Henny immediately lodged a caveat to prevent Ming Yang from becoming the legal owner of the property. Advise Henny whether her interest takes priority over Ming Yang's interest. Time allowed: 40 mins

+Answer Plan 2-9 This question involves a priority dispute between competing equitable interests. Consideration ought to be given to the nature of the interests; when the interests were created; the rule to be applied to determine priority; and whether or not an exception applies. You may assume the house at 31 Sort Street is Torrens land.

,/

the hierarchy of equitable rights;

,/

the various High Court judgments in Latec Investments Ltd v Hotel Terrigal Pty Ltd (for recent applications, see Rutha/ Pty Ltd v Mills (2003) 11BPR20,793 and Re S & D International Pty Ltd (No 4) [2010] vsc 388);

,/

the doctrine of the bona fide purchaser for value without notice; and

Answer

,/

the decision of the High Court in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326.

2-10 Henny will need to establish that she should take priority over the interest held by Ming Yang.

To determine the priorities issue, four points should be addressed:

.;..~t Question 3

(1)

2-8 Henny abhorred attempts by society to dictate the way she conducts her life and her business. Henny operated an alternative therapies clinic and was looking for new premises when her old friend Xavier suggested that Henny should purchase his house at 31 Sort Street. Under the terms of a contract of sale dated 1 September, Henny agreed to a purchase price of $850,000 with settlement on 1 December.

-10-

What is the nature of the competing interests?

2-11

Registration is required to achieve a legal interest in Torrens land: Breskvar v Wall (1971) 126 CLR 376. Neither the interest of Henny nor Ming Yang has been registered. Where the contracts for sale are specifically enforceable, the purchaser has an equitable interest. This is a dispute between competing equitable proprietary interests.

-11-

LexisNexis Questions and Answers: Equity and Trusts

(2)

The Classification of Equitable Interests and Priorities

When were the competing interests created?

practice to lodge a settlement notice upon settlement to protect an equitable interest prior to registration.

2-12 Henny's equitable interest was created at the time the contract with Xavier was created, which on the facts is clearly before Ming Yang's interest in the property arose under his contract with Xavier. (3)

Failure to lodge a caveat was one of the range of circumstances taken into account by the court in Re S & D International Pty Ltd [2010] VSC 388. In Heid v Reliance Finance Corp Pty Ltd (Heid), Barwick CJ considered that mere failure to lodge a caveat was not determinative, as the central question remained whether it would be inequitable for the holder of the prior equity to retain priority: at 552.

What is the rule to be applied to determine priority?

The general principles for resolving a priorities dispute between two competing equities also apply to determining priority disputes between competing unregistered interests in Torrens land: Breskvar v Wall. The general rule is that where the equities are equal, the first in time prevails: Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 262 at 276 per Kitto J. 2-13

(4)

2-15 Applying the Court's analysis in Heid to these facts, the Court would ask two questions:

(1) Has there been an act, neglect or default on the part of Henny? (2) What are the reasonably foreseeable consequences of such act or default?

Does an exception apply?

2-14 The general rule will not apply where the equities are not equal. Exceptions of this nature involve an examination of the conduct of the holder of the earlier interest to determine whether, in all the circumstances, the prior interest should be postponed.

The question the court will need to consider in each case is: 'Did the conduct of the prior holder make it reasonably foreseeable that a later equitable interest would be created?' In the case of Torrens land, relevant considerations may include the conduct of the holder of the first interest and whether the holder of an unregistered interest has lodged a caveat or settlement notice.

To answer the first question, it is relevant to consider the reasonably forseeable or natural consequences of Henny's decision to pay over the purchase money in circumstances where she entrusted the vendor to attend to correction of the transfer and has completely omitted to confirm registration. Further Henny did nothing to protect her interest until she became aware of the subsequent interest. In Heid, the Court considered it necessary to characterise the conduct of the holder of the earlier equitable interest in order to determine whether, in all the circumstances, that conduct was such that, in fairness and justice, the earlier interest should be postponed to the later interest.

The role caveats and settlement notices play in property law is an important one, but in this context an important consideration is the function of such an instrument in giving notice 'to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest':] & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 at 552 per Barwick CJ.

Henny's conduct is likely to amount to an act of recklessness or negligence in circumstances where she has not acted otherwise to protect her interests. Considerations leading to this conclusion may include current conveyancing practice to determine what conduct is reasonable, whether Henny ought to have acted to protect her interests and the natural consequences of Henny's failure to act to protect her interests.

This was considered by the High Court in Heid v Reliance Finance Corp Pty Ltd in determining a priority dispute between two competing equitable interests. In considering the conduct of the holder of the prior equity, Mason and Deane JJ noted, at 342, that something more would be required than a 'causal nexus between an act or omission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity'. Their Honours explained, at 342, that fairness and justice demanded that the Court's primary concern be 'those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest'.

To answer the second question, as to the reasonably forseeable consequences of Henny's conduct or lack of action, inquiry must be made as to whether persons acquiring subsequent interests in the property would be led into the mistaken assumption that the prior equitable interest did not exist. Here it seems clear that Ming Yang has relied on his search of the register prior to completing the purchase.

Given the long period between contract and settlement, Henny would have been well advised to lodge a caveat to protect her interests. In some jurisdictions it is becoming an increasingly common conveyancing -12-

In conclusion, the general rule would not apply as the equities are not equal. Ming Yang would take priority.

p

Examiner's Comments This question required an understanding of the vulnerability of unregistered equitable interests. Examiners often base exam questions on leading cases where basic knowledge of this process is crucial. 2-16

-13-

The Classification of Equitable Interests and Priorities

LexisNexis Questions and Answers: Equity and Trusts

rffr

~

To determine the priority dispute, four matters should be addressed:

Keep in Mind 2-17

Here is an important point to keep in mind:

• Take care to discern which aspect of the topic to discuss. The equities at the heart of this dispute appeared similar; only an examination of the conduct of the holder of the prior equity revealed that the equities were not in fact equal. In such a case, answers should be focused on the nuances of the rules that will determine the dispute, along with careful and considered application to the facts.

(a)

2-22 Registration is required to achieve a legal interest in Torrens land: Breskvar v Wall (1971) 126 CLR 376. Neither interest of Melody or Gilbert has been registered. Neither contract has been settled. Where the contracts for sale are specifically enforceable, the purchaser has an equitable interest. This is a dispute between competing equitable proprietary interests.

(b)

,;.~'' Question 4

When were they created?

Gilbert's interest under a contract of sale with Benita arose first in time. It is not relevant that the settlement date under the contract of sale between Benita and Melody was scheduled earlier.

2-23

2-18 Benita entered into an unconditional contract to sel I her townhouse for $250,000 to Gilbert, with settlement due at 3 pm, 1 December. The day before settlement, a new interested cash buyer, Melody, expressed interest in the townhouse. When Melody inquired if the house was still on the market, Benita advised that there was a contract on the property but was she still open to higher offers. Melody offered Benita $350,000 with settlement set down for 2.30 pm, 1 December. Benita sent Gilbert a text message to tell him she had changed her mind and would not be proceeding to settlement on their contract. Gilbert lodged a caveat to protect his interest. The contract between Melody and Benita has not been settled due to the caveat. Advise Gilbert. Time allowed: 40 mins

+ ·Answer Plan 2-19 This question requires a discussion of the ways in which equitable estates and interests are classified in order to determine prior interests.

Matters that should be considered are: (a) (b) (c) (d)

What is the nature of the competing interests?

What is the nature of the competing interests? When were they created? What is the general rule? Does an exception apply?

2-20 In this problem, the final step requires a consideration of the exception relating to notice of prior interests. You may assume the townhouse is Torrens land.

(c)

What is the general rule?

2-24 The general principles for resolving a priorities dispute between two competing equities also apply to determining priority disputes between competing unregistered interests in Torrens land: Breskvar v Wall. The relevant general rule is, where the holder of a later equitable interest takes with notice of a prior equitable interest, the holder of the later interest takes subject to the first interest: Moffett v Dillion [1999] 2 VR 480. In Platzer v Commonwealth Bank of Australia (1977) 1QdR266 at 273, Davies JA, citing Lapin v Abigail (1930) 44 CLR 166 at 182, explained, 'almost universally, where the holder of an equity acquired it without notice of a prior equity, its claim to priority must fail'.

The question is whether the holder of the later equitable interest took that interest with knowledge of the prior equity. Notice can be actual or constructive: Barclays Bank pie v O'Brien [1994] 1 AC 180. Here, Melody has actual notice that there is an existing contract over the property.

In JN] Investments Pty Ltd v Sunnyville [2006] QSC 138, a priority dispute arose when the owner of a parcel of Torrens land entered two contracts with two different parties for the sale of the land. Both potential purchasers acquired an equitable interest in the land. In determining the priority interest between them, Mullins J held at [70] that priority lay with the equitable interest arising first in time, as the later equitable interest was acquired with knowledge of the prior interest. Among other things, the holder of the prior interest had lodged a settlement notice in relation to its interest.

Answer

(d)

A priority dispute arises between Melody and Gilbert. The interests of both compete over the same property. Gilbert will need to establish that his interest should take priority over the interest held by Melody.

2-25 There are a number of exceptions to the relevant general rule that, where the holder of a later equitable interest takes with notice of a prior equitable interest, the holder of the later interest takes subject to the

-14-

-15-

2-21

Does an exception apply?

LexisNexis Questions and Answers: Equity and Trusts

first interest. These exceptions were succinctly explained by Davies JA in Platzer v Commonwealth Bank of Australia (1977) 1QdR266 at 273:

Chapter 3

There are nonetheless exceptions to this [rule] of which the most obvious are an agreement to postpone (as in ANZ Banking Group Ltd v National Mutual Life Nominees Ltd (1977) 15 ALR 287), or waiver of priority (as in Fung Ping Shan v Tong Shun [1918] AC 403). There may also be other conduct on the part of the holder of the prior equity which may estop her from asserting her priority.

Equitable Assignments: The Requirements of Writing

Here, Melody has clearly taken with actual notice of Gilbert's interest. None of the relevant exceptions would apply. Gilbert's interest would take priority.

Examiner's Comments 2-26 The legal issues in this problem were quite straightforward. Answers which took a systematic approach to identifying and explaining the relevant law and careful application to the facts would attract high marks.

~ ~ Keep in Mind 2-27

Here is an important point to keep in mind:

• Take care to discern which aspect of the topic to discuss. Where the equitable interests are of the same type, answers should be focused on the nuances of the rules that will determine the dispute, along with demonstration of the depth of your understanding of the rules through careful and considered application to the facts.

•

Key Issues 3-1 An assignment is 'the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee': Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26 per Windeyer J. To be valid and effectual, an assignment must comply with any relevant requirements of writing and form. This chapter deals with the requirements of writing and Chapter 4 deals with the requirements of form. You are advised to work on these two chapters together. 3-2 An equitable interest in property may be disposed of in the following ways: • • • • •

direct assignment (transfer) to a third party; direction to trustees to hold property on trust for a third party; contract for valuable consideration to assign to a third party; declaration as trustee for a third party; and direction to trustee to transfer trust property to a third person.

3-3 It is important to identify the form that the assignment takes, because, if an assignment intended to take one form fails, equity will not save the assignment by construing it to take another form: Milroy v Lord (1862) 45 ER 1185. 3-4 Legislation in all jurisdictions imposes requirements of writing for the assignment of property inter vivas; different considerations apply where property is transferred by will to take effect post mortem. In Queensland, the relevant legislation is found in the Property Law Act 1974 (Qld) ss 11 and 59. The Queensland legislation is referred to in this chapter; however, you should check legislation in your jurisdiction for differences. The equivalent of the Property Law Act (Qld) s 11 in other jurisdictions is contained in the following provisions: Conveyancing Act 1919 (NSW) s 23C(l); Law of Property Act 2000 (NT) ss 10 and 62; Law of Property Act 1936 (SA) s 29(1); Conveyancing and Law of Property Act 1884

-16-

-17-

LexisNexis Questions and Answers: Equity and Trusts

Equitable Assignments: The Requirements of Writing

(Tas) s 60(2); Property Law Act 1958 (Vic) s 53(1); Property Law Act 1969 (WA) s 34(1); Statute of Frauds 1677 (UK) 29 Chas II cl 3 s 7. 3-5 There are unsettled questions as to overlaps between the various legislative provisions and therefore as to whether a particular assignment must comply with actual or evidentiary writing requirements, or may be oral. Actual writing must be contemporaneous with the assignment. Evidentiary writing does not have to take any particular form; it can be constituted by a combination of documents read together, does not have to be contemporaneous with the assignment and may come into existence after it, even unintentionally: Forster v Hale (1798) 30 ER 1226; Hagan v Waterhouse (1991) 34 NSWLR 308; Secretary, Department of Social Security (SDSS) v James (1990) 95 ALR 615; Pascoe v Boensch (2008) 250 ALR 24. The essential features of writing are the terms of the trust, trust property and beneficiaries. 3-6 Unless the relevant statutory requirements of writing are complied with, the assignment will either be void or voidable as specified in the legislative provisions. 3-7 The Property Law Act (Qld) s 59 provides that contracts for the sale of interests in land must be evidenced in writing. 3-8 The Property Law Act (Qld) s ll(l)(a) requires actual writing for the creation or disposition of an interest in land, otherwise the disposition is wholly void. Land includes leaseholds and mining claims: Adamson v Hayes (1973) 130 CLR 276. The section applies to both legal and equitable interests in land: Adamson v Hayes; Theodore v Mistford [2003] QCA 580; but compare Balog/ow v Konstandis (2001) 11 BPR 20721 which limited the section to legal interests only. The section relates to both the creation and disposition of interests. Disposition is defined in the dictionary contained in Sch 3 (Property Law Act (Qld) s 3 ). Disposition for the purposes of s 11 includes direct assignments and directions to trustees (Grey v Internal Revenue Commissioners [1960] AC 1). The term may also include declarations of trust: Property Law Act (Qld) s 3 - Sch 3 dictionary; Adamson v Hayes; Grey v Internal Revenue Commissioners; but compare and contrast SDSS v James and Hagan v Waterhouse which find that declaration of trust is not a disposition for the purposes of s ll(l)(a). Disposition may also include contracts for valuable consideration (Adamson v Hayes, but compare and contrast Abjornson v Urban Newspapers [1989] WAR 191 - see also Theodore v Mistford Pty Ltd (2005) 221 CLR 612; Halloran v Minister Administering National Parks and Wildlife Act 1974 (2006) 224 ALR 79; compare Khoury v Khouri (2006) 66 NSWLR 241). However, even if the s ll(l)(a) writing requirements apply to the contracts for the sale of land, once consideration has passed under a specifically enforceable agreement, a constructive trust arises which is exempt from the writing requirements: Oughtred v Inland Revenue Commissioners [1960] AC 206; Property Law Act (Qld) s 11(2). Although a direction to trustees to transfer trust property to a third person is prima facie a disposition

of both the legal and equitable interests, if the transfer of the legal title complies with the necessary writing requirements, no further writing is required to transfer the equitable title: Vandervell v Inland Revenue Commissioners [1967] 2 AC 291. 3-9 The Property Law Act (Qld) s ll(l)(b) provides that a declaration of trust respecting any land must be evidenced in writing. It applies only to declarations of trust relating to land, not personalty: Grey v Internal Revenue Commissioners; Paul v Constance [1977] 1 WLR 527.

-18-

3-10 The Property Law Act (Qld) s ll(l)(c) provides that a disposition of an equitable interest or trust subsisting at the time of disposition must be evidenced in writing. The section applies to both land and personalty: Adamson v Hayes; PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241. It applies only to the disposition of subsisting equitable interests or trusts; therefore, when an assignment takes effect by declaration of trust, the section will not apply. If the holder of the equitable interest purports to assign his or her interest, then he or she is really declaring a subtrust, the effect of which depends upon whether the subtrust is passive or active: Re Lashmar [1891] 1Ch258. If the subtrust is passive, the better view is that there is a disposition of a subsisting equitable interest (Re Lashmar) and the section applies. Conversely, if the subtrust is active, there is a creation of a new equitable interest and the section does not apply.

Exceptions to the requirements of writing include: 'fraud' (Rochefoucauld v Boustead [1897] 1 Ch 196; Property Law Act (Qld) s 11(2)); resulting, implied or constructive trusts (Oughtred v Internal Revenue Commissioners); and part performance and other forms of unconscionable conduct giving rise to an equity such as estoppel. 3-11

3-12 Before tackling these questions, check that you are familiar with the following:

.f

the nature and effect of an assignment of property;

.f

the various methods of assigning equitable interests in property;

.f

the legislation that imposes writing requirements;

.f

the distinction between actual and evidentiary writing;

.f

the practical significance of the legislative requirements of writing;

.f

the meaning of 'disposition' for the purposes of the legislation;

.f

the potential for overlaps between the various sections of the legislation; the circumstances in which there will be a disposition of a subsisting equitable interest as opposed to a creation of an equitable interest; and

.f .f

the exceptions to the requirements of writing. -19-

Equitable Assignments: The Requirements of Writing

LexisNexis Questions and Answers: Equity and Trusts

;.·ft Question 5

Matters that should be considered are:

3-13 Delta Rock, a pop star, decided to abandon her material is tic lifestyle and head north. She emailed her solicitor and asked her to draw up a document so that she could divest herself of most of her wealth. A deed was prepared and signed by Delta, which contained, inter alia, the following provisions: 1. To Seal I give the $10,000 debt owed to me by Voice Record Company. 2. To Joel I give my right title and interest in an amount equal to 90 per cent of the royalties that I may receive from my recording contract with Voice Record Company. 3. To Ricky I give my holiday house at Broadbeach. Keen to rid herself of all her debts, Delta telephoned her manager, Mel, to whom she owed money. They agreed that in consideration of Delta assigning Mel a half interest in the $10,000 debt owed by Voice Record Company and her shares in Rock Pty Ltd, Mel would forgive all debts owed by Delta. Mel signed the release and posted it to Delta. Knowing how unreliable Delta was, Mel immediately contacted Voice Record Company to tel I it of the transfer. Within a fortnight, Delta returned to Brisbane. She immediately rang her solicitor to advise that she was once again a 'material girl' and all earlier arrangements were cancelled. Delta's solicitor has received a signed transfer for the holiday house from Delta (there is no certificate of title), but has not yet lodged it for registration. No royalties have been received since Delta's departure. The Rock Pty Ltd shares remain registered in Delta's name but are in fact held by Delta as trustee for herself for life, and after her death for Nicole. Advise all parties as to their interests and entitlements under the above arrangements.

Time allowed: 40 mins (including discussion of requirements of form - see Chapter 4 )

+Answer Plan 3-14 This question requires you to determine whether the assignments of property that Delta made prior to her departure are effective, at least in equity. If the assignments are effective, Delta's conscience is bound and she cannot recover the property assigned. On the other hand, if the assignments are not effective, Delta will be able to reclaim the property. In order to be valid and effectual, an assignment must comply with the necessary requirements of writing and form. A complete answer will consider both. The answer outline below addresses only the requirements of writing. The requirements of form are considered in the answer outline contained in Chapter 4 . -20-

(a) Is the assignment of the $10,000 debt owed by Voice Record Company effective? {i) Has the whole debt been validly assigned to Seal? (ii) Has half the debt been validly assigned to Mel? (b) Is the assignment of 90 per cent of the royalties from the Voice Record Company recording contract to Joel effective? (c) Is the assignment of the holiday house at Broadbeach to Ricky effective? (d) Is the assignment of the Rock Pty Ltd shares to Mel effective?

Answer [Note: if the assignments comply with the requirements of writing, you should consider your answer in the context of Chapter 4, to determine whether the requirements of form have been satisfied so that the assignment is valid.] (a) (i)

Is the assignment of the $10,000 debt owed by Voice Record Company effective? Has the whole debt been validly assigned to Seal?

3-15 The statutory requirements of writing are contained in the Property Law Act (Qld) s 11. You should check the relevant legislation in your jurisdiction. To determine what the requirements of writing are, it is necessary to identify the form that the transfer takes. In this case, it is an outright transfer of personalty. The Property Law Act (Qld) s ll(l)(c) is the only section that applies to transfers of personalty (it applies to realty and personalty): Adamson v Hayes; PT Ltd v Maradona Pty Ltd (No 2). The section provides that evidentiary writing must be present, otherwise the disposition will be unenforceable. In other Australian states and territories the provisions corresponding to the Property Law Act (Qld) s ll(l)(c) generally require actual writing. No particular form of writing is necessary; for example, it may include correspondence (Forster v Hale; Hagan v Waterhouse) and the requirement may be satisfied by a combination of documents capable of being read together: SDSS v James. The section only applies to transfers of subsisting equitable interests in personalty. As this is a transfer of full ownership and there was no subsisting equitable interest, the section will not apply: Vandervell v Inland Revenue Commissioners. Therefore, this assignment could have been oral. In any event, the transfer takes effect by way of deed of gift which would have satisfied a requirement of either actual or evidentiary writing.

-21-

LexisNexis Questions and Answers: Equity and Trusts (ii)

Has half the debt been validly assigned to Mel?

As discussed above, the assignment may be oral. The oral assignment over the telephone is sufficient. In any event, consideration has passed, so the constructive trust exception to the requirements of writing will apply: Property Law Act (Qld) s 11(2); Oughtred v Internal Revenue Commissioners. 3-16

(b)

Is the assignment of 90 per cent of the royalties from the Voice Record Company recording contract to Joel effective?

Equitable Assignments: The Requirements of Writing

performance generally, see Chapter 12). Consideration has passed as the debts have been released; therefore, Delta's conscience is bound under a constructive trust: Oughtred v Internal Revenue Commissioners. Therefore, even if the Property Law Act (Qld) s ll(l)(c) does apply and evidentiary writing is required, the fact that the assignment is oral will not be fatal in this case as the s 11(2) constructive trust exception will apply.

3-17

Examiner's Comments

(c)

3-20 In this question, better marks would have been obtained by those students who more closely analysed and criticised the principal cases and distinguished the facts in those cases from the facts before them. They would have shown that they had read and understood the cases and were able to apply them to novel fact situations .

In this case, there are no requirements of writing as the transfer is of the full ownership of personalty as discussed above. Is the assignment of the holiday house at Broadbeach to Ricky effective?

3-18 This is a transfer of a legal interest in land: Adamson v Hayes. The Property Law Act (Qld) s ll(l)(a) will apply. The Property Law Act (Qld) s 59 may also apply if the deed is construed to take effect as a contract. In any event, both actual and evidentiary writing is satisfied by the deed and signed transfer. (d)

Is the assignment of Rock Pty Ltd shares to Mel effective?

3-19 In this case, there is a transfer of an equitable interest in personalty (Delta's interest as life tenant under the trust of the Rock Pty Ltd shares). The only writing provision that can apply is the Property Law Act (Qld) s ll(l)(c), which imposes an evidentiary writing requirement. Section ll(l)(c) applies only to the disposition of subsisting equitable interests. Consequently, where an equitable interest is created, the subsection does not apply. When Delta purports to assign her equitable interest, then she is really declaring a subtrust. In order to determine whether the section applies, it is necessary to determine whether the subtrust is active or passive: Re Lashmar. If this takes effect as a passive subtrust because Delta, the primary trustee, 'disappears from the picture', then there is a disposition of a subsisting equitable interest and the section applies : Re Lashmar. If this is not the case, then there will be a creation of an interest and the section cannot apply.

If the section does apply, the purported assignment of the Rock Pty Ltd shares will prima facie fail as it is oral. However, an exception to the requirements of writing in the Property Law Act (Qld) s 1 l(l)(c) arises if a constructive trust exists. Once consideration has passed under a specifically enforceable agreement, a constructive trust arises that is exempt from the writing requirements by the Property Law Act (Qld) s 11(2): Oughtred v Internal Revenue Commissioners. In this case, the contract is specifically enforceable as the shares in the private company are rare (as to specific

-22-

Better marks would have been obtained by those students who noted that the view adopted from Oughtred v Internal Revenue Commissioners was a minority judgment, though it has been followed in subsequent cases.

f!;.~ Keep 3-21

.rn M.rn d

Here are some important points to keep in mind:

• Ensure you read the question carefully and plan answers so that all issues are considered. State the issue, then apply the relevant law to the facts and come to a conclusion. Careful reading and planning in this question will ensure that all purported assignments are considered for validity in terms of compliance with the requirements of writing to assign either at law or in equity. Obviously, if a purported assignment is missed, then valuable marks are lost. Always plan your answer and stick to time allocations, as often the first half of the marks is easier to attain, and too long spent on one question may mean that you forfeit marks in the next question. • In this area there is some uncertainty as to the correct interpretation of the law. It is therefore necessary to state the position as far as binding High Court authority is concerned, and then consider judicial and academic criticism to reach a determination as to the better approach. Always discuss such situations in the alternative so that you cover the scenario where the orthodox approach is followed. This is especially important, as many of the decisions under this topic are English decisions which, although highly persuasive, may not be technically binding on the High Court.

-23-

Equitable Assignments: The Requirements of Writing

LexisNexis Questions and Answers: Equity and Trusts

.~'' Question 6 3-22 In February, after hearing of his daughter Kerry's recent promotion, Athol! phoned Kerry to tell her that he was now holding his Hamilton apartment on trust for her. The next day Athol I sent an SMS message to his solicitor, which he copied to Kerry, confirming what he'd done. In March, Atholl decided to upgrade his office computer network. Following the advice of Flynn, a specialist IT consultant, Athol! purchased the computer hardware and software from Jack, who also installed it. Unfortunately, within a month it became apparent that the computer system was defective and totally unsuitable for Atholl's needs. Atholl therefore demanded that Jack replace the system, failing which he would commence legal proceedings. As there was no response from Jack after two months, Atholl commenced proceedings against Jack, joining Flynn as a defendant in the action. In June, Flynn offered to settle the dispute with Athol! for $10,000 subject to an assignment by Athol I to him of his rights against Jack. Athol I agreed, then he and flynn signed a written deed of assignment. In July, Athol! decided to donate some of his vast wealth to charity. As he held a substantial portfolio of shares as beneficiary in a unit trust, he wrote to the trustee, Hamond Trustees Ltd, and instructed it to transfer the title to his shares to the Salvation Army. Hamond Trustees Ltd acted on Athol l's instructions and registered the Salvation Army as owner of the shares. In August, Athol! decided to minimise his tax by transferring his right to be paid interest on a loan owed to him by Tom. The loan was for $500,000 for three years, interest at 10 per cent, but could be repaid in full at any time on a day's notice. As Athol I owed Paris some money, she agreed to accept the transfer of the interest in lieu of repayment. Athol! confirmed the arrangements in a signed letter to Paris. Unfortunately Athol! died suddenly last week. His will appointed his girlfriend Kate to be the executor and trustee of his estate and the sole beneficiary. Kate has come to you for advice and has told you that the action against Jack settled this week for $50,000 plus interest. Advise Kate. Time allowed: 40 mins (including discussion of requirements of form as considered in Chapter 4)

+Answer Plan 3-23 This question requires you to determine whether the assignments of property that Atholl made prior to his death are effective, at least in equity. If the assignments are effective, Atholl's conscience is bound and Kate cannot recover the property assigned in her capacity as executor and beneficiary of the will. On the other hand, if the assignments are not effective, the property will be available for distribution to Kate in accordance with Atholl's will.

-24-

In order to be valid and effectual, an assignment must comply with the necessary requirements of writing and form. A complete answer will consider both. The answer plan below addresses only the requirements of writing. The requirements of form are considered in the answer plans in Chapter 4 . Matters that should be considered are: (a) Is the declaration of trust of the Hamilton apartment for the benefit of Kerry effective? (b) Is the assignment to Flynn of the right to sue Jack effective? (c) Is the assignment of the shares in the unit trust to the Salvation Army effective? (d) Is the assignment to Paris of 100 per cent of the right to interest on the loan owed to Atholl by Tom effective?

Answer [Note: the answer guide refers to Queensland legislation. If the assignments below comply with the requirements of writing, you should consider your answer in the context of the requirements of form in Chapter 4 .]

(a)

Is the declaration of trust of the Hamilton apartment for the benefit of Kerry effective?

3-24 This assignment takes effect by way of declaration of trust. It may be that a declaration of trust must comply with the requirements imposed by both ss 1 l(l)(a) and 1 l(l)(b) of the Property Law Act (Qld). The Property Law Act (Qld) s ll(l)(a) applies to both legal and equitable interests: Adamson v Hayes. There has been conflicting judicial and academic opinion as to whether trusts created by declaration are withins ll(l)(a). It has been suggested that disposition includes declaration of trust because: • the definition of 'disposition' in the Property Law Act s 3 dictionary expressly includes a declaration of trust; and • a majority of the High Court has held that a declaration of trust falls within both s ll(l)(a) and (b) of the Property Law Act (Qld): Adamson v Hayes (the agreement amounted to a declaration of trust creating new interests - the beneficial owner declared a subtrust by assigning the beneficial interests); see also Grey v Internal

Revenue Commissioners. However, this view has been criticised for the following reasons:

• If a declaration of trust can fall within both s ll(l)(a) and (b) of the Property Law Act (Qld), this does, however, seem to render -25-

LexisNexis Questions and Answers: Equity and Trusts

Equitable Assignments: The Requirements of Writing

s ll(l)(b) obsolete, since a declaration of trust of land will always come withins ll(l)(a) and have to be in writing, whereas s ll(l)(b) merely requires it to be evidenced in writing: SDSS v James; Hagan v Waterhouse. • Even though the word 'disposition' in the Property Law Act (Qld) s 3 dictionary includes a declaration of trust, that meaning applies 'unless the contrary intention appears' and thats ll(l)(b) should be regarded as a context requiring s ll(l)(a) to be construed as not extending to a declaration of trust.

must be present, otherwise it will be unenforceable. (Note that, in other Australian states and territories, the equivalent of the Property Law Act (Qld) s ll(l)(c) requires actual writing.) The section only applies to transfers of subsisting equitable interests in personalty. As this is a transfer of full ownership and there was no subsisting equitable interest, the section does not apply: Vandervell v Inland Revenue Commissioners. Therefore, this assignment could have been oral. In any event, a written deed of assignment was signed by Atholl and Flynn. (c)

It is therefore not clear whether a declaration of trust that complies withs ll(l)(b), but nots ll(l)(a), of the Property Law Act (Qld), is valid or void: however, it is suggested that the better approach is that which construes s ll(l)(a) as not extending to declarations of trust (SDSS v James), although this is contrary to the High Court authority of Adamson v Hayes. SDSS v James has been applied in subsequent decisions such as Hagan v Waterhouse; Yard v Yardoo [2006] VSC 109; Thompson v White [2000] NSWCA 350.

In this case, the assignment takes effect as a direction to a trustee (Hamond Trustees Ltd) to transfer the trust property to a third party (the Salvation Army). 3-26

Although such a direction is prima facie a disposition of both the legal and equitable interests, if the transfer of the legal title complies with the necessary writing requirements, no further writing is required to transfer the equitable title: Vandervell v Inland Revenue Commissioners. In Vandervell v Inland Revenue Commissioners, the House of Lords held that the transfer of the trust property by the trustees at the direction of the person having the entire beneficial interest (with the intention that the beneficial interest should also pass) carried with it the beneficial interest automatically and without the need for further writing. The transfer of the legal title carries with it the transfer of the equitable title without the need for additional writing, as 'the greater includes the less': at 311-12 per Lord Upjohn (with whom Lord Pearce agreed), at 317 per Lord Donovan.

If the Property Law Act (Qld) s ll(l)(a) applies, it requires the assignment to be in writing signed by the assignor or their agent. In this case, if the section applies, the writing requirements would not be satisfied, as the declaration is made orally by Atholl and evidenced in writing by the SMS to the solicitor and Kerry the next day. The Property Law Act (Qld) s ll(l)(b) relates to declarations of trust with respect to land. The section provides that the declaration of trust must be evidenced in writing by the assignor. In this case, there has been a declaration of trust with respect to an interest in land and the declaration has been evidenced in writing by the SMS. Therefore, the requirements of s ll(l)(b) have been complied with.

Therefore, although prima facie it would seem that the Property Law Act (Qld) s ll(l)(c) must be complied with to transfer Atholl's equitable interest under the unit trust, as he was absolutely e.ptitled and could direct the trustee to transfer the property to a third party, the effective transfer of the legal title by registration of the Salvation Army as owner of the shares carried with it the transfer of the equitable title, without the need for further writing.

The Property Law Act (Qld) s ll(l)(c) cannot apply in this case, as the section only deals with the disposition of subsisting equitable interests, although it applies to both realty and personalty. In this case, there has been a creation of an equitable interest out of Atholl's full ownership by his declaration of trust. Therefore, if the view is upheld that a declaration of trust of realty comes within both s ll(l)(a) and s ll(l)(b) of the Property Law Act (Qld), the writing requirements have not been satisfied. If, however, the better view is that there is no overlap and only s ll(l)(b) applies to declarations of trust, then the evidentiary writing requirements have been satisfied. (b)

(d)

-26-

Is the assignment to Paris of 100 per cent of the right to interest on the loan owed by Athol/ to Tom effective?

Here there has been an assignment of full ownership of personalty (a legal chose in action). As the Property Law Act (Qld) s ll(l)(c) only relates to transfers of subsisting equitable interests in personalty, the section does not apply. 3-27

Is the assignment to Flynn of the right to sue Jack effective?

3-25 This is an outright transfer of personalty - a chose in action. The Property Law Act (Qld) s ll(l)(c) is the only section that applies to transfers of personalty: Adamson v Hayes; PT Ltd v Maradona Pty Ltd (No 2). Where a disposition falls within the section, evidentiary writing

Is the assignment of the shares in the unit trust to the Salvation Army effective?

P

Examiner's Comments 3-28 In this question, better marks would have been obtained by students who more closely analysed and criticised the principal cases and -27-

LexisNexis Questions and Answers: Equity and Trusts

distinguished the facts in those cases from the facts before them in the question. They would have shown that they had read and understood the cases and were able to apply them to novel fact situations.

Chapter 4

Equitable Assignments:

In questions such as this, planning is crucial so that you do not miss issues. tffr~

•

.

Keep in Min 3-29

d

The Requirements of Form

Here are some important points to keep in mind:

• Ensure you read the question carefully and plan answers so that all issues are considered. State the issue, then apply the relevant law to the facts and come to a conclusion. • In this area, there is some uncertainty as to the correct interpretation of the law. It is therefore necessary to state the position as far as binding High Court authority is concerned and then consider judicial and academic criticism and come to a determination which is the better approach. Always discuss such situations in the alternative so that you cover the scenario where the orthodox approach is followed: many of the decisions are English decisions which, although highly persuasive, may not be technically binding on the High Court. For example, in this case, it was necessary to show an adequate knowledge and understanding of the circumstances when an overlap between ss ll{l)(a) and (b) will arise. • Take care when restating the law, where a question involves an analysis of an area previously discussed in another context. You should refer to your previous comments and note differences in application. • Check you identify the form that the assignment took - failure to do this would mean that incorrect principles would be applied.

3-30 In relation to the shares, the key issue was whether there were additional requirements of writing to transfer the equitable interest this required a discussion of Vandervell v Inland Revenue Commissioners.

Key Issues 4-1 An assignment is 'the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee': Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26 per Windeyer]. To be valid and effectual, an assignment must comply with any relevant requirements of writing and form. This chapter deals with the requirements of form. Chapter 3 deals with the requirements of writing. You are advised to work on these two chapters together.

4-2 Although most forms of property can be assigned either at law or in equity, there are some statutory and general law restrictions. General law restrictions include the assignment of public pay (Arthbuthnot v Norton (1846) 13 ER 474); certain contractual rights; and bare rights to litigate (Clegg v Bromley [1912] 3 KB 474; Trendtex Trading Corp v Credit Suisse [1982] AC 679; Brownton v Edward Moore Inbucon Ltd [1985] 3 All ER 499; Campbells Cash & Carry v Fostif[2006] HCA 41). To effect an assignment, whether at law or in equity, there must be a clearly manifested intention to assign (to divest the assignor of property and vest it in the assignee) - Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 (legal property); Norman v Federal Commissioner of Taxation {equitable property) - as opposed to a revocable mandate or authority: Comptroller of Stamps v Howard-Smith (1936) 54 CLR 614. 4-3

4-4 If the property to be assigned is legal property assignable at law, the formalities depend upon the type of property to be assigned. If the property is Torrens system land, the appropriate instrument must be registered: Land Titles Act 1925 (ACT) s 73; Real Property Act 1900 (NSW) s 46, 51; Land Title Act 2000 (NT) ss 184-5; Land Title Act 1994 (Qld) ss 181, 182; Real Property Act 1886 (SA) s 96; Land Titles Act 1980 (Tas) s 58; Transfer of Land Act 1958 (Vic) ss 27E, 40; Transfer of Land Act 1893 (WA) s 82.

-28-

-29-

Equitable Assignments: The Requirements of Form

LexisNexis Questions and Answers: Equity and Trusts

4-5 If the property is a chose in possession, to assign by way of gift there must be delivery with an intention to give, or a deed of gift: Cochrane v Moore (1890) 25 QBD 57. Alternatively, a contract for sale must comply with the provisions of the Sale of Goods Acts: Sale of Goods Act 1954 (ACT) s 22; Sale of Goods Act 1923 (NSW) s 22; Sale of Goods Act 1972 (NT) s 22; Sales of Goods Act 1896 (Qld) Pt 3, particularly ss 20, 22; Sale of Goods Act 1895 (SA) s 17; Sale of Goods Act 1896 (Tas) s 22; Sale of Goods Act 1958 (Vic) s 22; Sale of Goods Act 1895 (WA) s 17. 4-6 To assign a legal chose in action, generally the Property Law Act 1974 (Qld) s 199 must be complied with. Other jurisdictions have similar provisions: Conveyancing Act 1919 (ACT) s 12; Conveyancing Act 1991 (NSW) s 12; Law of Property Act 2000 (NT) s 182; Law of Property Act 1979 (NT) s 182; Law of Property Act 1936 (SA) s 15; Conveyancing and Property Law Act 1884 (Tas) s 86; Property Law Act 1958 (Vic) s 134; Property Law Act 1969 (WA) s 20. Particular choses in action, such as shares, are governed by specific legislative provisions: see, for example, Corporations Act 2001 (Cth) s 1071B. 4-7 If a purported assignment at law of legal property assignable at law fails, the assignment may nevertheless take effect in equity if the assignor has done all that is necessary to be done by him or her alone, even though something may remain to be done: Property Law Act 1974 (Qld) s 200; the rule in Milroy v Lord (1862) 45 ER 1185; Corin v Patton (1990) 169 CLR 540; Marchesi v Apostolou [2007] FCA 986; Public Trustee (Qld) (as Litigation Guardian for ADP) v Ban (No 2) [2012] QSC 97.

If the property to be assigned is legal property not assignable at law, all that is required for a valid assignment in equity is a clear expression of an intention to make an immediate disposition, as distinguished from a revocable mandate: Norman v Federal Commissioner of Taxation; Shepherd v Federal Commissioner of Taxation. 4-9 If the property to be assigned is future property, it is only assignable in equity and only for valuable consideration: Holroyd v Marshall (1862) 11ER999. Future property is property that does not presently exist but which may exist at some time in the future, such as the interest a person hopes to take under the will of a living person or on their intestacy (Re Lind [1915] 2 Ch 345); future book debts (Tai/by v Offi,cial Receiver (1888) 13 App Cas 523); and damages to be recovered by the assignor in pending litigation (Clegg v Bromley) as opposed to a judgment that has been handed down. 4-10 To determine whether the property that has been assigned is present or future property, it is first necessary to consider the nature of the settlor's rights ('present property ... carrying with it a right to income generated in the future' or 'mere future income dissociated from the proprietary interest with which it is ordinarily associated': Commissioner of Taxation v Everett (1980) 143 CLR 440 at 450); 4-8

-30-

and then construe the deed of assignment to determine whether the property assigned is present property or future property: Norman v Federal Commissioner of Taxation; Shepherd v Federal Commissioner of Taxation; Williams v Commissioner of Inland Revenue [1965] NZLR 395; Commissioner of Taxation v Everett. The basis of enforcement in equity of assignments of future property is the maxim that equity regards as done that which ought to be done: Tai/by v Offi,cial Receiver; Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1. The future property assigned must be sufficiently identified to permit identification upon its coming into existence so that it could then be the subject matter of a decree of specific performance: Tai/by v Offi,cial Receiver. The assignee's interest during the period between the assignment of the future property and its receipt by the assignor is proprietary and will therefore survive a discharge from bankruptcy: Re Lind; Palette Shoes v Krohn; Norman v Federal Commissioner of Taxation; Commissioner of Taxation v Everett. 4-11 If consideration has passed, there is an effective immediate assignment in equity, whether the property is legal or equitable: Commissioner of Taxation v Everett.

If the property to be assigned is equitable present property, all that is needed is an intention to assign: Comptroller of Stamps v Howard-Smith; Norman v Federal Commissioner of Taxation.

4-12

Before tackling these questions, check that you are familiar with the following:

4-13

.f what property is capable of assignment; in particular, in what circumstances rights to litigate are assignable;

.f the meaning of an intention to assign, particularly as distinguished from a revocable mandate;

.f formalities to assign various forms of legal property at law such as Torrens title land, choses in possession and choses in action;

.f the circumstances in which a failed assignment of legal property assignable at law may be effective in equity;

.f how legal property unassignable at law can be assigned in equity; .f the distinction between present and future property, the circumstances in which future property is assignable in equity, the basis for the enforcement of assignments of future property and the nature of the assignee's rights;

.f the circumstances in which an assignment is effective in equity as a consequence of consideration having passed; and

.f how equitable present property is assignable in equity. -31-

LexisNexis Questions and Answers: Equity and Trusts

~ (" Question 7

Equitable Assignments: The Requirements of Form

The requirements to assign pursuant to the Property Law Act (Qld) s 199 are:

4-14 You should refer back to Question 5, Chapter 3 and reconsider the issues raised from the perspective of the requirements of form. Advise all parties as to their interests and entitlements under the above arrangements.

• intention to assign: Comptroller of Stamps v Howard-Smith; • property sufficiently described: Percival v Dunn (1885) 29 Ch D 128; • assignment absolute, ie: - not by way of charge: Durham Bros v Robertson [1898] 1 QB 765; Grey v Australian Motorists & General Insurance [1976] 1 NSWLR 669; and - notpartofadebt:ReSteelWingCompanyLimited[1921] 1 Ch349; Shepherd v Federal Commissioner of Taxation; Commissioner of Taxation v Everett; • assignment in writing signed by the assignor; and • written notice to debtor, trustee, etc: Norman v Federal Commissioner of Taxation; Grey v Australian Motorists & General Insurance Co Pty Ltd.

Time allowed: 40 mins (including discussion of requirements of writing - see Chapter 3)

+·Answer Plan 4-15 This question requires you to determine whether the assignments of property that Delta made prior to her departure are effective, at least in equity. If the assignments are effective, Delta's conscience is bound and she cannot recover the property assigned. On the other hand, if the assignments are not effective, she will be able to reclaim the property. In order to be valid and effectual, an assignment must comply with the necessary requirements of writing and form. A complete answer will consider both. The answer guide below addresses only the requirements of form. The requirements of writing are considered in the answers set out in Chapter 3. Matters that should be considered are: (a) Is the assignment of the $10,000 debt owed by Voice Record Company effective? (i) Has the whole debt been validly assigned to Seal? (ii) Has half the debt been validly assigned to Mel? (iii) If both assignments are effective, which has priority? (b) Is the assignment of 90 per cent of the royalties from the Star Record Company recording contract to Joel effective? (c) Is the assignment of the holiday house at Broadbeach to Ricky effective? (d) Is the assignment of the Rock Pty Ltd shares to Mel effective?

Answer (a) (i)

Is the assignment of the $10,000 debt owed by Voice Record Company effective? Has the whole debt been validly assigned to Seal?

Delta obviously has an intention to assign, as evidenced by the deed. The debt has been adequately described and presumably there is only one debt owing to her by Voice Record Company. She has assigned the entire debt and the assignment is not by way of charge. The deed satisfies the requirement that the assignment be in writing signed by the assignor. However, the facts do not reveal any notice to the debtor, Voice Record Company. The assignment is therefore not effective at law. Has the debt been assigned in equity?

If a purported assignment of legal property at law fails, it may be that the assignment is effective in equity and therefore still valid. This will be so if consideration has been given for the assignment, or if the donor has done everything necessary to be done by of them and what remains to be done can be done by the donee: the rule in Milroy v Lord; Corin v Patton; in Queensland, see the Property Law Act (Qld) s 200. 4-17

In this case, the assignment is voluntary; however, the rule in Milroy v Lord (Property Law Act (Qld) s 200) will apply in this case. As Delta has done everything necessary to be done by her, and the only thing remaining to be done (giving notice to Voice Record Company) can be completed by Seal, the assignment of the debt will be effective in equity. This may be subject to a priority dispute if the purported assignment to Mel is effective. Therefore, provided any relevant requirements of writing have been satisfied, Delta will not be able to recover the debt as there has been an effective assignment in equity.

Has the debt been assigned at law?

(ii)

Has half the debt been validly assigned to Mel?

4-16 A debt is a legal chose in action capable of assignment at law. To assign a debt at law, it is necessary to comply with the Property Law Act (Qld) s 199. Other jurisdictions have similar provisions and you should check the legislation in your own jurisdiction for differences.

Has the debt been assigned at law?

4-18 As discussed above, to assign a debt at law it is necessary to comply with the Property Law Act (Qld) s 199. However, it is not possible to assign the debt at law in this case as it is part only of a chose in action

-32-

-33-

LexisNexis Questions and Answers: Equity and Trusts

Equitable Assignments: The Requirements of Form

(50 per cent of the debt), which is incapable of being assigned at law; therefore, it can only be assigned in equity: Re Steel Wing Company Limited; Shepherd v Federal Commissioner of Taxation; Commissioner of Taxation v Everett.

In order to determine whether the property that has been assigned is present or future property, it is first necessary to consider the nature of the assignor's rights. Does the assignor have an underlying present right capable of being assigned in whole or in part, or a mere expectancy?

Has the debt been assigned in equity? 4-19

If the assignor has both an expectancy and a present right, it then becomes necessary to construe the deed of assignment in order to determine which has been assigned. Has the tree or the fruit been assigned?: Shepherd v Federal Commissioner of Taxation.

In this case, consideration has been given in the form of a release of debts owing. Therefore, subject to any requirements of writing, the assignment of half the debt to Mel is effective in equity. As the requirements of writing have been satisfied, a priority dispute arises between Seal and Mel.

Each case must be decided on its own facts and circumstances: Shepherd v Federal Commissioner of Taxation. As in Shepherd, it would seem that what has been assigned here is present property, as the words 'right title and interest' have been used. If this construction is held to be incorrect and the property is future property, the assignment will fail as it is voluntary.

The assignment will be effective if consideration has been given for the assignment or an intention to assign is established: Norman v Federal Commissioner of Taxation; Shepherd v Federal Commissioner of Taxation; Re Ward (1984) 55 ALR 395.

(iii)

If both assignments are effective, which has priority?

The rule in Dearle v Hall (1828) 38 ER 475 applies to determine priority between competing equitable assignments of pure personalty. Despite the general rule that the first in time prevails, a later assignee gets priority if: 4-20

• the later assignee gave value; • the later assignee gave notice to the trustee; • at the time of receipt of notice, the trustee had no notice of the previous assignment; and • at the time that consideration passes, the later assignee had no notice of the earlier assignment. Mel, though the later assignee, has given consideration; therefore, assuming that she has no knowledge of the prior assignment to Seal, as she is the first to give notice to Voice Record Company, she will get priority to the extent of half the debt. As to the other half of the debt, Seal has priority, though he would be well advised to give immediate notice to preserve his priority in relation to the remaining half of the debt.

Has the right to be paid royalties been assigned at law?

Assuming that the property assigned is present property, the right to be paid royalties is a chose in action. As discussed above, it is not possible to assign part only of a chose in action at law; however, such a right may be assigned in equity: Re Steel Wing Company Limited; Norman v Federal Commissioner of Taxation; Shepherd v Federal Commissioner of Taxation. 4-22

Has the right to be paid royalties been assigned in equity?

4-23 Assuming that the property assigned is present property, the assignment will be effective in equity if consideration has been given for the assignment or an intention to assign is established: Norman v Federal Commissioner of Taxation.

In this case, although there has been no consideration, the deed clearly manifests an intention to assign. Subject to any requirements of writing, the assignment of 90 per cent of the right to royalties to Joel is effective in equity. Delta has divested herself of her rights to be paid the royalties to the extent of 90 per cent.

Delta will not be able to recover the debt owed by Voice Record Company. It has been assigned as to one-half to Mel and as to the other half to Seal.

(c)

(b)

Requirements of form

Is the assignment of 90 per cent of the royalties from the Voice Record Company recording contract to Joel effective?

Requirements of form

4-21 The issue here is whether the property is present property or future property. Future property can only be assigned in equity and only for consideration: Holroyd v Marshall.

-34-

Is the assignment of the holiday house at Broadbeach to Ricky effective?

Has the holiday house been assigned at law? 4-24 To complete an assignment of land at law, the assignment must comply with the Land Title Act 1994 (Qld) ss 181, 182. You should check the legislation in your own jurisdiction for differences.

In this case, the transfer has not been registered; therefore, there is no assignment at law. -35-

Equitable Assignments: The Requirements of Form

LexisNexis Questions and Answers: Equity and Trusts

requirements of writing, the assignment is effective in equity and the property may not be recovered by Delta.

Has the holiday house been assigned in equity?

As there has been no consideration, for the assignment of the holiday house to be effective in equity, the Property Law Act (Qld) s 200 (or in other jurisdictions Milroy v Lord) must be satisfied. This will be so if the donor has done everything they alone are required to do and anything further to be done can be done by someone other than the donor. In this case, the transfer has been signed and delivered to Delta's solicitor. It is significant that the documents are in the hands of Delta's solicitor as opposed to Ricky or Ricky's solicitor: compare and contrast Corin v Patton and Public Trustee (Qld) as Litigation Guardian for ADF v Ban (No 2) [2012) QSC 97 with Marchesi v Apostolou [2007] FCA 986. The solicitor holds the documents pursuant to a revocable authority that can be revoked at any time prior to its being acted upon: Comptroller of Stamps v Howard-Smith (1936) 54 CLR 614. Therefore, Delta can instruct her solicitor not to deliver the documents, in which case the assignment cannot take effect, even in equity, as the Property Law Act (Qld) s 200 has not been satisfied. Delta will be able to recover her holiday house at Broadbeach, as the assignment is not effective in equity. 4-25

(d)

Examiner's Comments 4-27 In this question, better marks would have been obtained by those students who more closely analysed and criticised the principal cases and distinguished the facts in those cases from the facts before them. They would have shown that they had read and understood the cases and were able to apply them to novel fact situations.

As far as the royalties are concerned, students would have obtained better marks had they noted that the fact that no royalties have been received does not affect the validity of the assignment: Shepherd v Federal Commissioner of Taxation at 393 per Barwick CJ - 'that a promise may not be fruitful does not make it incapable of assignment'. Higher marks would have been awarded to students who noted that the assignment of the holiday house could not be saved by construing it as a declaration of trust: Milroy v Lord. Similarly, better marks would have been awarded to students who showed that they had read and understood the facts and decision in Corin v Patton and were able to distinguish the facts in the problem.

Is the assignment of the Rock Pty Ltd shares to Mel effective?

In relation to the application of the Property Law Act (Qld) s 199 to equitable choses in action, better marks would have been awarded to students who identified and discussed the arguments as to why the section should not apply to equitable choses. Even if the better view is that it is not necessary to comply with s 199 to assign equitable choses in action, as a matter of practice it is desirable to follow that procedure because informality is likely to lead to misunderstandings and litigation and often does: Grey v Australian Motorists and General Insurance Co Pty Ltd at 448. Therefore, even though the procedure may not be necessary, it should be applied and notice given to obtain priority and prevent the debtor obtaining a discharge from the assignor.

Requirements of form

4-26 Delta's interest as life tenant under the trust is an equitable chose in action. It is uncertain whether the Property Law Act (Qld) s 199 applies to equitable choses in action. There is High Court authority that the section applies to both legal and equitable choses in action: Commissioner of Taxation v Everett. Notwithstanding the High Court's decision in Everett, the better view is that s 199 does not apply to equitable choses in action.

Ifs 199 applies, the elements as discussed above must be complied with. In this case, the section has not been complied with as the assignment is not in writing signed by Delta and written notice has not been given to the trustee - she purported to effect the assignment orally over the telephone. Although the failure to give written notice can be remedied by Mel, the failure to effect the assignment in writing cannot be remedied, as Delta alone must sign a written assignment. Therefore, ifs 199 applies to equitable choses in action, the assignment will prima facie fail. However, as Mel has given consideration (the forgiveness of debts), subject to the requirements of writing, the assignment will take immediate effect in equity. The better view appears to be that there is no need to comply with the requirements of s 199 if an equitable chose in action is assigned. In this case, as the property assigned is a present chose in action, all that is required for an effective assignment is an intention to assign or consideration. Mel has given consideration; therefore, subject to the -36-

!(;;~

.

.

Keep in Min 4-28

d

Here are some important points to keep in mind:

• Ensure you read the question carefully and plan answers so that all issues are considered. State the issue, then apply the relevant law to the facts and come to a conclusion. • It is very important to answer questions relating to the validity of assignments in a logical manner so that you do not forget important issues, such as whether an assignment that has failed at law is valid in equity or whether there is a priority dispute. • In this area, there is some uncertainty as to the correct interpretation of the law. It is therefore necessary to state the position as far as binding High Court authority is concerned and then consider -37-

Equitable Assignments: The Requirements of Form

LexisNexis Questions and Answers: Equity and Trusts

judicial and academic criticism before determining which is the better approach. Always discuss such situations in the alternative so that you cover the scenario if the orthodox approach is followed.

,;.f( Question 8 4-29 Refer back to Question 6, Chapter 3 and reconsider the issues raised from the perspective of the requirements of form.

Advise Kate. Time allowed: 40 mins (including discussion of requirements of writing - see Chapter 3) N

+Answer Plan This question requires you to determine whether the assignments of property that Atholl made prior to his death are effective, at least in equity. If the assignments are effective, Atholl's conscience is bound and Kate cannot recover the property assigned in her capacity as executor and beneficiary of the will. On the other hand, if the assignments are not effective, the property will be available for distribution to Kate in accordance with Atholl's will. 4-30

In order to be valid and effectual, an assignment must comply with the necessary requirements of writing and form. A complete answer will consider both. The answer below addresses only the requirements of form. The requirements of writing are considered in the answers in Chapter 3.

Matters that should be considered are: (a) Is the declaration of trust of the Hamilton apartment for the benefit of Kerry effective? (b) Is the assignment to Flynn of the right to sue Jack effective? (c) Is the assignment of the shares in the unit trust to the Salvation Army effective? (d) Is the assignment to Paris of 100 per cent of the right to interest on the loan owed to Atholl by Tom effective?

To assign an equitable interest, all that is needed is an intention to assign, which is evidenced in the SMS to the solicitor and Kerry. The result is that, subject to the requirements of writing, the declaration of trust will be effective. If this is the case, then the Hamilton apartment is not available for distribution according to the will. Although the trustee, Atholl, is now dead, the trust will not fail for want of trustee. Kate will hold the property on trust for Kerry. (b)

Is the assignment to Flynn of the right to sue jack effective?

Requirements of form 4-32 The primary issue for consideration here is whether the property is capable of assignment, as it is a right to litigate that traditionally is not assignable: Glegg v Bromley. However, it is now clear that a right to litigate is assignable if the assignee has a genuine and substantial interest (genuine commercial interest) in the action: Trendtex Trading Corp v Credit Suisse [1982] AC 679; Brownton v Edward Moore Inbucon Ltd [1985] 3 All ER 499; Workcover Queensland v AMACA Pty Limited (2012) 17 ANZ Insurance Cases 61-948.

In this case, the facts are in some respects similar to Brownton v Edward Moore Inbucon Ltd, where it was held that a co-defendant had a genuine commercial interest. It seems that the property assigned was capable of assignment. Has the right to sue been assigned at law?

If the above conclusion that the assignment is valid, on the basis that Flynn has a genuine commercial interest as co-defendant, then the assignment must comply with the provisions of the Property Law Act (Qld) s 199 to be effective at law, as the right to sue for breach of contract is a chose in action. 4-33

In this case, although there is evidence of a written deed of assignment signed by Atholl and Flynn, there is no evidence that there has been written notice. Therefore, the assignment will not be effective at law. Has the right to sue been assigned in equity?

If a purported assignment of legal property at law fails, it may be that the assignment is effective in equity and therefore still valid. This will be so if consideration has been given for the assignment or if the donor has done everything necessary to be done by him or her and what remains to be done can be done by the donee: the rule in Milroy v Lord; Corin v Patton; in Queensland, see the Property Law Act (Qld) s 200. 4-34

Answer (a)

Is the declaration of trust of the Hamilton apartment for the benefit of Kerry effective?

Requirements of form

As notice can be given by anyone, the assignment is effective in equity under s 200.

Title to the property is already registered in the name of the trustee, Atholl, so it is not necessary to do anything to transfer the legal title to the trustee.

In any event, Atholl sold the right to litigate. Therefore, as consideration has passed, the assignment takes effect in equity.

-38-

-39-

4-31

LexisNexis Questions and Answers: Equity and Trusts

Subject to the requirements of writing, the assignment to Flynn will be valid and Kate will not be able to claim the settlement proceeds. (c)

Is the assignment of the shares in the unit trust to the Salvation Army effective?

Requirements of form 4-35 An interest under a trust is an equitable chose in action. Unless the Property Law Act (Qld) s 199 applies to equitable choses, all that is necessary to transfer the equitable interest is an intention to assign, which is manifested in the letter to Hamond Trustees Ltd. Subject to the requirements of writing, as the shares have been registered in the name of the Salvation Army, there has been a valid assignment of the interest under the unit trust. These assets will not be available for distribution under the will of Atholl.

(d)

Is the assignment to Paris of 100 per cent of the right to interest on the loan owed to Athol/ by Tom effective?

Requirements of form 4-36 The threshold issue here is whether the property assigned was present or future property. Future property can only be assigned in equity and only for consideration: Holroyd v Marshall. In order to determine whether the property that has been assigned is present or future property, it is first necessary to consider the nature of the assignor's rights. Is there an underlying present right? Does the assignor have a mere expectancy, or does he or she also have a relevant present right capable of being assigned in whole or in part? If the assignor has both an expectancy and a present right, it then becomes necessary to construe the deed of assignment in order to determine which has been assigned. Has the tree or the fruit been assigned?: Shepherd v Federal Commissioner of Taxation. In Norman v Federal Commissioner of Taxation, a taxpayer by deed of gift purported to assign interest on a loan repayable by the borrower at will. The majority held that the interest was future property, as the underlying right, the loan, was construed as an expectancy, so the interest accruing thereon, which depended upon the subsistence of the loan, was necessarily an expectancy. The facts in this case are similar to Norman v Federal Commissioner of Taxation, as the loan is repayable in full on a day's notice. In that case, as the loan itself was considered by the majority to be an expectancy, so too was the right to be paid interest on the loan. However, if the dissenting view of Windeyer J is accepted, ie that the right was a present right to be paid interest at a future date, the right here may be considered to be a present chose in action. -40-

Equitable Assignments: The Requirements of Form

If the majority view is applied, and the right is regarded as future property, the right to be paid interest is only capable of assignment in equity and only for consideration: Holroyd v Marshall. Here there has been consideration (forgiveness of debt) so the assignment would be valid.

If the minority approach is accepted and the right is a present right, as the right to be paid interest is a legal chose in action, to assign the property at law, it is necessary to comply with the Property Law Act (Qld) s 199. Has the right to be paid interest been assigned at law? 4-37 Although there is evidence that the assignment is in writing signed by the assignor and that other prerequisites of the Property Law Act (Qld) s 199 have been complied with (the letter), there is no evidence that the debtor has been notified. The assignment will therefore not be effective at law. Has the right to be paid interest been assigned in equity? 4-38 The failed assignment at law may be valid in equity if the donor has done all that is necessary to be done by them alone to effect the transfer: Milroy v Lord; Corin v Paton; Property Law Act (Qld) s 200. If all other requirements other than giving notice have been met, as notice can be given by anyone, the assignment will be effective in equity under s 200. In any event, as consideration has passed (forgiveness of debt), there is an immediate assignment in equity. This assignment has complied with the requirements of form so, assuming the requirements of writing have been met, the property is not available for distribution under Atholl's will.

P Examiner's Comments 4-39 In this question, better marks would have been obtained by students who more closely analysed and criticised the principal cases and distinguished the facts in those cases from the facts before them. They would have shown that they had read and understood the cases and were able to apply them to novel fact situations.

In relation to the assignment of the right to litigate, better marks would have been attained by students who considered other cases such as Trendtex Trading Corp v Credit Suisse, and identified and discussed the policy reasons underlying the law in this area.

In relation to the assignment of the right to be paid interest, better marks would have been awarded to students who closely analysed and criticised Norman v Federal Commissioner of Taxation (particularly the minority reasoning of Windeyer and McTiernan ]], who considered that the property was present property), and made reference to how -41-

LexisNexis Questions and Answers: Equity and Trusts

Norman v Federal Commissioner of Taxation was distinguished m Shepherd v Federal Commissioner of Taxation. fir

Chapter 5

Fiduciary Obligations

~ Keep .rn M'rn d 4-40

Here are some important points to keep in mind:

• Ensure you read the question carefully and plan answers so that all issues are considered. State the issue, then apply the relevant law to the facts and come to a conclusion. • Failure to answer questions relating to the validity of assignments in a logical manner often results in students forgetting to raise and consider important issues, such as whether an assignment that has failed at law is valid in equity. • In this area, there is some uncertainty as to the correct interpretation of the law. It is therefore necessary to state the position as far as binding High Court authority is concerned and then consider judicial and academic criticism and determine which is the better approach. Always discuss such situations in the alternative so that you cover the scenario if the orthodox approach is followed. • In cases where a declaration of trust is effected, it is not necessary to comply with any requirements of form to transfer the property to the trustee. Legal title is already in the trustee's name. It is, however, necessary to comply with any requirements of writing. • Take care when restating the law, where a question involves an analysis of an area previously discussed in another context. You should refer to your previous comments and note differences in application. • In relation to the shares, note from the facts that title had already been transferred to the Salvation Army - a discussion of the law · relating to charitable trusts was therefore irrelevant.

Key Issues In Westpac Banking Corporation v The Bell Group Ltd (In Liq) (No 3) [2012] WASCA 157 at [886], Lee AJA explained:

5-1

The fiduciary principle was developed to monitor and redress 'abuse of a loyalty reposed' in a relationship where one party occupies a position of influence, ascendancy or power in relation to the other and has undertaken to use that position for the welfare of the other.

5-2 While there is no settled definition, it is widely accepted that a fiduciary relationship arises where one person has undertaken to act for, or on behalf of, another person in a particular transaction. Relationships that are fiduciary in character should be distinguished from commercial relationships where parties deal at arm's length and on an equal footing. A number of relationships are judicially recognised as being fiduciary; however, whether a fiduciary relationship exists in a particular situation is a question of fact. 5-3 Fiduciary relationships are attended by duties and obligations governing dealings between fiduciaries and their principals or beneficiaries. Determining the scope of the fiduciary relationship is important because fiduciary duties may not extend to every aspect of the parties' relationship. A fiduciary will be in breach of duty where the fiduciary: • profits from their position (profit from position); • puts themself in a situation where their duty to a client and self-interest conflict (conflict of duty and interest); and • puts themself in a situation where duty to one beneficiary and duty to another beneficiary conflict in relation to the same transaction (conflict of duty and duty). 5-4 The general rule is that a fiduciary cannot put themself in such situations without the fully informed consent of the beneficiary. Any profit or benefit derived by the fiduciary in breach of these obligations must be accounted for to the beneficiary/principal. The main defence available to a fiduciary allegedly in breach of a fiduciary obligation is to prove that fully informed consent was obtained. Alternatively, it may be possible to claim estoppel or !aches and/or acquiescence. Where a benefit has been obtained, it may be held by the fiduciary on a constructive trust

-42-

-43-

LexisNexis Questions and Answers: Equity and Trusts

Fiduciary Obi igations

for the beneficiary. Alternatively, the fiduciary may be required to account for any profits made, or to pay equitable compensation or damages.

and a monthly newsletter. Within six months, half of River City's clients moved their business over to Evans Realty.

5-5 Before tackling these questions, check that you are familiar with the following:

The directors of River City Real Estate are furious over their loss of business and want Georgia punished for her disloyalty. Advise of their likelihood of success in an action for breach of fiduciary duty including available remedies.

./ the accepted categories of fiduciary relationships and how they contrast with commercial relationships: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 (the Hospital Products case) at 70; ./

the remedies available for breach of fiduciary obligations;

Time allowed: 40 mins

f

·Answer Plan A good answer to this question would analyse the relationship between River City Real Estate and Georgia to assess whether any fiduciary duties are owed. That should be followed by a discussion of the duties and obligations imposed upon fiduciaries, and an examination of any possible breaches committed by Georgia on these facts. 5-8

./ how to determine the scope of the fiduciary relationships of the parties; and ./

the obligations and duties that bind dealings between fiduciaries and their principals.

5-6 The liability of third parties who knowingly assist a fiduciary to breach duties will be dealt with in Chapter 6.

Each instance of breach should be classified according to the legal rules that govern fiduciaries, and should be followed by a consideration of whether there are any defences that could be successfully raised by Georgia. After a consideration of defences, you should examine the remedies that could be awarded in relation to each possible breach.

,;..f( Question 9 5-7 Georgia Evans was until recently employed as the manager of the rental division of River City Real Estate. Her duties required her to manage rental properties on behalf of the clients of the business (known as the rent roll) and she took part in the management of the business including attendance at board meetings. During her eight years in that position, Georgia had increased the list of clients on the rent rol I. She had introduced some new management processes to ensure quality service to the clients, including a questionnaire to all new clients to ascertain their details and needs, standard proforma letters and a monthly newsletter. Georgia approached her employers seeking to buy into the business and become a director of River City Real Estate. She was told that they would consider her request after she had been with them for 10 years. In her disappointment Georgia started making arrangements to set up Evans Realty, a new real estate business of which she was the sole director. By the time Georgia gave her notice of resignation to River City, premises were leased, stationery ordered and computers installed for the new business. She started work in Evans Realty the day after giving her notice of resignation and immediately sent out letters to all of the clients of River City Real Estate's rent roll using a list she had downloaded before she left. The letter advised of her change of employment and invited them to move their business. In the next few weeks, she set up processes for managing the rental division including a new client questionnaire, standard letters

-44-

Evans Realty's liability as a third party should then be explored, concentrating on the level of knowledge held by the third party and whether that degree of knowledge would be sufficient to render it liable according to the Australian authority of Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, as affirmed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89. Your ~nswer should conclude with a consideration of the range of available remedies that may be awarded against Georgia should liability be established.

Answer The directors of River City Real Estate may have an action against Georgia for breach of fiduciary obligations. They may also have a cause of action against Evans Realty as a third party knowingly assisting in a breach of fiduciary duty or knowingly receiving funds derived as a result of breach of fiduciary duty. 5-9

5-10

(a) (b) (c) (d)

Matters that should be considered are: Is there a fiduciary relationship? What is the scope of that fiduciary relationship? Has the fiduciary breached their duties within that scope? What are the appropriate remedies? -45-

LexisNexis Questions and Answers: Equity and Trusts

(a)

Discussion of fiduciary relationships 5-11 The concept of fiduciary has proved nebulous to define; there is no single legal definition of 'fiduciary' that has been widely accepted. One definition adopted is: 'a person who undertakes to act on behalf of or for the benefit of another person in some particular matter'. See P D Finn, Fiduciary Obligations, Law Book Co, Sydney, 1977, p 201. Gibbs CJ in Hospital Products, at 69, stated: Fiduciary relations are of different types, carrying different obligations . .. and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose.

A company director's relationship with the company they serve is one a number of relationships judicially recognised as being fiduciary. Company directors owe both statutory and fiduciary duties to act in the best interests of their company; however, on these facts Georgia had not been appointed as a director and had been refused her request to buy into the business at the relevant time so she cannot be said to fall within that judicially recognised category. It is therefore necessary to determine whether the relationship between Georgia and her employer is, as a question of fact, a fiduciary relationship. This is determined by careful examination of any undertakings and obligations that existed between Georgia and her employer. The relationship of employer and employee has in certain circumstances been characterised as fiduciary where the employee is in a senior management position, performs professional or highly skilled work, or is privy to confidential information as in Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. 5-12

It is clear that Georgia took part in the management of River

City Real Estate which included managing the rent roll on behalf of the clients of the business and she attended board meetings for eight years. On these facts, it is likely that River City Real Estate would argue that she was a senior officer who was entrusted with all of the confidential information of the company by attending board meetings and therefore owed a duty to River City Real Estate not to use her position improperly to gain an advantage for herself or to cause detriment to River City Real Estate. Georgia may argue that the relationship was purely commercial, between parties on equal footing at arm's length, giving rise to only contractual remedies. In Hospital Products, at 71, Gibbs CJ commented on the undesirability of extending fiduciary obligations to such relationships.

Fiduciary Obligations

(b)

What is the scope?

5-13 Georgia has undertaken to act for or on behalf of River City Real Estate in the management of rental properties and the management of the business. The obligations owed by Georgia will be defined by the scope of this undertaking and the terms of any contract of employment will be relevant in determining this: Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298. As we have no facts to assess in that regard, it will be assumed that the obligations are within the scope.

Has the fiduciary breached any duties? 5-14 Fiduciary obligations arise from the general rule that a fiduciary will be liable to account if it is proved that a profit, benefit or gain was acquired in circumstances of conflict of duty and interest or by taking advantage of the fiduciary position: Chan v Zachariah (1984) 154 CLR 178 at 198-9 per Deane J. (c)

These equitable rules have been summarised as the conflict rule and the profit from position rule they cover three situations: (1) profit from position; (2) conflict of duty versus interest; and (3) conflict of duty versus duty.

(d)

Remedies

5-15 Georgia has put herself in a situation where her personal interest to establish her own real estate business conflicts with her duty to her employer, to act in the best interests of River City Real Estate.

Georgia is also profiting from her fiduciary position by compiling a list of the rent roll clients using the resources of River City Real Estate while she was still in their employment. There is clear evidence of detriment being occasioned to River City Real Estate as a result of.the arrangement, although there is no need to show detriment or loss to establish a breach as there is strict liability: Boardman v Phipps [1967] 2 AC 46. The appropriate remedy would be an order that Georgia account for the benefits derived from her breaches of fiduciary obligation or an order for equitable compensation. The plaintiff must elect to either pursue an account of profits (restitution) or damages (compensation); they cannot claim both: Warman International Ltd v Dwyer (1995) 182 CLR 544. Where an account of profits is ordered, the court may also make an allowance for any capital, skill or expertise contributed by Georgia: Warman International Ltd v Dwyer.

Given the evidence of an actual relation of confidence (as discussed by Gibbs CJ in Hospital Products, at 69), it is likely that a fiduciary relationship would be found.

Equity has inherent jurisdiction to award equitable compensation, and equity can award damages under Lord Cairns' Act provisions which exist in each Australian jurisdiction: for example, Supreme Court Act 1970 (NSW) s 68. These damages are in lieu of or in addition to an injunction

-46-

-47-

LexisNexis Questions and Answers: Equity and Trusts

Fiduciary Obligations

for a 'wrongful act'. As the plaintiff is not seeking an injunction, equitable compensation is the relevant remedy to be discussed.

agreement commenced in January 2007 and Wild Marmalade has made th~ required monthly instalme~t payments required under the agreement. Wild Marmalade and Mama Kim entered into a joint venture agreement with the following conditions: (1) The ~arti~s to this agreement have entered into this agreement to permit Wild Marmalade to develop and sell the property in order to repay all moneys owing to Mama Kim. (2) The joint venture agreement commences upon signing and will terminate upon the building work being completed and the final distribution of net profits. (3) If t~e property is sold, the net profit shal I be divided equally between Wild Marmalade and Mama Kim. (4) If Wild Marmalade defaults on the payment scheme, Mama Kim is entitled to sell the property by such means and upon such terms and conditions and price specified by Wild Marmalade. (5) Neither party shall lease, sell, assign, transfer, or mortgage their interest in the joint venture without first obtaining the written consent of the other party. Consent must not be unreasonably withheld.

Liability of Evans Realty as a third party In an exam situation, the next issue that should be dealt with is Evans Realty's liability as a third party knowingly receiving, dealing or assisting with the breach of fiduciary duty. In this book, third party liability is dealt with in Chapter 6.

5-16

p

Examiner's Comments To achieve high marks for a question like this, students would need to address all of the issues. The best opportunity to demonstrate depth of knowledge is in the discussion of what constitutes a fiduciary relationship and in the extension of liability to third parties assisting in the breach of fiduciary duty. This question is modelled on the case of Southern Real Estate Pty Ltd v Dellow [2003] SASC 318, although the examiner has changed the capacity of the employee from director to senior executive to encourage a higher level of discussion of the nature of the fiduciary relationship.

5-17

!f;r ~

Keep .in M.in d Here are some important points to keep in mind: • Ensure you answer the question asked. While your answer may contain a comprehensive summary of the law, you will always be awarded more marks if you make sure you phrase it so that it answers the question. • Do not assume that the relationship in the question is fiduciary in nature. Look for the necessary elements of reliance and trust and confidence and explore the alternative argument that the relationship may be a commercial one. • When examining remedies in relation to income-producing property such as shares, remember to include an account of profits for any dividends paid to the fiduciary while the property was in their control.

5-18

,;..f( Question 1o 5-19 A company cal led Wi Id Marmalade is the registered owner of a block of land in Highgate Hill. A company called Mama Kim held a registered mortgage over the property. The mortgage agreement stated that Wild Marmalade would make monthly instalment payments of $30,000 to Mama Kim. The property is worth $1.5 million and the mortgage over the property is for the amount of $1 million. The mortgage

-48-

!n January 2008, v:'ild Marmalade failed to pay its monthly mortgage instalment. M~ma Kim served notice requiring Wild Marmalade to remedy the breach. Wild Marmalade was not in a position to remedy the breach as it was not able to acquire finance from any other source due to its current financial position. Due to the global economic downtown, the value of the property dropped to $1 million. Mama Kim consulted several real estate agents "".ho ad~ised that it was an inopportune time to sell the property. Mama Kim decided that the safest way to recoup the money tied up in the property was to sell its mortgage interest in the property to a third party. Company Oka decided to purchase the mortage interest over the property. Oka was of the opinion that revenue from the property could be increased by leasing out a number of the empty lots OJl the land. Wild Marmalade was keen to enter into a joint venture arrangement with Oka and a draft joint venture agreement was sent to Oka's solicitors. Upon the advice of their solicitors, Oka decided it did not want to enter into a joint venture agreement. The mortgagee decided to sell the property as a mortgagee in possession. Several bids for the property were made, the most advantageous bid came from a company which offered $850,000 for the property. Wild Marmalade has come to see you for advice. It believes that Mama Kim and Oka have breached obligations owing to it as a result of the joint venture relationship. Advise Wild Marmalade as to whether any fiduciary duties have arisen in the context of the joint venture arrangements and, if so, what would be the likely outcome of pursuing a claim for breach of fiduciary duty. Your advice should also include a consideration of whether there are sufficient circumstances to establish liability on the part of third parties for breach of fiduciary duty. Time allowed: 40 mins -49-

Fiduciary Obligations

LexisNexis Questions and Answers: Equity and Trusts

The determination of whether any particular relationship is fiduciary is a question of fact in each case.

+Answer Plan 5-20 The facts of this question are based on Benz/aw and Associates Pty Ltd v Medi-Aid Centre Foundation Ltd [2007] QSC 233 Benz/aw. A good answer would start by analysing the joint venture relationship between Wild Marmalade and Mama Kim to determine whether it will attract fiduciary obligations. If it is possible that fiduciary obligations are owed, you should then examine the scope of those duties and whether there has been a breach. Specific instances of breach should be examined with reference to the legal rules governing fiduciary relationships. That examination should include consideration of whether there are any applicable defences, and the appropriate remedy for any breaches identified. Oka's liability as a third party should be explored, concentrating on the level of knowledge held by the third party and whether that degree of knowledge would be sufficient to render it liable for knowingly assisting in a breach of fiduciary obligations according to the leading Australian authorities: Consul Development Pty Ltd v DPC Estates Pty Ltd and Farah Constructions Pty Ltd v Say-Dee Pty Ltd.

Answer 5-21 Wild Marmalade may have an action against Mama Kim for breach of fiduciary duty. It may also have a cause of action against Oka as a third party that has assisted in the breach of those fiduciary duties. That aspect of the answer will be dealt with in Chapter 6. Matters that should be considered are: (a) (b) (c) (d) (a)

Is there a fiduciary relationship? What is the scope? Has the fiduciary breached its duties within that scope? What are the appropriate remedies? Discussion of fiduciary relationship

5-22 The concept of fiduciary has proved nebulous to define; there is no single legal definition of 'fiduciary' that has been widely accepted. One definition adopted is: 'a person who undertakes to act on behalf of or for the benefit of another person in some particular matter'. See PD Finn, Fiduciary Obligations, Law Book Co, Sydney, 1977, p 201. Gibbs CJ in Hospital Products Ltd v United States Surgical Corp, at 69, said:

The joint venture arrangement does not automatically attract fiduciary obligations and a number of aspects need to be considered. Joint venture arrangements have been characterised as situations of mutual trust and confidence, as in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 178 where the High Court equated the joint venture arrangement between the parties with the dealings of incipient partners, an established category of fiduciary relationship. The relationship between the parties must give the fiduciary a special opportunity to exercise the power or discretion to the detriment of the vulnerable party: the Hospital Products case. Mama Kim may argue that the relationship between it and Wild Marmalade is more properly characterised as a commercial one. To do so it would have to show that it was an arm's length commercial transaction, between parties on an equal footing, as discussed in Hospital Products. Applying the reasoning from Benz/aw at [89] and [90], it is arguable that there is nothing in the relationship between Wild Marmalade and Mama Kim which suggests that either 'reposed' confidence in the other, or that either had undertaken to act in the interest of the other in the exercise of a power. (b)

What is the scope?

5-23 If a fiduciary relationship was found to exist, the scope would be to act in the best interests of the joint venture and to abide by the terms of the agreement creating the relationship. The scope will be determined by reference to both the undertaking and the joint venture agreement. (c)

Has there been a breach of duty?

" 5-24 The fiduciary obligations arise from the general rule that a fiduciary will be liable to account if it is proved that a profit, benefit or gain was acquired in circumstances of conflict of duty and interest or by taking advantage of the fiduciary position: Chan v Zachariah at 198 per Deane J.

These equitable rules have been summarised as the conflict rule and the profit from position rule; they cover three situations: (1) conflict of duty versus interest; (2) conflict of duty versus duty; and (3) profit from position.

Fiduciary relationships are of different types, carrying different obligations, and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose.

The only possible breach on these facts would be conflict of duty and interest where the duty to the joint venture to develop the property and make a profit could conflict with personal interest to recover money under the mortgage arrangement.

-50-

-51-

LexisNexis Questions and Answers: Equity and Trusts

In Benz/aw at [59], it was found that assignment of a mortgage was not in breach of the joint venture agreement as the agreement related to the joint venture and not the mortgage relationship. (d)

Remedies

5-25 If fiduciary obligations were found to be owed and breached, the financial loss suffered by Wild Marmalade would be the difference between the original mortgage amount ($1 million) and the price it ultimately sold for ($850,000). Wild Marmalade would be in a position to elect between an account of profits or equitable compensation. Specific performance of the agreement would not be possible as rights of third parties would be infringed.

Fiduciary Obi igations

• Take care to allocate sufficient time to a discussion of third party liability at the end. The most comprehensive answer on fiduciary relationships and the breaches of duty that arise in this question could still only be awarded part marks. The identification and discussion of the third party's potential liability would be essential to attain high marks for this question.

Liability of Oka as third party

In an exam situation the next issue that should be dealt with is Oka's liability as a third party to the joint venture agreement. In this book, that aspect is dealt with separately in Chapter 6.

5-26

p

Examiner's Comments 5-27 Students should spend some time analysing the likelihood of a fiduciary relationship being found at the beginning and come to a view.

If you recognise that the question is based upon a case in the prescribed readings, make sure you check to see that the facts have not been slightly changed to lead to a different outcome. Even if you conclude that it is unlikely that fiduciary obligations will be owed, you should briefly cover the aspects of scope, breach and remedies in case you are wrong. You should note that, in an exam situation, a substantial proportion of the overall marks for this question would be allocated to a discussion of Oka's liability as a third party. In this book, that topic is dealt with separately in Chapter 6. fir

~

Keep .in M.in d 5-28

Here are some important points to keep in mind:

• Ensure you answer the question asked. While your answer may contain a comprehensive summary of the law, you will be awarded more marks if you ensure you structure it so that it answers the question asked. • Where you are dealing with a relationship that arises under a contract or agreement, where possible you should analyse that agreement to determine the scope of the relationship and the duties owed by the fiduciary.

-52-

-53-

Chapter 6

Third Party Liability for Breach of Fiduciary Obligation Key Issues 6-1 A third party to a fiduciary relationship may become liable as if they owed fiduciary obligations to the fiduciary's principal. This category of liability may arise in three situations:

(1) where the third party assumes a fiduciary office (holds themself out to be a fiduciary when they are not); (2) where a third party receives or deals with property derived from a breach of fiduciary duty; and (3) where a third party knowingly assists a fiduciary to commit a breach of fiduciary duty. 6-2 The first category arises where a person holds themself out to be a fiduciary. In such a situation, the third party will have the same liability to account for any breach of fiduciary duty as an actual fiduciary. This liability arises from the liability of a 'trustee de son tort' discussed in Barnes v Addy (1874) 9 Ch App 244 and requires actual knowledge of wrongdoing by the third party: Nolan v Nolan [2004] VSCA 109. 6-3 For liability to arise in the second and third categories, it is necessary to show some degree of notice or knowledge. In Baden v Societe Generate pour Favoriser le Developpement du Commerce et de L'industrie en France SA [1992] 4 All ER 161 (Baden), the Court considered the issue of knowledge and liability by differentiating between five different situations or levels of knowledge, ranging from actual to constructive: (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; (4) knowledge of circumstances that would indicate the facts to an honest and reasonable person; and (5) knowledge of circumstances that would put an honest and reasonable person on inquiry. -55-

Third Party Liability for Breach of Fiduciary Obligation

LexisNexis Questions and Answers: Equity and Trusts 6-4 The first three situations are now considered categories of actual knowledge, with the latter two considered varieties of constructive knowledge: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 163 (Farah Constructions). In Chameleon Mining NL v Murchison Metals Limited [2012] FCAFC 6 at [259]-[260], the Full Federal Court cautioned against treating the classification in Baden as exclusive or rigid. This view was also shared by the Court of Appeal, Supreme Court of Western Australia, in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2010] WASCA 157 at [1122].

6-5 To establish recipient liability (the first limb in Barnes v Addy), it is necessary to establish: the property received was trust property or the traceable proceeds of trust property; the property was transferred in breach of trust; the receipt was in the recipient's own name or for their own benefit; and the recipient has notice (actual or constructive) that the property was being misapplied. Following the decision in Farah Constructions, it is arguable that the element of notice encompasses all five levels of knowledge as identified in Baden. 6-6 To establish accessory liability (the second limb of Barnes v Addy), it is necessary to establish assistance by the stranger; a dishonest and fraudulent design on the part of the trustee or other fiduciary; and knowledge of the dishonest and fraudulent design on the part of the stranger: Farah Constructions; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 (Consul). In Farah Constructions, the High Court applied Consul in holding that circumstances falling within any of the first four categories of Baden are sufficient to meet the requirement of knowledge for accessory liability.

The English authorities differ as to the degree of knowledge necessary to attach liability and as to whether other requirements need to be established before liability as a third party arises: Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378; Twinsectra v Yardley [2002] 2 AC 164; Barlow Clowes International Ltd v Eurotrust International Limited [2006] 1 All ER 333.

./

the High Court's decision in Farah Constructions;

./

the remedies available against third parties found liable for knowingly receiving or dealing with property derived in breach of fiduciary duty, or for knowingly assisting a fiduciary to breach their fiduciary duty.

6-9 The substantive law governing breach of fiduciary obligations is dealt with in detail in Chapter 5 .

•

' Question 11 In their joint judgment in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, the High Court comprised of Gleeson CJ, Gummow, Callinan, Heydon, and Crennan JJ stated at 163-4: 'Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons'. Trace the development of this area of equitable liability, with particular reference to the Australian High Court's approach. 6-10

Time allowed: 40 mins

6-7

6-8 Before tackling these questions, check that you are familiar with the following:

./

the decision in Barnes v Addy;

./

the degrees of knowledge specified in Baden;

./

the elements of receiving and dealing with property derived from a breach of fiduciary duty; and

./

the High Court's decision in Consul;

+Answer Plan 6-11 Your answer should trace the development of the circumstances in which third parties can be rendered liable for breach of fiduciary obligation, starting with the cases of Barnes v Addy and Baden through to the requirements for establishing liability discussed by the High Court in Farah Constructions.

A useful way to structure this type of discussion is to start with the five ways in which a stranger to the :fiduciary relationship may become liable as a constructive trustee. Those five situations should then be summarised into the three main headings of liability that arise in contemporary case law, with a discussion of the elements of each. Next, the five categories of knowledge set out in Baden should be identified and explained . You should then focus your discussion on the circumstances in which liability will arise under the two limbs in Barnes v Addy: liability for receiving and dealing, and liability for knowingly assisting in a breach

-56-

-57-

LexisNexis Questions and Answers: Equity and Trusts

Third Party Liability for Breach of Fiduciary Obligation

of fiduciary duty. As the quote under consideration specifically refers to the second limb of Barnes v Addy (accessory liability), you should consider this category of case in more detail. Your answer should deal with the elements that must be proven in order to establish liability and, in particular, the degree of knowledge necessary to be established on the part of the third party to render their acts 'unconscientious' so as to found liability.

For liability to arise in the second and third categories, it is necessary to show some degree of knowledge or notice. In Baden, the court considered the issue of knowledge and liability by differentiating between five different situations or categories of knowledge, ranging from actual to constructive:

Your answer should attempt to reconcile the major authorities, Consul and Farah Constructions, with the five categories of knowledge set out in Baden.

(3) wilfully and recklessly failing to make such inquiries as an honest (4) knowledge of circumstances that would indicate the facts to an

Depending on the time allowed, a good answer might then consider recent decisions and comment on the differences between the Australian and English approaches in this area.

honest and reasonable person; and (5) knowledge of circumstances that would put an honest and reasonable person on inquiry.

Answer 6-12 In Barnes v Addy, Lord Selbourne sets out five ways in which a stranger to a fiduciary relationship may become a constructive trustee:

(1) intermeddling- also called 'trustee de son tort'. This phrase derives from the law in relation to the administration of estates and is traditionally applied where a person wrongfully intermeddled with trust property, so that they usurped the functions and assumed the authority of the executor. Liability under this head would make the person liable as an executor de son tort to the extent that trust property came into their hands; (2) receiving trust property in breach of trust; (3) receiving trust property in breach of trust and dealing with it inconsistently with the trust; (4) inducing a breach of trust; and (5) assisting with the disposition of property in breach of trust.

In the context of third party liability for breach of fiduciary duty, Lord Selbourne's dictum in Barnes v Addy has been reduced to three situations: ( 1) assumption of fiduciary office;

(2) receiving and dealing with property derived from a breach of fiduciary duty; and (3) knowingly assisting a fiduciary to commit a breach of duty. The first category arises where a person holds themself out to be a fiduciary. In such a situation, the third party will have the same liability to account for any breach of fiduciary duty as an actual fiduciary. This liability arises from the liability of a trustee de son tort, which is discussed in Barnes v Addy. This situation requires actual knowledge of wrongdoing by the third party: Nolan v Nolan [2004] VSCA 109.

-58-

(1) actual knowledge; (2) wilfully shutting one's eyes to the obvious;

and reasonable person would make;

While the first level is a situation of obvious dishonesty, level five describes a situation where the third party would be obliged to make further inquiry. 6-13 To establish recipient liability (the first limb in Barnes v Addy), it is necessary to establish the following matters: the property received was trust property or the traceable proceeds of trust property; the property was transferred in breach of trust; the receipt was in the recipient's own name or for their own benefit; and the recipient has notice (actual or constructive notice) that the property was being misapplied. Following the decision Farah Constructions, it is arguable that the element of notice encompasses all five categories of knowledge as identified in Baden. 6-14 To establish accessory liability (the second limb of Barnes v Addy), it is necessary to establish the following matters: assistance by the stranger; a dishonest and fraudulent design on the part of the trustee or other fiduciary; and knowledge of the dishonest and fraudulent design on the part of the stranger: Farah Constructions. In Farah Constructions, the High Court applied Consul in holding that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in this category of case.

In Consul, little or no distinction was drawn by the High Court between the situations of receiving and dealing and knowing assistance. As Consul pre-dated Baden, the question of knowledge was not considered in terms of the five categories set out in Baden. However, the judgments of Gibbs and Stephen JJ have been interpreted as accepting the first four of the Baden categories of knowledge but rejecting the fifth category (constructive knowledge due to a failure to inquire). According to the judgment of Gibbs J the contrast is between an innocent and wilful failure to inquire, and he comments that knowledge of all the circumstances that tell of a breach of fiduciary duty, without realising the impropriety of such, would still be sufficient to establish liability. 6-15

-59-

LexisNexis Questions and Answers: Equity and Trusts

Third Party Liability for Breach of Fiduciary Obligation

Similarly Stephen J's judgment indicated that the following would render a third party liable:

If time permitted, you could expand on the suggested answer to include reference to the recent decisions in Chameleon Mining NL v Murchison Metals Limited and Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3), which postdate Farah Constructions.

(1) actual knowledge; (2) consciously refraining from inquiry for fear of discovering the fraud; and (3) knowledge of facts that would of themselves, to a reasonable person, tell of fraud.

10 ~ Keep in Mind 6-19

However, no liability would arise in the case of a failure to inquire.

• Take care to answer the question asked. Essay-style questions give you an opportunity to demonstrate the depth of your knowledge; however, they must be constructed so that they answer the question. Remember that the question has been asked that way for a reason, and you should take time to consider that and plan your answer accordingly. For an approach to answering essay questions, see the examiner's comments on Question 20. • While most students will demonstrate a knowledge of Consul and Farah Constructions, the better answers will also interpret the High Court's judgments in light of Baden. Better answers may also make some attempt to contrast the approach of the House of Lords on this issue.

In terms of third party liability for knowing assistance, the High Court in Farah Constructions confirmed that the tests of knowledge laid down in Consul remain good law and that in Australia it is necessary to show that a third party possesses knowledge falling within the first four categories of Baden to find them liable under the second limb of Barnes v Addy. 6-16

The cases in England and Australia have differed in their application of the test of knowledge to the situation of third parties receiving and dealing or assisting in a breach of fiduciary duty. The House of Lords through its decisions in Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 WLR 64 and Twinsectra Ltd v Yardley determined that dishonesty, rather than knowledge was the touchstone for liability in this area, although in the subsequent case of Barlow Clowes International v Eurotrust International Ltd [2006] 1 All ER 333 the Privy Council accepted that an objective standard should apply to determine whether the defendant's mental state was 'dishonest'. In application, therefore, this approach seems to align with the first four Baden categories but not the fifth. In Farah Constructions, the High Court declined to enter into any discussion of how far subsequent decisions of the House of Lords had modified the second limb of Barnes v Addy: see Royal Brunei Airlines Sdn Bhd v Tan; Twinsectra v Yardley; Barlow Clowes International Ltd v Eurotrust International Ltd. 6-17

For a detailed discussion of this area of law, see M Cope, Equitable Obligations: Duties, Defences and Remedies, Thomson Legal and Regulatory, 2007, Chapter 6.

p

Examiner's Comments 6-18 As this question specifically asks you to trace the development of this area of liability, a discourse on the High Court's approach in Consul and Farah Constructions alone could only ever earn you some of the available marks. It is essential to deal with the origins of liability, tracing it to Barnes v Addy.

-60-

Here are some important points to keep in mind:

.

'' Question 12 6-20 Refer back to the facts of Chapter 5, Question 10. Assuming fiduciary obligations were found to be owed in that relationship, advise Wild Marmalade whether there are sufficient circumstances to establish liability on the part of third parties for breach of fiduciary duty. Time allowed: 20 mins (from a total of 40 mins)

f

·Answer Plan 6-21 As Oka is not a signatory to the joint venture agreement and has not had any direct dealings with Wild Marmalade, your answer should begin by identifying its role as that of a third party to the fiduciary relationship between the joint venturers.

After identifying it as a third party, you should explain the ways in which it may attract liability for participating in a breach of fiduciary duty. You should then discuss the most likely head of liability (recipient or accessory), explaining the elements necessary to establish liability and the need to also establish knowledge or notice on its part. This discussion should focus on the various categories of knowledge set out in Baden.

-61-

.

LexisNexis Questions and Answers: Equity and Trusts

The High Court's decision in Farah Constructions, confirming the approach in Consul, should then be discussed, correlating where possible, with the Baden categories of knowledge. Your answer should conclude with a consideration of the possible remedies that may be awarded against Oka should liability be established.

Answer 6-22 This question assumes that Wild Marmalade and Mama Kim have been found to owe fiduciary obligations to each other (for a full discussion of the nature of the fiduciary relationship and the duties owed, see Question 10, Chapter 5). While Oka is not in a fiduciary relationship with either of them, it may still be held liable in equity on the basis of constructive trusteeship, if it can be shown that as a third party to that relationship it has knowingly assisted in the breach of fiduciary duties by the joint venturers or has knowingly received or dealt with property derived in breach of that fiduciary duty.

Liability could arise for either knowingly receiving and dealing with the property subject to the fiduciary duties under the first limb of Barnes v Addy (recipient liability) or for knowingly assisting in a breach of fiduciary obligations under the second limb (accessory liability). For liability to arise under the first limb (recipient liability), the following elements must be proved: • • • •

the property received was trust property or its traceable proceeds; the property was transferred in breach of trust; the recipient took it for its own benefit; and the recipient had actual or constructive notice that the property was being misapplied.

Has Oka received trust property or its traceable proceeds? Not on these facts. For liability to arise under the second limb for knowing assistance (accessory liability), the following elements must be proved: • assistance by a third party; • a dishonest and fraudulent design by the trustee; and • knowledge of that design by the third party.

Third Party Liability for Breach of Fiduciary Obligation

(4) knowledge of circumstances that would indicate the facts to an honest and reasonable person; and (5) knowledge of circumstances that would put an honest and reasonable person on inquiry. The leading Australian authorities on point are Consul case (which predated Baden) and the decision of the High Court in Farah Constructions. Recent applications of the law include Chameleon Mining NL v Murchison Metals Ltd and Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2010] WASCA 157, which postdate Farah Constructions. In Consul, the High Court did not distinguish between the two situations of knowingly receiving and dealing, and knowingly assisting. The High Court's decision in that case has been interpreted to mean that the court accepted the first four categories of Baden but rejected constructive knowledge. This comes from the judgment of Stephen J at 402-16, where he discussed: • actual knowledge; • consciously refraining from mqmry for fear of discovering the fraud; and • knowledge of facts that would of themselves, to a reasonable person, tell of fraud. His Honour added that there would be no liability for failure to inquire. In Consul, no distinction was made between and accessory liability. Does Oka have actual or constructive notice that the property was being misapplied to be held liable under the first limb? Not on these facts. Does Oka have sufficient knowledge to satisfy the fourth category under the second limb, that is, knowledge of circumstances that would indicate the facts to an honest and reasonable person? Here the facts reveal that it did not know of the relationship between Wild Marmalade and Mama Kim, which would also make it unlikely that test could be met. Gibbs Jin Consul at 398, held that full knowledge of the facts themselves would be enough even if the person did not realise that the conduct was improper. On that test, even if Oka didn't know about specific fiduciary obligations being owed, it could be held liable if it knew enough to make it liable as a constructive trustee on the Consul test.

The essential question on these facts is the extent of Oka's knowledge and whether that was sufficient to render it liable. Five categories of knowledge are identified in Baden, which range from actual to constructive knowledge. They are:

In Benz/aw and Associates PIL v Medi-Aid Centre Foundation [2007] QSC 233, Muir J found that knowledge on the basis of the first four categories identified in Baden was not established and particular emphasis was placed on the fact that there was no evidence that the defendant knew of the relationship between the other parties.

(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;

In McNally v Harris [2008] NSWSC 659, the judge used equitable principles to determine whether the design was dishonest and fraudulent, focusing on the conscience of the party acting to their own benefit. On this test it is also unlikely that liability would be found.

-62-

-63-

..,

LexisNexis Questions and Answers: Equity and Trusts Remedies 6-23 If Oka is found to be liable as a third party, the court may order that any profit made be held by it as constructive trustee.

P

Examiner's Comments 6-24 These sorts of questions often give inadequate facts to allow you to come to a certain conclusion on the knowledge of the third party. This is done intentionally to require you to explain the operation of the area, as well as apply it. An open question gives you the opportunity to discuss the issue of knowledge in detail, and then propose the extra facts you would need to know in order to satisfy the High Court test. In this way you can demonstrate the depth of your knowledge and attain high marks for your application of the law to the facts of the question.

rffi

~

•

.

Keep in Mind 6-25 Here are some important points to keep in mind: • Ensure you discuss and apply the law of fiduciary relationships and breach of fiduciary obligation; this is often essential in questions involving third party liability for breach of fiduciary duty. • In such questions it is advisable to deal with any breaches of fiduciary obligations before specifically addressing the issue of third party liability. If you have already discussed the facts giving rise to the breach of duty, that discussion should assist in your analysis of the degree of knowledge held by the third party. Students who start their answers by addressing the issue of third party liability run the risk of forgetting to return to a discussion of the original fiduciary relationship, or may fail to discuss it in sufficient detail. In this way they may miss some relatively easy part marks because of their answer structure.

Chapter 7

Confidential Information Key Issues 7-1 A court's jurisdiction to give relief against a breach of confidence or. the use or disclosure of confidential information without consent, ma; anse from many sources, including: breach of contract; the tort of inducing breach of contract; statute; and debatably, if information is treated as prop.erty, conversion. Apart from any rights in statute (see, recently, Minister for Immigration and Citizenship v Kumar [2009] HCA 10; (2009~ 238 CLR 44~) or at common law, a court of equity has an exclusive (purely equitable) jurisdiction to grant relief against actual or threatened breaches of confidence: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 · The Commonwealth of Au~tralia v John ~airfax & Sons Ltd (1980) 147 CLR 39. However, there ~s some authon~ that an equitable obligation of confidence may not anse where there is a contractual one that is expressed to reflect the 'entire agreement' between the parties: Gold & Copper Resources Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281 at [87]-[97]. The basis o.f equity's juris.diction lies in an 'obligation of conscience arising from the circumstances m or through which the information was communicated or obtained': Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984). 15? CLR 414 at 438 per Deane J. Equity will therefore impose an obligation of confidence on a person who has received information in confidence and will prevent or provide a remedy for unauthorised use of that information. 7-2 Although the early cases required a pre-existing relationship of confidence between the parties, the courts will now infer an obligation of confidence based on the nature of the material or from the circumstances in which it was obtained: Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 281 per Lord Goff of Chieveley; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; (2.001) 208 CLR 199 at [34]-[36] per Gleeson CJ, at [169]-[170] per Klrby]. The obligation may arise in varied situations and protect various types of information, such as : commercial or technical information, or trade secrets (Seager v Copydex Ltd [1967] 2 All ER 415; Ansell Rubber ~o Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37); government mformation (The Commonwealth of Australia v John Fairfax & Sons Ltd); and personal confidences: Duchess of Argyll v Duke of Argyll [1967] 1 Ch 302; Stephens v Avery [1988] 2 All ER 477. In addition,

-64-

-65-

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

recipients of surreptitiously obtained photographs or video footage of private activities may have an obligation of confidence imposed on them: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [34]-[39] per Gleeson CJ, at [170] per Kirby J; Windridge Farm Pty Ltd v Grassi [2011] NSWSC 196; (2011) 92 IPR 431 at [109]-[123] per Hall J; Douglas v Hello! Ltd (No 3) [2003] 3 All ER 996; [2006] QB 125; [2008] 1 AC 1; Campbell v MGN Ltd [2004] UKHL 22; [2004] 2 AC 457; Mosley v News Group Newspapers Ltd [2008] EWHC 1777 (QB); [2008] All ER 322. In Giller v Procopets [2008] VSCA 236; (2008) 24 VR 1, the Victorian Court of Appeal upheld a finding of the Supreme Court that a confidential relationship can exist between parties indulging in sexual activity in private such that a showing of videotape depicting that activity constitutes a breach of confidence:

detriment to the party communicating it. However, the requirement has been criticised. For example, in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health at 112, Gummow J stated that the obligation of conscience forming the basis of equity's jurisdiction:

[P]ersons indulging in a sexual activity in the privacy. of their o.wn home create a confidential relationship during such act1V1ty. In my view it is difficult to think of anything more intimate than consensual sexual activities between two parties in the privacy of their home. It involves a relationship of mutual trust and confidence which is to be shared between the persons but is not to be divulged to others without the consent of both parties: [2004] VSC 113 at [156] per Gillard J.

In relation to information acquired during employment, a distinction must be made between public or trivial information; 'know-how'; and trade secrets: Faccenda Chicken Ltd v Fowler [1987] Ch 117; Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; (2007) 73 IPR 326; Financial Integrity Group Pty Ltd v Farmer [2009] ACTSC 143; Labelmakers Group Pty Ltd v LL Force Pty Ltd [2012] FCA 512. 7-3 To maintain an action for breach of confidence in equity's exclusive jurisdiction, the plaintiff must establish that: • the information has a necessary quality of confidence or secrecy; • the information was imparted, or obtained, in circumstances importing an obligation of confidence; and • an actual, or threatened, unauthorised use of the information has occurred: Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47 per Megarry J.

... is to respect the confidence, not merely to refrain from causing detriment to the plaintiff. The plaintiff comes to equity to vindicate his right to observance of the obligation, not necessarily to recover loss or to restrain infliction of apprehended loss.

Nevertheless, for non-government information, if detriment is required it will usually be easy to establish in relation to commercial information. In other cases, the requirement has been flexibly applied. For example, in The Commonwealth of Australia v john Fairfax & Sons Ltd, Mason J opined that it may be sufficient detriment to a 'citizen that disclosure of information relating to his affairs will expose his actions to public discussion and criticism': at 52. As discussed below, in relation to government information, detriment is a necessary element. The executive or governmental body must show detriment to the public interest if disclosure is not restrained, which outweighs countervailing public interest in favour of disclosure (including the interest of open government and the promotion of discussion on government and public affairs), before the information will be protected: The Commonwealth of Australia v john Fairfax & Sons Ltd at 51-2 per Mason J; Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 at 103 per Street CJ, at 157-61, 171, 181-2 per Kirby P, at 192 per McHughJA. In The Commonwealth of Australia v john Fairfax & Sons Ltd at 52, Mason J stated that: ... if it appears that disclosure will be inimical to the public interest because national security, relations with foreign countries or the ordinary business of government will be prejudiced, disclosure will be restrained.

The information in question must also be identified specifically 'and not merely in global terms': Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 87 per Gummow J; TF Industrial Pty Ltd v Career Tech Pty Ltd [2011] NSWSC 1303 at [109] per Slattery J. There has been some debate as to whether detriment to the plaintiff must also be shown as an element of the action. See, for example, Labelmakers Group Pty Ltd v LL Force Pty Ltd at [296]. This requirement appeared in Megarry J's formulation in Coco v A N Clark (Engineers) Ltd, where it was suggested that the unauthorised use of the information must cause

Where there is an actual or threatened use or disclosure of confidential information without consent, in the absence of a defence there will be a breach of confidence: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd. Remedies may be available, not only against the original recipient of the information, but also against third party recipients having actual or constructive knowledge of the information's confidentiality. Third parties are liable from the date of such knowledge: Wheatley v Bell [1982] 2 NSWLR 544. Liability is quite strict against the original recipient, who may be liable even for unconscious use of the information: Seager v Copydex Ltd. 7-4 Both the original and the third party recipient may have recourse to defences including: lack of standing (Volkswagen Aktiengesellschaft v Garcia [2013] EWHC 1832 (Ch)); forced disclosure under compulsion of law (Parry-Jones v Law Society [1969] 1 Ch l}; or public interest: Castro/ Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31; Australian Football League v The Age Company Ltd [2006] VSC 308;

-66-

-67-

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

(2006) 15 VR 419. The latter defence recognises that disclosure of otherwise confidential information may be justified in the public interest (Fraser v Evans [1969] 1 QB 349), particularly where it relates to the disclosure of an iniquity, such as a serious crime: A v Hayden (No 2) (1984) 156 CLR 532 at 544-7; Minister for Immigration and Citizenship v Kumar at [24]-[29]. However, in relation to government information, as opposed to commercial information and personal confidences, the defence of public interest takes on a different meaning. This is because it has been held to be in the public interest to know the workings of government, and to promote the public discussion and criticism of government action, in a democratic society. Consequently, the disclosure of government information, even if confidential, will not be restrained unless it is in the public interest to do so: The Commonwealth of Australia v John Fairfax & Sons Ltd; Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd; State of Victoria v Nine Network [2007] VSC 431. As this requires a balancing of competing interests, the onus is therefore on the government to show that:

7-5 An advantage of equity's exclusive jurisdiction is the range of equitable remedies that are available to the confider, compared to the limited remedies at common law or under statute. For example, available remedies may include: an injunction, including interlocutory relief (Wilson Parking Australia 1992 Pty Ltd v Rush [2008] FCA 1601) and permanent relief (Australian Football League v The Age Company Ltd; Australian Football League v The Age Company Ltd (No 2) [2006] VSC 326; (2006) 15 VR 447), to restrain an apprehended or continuing breach of confidence; a constructive trust over property acquired; an order for delivery up (Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd; Franklin v Giddins [1978] Qd R 72; Labelmakers Group Pty Ltd v LL Force Pty Ltd at [299], [360]); and/or an account of profits (Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd) or equitable damages: Talbot v General Television Corporation Pty Ltd [1980] VR 224. Equitable compensation may also be available (Giller v Procopets at [422]-[424] per Neave JA) and, where the plaintiff has suffered no financial loss, may be assessed on the basis of the amount that, at the date of the breach, would have been negotiated for permission to use the confidential information: Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616 (Ch) at [381]-[394], [424] per Arnold J. While Australian courts have not awarded exemplary damages for a breach of confidence (Giller v Procopets at [155]-[157] per Ashley JA, at [434]-[437] per Neave JA; compare Aquaculture Corporation v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 at 301-2 per Cooke P; Skids Programme Management Ltd v McNeill [2012] NZCA 314 at [120]-[124] per France, Venning and Asher JJ), it would seem that damages for aggravation, and equitable damages for distress, may now be available: Giller v Procopets at [133][154], [158]-[159] per Ashley JA, at [233], [408]-[431], [438]-[442] per Neave JA. The current position in England is simila~ Mosley v News Group Newspapers Ltd at [172]-[211], [216], [235] per Eady J.

• publication would be a breach of confidence; • the public interest requires that publication be restrained; and • there are no other facts of the public interest contradictory of and more compelling than that relied upon: Attorney-General (UK) v Jonathan Cape Ltd [1976] 1 QB 752 at 770-1 per Lord Widgery LCJ; The Commonwealth of Australia v John Fairfax & Sons Ltd at 52 per Mason J; Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd at 102 per Street CJ, at 152 per Kirby P, at 192 per McHugh JA; State of Victoria v Nine Network at [18], [25] per Osborn J. The developing defences of the implied Constitutional freedom of communication in respect of governmental and political matters (Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [20], [35] per Gleeson CJ, at [140], [192]-[221] per Kirby J; compare [337]-[348] per Callinan]), and change of position, may also be available. It is no defence to an action for breach of confidence that, given

sufficient time, labour and expense, the confidential information, product or process in question, once released into the public domain, could be reproduced: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd. Rather, according to the 'springboard doctrine': ... a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public ... the possessor of such information must be placed under a special disability in the field of competition in order to ensure that he does not get an unfair start. (Terrapin Ltd v Builders' Supply Co (Hayes) Ltd [1967] RPC 375 at 391 per Roxburgh J)

-68-

7-6 Before tackling these questions, check that you are familiar with the following:

.f the jurisdictional basis for an action for a breach of confidence;

.f

the elements of an equitable action for breach of confidence;

.f the types of information that may be protected; .f the different classifications of information gained during employment;

.f the circumstances when an obligation of confidence will arise;

-69-

LexisNexis Questions and Answers: Equity and Trusts

.f

the meaning of 'unauthorised use' and whether 'detriment' 1s required;

.f

the special considerations for government information;

.f

the 'springboard doctrine';

.f

the liability of third party recipients; and

.f

the defences, and range of equitable remedies, available for breach of confidence.

;..tr Question 13

Confidential Information design. Upon being confronted by Felicity, Sheldon accused her of being childish, and stated that 'any engineer could make a Boost Pod once your device has been on the market for a while'. Felicity wants Sheldon punished for his disloyalty. You are a solicitor employed by Athena Lawyers. Fully advise Felicity Fox of her likelihood of success in an action for breach of confidential information against Sheldon Hooper. Also advise on the availability of any relevant remedies in equity, based on these facts. Would your advice differ if, instead of using the information to manufacture and distribute his own Boost Pod, Sheldon seeks to disclose the information to the media because it highlights a major flaw in the Boost Pod's design - the device has the potential to open automatic garage doors within a two-kilometre radius of its use. Time allowed: 40 mins

7-7 Felicity Fox studies electrical engineering at a university in Brisbane. Three years ago, Felicity spent her summer break fiddling around with various components she had collected from her local electronics supplier. She discovered that, by combining several commonly available components and attaching them to her digital video recorder, she could control and program her recorder remotely from her mobile phone. Felicity considers her discovery to be unique - she always forgets to set the video to record her favourite television programs before she goes out - and has never heard of a similar device. One month later, when university resumes, during a seminar class discussion on technology innovations, Felicity mentions the more general aspects of her idea (of a device enabling a digital video recorder to be remotely controlled from a mobile phone). Felicity's seminar professor, Sheldon Hooper, confirms that he also has never heard of such a device. Motivated by the prospect of fame and fortune, Felicity decides to establish her own business to further research and develop her discovery, and refine her original design. Felicity spends $100,000, which she inherited from her grandfather, on equipment and secure office space at a technology park - so that she can work in secret. She also employs three engineers, including Sheldon Hooper, to assist with the project. No visitors are al lowed in the office, and workers are employed on the basis that they must not discuss, or take, their work outside the office. This is the only condition of their employment. After two years, Felicity's project has developed and her initial design has been refined to the stage where her 'remote video control device', which she calls a 'Boost Pod', is ready for wholesale manufacture and distribution. Felicity therefore engages Magnus Marketing to prepare for her a report of potential clients interested in her product. Last month, Sheldon moved interstate and resigned from Felicity's project. Felicity has now discovered that Sheldon is about to start manufacturing and distributing his own Boost Pod, aided by: Felicity's idea; a copy of Magnus Marketing's report made by Sheldon before he resigned; and his knowledge of the details of the device, its components and its finalised -70-

+Answer Plan 7-8 This question raises the issue of an action for breach of confidence against Sheldon Hooper in relation to his threatened use or disclosure of: (1) Felicity Fox's idea (of a device enabling a digital video recorder to be remotely controlled from a mobile phone); (2) the details of the Boost Pod device, its components and design; and (3) the report prepared by Magnus Marketing. You should consider: (a) the jurisdictional basis for the action; (b) whether the three essential elements for breach of confidence are present against Sheldon; (c) available defences; and (d) remedies available against Sheldon.

Answer 7-9 Felicity may have an action for breach of confidence against Sheldon Hooper in relation to his threatened use or disclosure of the following commercial information: Felicity's idea; the details of the Boost Pod device, its components and design; and the report of potential clients.

(a) Jurisdictional basis for the action 7-10 An action for breach of confidence may arise in equity's exclusive jurisdiction, under statute, or at common law - in tort for inducing breach of contract or in contract for breach of contract. Here, there is no contract that expressly prohibits Sheldon's use of confidential information. However, there may be some implied obligations of confidence in his contract of employment: Robb v Green [1895] 2 QB 1;

-71-

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

[1895] 2 QB 315; Del Casale v Artedomus (Aust) Pty Ltd; Financial Integrity Group Pty Ltd v Farmer. In Australia, it is well settled that there is a general equitable jurisdiction to grant relief against actual or threatened breaches of confidence, in cases not involving any tort or breach of contract: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd. The equitable jurisdiction does not lie in a proprietary right, but in an 'obligation of conscience arising from the circumstances in or through which the information was communicated or obtained': Moorgate Tobacco Co Ltd v Philip Morris (No 2) at 438 per Deane J. In this case, Felicity's action may rest either in contract (if an implied term can be found), or in equity.

appears to be original or unique, given her statement, this information may .no longer be removed from the realm of public knowledge or protected as being confidential. In relation to the details of the Boost Pod device, its components and design, this information is likely to be regarded as a trade secret and therefore have the necessary quality of confidence: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd. In Ansell Rubber at 50, Gowans J listed the following six factors as being relevant to determining whether information is a trade secret: (1) the extent to which the information is known outside the plaintiff's

business; (2) the extent to which it is known by employees and others involved

in the business; (b)

Breach of confidence with respect to Sheldon

(3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the plaintiff and their competitors;

The three elements for an action for breach of confidence, as set out by Megarry J in Coco v A N Clark (Engineers) Ltd, are:

(5) the amount of effort or money expended in developing the

(1) the information has a necessary quality of confidence or secrecy;

(6) the ease or difficulty with which the information could be properly

7 -11

(2) the information was imparted, or obtained, in circumstances

importing an obligation of confidence; and (3) an actual, or threatened, unauthorised use of the information has occurred.

information; and acquired or duplicated by others.

To be confidential, the information must have some degree of secrecy, and must not be something that is: in the public domain; or mere trivial tittle-tattle: Coco v AN Clark (Engineers) Ltd. In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd, Gleeson CJ noted that a useful practical test of what is private is whether the disclosure 'would be highly offensive to a reasonable person of ordinary sensibilities': at [42]. If the information has commercial value to the plaintiff, or is a trade secret, then it is likely to be held to be confidential. Additionally, concepts or ideas that are sufficiently developed, or 'capable of being realized as an actuality', are capable of being protected as confidential information: Talbot v General Television Corporation Pty Ltd at 230 per Harris J. In this case, Felicity informed her seminar class about the more general aspects of her idea (of a device enabling a digital video recorder to be remotely controlled from a mobile phone). Therefore, while Felicity's idea

Although such lists are arguably not determinative (Del Casale v Artedomus (Aust) Pty Ltd at [138] per Campbell JA), here the exact details of the Boost Pod device, its component parts and design, are unknown outside Felicity's business and have been developed in secret. It appears that only the three engineers (including Sheldon Hooper), who have been employed to work on Felicity's project, knew this information apart from Felicity. It is not necessary that only the proprietor of a business know a trade secret. For example, the proprietor may, without losing protection, communicate the information to employees involved in its use and others pledged to secrecy: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd at 49-50. Felicit¥ is guarding the information's secrecy by working in a secure office, to which no visitors are allowed. Employees must not discuss, or take, their work outside the office. Given the measures taken by Felicity, the fact that she is motivated by 'fame and fortune', and Sheldon's eagerness to profit from Felicity's discovery, it would seem that the value of the information to the plaintiff and her competitors is high. On the facts, it would also seem that Felicity has expended considerable effort (over a maximum of three years) and money (at least $100,000) developing the information. Finally, in the normal course, at least until the Boost Pod is available on the market, it would seem quite difficult for others to acquire or duplicate the information which has been developed in secret. Similarly, it does not appear that Felicity made public the report prepared for her by Magnus Marketing. It is therefore likely that, as lists of clients and reliable suppliers, being commercially valuable, have been held to be confidential information (Robb v Green; Wright v Gasweld Pty Ltd), a report of potential clients would also be confidential.

-72-

-73-

As it is here, the information in question must also be specifically identified: Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health at 87; TF Industrial Pty Ltd v Career Tech Pty Ltd at [109]. Confidential information 7-12 Felicity would be arguing that: her idea; the components, design and other details of the Boost Pod device; and the report of potential clients, all have the necessary degree of confidentiality.

LexisNexis Questions and Answers: Equity and Trusts

Information may still be secret, even if derived from public information, if something new and confidential has been brought into being by the application of skill and ingenuity: Coco v A N Clark (Engineers) Ltd. Therefore, it will be irrelevant that the Boost Pod is made from a combination of several commonly available components. Even if these components are not original, the combination and assembly to form a Boost Pod may be sufficiently secret to be protected. Furthermore, even if given sufficient time, labour and expense, the Boost Pod, once released on the market and into the public domain, could be reproduced by competitors (who could also commission their own report), the 'springboard doctrine' will prevent Sheldon from taking advantage of the unfair start obtained as a consequence of his actions : Saltman Engineering Co Ltd v Campbell Engineering Co Ltd; Terrapin Ltd v Builders' Supply Co (Hayes) Ltd. Obligation of confidence

7-13

An obligation of confidence may arise:

• by agreement; • by reason of the nature of the relationship between the parties; or • by reason of the subject matter and the circumstances in which the subject matter has come into the hands of the person charged with the breach: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd at 40 . In relation to the latter situation, Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [34] confirmed that the obligation would arise where the confidential information was obtained illegally, improperly or surreptitiously, without the need for a prior relationship of trust and confidence. See also Franklin v Giddins . 7-14 Here, information was acquired by Sheldon Hooper while he was in an employment relationship with Felicity Fox; however, there was no express agreement of confidentiality. The employer-employee relationship may also attract, or imply, an obligation of confidence in equity: Robb v Green. The question that arises is the extent of this obligation. Particularly in relation to breach of confidence claims against ex-employees, the courts have been careful to distinguish between 'know-how', being the accumulated experience and knowledge of the employee, and trade secrets.

The courts have identified three different categories of employment information: (1) public or trivial information - which an employee could impart to anyone during employment or afterwards. For example, a published patent specification; (2) 'know-how' - confidential information which an employee could not use during employment but which they are able to use after, unless subject to a valid restraint clause. For example,

-74-

Confidential Information

accumulated knowledge or customer and supplier information: Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 2 at [46]; and (3) trade secrets - confidential information which an employee could not use either during or after employment. For example, unpublished secret product designs or manufacturing processes: Faccenda Chicken v Fowler followed by the New South Wales Court of Appeal in Wright v Gasweld Pty Ltd; Del Casale v Artedomus (Aust) Pty Ltd. An employee must not 'copy, remove or memorise any of his or her employer's commercially valuable information': Labelmakers Group Pty Ltd v LL Force Pty Ltd at [292] per Tracey J. As such, customer lists, where a copy is taken by the ex-employee or deliberately memorised, have long been held to be protected after employment: Faccenda Chicken v Fowler at 136 per Neill LJ; Robb v Green; NP Generations Pty Ltd v Feneley [2001] SASC 185; (2002) 80 SASR 151; Commercial & Accounting Services (Camden) Pty Ltd v Cummins [2011] NSWSC 843; (2011) 207 IR 351 at [37]- [40] per GzellJ. However, in the absence of a valid contractual restraint, an ex-employee may solicit their former employer's clients who they can remember without the aid of lists. In this case, Sheldon has clearly taken a copy of Magnus Marketing's report, which details potential clients interested in the Boost Pod product, and would be in breach of his obligation of confidence if he attempted to use it for his own purposes . As discussed above, the details of the Boost Pod device, its components and design, are likely to be regarded as a trade secret within the third category. As such, Sheldon will be under an obligation of confidence in relation to this information also, even though he has ceased employment with Felicity. 7-15 Additionally, applying an objective test, the information was arguably imparted in circumstances where a reasonable person in Sheldon's shoes would have realised upon reasonable grounds that the report and the components, design and other details of the Boost Pod device were given to them in confidence: Coco v AN Clark (Engineers) Ltd; Mense and Ampere Electrical Manufacturing Co Pty Ltd v Milenkovic [1973] VR 784 at 801. This is particularly so given the steps taken by Felicity to guard the secrecy of the Boost Pod work, and the condition attaching to Sheldon's employment. Information disclosed for a particular purpose (here for the purpose of Sheldon's employment to assist with Felicity's project) can also only be used for that purpose: Castro! Australia Pty Ltd v Emtech Associates Pty Ltd; NP Generations Pty Ltd v Feneley . However, in relation to Felicity's communication of her idea to her seminar class (including Sheldon), it would be difficult to argue that the information was imparted in circumstances importing an obligation of confidence.

-75-

LexisNexis Questions and Answers: Equity and Trusts Unauthorised use or breach of obligation 7-16 To sustain an action for breach of confidence, there must be an actual or threatened (or potential) use or disclosure of confidential information, by the recipient of the information, without the consent of the confider: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd. Sheldon Hooper is intending to use Magnus Marketing's report and his knowledge of the details of the Boost Pod device, its components and its design, to manufacture and distribute his own device. On the revised facts, he is intending to disclose confidential information. There is no evidence that Felicity Fox consents. 7-17 There has been some debate as to whether detriment to the plaintiff must also be shown. See, for example, Labelmakers Group Pty Ltd v LL Force Pty Ltd at [296]. This requirement appeared in Megarry J's formulation in Coco v A N Clark (Engineers) Ltd, even though his Honour noted that the test may be less stringent outside industry and commerce. While some have rejected the requirement (NP Generations Pty Ltd v Feneley), others have confirmed it, and it seems that, with the exception of government information, if required it will be flexibly and leniently applied. For example, in some cases sufficient detriment may be the exposure of the confider to public discussion and criticism: The Commonwealth of Australia v John Fairfax & Sons Ltd at 52 per Mason]. In any event, unauthorised use of the commercial information in this case will cause detriment to Felicity through loss of business and profit.

(c)

Defences

7-18 A number of defences may be open to a defendant for breach of confidence: lack of standing; change of position; compulsory disclosure; and disclosure in the public interest. In Australia, the Constitution's implied protection of freedom of political communication might be raised in an appropriate case: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [20], [35] per Gleeson CJ, at [140], [192]-[221] per Kirby J; compare [337]-[348] per Callinan J.

The only defence that would be relevant here is that disclosure of the confidential information is justified in the public interest: Fraser v Evans. The party alleging that an obligation of confidence is outweighed by an overriding public interest in the information's disclosure (here Sheldon Hooper) has the onus of proving the allegations and of identifying and establishing the relevant public interest. 7-19

In England, a general defence of public interest is recognised, and the public interest in maintaining the secrecy of information is weighted and balanced against the public interest in being informed on matters of real public concern. Additionally, there is a difference between what is in the public interest and what is interesting to the public: Lion Laboratories Ltd v Evans [1984] 2 All ER 417; Campbell v MGN Ltd; Mosley v News Group Newspapers Ltd. For example, in Lion Laboratories, -76-

Confidential Information

the disclosure of information by the employees of a manufacturer of defective breathalysers was allowed. As such test results were used to convict people of driving offences, there was a public interest in making sure that the tests were accurate. In Australia, although unsettled (David Syme & Co Ltd v General Motors-Holden's Ltd [1984] 2 NSWLR 294 at 309-10; Australian Football League v The Age Company Ltd at [72]-[94]), arguably a narrower public interest .de~ence applies, which is 'more weighty and precise' than a broad public mterest m the truth being told: Castro! Australia Pty Ltd v Emtech Associates Pty Ltd at ~6. Rather, the defence appears limited to the disclosure of 'matters earned out or contemplated, in breach of a country's security, or in breach of law ... or otherwise destructive of the country or its people, including matters medically dangerous to the public; and doubtless other misdeeds of similar gravity': Castro! Australia Pty Ltd v Emtech Associates Pty Ltd at 55 per Rath J referring to Beloff v Pressdram Ltd [1973] 1 All ER 241 at 260 per Ungoed-Thomas J. The defence makes legitimate the publication of confidential information 'so as to protect the community from destruction, damage or harm' (The Commonwealth of Australia v John Fairfax & Sons Ltd at 57 per Mason]), and includ~s t~e disclosure of information concerning the existence of, or the real likelihood of the existence of, an iniquity that is a serious crime, civil wrong or misdeed, to someone with a real or proper interest in receiving the information: Australian Football League v The Age Company Ltd at [57]-[71], [82]-[83]; Minister for Immigration and Citizenship v Kumar at [24]-[29]. Although the proper person to whom information in relation to the commission of a crime or civil wrong should be disclosed is likely to be the police, or the individual against whom the wrong has been or is likely to be committed, in exceptional circumstances, if the iniquity affects, or has the potential to affect, the community as a whole, there may be grounds justifying disclosure through the media or by publication i~ a book: Church of Scientology v Kaufman [1973] RPC 635; Australian Football League v The Age Company Ltd at [67]. Here on the revised facts, Sheldon may attempt to rely on the defence of public interest to justify the disclosure of confidential information to the media in order to highlight the potential for Felicity Fox's Boost Pod to open automatic garage doors within a two-kdometre rad.ius of its use. Although unlikely to lead to a breach of national security on the facts, this potential could lead to widespread breaches of law, or.the commission of criminal or civil wrongs through, for example, stealmg. This defence is arguable on both the wider English and the narrower Australian views. (d)

Remedies

7-20 By taking a copy of Magnus Marketing'.s report. during h!s employment with Felicity, and seeking to use that mformat1on after his employment had ended, Sheldon has breached his implied contractual

-77-

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

obligations and would be liable for damages at common law. In equity, there are also a number of remedies available to a plaintiff for breach of confidence. These may include: monetary remedies, such as an account of profits, or equitable compensation or damages; injunctions; a constructive trust over property acquired; and/or an order for delivery up. The plaintiff must elect to either pursue an account of profits (restitution) or damages (compensation); Felicity cannot claim both: Warman International Ltd v Dwyer (1995) 182 CLR 544.

engineer the Boost Pod once on the market, and comm1ss10n their own report. Additionally, if Sheldon has used Felicity's confidential information as a springboard, the court may award a monetary remedy representing the time and expense saved by Sheldon in not creating the information for himself.

7-21 In this case, as Felicity has sufficient notice of Sheldon's actions, she may be successful in obtaining an interlocutory prohibitory injunction against Sheldon to stop him, pending trial, from using Magnus Marketing's report and his knowledge of the details of the Boost Pod device, its components and its design, to manufacture and distribute his own device: Wilson Parking Australia 1992 Pty Ltd v Rush. The requirements for an interlocutory injunction are outlined generally in Chapter 13 . The applicant must first prove that there is a serious question to be tried (Queensland Industrial Steel Pty Ltd v Jensen [1987] 2 Qd R 572; Tableland Peanuts Pty Ltd v Peanut Marketing Board (1984) 52 ALR 651), or triable issue: Murphy v Lush (1986) 60 ALJR 523. However, in Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, Gummow and Hayne JJ (Gleeson CJ and Crennan J concurring) favoured the reinstatement of the test from Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 requiring proof of a prima facie case. This test was applied to a breach of confidence claim in Wilson Parking Australia 1992 Pty Ltd v Rush at [36]-[40] per Jessup J. Second, the balance of convenience must favour the granting of the injunction: Beecham Group Ltd v Bristol Laboratories Pty Ltd. An undertaking to the court as to damages is also usually required of the plaintiff as a condition to injunctive relief.

Here, Felicity could show a prima facie case or serious question to be tried. Her action raises a legitimate question as to breach of an equitable obligation of confidence; it has a real or sufficient likelihood of success, and is not vexatious or frivolous. If no injunction was granted, Sheldon would be free to use the confidential information to commence the manufacture and distribution of his own device in competition with Felicity. While this may result in a loss of profit to Felicity, an argument against the granting of an injunction may be that an award of damages payable by the defendant may sufficiently compensate the plaintiff: Foster v Mountford & Rigby Ltd (1976) 14 ALR 71at75. Nevertheless, there is no obligation for the court to be satisfied that damages are not an adequate remedy before an injunction will be granted, because the action is in equity's exclusive jurisdiction.

7-23 At trial, particularly if an injunction is refused, an account of profits may be available against Sheldon for the use of the information to manufacture and distribute his own Boost Pod device. The profit to be accounted for will be the net profit made by the defendant: Peter Pan Manufacturing Corp Ltd v Corsets Silhouette Ltd [1964] 1 WLR 96.

Equitable compensation (Giller v Procopets) or damages may be awarded under equity's inherent jurisdiction. As discussed further in Chapter 14, equity can also award equitable damages under the Lord Cairns' Act provisions which exist in each Australian jurisdiction: Talbot v General Television Corporation Pty Ltd. These damages are awarded in lieu of, or in addition to, an injunction or specific performance. The courts have not always been clear on the jurisdictional basis on which they have awarded monetary compensation: Seager v Copydex Ltd. In so far as damages have been awarded for a purely equitable breach, without reference to Lord Cairns' Act, it has been criticised as an example of the fusion fallacy: see Chapter 1. However, whichever jurisdictional basis is adopted, the courts have indicated a willingness to be flexible in assessing compensation. The cases indicate that equitable damages may be assessed in a number of different ways, based on: • the market value of the information on a sale between a willing buyer and a willing seller: Seager v Copydex Ltd (No 2) [1969] 1WLR923; • what would be a fair remuneration for the defendant to have paid the plaintiff for a licence to use the information: Inter-firm Comparison (Aust) Pty Ltd v The Law Society of NSW (1975) 5 ALR 527; or • the diminished value of the information in the hands of the plaintiff after the breach of confidence has occurred: Talbot v General Television Corporation.

Any injunction awarded (interlocutory or final) will, subject to the 'springboard doctrine' (Seager v Copydex Ltd at 417), be influenced by or limited to the time that it would take other competitors to reverse

7-24 Felicity wants Sheldon punished for his disloyal conduct. At common law, exemplary damages are sometimes awarded where the defendant's conduct has been contumelious or outrageous. Such damages have not traditionally been available in equity and this has been confirmed in Australia in Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298, in the context of an action for breach of fiduciary duty. The award of exemplary damages in relation to equitable actions has also been criticised as an example of the fusion fallacy: see Chapter 1. Therefore, in an equitable action for breach of confidence, Felicity is unlikely to be awarded these further damages: Giller v Procopets.

-78-

-79-

7-22

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

7-25 The remedy of delivery up is a remedy by which the court orders the defendant to deliver up documents or chattels which are the subject of the action for breach of confidence: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd; Franklin v Giddins; Labelmakers Group Pty Ltd v LL Force Pty Ltd at [299], [360]. Here, the court could order that the copy of Magnus Marketing's report, including any additional copies made, be delivered up to the court for destruction or be otherwise destroyed.

interest defence applied in Australia and in England m relation to non-government information. Furthermore, in the United Kingdom, following the introduction of the Human Rights Act 1988 (UK), and the incorporation into the domestic law of the European Convention for the Protection of Human Rights and Fundamental Freedoms (1953) Arts 8 and 10, the courts are required to absorb human rights principles, namely the right to respect for private and family life, and the right to freedom of expression, into the equitable action for breach of confidence. See, for example, A v B pie (2003) QB 195; Douglas v Hello! Ltd (No 3); Campbell v MGN Ltd; Mosley v News Group Newspapers Ltd; Goodwin v NGN Ltd [2011] EWHC 1437 (QB); ETK v News Group Newspapers Ltd [2011] EWCA Civ 439. Article 8's right to privacy has, in turn, led to the development of 'super-injunctions', or interim injunctions restraining publication, not only of allegedly private or confidential information and the plaintiff's identity, but of the existence of the order and proceedings: Terry v Persons Unknown [2010] EWHC 119 (QB); DPT v TFD [2010] EWHC 2335 (QB). Australian jurisdictions generally lack an equivalent domestic protection of such rights. However, see: Human Rights Act 2004 (ACT); Charter of Human Rights and Responsibilities Act 2006 (Vic). New Zealand recognises a tort of invasion of privacy: P v D [2000] 2 NZLR 591; Hosking v Runting [2005] 1 NZLR 1. While the High Court refused to recognise a tort of privacy in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd, it did not clearly reject the future development of this tort in Australia as an alternative means of protecting private or confidential information: at [38]-[41] per Gleeson CJ, at [129]-[132] per Gummow and Hayne JJ, at [185]-[191] per Kirby J, at [313]-[336] per Callinan J. In relation to this issue, see also Doe v Australian Broadcasting Corporation [2007] VCC 281. New Zealand (Aquaculture Corporation v NZ Green Mussel Co Ltd; Skids Programme Management Ltd v McNeil/) and England (Douglas v Hello! Ltd (No 3); compare Mosley v News Group Newspapers Ltd) have also indicated a willingness to award exemplary damages for equitable breaches contrary to the Australian approach in Giller v Procopets. In Skids Programme Management Ltd v McNeil/ at [87]-[88], the New Zealand Court of Appeal, contrary to the fusion fallacy (see Chapter 1 ), additionally accepted the merging of common law and equity in recognising the availability of damages for breach of confidence.

(e) Conclusion 7-26 Subject to defences on the revised facts, while Felicity has established the basic requirements for a successful equitable action for breach of confidence in relation to: (1) the details of the Boost Pod device, its components and design; and (2) the report prepared by Magnus Marketing, she is unlikely to be successful in relation to the more general aspects of her idea (of a device enabling a digital video recorder to be remotely controlled from a mobile phone).

p

Examiner's Comments 7-27 Students should note the format that the answer adopts: general points of law such as elements; then specific points of law relevant to specific facts or issues, such as the three categories of employment information; and finally, application of the law to the facts including remedies. This question also highlights the importance of being aware of the facts of the cases, and of recent cases, in order to fully identify the relevant issues and the legal principles to be applied, for example, in the context of: • confidential information - ideas and trade secrets: Talbot v General Television Corporation Pty Ltd; Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd; • the obligation of confidence and information acquired during employment: Faccenda Chicken Ltd v Fowler; Wright v Gasweld Pty Ltd; Del Casale v Artedomus (Aust) Pty Ltd; Labelmakers Group Pty Ltd v LL Force Pty Ltd; • the public interest defence: Castro[ Australia Pty Ltd v Emtech Associates Pty Ltd; Australian Football League v The Age Company Ltd;and • exemplary damages: Giller v Procopets. 7-28 Consequently, you should be aware that the law relating to the protection of confidential information continues to develop in both Australia and in other jurisdictions, and you should ensure that your knowledge of the area is current. In particular, this question required a brief discussion of the difference in the width of the public -80-

7-29 The unauthorised use of confidential information by senior employees or directors may also give rise to an action for breach of fiduciary obligation in an appropriate case: see Chapter 5, Question 9. However, this question specifically limited students to a consideration of the success of an action for breach of confidential information.

-81-

Confidential Information

LexisNexis Questions and Answers: Equity and Trusts

!/Ii

~

relationship. Although the relationship became obvious to Harry and Sally's closest work colleagues, no one else knew until six months ago when Harry's wife, Bianca, confronted him with her suspicions that he was having an affair. When Harry admitted the affair, Bianca was deeply distressed, but she and Harry decided, for the sake of their three children, to rebuild their marriage. Harry agreed to end his relationship with Sally, and Bianca accepted this. Harry and Sally also agreed to put the affair behind them and to never tell anyone. Harry kept his personal laptop, which was password protected, in his locked office at the family home in Sydney. Harry's email account was also password protected. Last month, Anders Arrow, a freelance journalist and computer expert, broke into Harry's office and gained access to Harry's laptop and email. Anders made and took electronic copies of all documents, images, emails and files stored there. Later, while sorting through the files retrieved from Harry's laptop, Anders realised that Harry and Sally had been having an affair. Anders could not believe his good luck! He sold copies of sordid emails, online chat messages and photos documenting Harry and Sally's affair to Newspaper Company for $175,000. Newspaper Company was thrilled to have the opportunity to gain this information. Its reporters had been investigating rumours of such an affair, between a high profile Australian actress and an internationally renowned football player, that had been anonymously posted on various internet biogs, but had been unable to find anything to substantiate them. Newspaper Company has now started advertising that a story will appear in next weekend's paper which will expose the truth behind the lives of a famous Australian and an international superstar. Sally is furious. Harry also does not need this. He is being pressed by his bank to pay the massive credit card debts he accumulated during his affair with Sally. French champagne, foie gras and five-star hotels do not come cheap, and the expense has left Harry on the brink of insolvency. Advise Anders Arrow and Newspaper Company in relation to any equitable claims against them which may arise out of the above circumstances. Include in your answer a complete discussion of defences and remedies.

Keep in Mind 7-30

Here are some important points to keep in mind:

• Ensure you demonstrate knowledge of the specific law relating to employment relationships and the public interest defence. • Take care to refer to the latest High Court, or other, authority where important statements in the area are made. • Identify all of the issues raised under each element of the breach of confidence action. • Show you have made a genuine and reasonable attempt to apply the law to the facts. You should ensure that your answer is not too general or superficial. It should also be sufficiently focused upon answering the question with reference to the facts given. • Identify the precise information that is being protected . Identification is important as different principles may apply and different conclusions may be reached in respect to each item of information. This occurred in this case where there were three separate items of information: (1) Felicity's idea; (2) the details of the Boost Pod device, its components and design; and (3) the report prepared by Magnus Marketing. • Make sure you consider the availability of defences. • Consider the breadth of the remedies potentially available, including exemplary damages, and the application of the 'springboard doctrine' - you were asked to advise on the availability of any relevant remedies in equity. • Check that your answer adequately matches the question actually asked. For example, in a case where there is a contractual provision, or an implied contractual obligation of confidence, although common law rights and remedies cannot be ignored, only a very brief statement should be made keeping in mind that it is an equity question.

~tt Question 14 7-31 Harry Enland has achieved international fame and fortune as a football player. Two years ago, Harry agreed to participate in a television show called Celebrity Happy House where famous contestants live together in a house for two months. During this time the contestants participate in activities and each week the audience votes two of the contestants off the show. The final contestant remaining in the house wins $150,000 for the charity of their choice. While on Celebrity Happy House, Harry met Sally Liebdich, a high profile Australian actress. Harry and Sally were both married; however, they were instantly attracted to one another and after their participation in Celebrity Happy House had ended, they discreetly commenced a

-82-

Time allowed: 40 mins

f

Answer Plan 7-32 This question raises the issue of Anders Arrow's liability in separate actions for breach of confidence brought by Harry Enland and Sally Liebdich, in relation to the disclosure of confidential information concerning Harry and Sally's relationship or affair. Actions against Newspaper Company, as a third party, should also be considered. As none of the confidential information related to Harry's wife, Bianca, and she played no part in any misuse of the information, she is not relevant either as a plaintiff or a defendant for the purpose of this question. -83-

LexisNexis Questions and Answers: Equity and Trusts

Your answer should address: (a) the jurisdictional basis for the action; (b) whether the three essential elements for breach of confidence are present against Anders; (c) the liability of Newspaper Company as a third party recipient; (d) available defences; and (e) remedies available against all parties.

Answer (a)

jurisdictional basis for the action

7-33 An action for breach of confidence may arise in equity's exclusive jurisdiction, under statute, or at common law - in tort for inducing breach of contract or in contract for breach of contract. Here, Anders has not obviously entered into any written contract with Harry or Sally. Consequently, there is also nothing to suggest that Newspaper Company has induced a breach of contract such that a tort arises. In Australia, it is well settled that there is a general equitable jurisdiction to grant relief against actual or threatened breaches of confidence, in cases not involving any tort or breach of contract: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd. The equitable jurisdiction does not lie in a proprietary right but in an 'obligation of conscience arising from the circumstances in or through which the information was communicated by obtained': Moorgate Tobacco Co Ltd v Philip Morris (No 2) at 438 per Deane J. (b)

Breach of confidence with respect to Anders

7 -34 The three elements for an action for breach of confidence in equity, as set out by Megarry J in Coco v A N Clark (Engineers) Ltd, are: ( 1) the information has a necessary quality of confidence or secrecy; (2) the information was imparted, or obtained, in circumstances

importing an obligation of confidence; and (3) an actual, or threatened, unauthorised use of the information

has occurred. Arguably, the information in question here is also capable of being specifically identified (Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health at 87; TF Industrial Pty Ltd v Career Tech Pty Ltd at [109]) and would consist of the fact of the affair, together with the copies of the sordid emails, online chat messages and photos.

Confidential Information

v Heinemann Publishers Australia Pty Ltd; Attorney-General v Guardian Newspapers Ltd (No 2)) or, as in this case, to personal information. Although traditionally limited to personal confidences between husband and wife (Duke of Argyll v Dutchess of Argyll), a duty of confidence may extend to unmarried non-transient sexual partners and to details of sexual conduct. For example, in Giller v Procopets, the airing of videotape depicting sexual activity, upon the breakdown of a defacto relationship, to the family and friends of one of the parties, was held to constitute a breach of confidence. Furthermore, although the decision of an English court after the integration of human rights principles into the equitable action for breach of confidence (see discussion under the examiner's comments to Question 13 ), in ETK v News Group Newspapers Ltd an interlocutory injunction was granted restraining the communication, publication or disclosure of information concerning the fact, or details, of a six-month affair between two married persons in the entertainment industry. To be confidential, the information must have some degree of secrecy, and must not be something that is: in the public domain; or mere trivial tittle-tattle: Coco v A N Clark (Engineers) Ltd. In Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd, Gleeson CJ noted that a useful practical test of what is private is whether the disclosure 'would be highly offensive to a reasonable person of ordinary sensibilities': at [42]. The use of this test, particularly in relation to information not obviously private, was confirmed in Campbell v MGN Ltd at [93]-[100], [135]-[136], [166]. Arguably here, details of the fact of the affair, together with copies of the sordid emails, online chat messages and photos, would be obviously private information. This is confirmed by Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [42] per Gleeson CJ: Certain kinds of information about a person, such as information relating to health, personal relationships, or finances, may be easy to identify as private; as may certain kinds of activity, which a reasonable person, applying contemporary standards of morals and behaviour, would understand to be meant to be unobserved.

The confidentiality of such information is also supported on the facts by the extent to which Harry himself took steps to protect and guard its secrecy (Skids Programme Management Ltd v McNeil! at [79]-[80]), through locking his office and setting passwords.

7-35 Protection is not limited to commercial information or trade secrets, but may extend to government secrets (The Commonwealth of Australia v John Fairfax & Sons Ltd; Attorney-General (UK)

However, information may cease to be confidential due to its wide publication (Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd), or by lapse of time: Attorney-General (UK) v Jonathan Cape Ltd. On the facts, although Harry and Sally conducted their relationship discreetly, the fact of their relationship was obvious to their closest work colleagues. In addition, there had been unsubstantiated rumours of an affair on various internet biogs. In Australian Football League v The Age Company Ltd [2006] VSC 308; (2006) 15 VR 419 at [52]-[56], the Victorian

-84-

-85-

Confidential information

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

Supreme Court held that although the names of football players who had tested positive to illicit drugs had been disclosed anonymously on internet discussion forums, given their lack of accountability, veracity and authority, publication on such websites did not place the information into the public domain or destroy its confidential nature. Additionally, ETK v News Group Newspapers Ltd held that, although the test for information becoming known to the public is a matter of fact and degree, the fact that information was available to a person's friends or work colleagues did not mean that it was widely published: at [10]-[11].

Here, clearly Anders Arrow has disclosed information concerning Harry and Sally's relationship or affair, without their consent, by selling it to Newspaper Company.

Therefore, provided the information in question is not further in the public domain, it would seem that the fact of the affair between Harry Enland and Sally Liebdich, together with the emails, online chat messages and photos, would prima facie satisfy the test of confidential information. Obligation of confidence 7-36

An obligation of confidence may arise:

• by agreement; • by reason of the nature of the relationship between the parties; or • by reason of the subject matter and the circumstances in which the subject matter has come into the hands of the person charged with the breach: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd at 40. In relation to the last situation, Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [34] confirmed that the obligation would arise where the confidential information was obtained illegally, improperly or surreptitiously, without the need for a prior relationship of trust and confidence. Accordingly, where confidential information has been obtained in such a way, the fact that there is no actual communication of the information in circumstances imparting an obligation of confidence is irrelevant. Rather, it is the unconscionability of the defendant's conduct that provides a sufficient basis for the foundation of the equitable obligation: Lenah Game Meats at [170] per Kirby J, at [298] per Callinan J; Franklin v Giddins at 80; [merman v Tchenguiz [2010] EWCA Civ 908; [2011] 1 All ER 555 at [68]-[69] per Lord Neuberger MR, Moses and Munby LJJ. Here, the information was acquired by Anders Arrow surreptitiously, improperly and/or illegally. Therefore, Anders would be under an obligation of confidence in relation to this information. Unauthorised use or breach of obligation

7-38 There has been some debate as to whether detriment to the plaintiff must also be shown. See, for example, Labelmakers Group Pty Ltd v LL Force Pty Ltd at [296]. This requirement appeared in Megarry J's formulation in Coco v A N Clark (Engineers) Ltd, even though his Honour noted that the test may be less stringent outside industry and commerce. While some have rejected the requirement (NP Generations Pty Ltd v Feneley), others have confirmed it, and it seems that, with the exception of government information, if required it will be flexibly and leniently applied. For example, in The Commonwealth of Australia v John Fairfax & Sons Ltd at 52, Mason J opined that it may be sufficient detriment to a 'citizen that disclosure of information relating to his affairs will expose his actions to public discussion and criticism'. This may well be the case in relation to Harry Enland and Sally Liebdich.

(c)

Liability of the publisher, Newspaper Company, as a third party recipient

7-39 The courts have imposed remedies against third parties into whose hands confidential information has come: Duchess of Argyll v Duke of Argyll. Liability depends upon knowledge, either actual or constructive, that the information is confidential, and attaches from the date of such knowledge: Wheatley v Bell.

Here, it would seem that any reasonable person in the position of Newspaper Company would have realised that this type of information would be confidential, or at least be put on inquiry. In any event, once Harry and Sally give Newspaper Company notice of their claim, liability would immediately arise for any unauthorised use: Fraser v Evans at 361. As such, it is likely that Newspaper Company would also be liable to Harry Enland and Sally Liebdich for breach of confidence, should they use or disclose the information further without consent. (d)

Defences

7-40 A number of defences may be open to a defendant for breach of confidence: lack of standing; change of position; compulsory disclosure; and disclosure in the public interest. In Australia, the Constitution's implied protection of freedom of political communication might be raised in an appropriate case: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd at [20], [35] per Gleeson CJ, at [140], [192]-[221] per Kirby J; compare [337]-[348] per Callinan J.

To sustain an action for breach of confidence, there must be an actual or threatened (or potential) use or disclosure of confidential information, by the recipient of the information, without the consent of the confider: Saltman Engineering Co Ltd v Campbell Engineering Co Ltd.

7-41 Anders Arrow and Newspaper Company may argue that it is in the public interest that the information be disclosed (Fraser v Evans), particularly given the public or celebrity status of Harry Enland and Sally Liebdich. The onus of proving the allegations and of identifying and establishing the relevant public interest is on the party alleging

-86-

-87-

7-37

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

that an obligation of confidence is outweighed by an overriding public interest in the information's disclosure. Here, this onus is on Anders and Newspaper Company.

Consequently, it is unlikely here that either Anders or Newspaper Company would be able to successfully argue that public interest required the publication of the fact of the affair between Harry and Sally, together with the emails, online chat messages and photos. Such activities, even if adulterous, are not illegal, and publication would only serve public curiosity. No public welfare, or other interest of similar gravity to those expressed in Castro! Australia Pty Ltd v Emtech Associates Pty Ltd, would be served.

As outlined fully in the answer to Question 13 above, in Australia, the public interest defence appears limited to the disclosure of 'matters carried out or contemplated, in breach of a country's security, or in breach of law ... or otherwise destructive of the country or its people, including matters medically dangerous to the public; and doubtless other misdeeds of similar gravity': Castro! Australia Pty Ltd v Emtech Associates Pty Ltd at 55 per Rath J referring to Beloff v Pressdram Ltd [1973] 1 All ER 241 at 260 per Ungoed-Thomas J. It therefore requires 'regard to matters of a more weighty and precise kind than a public interest in the truth being told': Castro! Australia Pty Ltd v Emtech Associates Pty Ltd at 56 per Rath J; compare Woodward v Hutchins [1977] 2 All ER 751. In Australian Football League v The Age Company Ltd at [84], Kellam J confirmed that 'public interest disclosure must amount to more than public "curiosity" or public "prudence"'. Accordingly, Kellam J concluded (at [94]) that public interest did not require disclosure on the facts of that case as there was 'nothing in the public welfare or in the interests of the community at large which could be served by the identification' of those football players who had tested positive to illicit drugs. Rather, there was only 'the satisfaction of public curiosity in having the confidentiality of the names' breached through their release: at [94]. The defence includes the disclosure of information concerning the existence of, or the real likelihood of the existence of, an iniquity that is a serious crime, civil wrong or misdeed, to someone with a real or proper interest in receiving the information: Minister for Immigration and Citizenship v Kumar at [24]-[29]. However, in Australian Football League v The Age Company Ltd it was held that 'the disclosure of the names of players who have tested positive to illicit drugs will not disclose any iniquity of a serious criminal nature ... no crime, be it possession of or use of such illicit substance could possibly be proved by such information alone': at [70]. Furthermore, it was not the defendant's intention 'to disclose such matters to a third party with a real interest in redressing any such possible crime', but only for the purpose of 'an "interesting story" for football fans and for other readers': at [71].

In England, an arguably wider general defence of public interest is recognised, where the public interest in maintaining the secrecy of information is weighted and balanced against the public interest in being informed on matters of real public concern: Lion Laboratories Ltd v Evans; Campbell v MGN Ltd. However, even under this test, in Mosley v News Group Newspapers Ltd, in relation to the private practice of sadomasochistic sexual activity, it was held that 'even if adulterous and depraved, the activities were not genuine matters of public interest': at [124]. Eady J also concluded (at [127]) that it was 'not incumbent on the media or the state to expose sexual conduct'. -88-

7-42 While Newspaper Company paid Anders Arrow $175,000 for the information, as confidential information is not property, the defence of bona fide purchaser for value will not apply: Wheatley v Bell at 549-50. However, although yet to be applied in a breach of confidence case, the emerging defence of change of position may be argued by Newspaper Company: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353. In order for the defence of change of position to apply, a party must receive information bona fides and act to their detriment on the understanding that they can use the information. Here, it may be difficult for Newspaper Company to show that they acquired the information in good faith.

(e)

Remedies

7-43 In equity, there are a number of remedies available to a plaintiff for breach of confidence. These may include: monetary remedies, such as an account of profits, or equitable compensation or damages; injunctions; a constructive trust over property acquired; and/or an order for delivery up. The plaintiff must elect to either pursue an account of profits (restitution) or damages (compensation); they cannot claim both: Warman International Ltd v Dwyer. 7-44 In this case, Harry Enland and Sally Liebdich would be likely to seek a prohibitory injunction against: Anders Arrow, to stop him from using or disclosing the information further (assuming that there was a threat of this, as Anders has already sold the information on to Newspaper · Company); and Newspaper Company, to stop them publishing the story in the weekend paper. They would probably seek an urgent interlocutory injunction which would have effect until a full trial on the matter. Unlike the English 'Spycatcher' case (Attorney-General v Guardian Newspapers Ltd (No 2)), where injunctions were discharged as worldwide publication had already destroyed secrecy, as discussed above, the information here is likely to be considered still relatively secret and not sufficiently public.

The requirements for an interlocutory injunction are outlined generally in Chapter 13, and are discussed in relation to Question 13 above. One requirement that may prove problematic here is that an undertaking to the court as to damages is usually required of the plaintiff as a condition

-89-

LexisNexis Questions and Answers: Equity and Trusts

Confidential Information

to injunctive relief: Cambridge Credit Corporation Ltd v Surfers' Paradise Forests Limited [1977] Qd R 261; RG Munro Futures Pty Ltd (in liq) v Starport Futures Trading Corp [2008] QSC 337. On the facts, Harry is on the brink of insolvency. Accordingly, his capacity to pay damages will be a significant factor for the court to consider when exercising its discretion whether or not to grant an injunction: Cooper v Moloney (No 6) [2012] SASC 212; CMA Recycling Victoria Pty Ltd v Doubt Free Investments Pty Ltd [2011] TASSC 29. However, both Harry and Sally can show a prima facie case or serious question to be tried. Their actions raise a legitimate question as to breach of an equitable obligation of confidence; and have a real or sufficient likelihood of success. If no injunction is granted, Newspaper Company in particular would be free to publish their story in the weekend paper with serious consequences for Sally, and for both Harry and, arguably, his wife and children. By comparison, the defendants' loss or inconvenience if an injunction is granted is less. Accordingly, Harry's inability to provide an adequate undertaking may not preclude an interlocutory prohibitory injunction, if warranted, against both defendants.

The remedy of delivery up is a remedy by which the court orders the defendant to deliver up documents or chattels which are the subject of the action for breach of confidence: Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd; Franklin v Giddins; Labelmakers Group Pty Ltd v LL Force Pty Ltd at [299], [360]. Here, the court could order that any printed or electronic copies of the information taken or obtained regarding Harry and Sally's relationship (for example, emails, online chat messages and photos), be delivered up by Anders and Newspaper Company to the court for destruction.

7-45 Should Anders Arrow and Newspaper Company be liable in actions for breach of confidence, an account of profits may be available against Anders for the receipt of the $175,000. If an injunction was not granted and publication allowed, an account of future profits from Anders and/or Newspaper Company may be awarded. The profit to be accounted for will be the net profit made by the defendants: Peter Pan Manufacturing Corp Ltd v Corsets Silhouette Ltd.

Monetary compensation may alternatively be available against Anders and/or Newspaper Company if publication proceeds. Equity has an inherent jurisdiction to award equitable compensation (Giller v Procopets), or damages. Equity can also award equitable damages under the Lord Cairns' Act provisions which exist in each Australian jurisdiction: Talbot v General Television Corporation Pty Ltd. See also discussion in Chapter 14. These damages are awarded in lieu of, or in addition to, an injunction or specific performance. The cases indicate that monetary compensation may be assessed in a number of different ways, based on: • the market value of the information on a sale between a willing buyer and a willing seller: Seager v Copydex Ltd (No 2); • what would be a fair remuneration for the defendant to have paid the plaintiff for a licence to use the information: Interfirm Comparison (Aust) Pty Ltd v The Law Society of NSW; or • the diminished value of the information in the hands of the plaintiff after the breach of confidence has occurred: Talbot v General Television Corporation.

-90-

7-46

({)

Conclusion

7-47 It is likely that Anders Arrow and Newspaper Company will be liable in equitable actions for breach of confidence brought by Harry Enland and Sally Liebdich.

Examiner's Comments 7-48 Students should note the format that the answer adopts (see the examiner's comments to Question 13 ), in this case moving from the general law to the specific law relating to personal information.

In relation to remedies, if time permitted, damages could be discussed further. In particular, the theoretical basis for an award of damages under Lord Cairns' Act has been the subject of academic debate and could be expanded upon. Some commentators have also suggested that the awarding of damages for a purely equitable breach of confidence, without reference to Lord Cairns' Act, is an example of the fusion fallacy: see Chapters 1 and 14.

f!;.~ K

eep .in M.in d

7-49

Here are some important points to keep in mind:

• Ensure you demonstrate adequate knowledge of the specific law and cases relating to personal information, including in the context of the public interest defence. A good working knowledge and understanding of cases such as Giller v Procopets; Australian Football League v The Age Company Ltd; ETK v News Group Newspapers Ltd and Mosley v News Group Newspapers Ltd would have assisted in the formulation of arguments and conclusions on the facts. However, the extent of your expected knowledge of these cases may depend upon your syllabus. • Take care not to overlook considerations relevant to the liability of third parties. Here, the position of Newspaper Company had to be examined to determine potential liability and remedies. In fact, the preferred remedy of an injunction was primarily against

-91-

LexisNexis Questions and Answers: Equity and Trusts

Chapter 8

Newspaper Company. Students also often confuse this area with third party liability for breach of fiduciary duty. The law relating to recipient or accessory liability (the first and second limbs of Barnes v Addy (1874) LR 9 Ch App 244) does not apply to third party liability for breach of confidence. • Consider all of the remedies relevantly available and/or likely to be awarded, unless expressly instructed not to. Sometimes you will be expressly asked to consider defences and remedies (as in this question), but this will not always be the case!

Unconscionable Transactions: Undue Influence and

Unconscionable Bargains Key Issues 8-1 The equitable doctrines of undue influence and unconscionable bargains provide relief to parties entering into transactions in circumstances where it would be against equity's conscience to enforce such transactions. Undue influence is distinguishable from the doctrine of unconscionable bargains. Undue influence focuses on the quality of consent of a weaker party in a relationship, while the law of unconscionable bargains focuses on the conduct of the stronger party in taking advantage of a party labouring under a special disability in circumstances where it would be against conscience to do so: Commercial Bank of Australia Ltd v Amadio (1983) 151CLR447. Undue influence 8-2

Undue influence exists when a person in a position of influence over another improperly uses that position for the stronger party's or another's benefit, so that the acts of the subordinate person are not free and voluntary: Union Bank of Australia Ltd v Whitelaw [1906] VLR 711. The essence of undue influence is 'a relationship involving ascendency by one person over the will of the other, and correlative dependence by the other': Anderson v McPherson (No 2) [2012] WASC 19 at [24 7]-[248] per Edelman J. Undue influence is divided into two classes: Johnson v Buttress (1936) 56 CLR 113. The first class is actual undue influence, which requires proof of an express use of influence. The second class is presumed undue influence, where there is a presumption of undue influence that arises from the existence of a special relationship of influence (either presumed or established on the facts) between the parties. Examples of relationships where a special relationship of influence is presumed include: parent and child; guardian and ward; solicitor and client; doctor and patient; and religious leader and devotee. -92-

-93-

LexisNexis Questions and Answers: Equity and Trusts

Unconscionable Transactions: Undue Influence

In Lloyd's Bank v Bundy [1975] 1 QB 326, the following features of a special relationship of influence were identified: reliance upon guidance and advice; awareness of the reliance by the dominant party; a benefit being received by the advisor; and some element of confidentiality or trust in the relationship. In addition, a statutory presumption of undue influence arises under the Powers of Attorney Act 1988 (Qld) s 87 when there is a transaction between a principal and one or more of: an attorney under an enduring power of attorney or advance health directive; or a relation, business associate or close friend of the attorney: Smith v Clegg [2004] QSC 443. To establish a special relationship of influence, relevant evidence relates to weakness, reliance, confidence and trust being placed in the stronger party: Johnson v Buttress; Janson v Janson [2007] NSWSC 1344 at [72].

remedy for an unconscionable bargain is to set aside the transaction, the court has discretion to award the minimum relief necessary to do justice between the parties; for example, partial rescission of a contract: Amadio; Bridgewater v Leahy (1998) 194 CLR 457. Other equitable remedies may also be available; for example, monetary compensation in lieu or rescission where the property has been sold: Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC 810.

If a presumption of undue influence arises, the subordinate party is entitled to a remedy unless the dominant party rebuts the presumption by proving that the transaction was entered into 'after full, free and informed thought': Zamet v Hyman [1961] 1WLR1442. The stronger party bears the onus of establishing that the transaction was 'the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee': Johnson v Buttress at 34. Relevant evidence will include the presence of independent advice and the lack of improvidence (including the adequacy of consideration). 8-4 Where a third party, such as a credit provider, has actual or constructive notice of undue influence and proceeds to obtain the benefit of a transaction entered into as a result of such undue influence, the transaction may be set aside as against the third party: Bank of New South Wales v Rogers (1941) 65 CLR 42; Khan v Khan (2004) 62 NSWLR 229. If the party exerting undue influence is the agent of the person taking the benefit of the transaction, primary liability will attach: Avon Finance Co Ltd v Bridger [1985] 2 All ER 281. 8-3

Unconscionable bargains Relief from unconscionable bargains arises when one party is at a special disadvantage or disability vis-a-vis the other, due to factors (such as illness; lack of education; poverty; inexperience; impaired faculties; emotional dependence; or financial need) that seriously affect their ability to make a judgment in their own best interests: Amadio. The special disadvantage must be known ('sufficiently evident') to the other party and that other party must 'unconscientiously take advantage' of such circumstances: Blomley v Ryan (1956) 99 CLR 362; Amadio; Louth v Diprose (1992) 175 CLR 621; Kakavas v Crown Melbourne Limited [2013] HCA 25. If unconscionability is established, the party at a disadvantage is entitled to a remedy unless the other party establishes that the bargain is fair, just and reasonable: Amadio. Relevant evidence will include the presence of independent advice and the improvidence of the transaction, including adequacy of consideration. While the usual 8-5

-94-

In addition to equitable relief, statutory relief may also be available under the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)) ss 20-2. In New South Wales, the Contracts Review Act 1980 (NSW) gives relief from 'unjust' contracts: Trevenar v Ussfeller [2005] NSWSC 582. This chapter will focus on equitable relief only. 8-6

Before tackling these questions, check that you are familiar with the following:

8-7

.(

the nature and classes of undue influence;

.(

the presumed or deemed relationships of undue influence;

.(

how to establish a special relationship of influence on the facts;

.(

how to rebut the presumption of undue influence;

.(

the remedies available in cases of undue influence;

.(

the circumstances in which third parties can be liable for undue influence;

.(

the nature and elements of unconscionable (unconscientious) bargains;

.(

how to negative a claim of unconscionable dealing;

.(

remedies available in cases of unconscionable dealing;

.(

the distinction between undue influence and unconscionable dealing; and

.(

statutory relief from unconscionable conduct.

~~,, Question 15 8-8 Ken is a 79-year-old illiterate invalid pensioner with no knowledge or experience in business. A lifetime of binge drinking has severely impaired Ken's mental capacities. He has lived in a boarding house owned and operated by Donna for the past 15 years. Donna would often -95-

LexisNexis Questions and Answers: Equity and Trusts sit with Ken and have a few glasses of wine from the four-litre cask that Ken would consume every afternoon. For the past five years, Donna has managed Ken's affairs to ensure he retains sufficient money to pay his board, purchase necessities and pay bills. In December, Ken won $100,000 in the lottery. After the win, Ken had to wait for the cheque to clear. During that time, Donna would not allow Ken to leave the house without her, threatening to break his kneecaps if he did. When the money cleared, Donna told Ken that he should buy her greyhound for $50,000. So he would be left in peace, Ken agreed. Donna had bought the greyhound the day before for $5,000. The greyhound died last week. Donna then introduced Ken to her son-in-law, Ian (an investment adviser), who convinced Ken to buy his Commodore (car) for $33,000. The car had recently been valued at $3,000. Donna and Ian took Ken to their solicitor, Sally, to make everything legal and so Ken didn't have to get his own solicitor. They did not tell Sally that, before the lottery win, Ken only had $12.50 to his name, nor did they tell Sally the true value of the property to be transferred. Sally prepared the contracts and explained to Ken that he would have to pay the agreed price and receive the greyhound and car in return. By January, the balance in Ken's account was only $3.55, after Ken had paid the $50,000 to Donna and $33,000 to Ian. The rest of the money was spent on binge drinking sessions and gambling. Ken has recently been reunited with his son, Peter. After hearing Ken's story, Peter has brought Ken to you for advice as to whether Ken has any remedy against either Donna or Ian arising out of these facts. Time allowed: 40 mins

wf. Answer Plan 8-9 This question requires consideration of undue influence and relief from unconscionable bargains. Ken will allege that the contract to purchase the greyhound from Donna was entered into as a result of Donna's undue influence and was an unconscionable bargain. He will allege that the contract to purchase the Commodore from Ian was an unconscionable bargain.

Matters that should be considered are whether: (a) an action based on undue influence (actual or presumed due to a special relationship of influence) is made out by Ken against Donna; (b) relief is available to Ken on the ground of an unconscionable bargain as against Donna; and (c) an action based upon an unconscionable bargain is made out against Ian, as well as the defences available to both parties, and the remedies available against both parties. -96-

Unconscionable Transactions: Undue Influence

Answer (a)

Ken v Donna: undue influence

Establishing the cause of action The first class of undue influence: actual undue influence

8-10 To establish the first class of undue influence, Ken must show that the transaction occurred as a direct result of influence expressly used so that it cannot be considered a free and voluntary act. Both the existence of influence, such as violence or threats of violence, and its improper use to obtain a benefit, must be shown: Johnson v Buttress. In this case, Donna did not allow Ken to leave the house and threatened to break his kneecaps if he did. The evidence also suggests Ken bought the greyhound from Donna 'in order to be left in peace'. If it can be established that Ken went ahead with the transaction due to the physical threats, actual undue influence will be made out. The second class of undue influence: presumed undue influence

8-11 The second class of undue influence requires the existence of a special relationship of influence. This arises where the party in receipt of a benefit or contractual advantage is in a relationship that gives authority or influence over the other, from the abuse of which the subservient party should be protected: Johnson v Buttress. The special relationship can be established by either a deemed relationship of influence, or proof of the existence of a special relationship of influence.

As the relationship in this case is not a presumed (deemed) relationship of influence, it will be necessary for Ken to prove the relationship of influence on the facts. The elements of a special relationship of influence from Lloyd's Bank Ltd v Bundy [1975] 1 QB 326 are reliance upon guidance and advice; awareness of the reliance by the dominant party; a benefit being received by the adviser; and some element of confidentiality in the relationship. This case is analogous to Johnson v Buttress. Ken is 79, illiterate, has impaired intellectual ability, lacks business experience and relies upon Donna to manage his affairs. Ken relied upon Donna for guidance and advice, and she knows of this reliance due to their long association. Donna has obtained a benefit by selling Ken her greyhound at a gross overvaluation. There is an element of confidentiality in the relationship due to their past dealings. A special relationship of influence exists which gives rise to a presumption that the contract was entered into as a result of undue influence and should be set aside. Defences to undue influence

8-12 The presumption of undue influence can be rebutted by contrary evidence. Donna must show that the transaction was the -97-

LexisNexis Questions and Answers: Equity and Trusts

result of Ken's independent and informed judgment, 'after full, free and informed thought': Zamet v Hyman. Relevant considerations include the righteousness of the transaction; improvidence of the deed; independent advice; and adequacy of consideration. The mere presence of independent advice will not be conclusive. The nature and quality of the advice are examined to ascertain if the transaction was the act of a free and independent mind: Inche Noriah v Shaik Allie Bin Omar [1929] AC 127. Relevant considerations are whether the advisor is absolutely independent of the party with the influence; the advice is meaningful; and the independent adviser was fully informed of all material facts . . Here Donna's solicitor has acted for both Ken and Donna and ' the advice is not independent. Nor was the advice meaningful therefore as, although Sally explained the terms of the contract (that Ken would have to pay the agreed price and in return would receive the greyhound and the car), there was no discussion of alternatives or the propriety of the contract, nor is there any evidence that the advice was brought home to Ken. Further, the solicitor was not aware of the limited extent of Ken's assets, nor was she aware of the true valuations of the property to be transferred. It is unlikely that a court would find that adequate independent advice was received by Ken. Other factors that may be relevant include the fact that a right-minded person would not normally buy an unknown greyhound for $50,000 without taking advice (righteousness of the transaction: Spong v Spong (1914) 18 CLR 544); and the greyhound was purchased at a gross overvalue (adequacy of consideration: Johnson v Buttress). Neither of these factors will assist Donna to uphold the transaction. Therefore, Donna will be unlikely to show that the contract was entered into as a result of the exercise of Ken's free and independent mind.

Remedies for undue influence 8-13 Ken will be entitled to a remedy against Donna. The contract can be rescinded if restitutio in integrum is possible. As the greyhound has died, rescission will not be awarded; however, Ken will be entitled to compensation. The measure of damages will be the difference between the price paid ($50,000) and the market value ($5,000): see generally O'Sullivan v Management Agency and Music Ltd [1985] 1 QB 428. (b)

Ken v Donna: unconscionable bargain

Unconscionable Transactions: Undue Influence

Special disability 8-15 Ken must show that at the time of the transaction he suffered from a disadvantage that seriously affected his ability to make a judgment in his best interests: Amadio; Blomley v Ryan. Disadvantages recognised in cases include illness, old age, mental illness, low intelligence, stress and drug or alcohol induced impairments, emotional dependency, poverty, illiteracy, lack of education, language difficulties and business inexperience. Here, Ken is clearly suffering from a disability. He is 79, an alcoholic, illiterate, suffers mental impairment, and has no knowledge of or experience in business. In this context, the facts are very similar to Blomley.

Ken must also show that his disability was a special disability, in the sense that it seriously affected his capacity to judge or protect his interests vis-a-vis Donna: Amadio. (Donna has business experience; Donna and Ian arranged for Ken to see their solicitor so that he did not have to get his own solicitor.)

Unconscientious exploitation Ken's disability must have been 'sufficiently evident' to Donna. Both actual and constructive knowledge will suffice: Amadio. Donna would have knowledge (probably actual but at least constructive) of Ian's disability, as he has lived in her house for 15 years and she has managed his affairs for five years. There must be an advantage taken; for example, inadequate consideration and/or unfair terms. Here, Donna has sold her greyhound at a gross overvaluation. She has taken advantage of Ken - there was an exploitation of Ken's weakness - and it is likely that a predatory state of mind could be established: Kakavas v Crown Melbourne Ltd. It seems, therefore, that a prima facie case will be established. 8-16

Determining whether the claim of unconscionable dealing is negatived 8-17 Donna must establish that the bargain is fair, just and reasonable: Amadio. Relevant factors are adequacy of consideration and independent advice. Adequate consideration provides strong evidence that there was no exploitation: Amadio. Here, it is arguable that the overpayment was so gross that it was clear evidence of an unconscionable bargain: cf Blomley.

Establishing unconscionable bargain 8-14 To establish an unconscionable bargain, it is necessary to show that one party was at a 'special' disadvantage; this was 'sufficiently evident' to the other party; and that other party has 'unconscientiously taken advantage of' the party at a special disadvantage: Amadio.

The courts are reluctant to enforce an unconscionable bargain entered into by a party at a serious disadvantage without the benefit of independent advice: Amadio. However, if the party at a disadvantage has received independent advice, the contract will usually be upheld. In this case, although some advice has been received (as discussed above), the advice was not truly independent, nor was it meaningful or informed.

-98-

-99-

Unconscionable Transactions: Undue Influence

LexisNexis Questions and Answers: Equity and Trusts

~ Keep in Mind

It is unlikely that Donna will establish that the bargain was fair, just and reasonable.

8-23

Remedies 8-18 The appropriate remedy against Donna has been discussed above. (c)

• Most students would be able to identify the elements of undue influence and unconscionable dealing and apply the law to the facts to achieve an average result. Better answers would have clearly demonstrated awareness of the distinction between the doctrines and fully considered defences and remedies. A thorough understanding of independent advice was crucial. • Ensure you identify all possible actions and parties. • Take care not to repeat a previous discussion from an area already considered in the same question, rather than simply identifying how the result differs. • Where the application of the law to the facts is difficult, it is best to come to a conclusion (stating your reasons; for example: 'the facts are analogous to Blomley v Ryan'), after identifying the primary arguments of each side, rather than considering all possible outcomes. However, where the result is against the plaintiff, further discussion could proceed with 'however, if the court were to find in favour of the plaintiff .. .'.

Ken v Ian: unconscionability

Establishing unconscionable dealing 8-19 It has been shown that Ken was under a disability that affected his capacity to protect his interests compared with someone like Ian. As in Blomley v Ryan, the disability would have been sufficiently evident, and Ian has gained an advantage by selling the car at a gross overvalue. The case in unconscionability will probably be made out. Defences Ian will not be able to uphold the transaction for the reasons discussed above with respect to the action against Donna, primarily due to the inadequacy of the advice.

8-20

Remedies 8-21 As it will be possible to return the car to Ian, the appropriate remedy in this case would be rescission and return of Ken's $33,000 in exchange for the car.

fJ

Examiner's Comments You should note the format the answer adopts: identify the issue; state the relevant law; apply the law to the facts; and come to a conclusion. The answer should be complete, that is, it should discuss whether the cause of action is established; and consider available defences and remedies available to the plaintiff. Some students may have noted that, in the case of contracts, it has been argued that manifest disadvantage (inadequate consideration or gross overpayment) must be shown, although the better view is that this is not necessary: Baburin v Baburin [1990] 2 Qd R 101; CIBC Mortgages pie v Pitt [1994] 1 AC 200. If manifest disadvantage is necessary, it can be established in this case by the gross overpayments. There is no action in undue influence by Ken against Ian, as there is no evidence of a relationship of influence between Ken and Ian, particularly as they only met the day the agreement was entered into. 8-22

Note that, in addition to equitable relief, statutory relief may also be available under the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)) ss 20-22. In New South Wales, the Contracts Review Act 1980 (NSW) gives relief from 'unjust' contracts: Trevenar v Ussfeller. -100-

Here are some important points to keep in mind:

•

'' Question 1 6 8-24 On 25 August 2012, Susie, who had just turned 50, woke up and decided that, instead of being managing partner in an international accounting firm based in Brisbane, she would prefer to live a simple, relaxed and stress-free life at Noosa in Queensland and pursue her dream of becoming an artist. That afternoon she signed a contract to sell her Auchenflower home to Kris for $5.5 million. The contract provided that a deposit of $550,000 was to be paid upon signing the contract and that the balance purchase price was due on or before 5 pm on 25 February 2013. The contract provided that time was of the essence of the contract and that the vendor was entitled to terminate the contract and retain the deposit in the event of failure to comply with any contractual stipulation on time. By the end of August 2012, Susie had packed all her belongings and made the move to Noosa to take up permanent residence in a beachfront mansion which she had owned for many years. Within a few days, Susie met Richard, aged 35, an emerging local artist. Richard was in the process of separating from his wife and had custody of their four-year-old child and two teenage children from a prior relationship. Almost immediately Susie and Richard commenced an intense, passionate relationship. They shared their dreams and hopes for the future. Richard told Susie that his estranged wife had 'taken him to the cleaners', and that until he

-101 -

Unconscionable Transactions: Undue Influence

LexisNexis Questions and Answers: Equity and Trusts met Susie he felt lost. Although the relationship was interspersed with separations and reconciliations, Susie had never been happier. For the past 25 years Susie had worked ridiculously long hours advancing her career, and although she had progressed through the ranks and amassed vast wealth, she had always longed for someone to share her life with. In December 2013, Susie paid Richard $175,000 to establish an art gallery business so he could supplement his income as an artist. The final payment on the Auchenflower property was not made by 5 pm on 25 February 2013 as provided under the contract. This was because Kris was relying on a transfer of funds into her account from the solicitors who were finalising the estate of her wealthy uncle; these funds were not received until the next morning (26 February). As the value of the Auchenflower property had nearly doubled since the contract had been signed, Susie instructed her solicitors to terminate the contract at 5:05 pm on 25 February and advise Kris that she would be retaining the $550,000 deposit as provided by the contract. You are Susie's solicitor. Susie has instructed you that she has received a letter from Kris's solicitors advising that Kris requires Susie to complete the contract to sell the Auchenflower property to her and that she will commence proceedings if the property is not transferred to her in exchange for payment of the balance purchase price. Susie has also told you that her relationship with Richard completely broke down in January 2013. She has texted Richard and demanded that he must immediately repay the $175,000 to her, but he has refused. Advise Susie. Time allowed: 20 minutes (from a total of 40 mins)

+·Answer Plan 8-25

This question requires you to consider:

(a) whether an action can be brought by Susie against Richard on the basis of undue influence or an unconscionable bargain to recover the money advanced to him by her; and (b) whether equitable relief against forfeiture will be available to Kris on the basis that Susie has unconscientiously relied upon her strict contractual rights. In this book, the issues relating to relief against forfeiture are considered in Chapter 9.

If Susie can establish undue influence or an unconscionable bargain, she will be able to recover the money advanced by her to Richard. Matters you should consider, in relation to the issues under consideration in this chapter, are whether: (a) an action based on undue influence can be made out by Susie against Richard; and (b) relief is available to Susie against Richard on the ground of an unconscionable bargain. -102-

Answer (a)

Can an action based on undue influence be made out by Susie against Richard to recover the gift of $175,000?

The second class of undue influence: presumed undue influence 8-26 As there is no evidence of actual influence, it is necessary to consider whether undue influence can be made out under the second class. The second class of undue influence requires the existence of a special relationship of influence. This arises where the party in receipt of a benefit or contractual advantage is in a relationship that gives authority or influence over the other, from the abuse of which the subservient party should be protected: Johnson v Buttress. The special relationship can be established by either a deemed relationship of influence, or proof of the existence of a special relationship of influence. The relationship in this case is not a presumed (deemed) relationship of influence-Susie and Richard were not engaged (compare Zametv Hyman [1961] 3 All ER 933). It will therefore be necessary for Susie to prove a relationship of influence based on the facts. The elements of a special relationship of influence from Lloyd's Bank Ltd v Bundy [1975] 1QB326 are reliance upon guidance and advice; awareness of the reliance by the dominant party; a benefit being received by the advisor; and some element of confidentiality in the relationship. In this case, Susie does not exhibit any of the indicia such as old age, mental infirmity, and so on, nor is she ignorant of business affairs nor reliant on Richard's guidance and advice in business matters. She is a recently retired managing partner in an international accounting firm, and very experienced in business affairs. Although it may be that the nature of the personal relationship is that there is trust and confidence, it is unlikely that a special relationship of influence will be held to exist so as to found an action in undue influence. For an example of a case where it was held that no special relationship of influence existed because there was no evidence of reliance, see Da Yun Xu v Fang Lin [2005] NSWSC 569. (b)

Is relief available to Susie against Richard on the ground of an unconscionable bargain?

8-27 It will be unconscionable for Richard to retain the benefit of Susie's gift of $175,000 if:

• at the time of entry into the transaction, Susie was under a special disability; and • this was sufficiently evident to Richard; and • Richard has unconscientiously taken advantage of this special disability: Amadio. -103-

LexisNexis Questions and Answers: Equity and Trusts

Unconscionable Transactions: Undue Influence

Special disability 8-28 Susie will argue that she was under a special disability by virtue of her infatuation/emotional dependence on Richard: Amadio; Louth v Diprose; Bridgewater v Leahy. In Louth v Diprose and Bridgewater v Leahy, even people who might have been described as experienced business people were regarded as being under a special disadvantage due to emotional dependence (in Louth v Diprose, a love-struck solicitor, who gave money to the object of his affections to buy a house; and in Bridgewater v Leahy an elderly grazier, experienced in business, who wanted his nephew to continue to work the property and made generous provision for him, both inter vivos and by will) . However, to establish a special disability or disadvantage, something more than mere infatuation and consequent foolish action based on clouded judgment is required to establish that a person's ability to make decisions in their own best interests was seriously affected . For example, in Louth v Diprose, it was found that the gift was made in circumstances where the woman had falsely created an 'atmosphere of crisis' involving her possible eviction from her home and her suicide unless the home was purchased for her. Another relevant factor was that the man gave away nearly all his assets to the woman, in circumstances where he simply could not afford it and had three dependent children. In this case, although it appears clear that Susie was infatuated with Richard, there is no evidence of an atmosphere of crisis, and Susie is a wealthy successful businesswoman who made a gift well within her means. Although she was infatuated with Richard, she does not appear to be emotionally dependent on him in the way the donor was in Louth v Diprose. For an example of a case where it was held that no special disadvantage existed because something more than mere infatuation was required, see Mackintosh v Johnson [2013] VSCA 10. The outcome in a case such as this will depend very much on how the evidence of the parties is received; however, it may be that a court will find that Susie was not affected by a special disability at the time she made the gift of $175,000 to Richard.

the claim failed as the prostitute to whom the plaintiff (client) sold his property at an undervalue was not shown to have been sufficiently aware of his alleged emotional dependence and infatuation with her, but rather regarded the relationship as limited to a commercial prostitute-client relationship.

Knowledge o f special disability

If Susie is able to establish that she was labouring under a special disability, she must also show that this was sufficiently evident to Richard so that it would be unconscionable for him to take the benefit of the gift without ensuring that independent advice was obtained: Amadio. Here, as set out above, Susie appears to have made it clear to Richard how she feels about him. It is therefore very likely that it will be held that any special disability (ie infatuation/emotional dependence) on the part of Susie was sufficiently evident to Richard . 8-29

Unconscientious taking of advantage Here, there is evidence that, prior to Susie giving Richard the money, Richard told her that his estranged wife had 'taken him to the cleaners', and that until he met Susie he felt lost, but the circumstances do not appear to be as extreme as those in Louth v Diprose. As held in Mackintosh v Johnston, it may be that the facts in this case are 'the stuff of ordinary human relationships' rather than sufficient to amount to exploitation of the kind required to establish a case based on unconscionable conduct. Suzie may therefore have difficulty establishing that her alleged weakness has been exploited, ie that Richard had a predatory state of mind : Kakavas v Crown Melbourne Ltd. 8-30

In Da Yun Xu v Fang Lin, Barrett J said at [40]: In the present case, the defendant did not exploit the plaintiff by agreeing to purchase his house. Rather, it was the plaintiff who engineered the transaction in an attempt to secure or increase the affections of the defendant and to persuade her to live with him. The defendant merely accepted the benefit of the transaction without dishonesty. That does not invalidate the transaction on the basis of unconscionability. Equity will not intervene merely because the plaintiff has made an imprudent bargain or has been generous in a way that may seem objectively foolish. The judgment of Salmond J in Brusewitz v Brown [1923] NZLR 1106 at p. 1109 (cited in Louth v Diprose at p. 631) is apposite: 'The law in general leaves every man at liberty to make such bargains as he pleases, and to dispose of his own property as he chooses. However, improvident, unreasonable, or unjust such bargains or dispositions may be, they are binding on every party to them unless he can prove affirmatively the existence of one of the recognised invalidating circumstances .... ...

In the event of findings of a special disability on the part of Susie, and that this was sufficiently evident to Richard, a court would not need to consider whether it was unconscionable for Richard to accept the money from Susie without taking steps to ensure that the transaction had been properly explained to her and either making independent advice available or requiring that she seek independent advice prior to entry into the transaction: Amadio.

For a case in which emotional dependence was claimed to amount to a special disability, but where it was not found to be sufficiently evident to the beneficiary of the affection, see Da Yun Xu v Fang Lin. In that case,

Remedies 8-31 If Susie can make out her claim of an unconscionable bargain, she may argue that she should be awarded a constructive trust in the business established using her capital (if the business is successful): Louth v Diprose. Given the investment of time and perhaps money by Richard, it is likely that a condition of any such relief, if awarded in the court's discretion, would be that Richard should be awarded a generous

-104-

-105-

LexisNexis Questions and Answers: Equity and Trusts

allowance: Warman International Ltd v Dwyer (1995) 182 CLR 544. Alternatively, the court might award equitable compensation, measured by, for example, the return of the funds advanced plus a reasonable return on investment or increase in the value of the property: Karam v ANZ Banking Group [2001] NSWSC 709. Which remedy is awarded will depend on what the court regards as the minimum relief necessary to do justice in the circumstances of the case; indeed in recent times the courts have been less inclined to award constructive trusts over property in favour of equitable compensation: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101.

p

Examiner's Comments 8-32 You should note the format the answer adopts: identify the issue; state the relevant law; apply the law to the facts; and come to a conclusion.

rtr

~ Keep .in M.in d 8-33

Here are some important points to keep in mind:

• Ensure you consider all aspects of the action, for example, establishing the equitable obligation, defences and remedies. • Higher marks are awarded to students who attempt to discuss the application of the law to the factual scenario presented in the question. It is difficult to receive good marks if you simply list elements without discussion, or write a list accompanied by ticks and crosses. • Avoid the application of irrelevant doctrines in this case such as specific performance, relief against forfeiture and fiduciary obligations principles to this question.

Chapter 9

Penalties and Forfeiture Key Issues 9-1 The equitable jurisdiction to relieve against the imposition of penalties and the forfeiture of property is invoked when a party's reliance upon a strict legal right would amount to unconscientious conduct: Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57; Legione v Hateley (1983) 152 CLR 406.

In Legione v Hateley, Mason and Deane penalties and forfeiture as follows:

JJ

at 445 distinguished

A penalty ... is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation, for example, the charging of interest at a higher rate. On the other hand, forfeiture involves the loss or determination of an estate or interest in property or a proprietary interest, for example, a lease, in consequence of a failure to perform a covenant.

See also Stern v McArthur (1988) 165 CLR 489.

Penalties 9-2 A contract may include what purports to be an agreed damages clause (or liquidated damages clause) to provide that a sum of money must be paid in the event of breach or the happening of some specified event other than a breach of contract. While the doctrine was traditionally confined to clauses stipulating the payment of money consequent on breach of contract, this is no longer the case: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406; Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 at [78]. 9-3 If the amount provided for in the clause is not a genuine pre-estimate of the loss likely to be suffered by the plaintiff (judged as at the date of contract), the court may find that it is a penalty and so award relief against the clause. In Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79, Lord Dunedin said at 86: 'The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage'. Various factors can be identified from the cases to assist in the application of this test: Dunlop Pneumatic Tyre Co v New Garage & Motor Co; O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; Esanda Finance Corp Ltd v Plessnig (1988) 166

-106-

-107-

LexisNexis Questions and Answers: Equity and Trusts

Penalties and Forfeiture

CLR 166; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; 224 CLR 655. The doctrine has been extended to provisions requiring a transfer of property, the retention of property or the surrender of some other valuable right.

./ the test and the factors relevant to the determination of whether a clause is a penalty or an agreed damages clause; ./ remedies available in the event that a court orders relief against a penalty;

9-4 If a contractual provision amounts to a penalty, not a genuine pre-estimate of damage, the usual remedy is that the provision is unenforceable and the aggrieved party must rely on their ordinary contractual remedies for breach of contract and prove their loss: AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 192-3 per Mason and Wilson JJ. However, there are suggestions that the clause will only be struck down to the extent that it is a penalty: AMEV-UDC Finance at 204 per Deane J. Forfeiture

9-5 Forfeiture involves the loss or determination of an estate or interest in property. Most cases involve the forfeiture of moneys paid or the forfeiture of a proprietary interest acquired under a contract for sale of land.

9-6 If money paid under a contract is forfeited in the event of breach, whether equitable relief will be available depends upon whether the payment is a deposit or an instalment of the price. If the sum retained is a deposit in substance, a court will not usually order relief, as to do so would be contrary to the purpose of its payment: Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367; 201 ALR 399. Where instalments have been paid in part-payment of the price, the purchaser defaults and the vendor terminates, the vendor is required to restore the money, subject to a claim against the purchaser for damages for breach: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457. Equity has jurisdiction to award relief against forfeiture pursuant to a contractual provision. 9-7 Equity will relieve against forfeiture of an interest in property if the forfeiture provision amounts to a penalty; the equitable grounds of fraud, accident, surprise or mistake are made out; or the vendor's conduct in exercising their contractual rights is unconscionable: Tanwar Enterprises Pty Ltd v Cauchi; Legione v Hateley. If the contract for the purchase of land is in substance an agreement to finance the acquisition of an interest in land, relief may be available by analogy to the equitable right to relief against loss of the equitable right of redemption: Stern v McArthur. In Queensland, in relation to instalment contracts for the sale of land, the Property Law Act 1974 (Qld) Pt 6 Div 4 regulates the rights of the parties. You should check any relevant legislation in your own jurisdiction. 9-8 Before tackling these questions, check that you are familiar with the following:

./ the equitable jurisdiction to relieve against penalties and forfeiture; ./ the distinction between penalties and forfeiture; -108-

./ the circumstances in which equitable relief against forfeiture of money paid under a contract may be available; and ./ the circumstances in which equitable relief against forfeiture of a proprietary interest under a contract of sale may be available and the appropriate remedy.

..

'' Question 1 7 9-9

On 25 August2012, Susie, who had justturned 50, woke up and decided that, instead of being managing partner in an international accounting firm based in Brisbane, she would prefer to live a simple, relaxed and stress-free life at Noosa in Queensland and pursue her dream of becoming an artist. That afternoon, she signed a contract to sell her Auchenflower home to Kris for $5.5 million. The contract provided that a deposit of $550,000 was to be paid upon signing the contract and that the balance purchase price was due on or before 5 pm on 25 February 2013. The contract provided that time was of the essence of the contract and that the vendor was entitled to terminate the contract and retain the deposit in the event of failure to comply with any contractual stipulation on time. By the end of August 2012, Susie had packed all her belongings and made the move to Noosa to take up permanent residence in a beachfront mansion which she had owned for many years. Within a few days, Susie met Richard, aged 35, an emerging local artist. Richard was in the process of separating from his wife and had custody of their four-year-old child and two teenage children from a prior relationship. Almost immediately Susie and Richard commenced an intense, passionate relationship. They shared their dreams and hopes for the future. Richard told Susie that his estranged wife had 'taken him to the cleaners', and that until he met Susie he felt lost. Although the relationship was interspersed with separations and reconciliations, Susie had never been happier. For the past 25 years Susie had worked ridiculously long hours advancing her career and, although she had progressed through the ranks and amassed vast wealth, she had always longed for someone to share her life with. In December 2013, Susie paid Richard $175,000 to establish an art gallery business so he could supplement his income as an artist. The final payment on the Auchenflower property was not made by 5 pm on 25 February 2013 as provided under the contract. This was because Kris was relying on a transfer of funds into her account from the solicitors who were finalising the estate of her wealthy uncle; these funds were not received until the next day (26 February). As the value of the Auchenflower property had nearly doubled since the contract had been -109-

LexisNexis Questions and Answers: Equity and Trusts signed, Susie instructed her solicitors to terminate the contract at 5:05 pm on 25 February and advise Kris that she would be retaining the $550,000 deposit as provided by the contract. You are Susie's solicitor. Susie has instructed you that she has received a letter from Kris's solicitors advising that Kris requires Susie to complete the contract to sel I the Auchenflower property to her and that she wi 11 commence proceedings if the property is not transferred to her in exchange for payment of the balance purchase price. Susie has also told you that her relationship with Richard completely broke down in January 2013. She has texted Richard and demanded that he must repay the $175,000 to her, but he has refused. Advise Susie. Time allowed: 20 minutes (from a total of 40 mins)

Penalties and Forfeiture

Answer (a)

Kris's position at law under the contract

Kris is in breach of contract for failing to comply with the condition that time is of the essence. The position at law under the contract is as follows:

9-11

• Susie is entitled to retain the deposit of $550,000; and • Kris forfeits her interest in the property, Susie regains her equitable interest in it and is entitled to retake possession.

What is Kris's position in equity? 9-12 Kris will need to elect between accepting the termination of the contract (and the loss of her equitable interest in the property) and seeking relief against forfeiture. In this case, as the house has increased substantially in value, it is likely that Kris will seek relief against forfeiture.

N

+ ·Answer Plan 9-10

This question requires you to consider:

(a) whether equitable relief against forfeiture will be available to Kris on the basis that Susie has unconscientiously relied upon her strict contractual rights; and (b) whether an action can be brought by Susie against Richard on the basis of undue influence or an unconscionable bargain to recover the money advanced to him by her. In this book, the issues relating to undue influence and unconscionable bargains are considered in Chapter 8 . Kris is clearly in breach of contract. The questions to consider are whether she will be entitled to the return of any money paid under the contract, or, alternatively, whether relief against forfeiture of her interest in the property will be awarded, thus removing a bar to her subsequently obtaining an order for specific performance of the contract: Tanwar Enterprises Pty Ltd v Cauchi; Legione v Hateley. Matters that should be considered are: (a) Kris's position at law under the contract. (i) Is Susie entitled to retain the deposit? (ii) Does Krish forfeit her equitable interest in the property? (b) What is Kris's position in equity: (i) Is Susie entitled to retain the deposit? (ii) Is Kris entitled to equitable relief against forfeiture?

-110-

However, in the event that Kris elects to accept the forfeiture of the interest in the property, or is unsuccessful in an action for relief against forfeiture, she will claim that she is entitled to the return of money paid by way of deposit. Equitable relief will be granted where it would be unconscientious on the part of the vendor to rely on his strict contractual rights and retain both the property and money paid pursuant to the contract.

(i)

Is Susie entitled to retain the deposit?

9-13 A deposit is normally regarded as security for completion of the contract (an estimate of damage likely to be suffered in the event of non-completion), rather than as a means of ensuring performance: Romanos v Pentagold Investments Pty Ltd. Factors relevant in the determination of whether a 'deposit' is in substance a deposit are the percentage of the purchase price (a deposit is usually about 10 per cent), and the surrounding circumstances of the transaction, including the prevailing practice and market conditions: Smyth v Jessep [1956] VLR 230. Relief against retention of a deposit is not usually ordered, because to do so would be contrary to the purpose of its payment: Romanos v Pentagold Investsments Pty Ltd; McDonald v Dennys Lascelles.

In this case, the 'deposit' paid under the contract is $550,000. The purchase price is $5 .5 million. This is 10 per cent of the purchase price. In standard land contracts, payments of 10 per cent are generally regarded as a deposit in substance. The facts are similar to those in Romanos v Pentagold where the purchaser failed to comply with a time stipulation, the contract was terminated and the vendor forfeited the deposit. The court held that, absent fraud, accident, mistake or surprise, where there was nothing unconscientious in the conduct of the vendor in relying upon its contractual rights, equitable relief against forfeiture is not generally available, even where there has only been a slight delay in compliance with a time stipulation and the property has increased in value. -111 -

LexisNexis Questions and Answers: Equity and Trusts

Penalties and Forfeiture

Here there is no evidence of conduct on the part of Susie contributing to the breach - Kris simply did not complete the contract on time because the money did not come through from the estate until the day after the completion date under the contract. There is no evidence that Kris asked for an extension of time. It is likely that a court would allow Susie to forfeit (keep} the deposit.

meet other commitments and the consequences to her of failure to receive the money), and uncertainty as to whether the contract was to remain on foot. If the forfeiture is to stand, Kris will lose her right to purchase the property. Susie will benefit from the increase in value. If an order for specific performance is awarded, Susie could be compensated for any loss suffered by making the award of specific performance subject to Kris paying interest on the outstanding sums, and compensating her for any costs and inconvenience incurred as a consequence of the delay.

(ii)

to

Is Kris entitled to equitable relief against forfeiture?

Alternatively, if Kris wishes to proceed with the contract, rather than accepting the termination and seeking the return of money paid under it, she will claim relief against forfeiture to prevent the loss or determination of her equitable interest in the property. 9-14

By contrast with Stern v McArthur, Susie was quick to terminate the contract and made no offer of allowance in respect of the increase in value of the property. Notwithstanding this, it is unlikely that the court would grant relief against forfeiture as there was nothing in Susie's conduct which amounted to an unconscientious exercise of legal rights. On similar facts, relief against forefeiture was denied in Union Eagle v Golden Achievement Ltd [1997] 2 All ER 215.

Equity will relieve against forfeiture of an interest in property if the forfeiture provision amounts to a penalty: Legione v Hateley. Relief is also available where the traditional equitable grounds of equitable intervention - fraud, accident, surprise or mistake - are made out. It is unlikely, in this case, that a court would hold that relief against forfeiture is available on the basis that the contractual provisions amount to a penalty, particularly as the provisions operate in the event of a breach of an essential term, namely, the provision that time is of the essence. As there is no evidence of fraud, accident, mistake or surprise, and the contract is not in the nature of an instalment contract, Kris will have to establish that it would be unconscientious on the part of Susie to rely upon her strict contractual rights.

Examiner's Comments 9-15 Ensure that you read the question carefully in order that you can advise Susie correctly. It is important for you to demonstrate that you understand that Kris will need to choose whether to accept the determination of the contract and pursue relief against retention of her deposit or to seek relief against forfeiture of her equitable interest in the property, and in the alternative seek return of payments made under the contract.

In Legione v Hateley, Mason and Deane JJ considered that the following factors are relevant in assessing the vendor's conduct:

Better answers would have considered the basis of the equitable jurisdiction, as discussed in Tanwar Enterprises Pty Ltd v Cauchi; Legione v Hateley and Stern v McArthur, concluding that it is generally accepted that the basis of equitable relief is the prevention of unconscionable conduct.

• Did the conduct of the vendor contribute to the purchaser's breach? • Was the purchaser's breach: - trivial or slight; and - inadvertent and not wilful? • What damage or other adverse consequences did the vendor suffer by reason of the purchaser's breach? • What is the magnitude of the purchaser's loss and the vendor's gain if the forfeiture is to stand? • Is specific performance with or without compensation an adequate safeguard for the vendor? Applying these factors to this case, there was no question of Susie's conduct contributing to the breach, as the breach occurred because the funds did not come in from the estate in time for Kris to complete the contract (this is distinguishable from Legione v Hateley). Although the breach was not trivial, it was not wilful, and Kris would have no doubt tendered the balance purchase price when she received the money the next day. Susie has only suffered minor inconvenience by virtue of Kris failing to pay the instalment at the due time (further evidence would be required as to whether Susie was relying upon receipt of the instalment -112-

Some students may have noted and discussed the difficulties associated with equitable intervention based on broa