Equity and Trust Guidebook [2 ed.] 0195594029, 9780195594027

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EQUITY AND TRUSTS GUIDEBOOK

Second Edition

Christopher Brien

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CONTENTS List of Figures vii Preface viii Acknowledgments xiii Chapter 1: The Nature and History of Equity 1 Overview 1 The nature of equity 1 Historical background 3 The judicature system 5 Law and equity in Australia 7 Fusion fallacies 11 Equitable maxims 14 Chapter 2: The Concept of Property in Equity 18 Overview 18 Equitable interests can arise in personal and real property 19 Equitable interests 20 Chapter 3: Dealings with Property in Equity 31 Overview 32 Property: legal and equitable interests 32 Property incapable of being dealt with 32 Assignment 32 Statutory requirements for writing 35 Real property 35 An agreement to assign 38 Declaration of trust 38 Direction to a trustee 38 Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel 46 Overview 47 Undue influence 47 Unconscionable conduct 51 Estoppel 54 Chapter 5: Fiduciary Obligations and Confidential Information 62 Overview 63 Fiduciary obligations 63 Confidential information 73 Chapter 6: The Nature of Trusts 81 Overview 82 The nature of a trust 82 Classification of trusts 84 Other legal relationships 84 The three certainties 87 Complete constitution 90

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CONTENTS

Chapter 7: Charitable Trusts 96 Overview 97 Formation 97 Public benefit 100 Cy-près schemes 105 Mixed purposes (charitable and non-charitable) 106 Chapter 8: Resulting Trusts 114 Overview 114 Automatic: non-disposal of the beneficial interest 116 Presumed intention: the purchase of property 118 Constructive trusts 121 Chapter 9: Constructive Trusts 126 Overview 126 An institution and a remedy 128 Breach of fiduciary obligations 128 Preventing unconscionable conduct and common intention 132 Chapter 10: Trustees and Beneficiaries 140 Overview 141 Trustees 141 Beneficiaries 147 Chapter 11: The Process of Tracing 153 Overview 153 An evidentiary matter 154 The process in equity 154 Priorities 156 Remedies 157 Chapter 12: Equitable Remedies 163 Overview 163 The fusion of common law and equity 164 An order for specific performance 165 Injunctions 166 Mareva orders 167 Anton Piller orders 167 Equitable compensation and damages 168 An account of profits 169 Glossary 176 Table of Cases 179 Table of Statutes 184 Index 188

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List of Figures Figure 1.1: The nature and history of equity  2 Figure 2.1: The concept of property in equity  19 Figure 3.1: Dealings with property in equity  33 Figure 4.1: Undue influence, unconscionable conduct and estoppel  48 Figure 5.1: Fiduciary obligations and confidential information  64 Figure 6.1: The nature of trusts  83 Figure 7.1: Charitable trusts  98 Figure 8.1: Resulting trusts  115 Figure 9.1: Constructive trusts  127 Figure 10.1: Trustees and beneficiaries  142 Figure 11.1: The process of tracing  154 Figure 12.1: Equitable remedies  164

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Preface There are a number of recurring issues that consistently arise when equity and trusts are discussed in Australia. The first is the ongoing debate regarding the fusion of equity and the common law. In the last few years several papers have been produced. Notable contributions include: • A Burrows, ‘We Do This at Common Law but That in Equity’ 22(1) Oxford Journal of Legal Studies (2002) 1–16 • M Kirby, ‘Equity’s Australian Isolationism’, 2008 WA Lee Lecture in Equity, Queensland University of Technology, Brisbane 19 November 2008

• P Keene, ‘The 2009 WA Lee Lecture in Equity: The Conscience of Equity’ (2010) Australian Law Journal 92. • Articles published in the Journal of Equity (2006 to present). Other recurring issues include the granting of equitable relief in commercial matters when disputes have arisen between large corporate entities, and the increasing role of legislation in not just embracing but extending equitable principles and doctrines. The development of Australian equitable principles that are a different from other common law jurisdictions is another significant development. All of these matters (among others) need careful consideration.

The Teaching and Learning of Equity and Trusts The subject matter of Equity and Trusts is at the core of all law programs in Australia. It may be contained in one unit taught over one semester, spread across two semesters or combined with other areas of law such as real property. Regardless of the decision by an individual law school as to how the material should be presented, the teaching of Equity and Trusts provides students with an opportunity to reflect upon their earlier studies of the common law. There is no shortage of books that discuss equity and trusts. Significant publications include the following resources. • E Bant, M Bryan Principles of Proprietary Remedies (Law Book Co/Thomson 2013)—a recent publication that contributes to the ongoing conversation involving constructive trusts, priorities and remedies. • M Evans, Equity and Trusts (LexisNexis Butterworths 2012)—a good source of information that provides a solid doctrinal basis for discussing equity and trusts. • G Dal Pont, Equity and Trusts in Australia (Law Book Co 2011)—together with the companion Commentary and Materials volume presents a comprehensive analysis. His other works, such as Law of Charity (LexisNexis Butterworths 2010), should also be considered.

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• J Heydon, M Leeming Cases and Materials on Equity and Trusts (LexisNexis Butterworths 2011)—provides a casebook approach in the study of equity and trusts. • D Ong, Ong on Equity (Federation Press 2011)—together with his other volume Trusts Law in Australia are notable contributions in the area. This has been further enhanced by his most recent work Ong on Specific Performance (Federation Press 2013). • P Radan, C Stewart Principles of Australian Equity and Trusts (LexisNexis Butterworths 2013)—provides a thorough and yet concise discussion of the relevant issues and is supported by a companion Cases and Materials volume. A ­distinguishing feature of these works are their reference to Australian legal history. No study of equity and trusts in Australia would be complete without recognising the contribution made by R Meagher, W Gummow and J Lehane. Their eminence in the area cannot be questioned and is reflected in Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (Butterworths) that was last published in 2015. These books are useful resources and are highly recommended. Each has hundreds of pages, refers to thousands of cases, and provides thoughtful discussion of individual topics. One approach when it comes to teaching and learning is for the students to ‘find the law’, or perhaps that should be ‘find the principles of equity and trusts’. This technique is based on the ‘casebook method’. Students are required to read several cases, articles and other materials on a regular weekly basis so that they may participate in class. This approach has a long history and reflects how many lawyers were taught. There is nothing inherently wrong in this method, although two comments can be made. The first is the most obvious with the semester/trimester presentation of the law degree, time is precious. The second comment is that the ‘casebook method’ places too much emphasis on cases and not enough on statutory interpretation. Students are often left with the impression that the goal in answering problem questions is to find similar cases. This belief is misguided. The Equity and Trusts Guidebook has been designed to address these two issues in particular. It is intended to provide a general overview or present the material in a manner that is like ‘a view from above the clouds’. It is best thought of as a means of identifying key terms, principles, legislation and cases. It introduces significant statutory provisions that are not only relevant in particular circumstances but also expand equitable principles. In this regard the Guidebook might be considered as an aide-mémoire. The Guidebook is a useful resource when you begin your studies involving equity and trusts. It also provides assistance when revision is being undertaken in preparation for a final exam.

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Exam Technique There are three distinct phases a student will pass through in preparing for an exam. The first step is to understand what is contained in the unit and what is not. This may sound obvious but is nevertheless important since it helps to avoid later confusion. It is usually achieved by looking at the unit outline and takes place at the start of the teaching period. The second phase involves acquiring new information on a regular basis derived from lectures/seminars, tutorials and further readings. The majority of time during the teaching period is spent in this second stage. The information is usually organised in a linear fashion in accordance with how the topics have been discussed. Once a complete set of notes have been created, there is no need to consult other sources. It is also a means of building confidence prior to the exam. The third step is of equal importance. It involves classifying information in a more meaningful way, in which principles are identified. Common facts or scenarios from cases are linked together. It is during this activity that relationships are established and themes are consolidated. There is nothing to be gained by reproducing the entire section of a statute. It is better to note the reference and explain it in your own words. It goes without saying that cases are very important resources in a common law system. It is important to note the proper name of the case, the year it was reported and the jurisdiction. Knowing the key facts together with how the court responded (especially if there is any majority/minority or dissenting views) is also significant. If you have all of this material in summary form, then you will able to draw on it during the exam. A good student will refer to cases when they involve similar facts. A better student will be able to do this plus provide commentary about the year the case was decided (perhaps society’s views have changed), note if the case is persuasive and distinguish other relevant cases which may lead to a different conclusion. Broadly speaking there are two types of questions that are used in formal written exams: • Essay or discussion questions usually invite critical discussion of a statement or principle. It is important to place the matter in context. If it relates to a case, identify the facts; refer to the year and jurisdiction. Provide commentary about the judgment, noting if there are any divergent views expressed by the court. It is also relevant to consider the matter from a ‘big picture’ perspective by examining related cases and legislation. • Problem questions are focused on a particular factual scenario. Focus on what the question is asking and from which perspective you are asked to advise. The process of answering such a question can be reduced to the following: ‘spot the issue(s)’, state the relevant principles/legislation/cases and apply them to the ­scenario. Remember to focus not just on similar cases but to also distinguish

Preface

cases on the basis of facts/year and jurisdiction (see above). It is also good to provide a gloss about the nature of the matter as to how the relevant principles are developing or have developed. Exams are never nice but success can be achieved. The prevailing trend over the last few years has been for ‘open book’ exams. Limits are often placed on printed or written materials that may be taken into the exam room. There is no difference in preparing for an ‘open book’ as opposed to a ‘closed book’ exam. Having materials with you in the exam room may alleviate some anxiety but there is no extra time permitted for you to search for the answer. Planning is the key. Too many students start writing their response only to put a line through what they have written with a comment ‘do not read this’ or ‘the answer begins on page two’. Read the entire exam paper several times. Attempt the requisite number of questions, even if you know everything about one question and nothing about the other questions. Remember, the first fifty per cent of the marks are the easiest to obtain. Create a detailed plan for each question. Decide in what order the issues will be discussed. Usually the first things that come to you are correct. It is also important to consider how you are going to conclude. Decide what headings and subheadings are to be used. Organise your time according to the allocation of marks for each question. Once you have made the calculation, follow it. Do not encroach on the time allocated for the next question. If you have not finished writing, it is better to stop and move onto the next question. Avoid making the notation ‘sorry, ran out of time—would have liked to mention the following …’. A measure of last resort might be to refer the reader to your detailed plan but this is no guarantee of extra marks. Think before you write.

The Equity and Trusts Guidebook This Guidebook is designed to provide a general review of the salient principles involving equity and trusts. Each chapter contains brief commentary on relevant legislation and cases. The following three features are common to all chapters.

Flow charts At the start of each chapter a flow chart is presented. The flow chart has a dual purpose. It not only provides a summary of the major issues, but also graphically depicts relationships. When case names are mentioned, the year of the decision and the jurisdiction are indicated.

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Test your knowledge: Multiple choice questions Ten multiple choice questions appear at the end of every chapter. They allow the reader to quickly and efficiently review significant concepts. They are not so much a memory test as a means by which individual cases and principles can be reinforced.

Assessment preparation A series of essay/discussion and problem type questions are provided at the end of chapters, as well as combination questions that bring the two together. They reinforce and consolidate central issues and themes. They also highlight related matters that are discussed in other chapters. Dr Christopher Brien Lecturer College of Law and Justice Victoria University, Melbourne Australia

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Acknowledgments The traditional owners of this country, their Elders past and present, their descendants and kin are acknowledged as the custodians of this land are acknowledged. Special thanks to my family. Valuable contributions have been made by Jessica, Emma, Lucy, Penelope and Sophie. Producing the first edition of Equity and Trusts Guidebook did not happen without the assistance of numerous people at Oxford University Press. Many thanks to Karen Hildebrandt, Katie Ridsdale, Michelle Head, Estelle Tang and Linda Telai for their enormous patience and support. Kath Harper’s editorial services were very much appreciated. In creating the second edition the following people provided encouragement and support. They include Shari Serjeant, Michelle Head and Linda Telai. Julie King’s editorial skills were highly valued.

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Chapter 1

The Nature and History of Equity Covered in this chapter After successfully completing this chapter, you will be able to: • describe equity • understand the historical background of equity • explain the judicature system • discuss fusion fallacies • understand the role of equitable maxims.

Cases to remember Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485 Walsh v Lonsdale (1882) 21 Ch D 9 Seager v Copydex (No. 1) [1967] 2 All ER 415 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; 197 ALR 626

Statutes to remember Supreme Court Act 1970 (NSW) ss 57–62 Law Reform (Law and Equity) Act 1972 (NSW) Civil Proceedings Act 2011 (Qld) s 7 Supreme Court Act 1935 (SA) ss 17–28 Supreme Court Civil Procedure Act 1932 (Tas) ss 10–11 Supreme Court Act 1986 (Vic) s 29 Supreme Court Act 1935 (WA) ss 24–5 Supreme Court of Judicature Act 1873 (UK) ss 24–5

Overview Figure 1.1 provides an overview of this chapter. The material in this chapter has been organised following the structure indicated in this figure.

The nature of equity Equity is based upon the notion of ‘unconscionability’: that is to say, the court will intervene where an act or omission is considered to be ‘against the conscience’. Parkinson has noted that there are roughly five categories of such matters: 1 the exploitation of vulnerability or weakness 2 the abuse of positions of confidence

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Figure 1.1 The nature and history of equity

The nature of equity Equity

Equitable remedies (See Chapter 11: The Process of Tracing and Chapter 12: Equitable Remedies)

Historical background Earl of Oxford’s Case (1615) High Court of Chancery The judicature system

Equitable maxims – Equity follows the law. – Equity will not suffer a wrong to be without a remedy. – Whoever seeks equity must do it. – When the equities are equal, the first in time prevails. – Whoever comes to equity must have clean hands. – Equity is equality. – Equity looks to intent, rather than form. – Equity considers that which ought to be done, as done. – Equity acts in personam. – Equity does not assist a volunteer. – Equity assists the diligent and not the tardy.

NSW Supreme Court Act 1970 (NSW) ss 57–62 and the Law Reform (Law and Equity) Act 1972 (NSW) are the historical and current embodiment. Qld `An Act to provide for the administration of a uniform system of law in courts of justice and to simplify and amend the practice of the Supreme Court΄ [1876] 40 Vic No 6 – Judicature Act 1876 (Qld) ss 4–5. The current legislation is Civil Proceedings Act 2011 (Qld) s 7. SA `An Act for the more effectual administration of Justice by means of the Supreme Court΄ [1853] No 5 of 17 – Supreme Court Procedure Amendment Act 1853 (SA). The current legislation is Supreme Court Act 1935 (SA) ss 17–28. Tas `An Act to amend the law relating to the civil jurisdiction of the Supreme Court of Tasmania and the procedure and practice relating to the exercise of such jurisdiction, and for other purposes relating to the better administration of justice in this State΄ [1932] Supreme Court Civil Procedure Act 1932 (Tas) ss 10–11. This is the current embodiment. Vic `An Act to Improve the Jurisdiction and Procedure of the Supreme Court and for other purposes connected therewith΄ [1883] 36 & 38 Vict C 66 – The Judicature Act 1883 (Vic) s 8. The current legislation is Supreme Court Act 1986 (Vic) s 29. WA `An Act to make provision for the better Administration of Justice in the Supreme Court of Western Australia΄ [1880] 44 Vict 10 – Supreme Court Act 1880 (WA) s 7. The current legislation is Supreme Court Act 1935 (WA) ss 24–5. UK `An Act for the constitution and of a Supreme Court, and for other purposes relating to the Better Administration of Justice in England; and to authorize the transfer to the Appellate Division of such Supreme Court of the Jurisdiction of the Judicial Committee of Her Majesty΄s Privy Council΄ [1873] 36 & 37 Vict c 66 – Supreme Court of Judicature Act 1873 (UK) ss 24–25. Fusion fallacies Walsh v Lonsdale (1882) English Court of Appeal Seager v Copydex (No. 1) [1967] English Court of Appeal Harris v Digital Pulse Pty Ltd [2003] NSW Court of Appeal

Chapter 1: The Nature and History of Equity

3 the insistence on rights in circumstances which are harsh or oppressive 4 the inequitable denial of obligations 5 the unjust retention of property (P Parkinson, ‘The Conscience of Equity’ in P Parkinson (Ed.), The Principles of Equity, Lawbook Co., 2003, pp. 29–54 at p. 35)

Note: these categories are not fixed or closed. French J in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [No. 2] (2000) 96 FCR 491 noted at 502 ‘[C]ircumstances of inequality do not of themselves necessarily call for the intervention of equity. It is the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct …’ Inequality by itself will not invite equity’s intervention. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties. Equitable remedies are both flexible and discretionary. Attention is focused on the relationship between the parties. Increasingly, statutes are not just embracing but expanding equitable principles and doctrines; examples include ss 20, 21 and 22 of the Australian Consumer Law (ACL) found in Schedule 2 of the Competition and Consumer Act 2010 (Cth). These principles were previously expressed as ss 51AA, 51AB and 52 Trade Practices Act 1974 (Cth). Further examples include directors’ duties in ss 180–4 Corporations Act 2001 (Cth).

Historical background ‘Equity’ refers to those principles that were initially created in the English High Court of Chancery. They were developed in response to the rigid technical procedures of the common law. Equity might be described as softening or correcting the common law. In the context of forming a contract, the doctrine of estoppel is an example of equity overcoming the strict common law rules regarding consideration (see Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel). Protecting positions of confidence and preventing abuse by a stronger party are further examples (see Chapter 5: Fiduciary Obligations and Confidential Information). It was in equity that the concept of a trust was developed. In a trust, legal and equitable interests in property can be separated and held by different parties (see Chapter 6: The Nature of Trusts). A recurring theme in equity is whether, after examining all of the circumstances, it would be unconscionable not to recognise certain rights, titles and interests between the parties.

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In England during the thirteenth century, the common law was based on rules. Those who had difficulty in satisfying the strict requirements petitioned the Crown for dispensation. It was in the fourteenth century that a distinct body of law known as equity was developed. Given the increasing number of petitions to the Crown, they were referred to the Chancellor. At this time the Chancellor belonged to the Church. There was no binding precedent with respect to petitions. Each case was considered on its merits. Where the application of the common law would be harsh or unjust, the Chancellor might according to his ‘conscience’ provide relief in equity. Seldon famously noted: Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is chancellor, and as that is larger or narrower, so is equity. ’Tis all one as if they should make the standard for measure we call a foot a chancellor’s foot; what an uncertain measure would this be! One chancellor has a long foot, another a short foot, a third an indifferent foot. ’Tis the same in the chancellor’s conscience. (17th cent. J Selden, Table Talk, quoted in M B Evans, RI Jack (Eds) Sources of English Legal and Constitutional History (Butterworths, Sydney, 1984) 223–224).

This is a comment about the development of equity being ad hoc and highly discretionary. Sir George Jessel MR in Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 at 710 noted that common law, with its emphasis on rules, has existed ‘from time immemorial’, but equity is made up of principles created ‘from time to time’ by the Chancellor. Equity developed after the common law. Equity was a response to the harshness or injustice created by the common law’s focus on rigid rules.

A case to remember Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485 Facts: Despite the actions of the plaintiff in preventing the defendant’s witness from attending court, the plaintiff was successful in obtaining a favourable judgment at common law. The defendant petitioned the Chancellor to intervene on the basis that, given the plaintiff’s inappropriate conduct, the judgment should not be enforced. Issue: Equity responding to the harshness of the common law. Decision: The Chancellor, Lord Ellesmere, noted the difficulty of the common law’s rules applying to every situation and awarded an injunction. This decision challenged the power of the common law courts, and Lord Chief Justice Sir Edward Coke of the King’s Bench responded by declaring that the defendant acted unlawfully by petitioning the Chancellor. Ultimately the matter was resolved when the King, James I, issued a decree stating that where a party had a good argument in equity, they would not be left to languish at common law.

Chapter 1: The Nature and History of Equity

The role of equity was established by the decision in the Earl of Oxford’s Case, yet disputes regarding the arbitrary nature of equity continued. Charles Dickens, in his novel Bleak House, provides an accurate portrayal of the difficulties experienced in the Court of Chancery. At this time equity occupied a separate jurisdiction to the common law. Effectively there was one court for equity and another for the common law. If proceedings were commenced in one court, and it was later discovered that they should have been brought in the other, the whole matter would need to start afresh. There was no power to transfer a suit. The same problems occurred with remedies. At common law the only remedy available was damages for compensation based on set rules involving proximity and mitigation. It was not possible to receive an account of profits for a breach of a fiduciary duty. Prior to the judicature system, the relationship between law and equity had the following features: • The common law did not recognise equitable titles and interests. • Equity had no power to award damages. • The common law courts could not provide interlocutory relief. • The common law lacked the ability to make declarations or injunctions or to make an order for specific performance. These arrangements are often considered with respect to the following jurisdictions: • exclusive: equitable interests would be enforceable in equity • concurrent: one set of facts may give rise to both common law and equitable principles • auxiliary: equity provided assistance when enforcing a common law right through process of discovery.

The judicature system Between 1873 and 1875 the United Kingdom Parliament enacted several laws regarding the interaction of equity and the common law. The Supreme Court of Judicature Act 1873 (UK) with the long title ‘An Act for the constitution and of a Supreme Court, and for other purposes relating to the Better Administration of Justice in England; and to authorize the transfer to the Appellate Division of such Supreme Court of the Jurisdiction of the Judicial Committee of Her Majesty’s Privy Council’ [1873] 36 & 37 Vict c 66—ss 24–5 provided: • Where there was a conflict or inconsistency between equity and the common law, equity would prevail. • There would be one court to administer both common law and equitable principles.

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The judicature system has been adopted across Australia. As the following chronological list indicates, the first Australian jurisdiction to do so was South Australia in 1853, which predates the United Kingdom. See G Taylor ‘South Australia’s Judicature Act reforms of 1853: The First Attempt to Fuse Law and Equity in the British Empire’ 22 (1) Journal of Legal History (2001) 54. New South Wales was the last Australian jurisdiction to make the necessary changes in 1970.

South Australia ‘An Act for the more effectual administration of Justice by means of the Supreme Court’ [1853] No 5 of 17 (Supreme Court Procedure Amendment Act 1853).

The current legislation is expressed in ‘An Act to Consolidate and amend certain Acts relating to the Supreme Court’ [1935] Supreme Court Act 1935 (SA) ss 17–28.

Queensland ‘An Act to provide for the administration of a uniform system of law in courts of justice and to simplify and amend the practice of the Supreme Court’ (1876) 40 Vic No 6 – Judicature Act 1876 (Qld) ss 4–5.

The current legislation is embodied in Civil Proceedings Act 2011 (Qld) s 7.

Western Australia ‘An Act to make provision for the better Administration of Justice in the Supreme Court of Western Australia’ [1880] 44 Vict 10 – Supreme Court Act 1935 (WA) s 7.

The current legislation is expressed in Supreme Court Act 1935 (WA) ss 24–5.

Victoria ‘An Act to Improve the Jurisdiction and Procedure of the Supreme Court and for other purposes connected therewith’ [1883] 36 & 38 Vict C 66 – The Judicature Act 1883 (Vic) s 8.

The current legislation is the Supreme Court Act 1986 (Vic) s 29.

Tasmania ‘An Act to amend the law relating to the civil jurisdiction of the Supreme Court of Tasmania and the procedure and practice relating to the exercise of such jurisdiction, and for other purposes relating to the better administration of justice in this State’ [1932] – Supreme Court Civil Procedure Act 1932 (Tas) ss 10–11.

This is the current version.

New South Wales The Supreme Court Act 1970 (NSW) ss 57–62 and Law Reform (Law and Equity) Act 1972 (NSW) embody the Judicature System.

Chapter 1: The Nature and History of Equity

Law and equity in Australia Legal history enables the gap in time between the first and last Australian jurisdictions to adopt the judicature system to be explained. The following is a brief outline.

South Australia Understanding why South Australia was the first Australian jurisdiction to enact legislation is related to it being the only colony not to accept convicts. The following events for South Australia need careful attention. ‘An Act to empower His majesty to erect South Australia into a British Province or Provinces and to provide for the Colonisation and Government thereof’ [1834] 4 & 5 Wm IV c 95 (South Australia Colonisation Act 1834).

The Colony of South Australia was established with its own legislature. ‘An Act for the establishment of a Court to be called the Supreme Court of the Province of South Australia’ 7 Wm IV No 5 (1837).

The Supreme Court of South Australia was established. ‘An Act for the more effectual administration of Justice by means of the Supreme Court’ [1853] No 5 of 17 (Supreme Court Procedure Amendment Act 1853).

This legislation was significant and in many respects predated English legislation which embodied the judicature system. See G Taylor ‘South Australia’s Judicature Act reforms of 1853: The First Attempt to Fuse Law and Equity in the British Empire’ 22 (1) Journal of Legal History (2001) 54.

Queensland Events in Queensland that led to the judicature system being adopted include the following: ‘An Act to Provide for the better Administration of Justice in the District of Moreton Bay’ [1857] 20 Vic No. 25 [11 March 1857] (Moreton Bay Supreme Court Act of 1857).

The Supreme Court at Brisbane was established and a resident judge was to be appointed. This development was similar to Port Phillip (Victoria). ‘An Act to Amend the Constitution of the Supreme Court of Queensland and to provide for the Better Administration of Justice’ [1861] 25 Vic No 13 [7 August 1861] (Supreme Court Constitution Amendment Act of 1861).

This statute formerly conferred the name of the Supreme Court of Queensland and clarified jurisdiction.

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‘An Act to Consolidate and Amend the laws relating to Proceedings in Equity’ [1867] 31 Vict No 18 [28 December 1867] (Equity Act of 1867).

This legislation gave the court powers with respect to examination of defendants, evidence, contempt and declaratory relief. ‘An Act to Consolidate and Amend the Laws relating to the Supreme Court’ [1867] 31 Vict No 23 [28 December 1867] (Supreme Court Act of 1867).

Amended the 1861 Act so that the Supreme Court had both common law and general jurisdiction. ‘An Act to Amend the Practice and Course of Procedure of the Supreme Court of Queensland in Equity and for other purposes’ [1873] 37 Vict No 3 [15 July 1873] (Equity Procedure Act of 1873).

Trustees given the power to invest trust property. ‘An act to provide for the administration of a uniform system of law in courts of justice and to simplify and amend the practice of the Supreme Court’ (1876) 40 Vic No 6 (Judicature Act 1876) ss 4–5.

This legislation was in effect the Queensland Judicature Act.

Western Australia Circumstances in Western Australia had a similar development to that of Queensland. ‘An Act to provide until the Thirty-First Day of December One Thousand eight Hundred and Thirty Four, for the Government of His Majesty’s Settlements in Western Australia, on the Western Coast of New Holland’ [1829] 10 Geo IV c 22 (Government of Western Australia Act 1830).

A local three-man legislative council was established in Western Australia. ‘An Act for Establishing a Court of Civil Judicature’ [1832] 2 Will IV No 1 (10 February 1832).

Established a civil court with the same jurisdiction as the courts at Westminster. ‘An Act to Amend an Act intituled “An Act for establishing a Court of Civil Judicature”’ [1836] 6 Will IV N 1.

Amended the civil court. ‘An Ordinance to provide for the more effectual Administration of Justice by establishing a Supreme Court’ [1861] 24 Vict No 15 (Supreme Court Ordinance Act 1861).

Chapter 1: The Nature and History of Equity

The Supreme Court of Western Australia was established with common law and equitable jurisdiction. ‘An Act to make provision for the better Administration of Justice in the Supreme Court of Western Australia’ [1880] 44 Vict 10 (Supreme Court Act 1880 s 7).

This statute was the Western Australian version of the Judicature Act (UK).

Victoria Victoria also followed in a similar fashion to that of Queensland and Western Australia ‘An Act for the more effectual administration of justice in New South Wales and its Dependencies’ [1840] 4 Vict No 22 (Administration of Justice Act 1840).

Appointment of the first resident Supreme Court Judge for the Supreme Court of New South Wales at Port Phillip (now Melbourne). Common Law and Equitable jurisdiction established. Appeals to be heard at Sydney. ‘An act to make provision for the better administration of Justice in the Colony of Victoria’ [1852] 15 Vict No. 10 (Supreme Court of Victoria Act 1852).

Supreme Court of Victoria established with the same common law and equitable jurisdiction as the courts at Westminster. ‘An Act to Improve the Jurisdiction and Procedure of the Supreme Court and for other purposes connected therewith’ [1883] 36 & 38 Vict C 66 (the Judicature Act 1883) s 8.

This was the equivalent Judicature Act in Victoria.

Tasmania Developments in Tasmania included the following: ‘An Act to provide, until the First Day of July One thousand eight hundred and twentyseven, and until the End of the next Session of Parliament, for the better Administration of Justice in New South Wales and Van Diemen’s Land, and for the more effectual Government thereof and for other Purposes relating thereto’ [1823] 4 Geo IV c 96 (New South Wales Act 1823). Third Charter of Justice for New South Wales, Letters Patent 13 October 1823.

Van Diemen’s Land (now Tasmania) separated from the colony of New South Wales and a legislative council was established. The legislation established the Supreme Court of Van Diemen’s Land as a superior court of record, appointed the first Chief Justice and other officers. Powers regarding succession laws were invested but there was no clear statement regarding equitable jurisdiction.

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‘An Act for the administration of justice in New South Wales and Van Diemen’s Land, and for the more effectual Government thereof, and for other purposes relating thereto’ [1828] 9 Geo IV c 83 (Australian Courts Act 1828).

This statute overcame concerns about court’s legitimacy and provided that new laws enacted by the English Parliament did not apply unless they were specifically stated to operate in the particular jurisdiction. Reception day was 25 July 1828. ‘An Act to remove Doubts respecting the Administration of Justice in certain Cases before a single Judge of the Supreme Court and for other Purposes relating thereto’ [1844] 7 Vict No. 10 (the Administration of Justice Act 1844) and ‘An Act to facilitate the Administration of Justice in the Supreme Court’ [1856] 19 Vict No. 23 (the Administration of Justice Act 1856).

This legislation clarified the role of judges to sit together. ‘An Act to amend the law relating to the civil jurisdiction of the Supreme Court of Tasmania and the procedure and practice relating to the exercise of such jurisdiction, and for other purposes relating to the better administration of justice in this State’ [1932] Supreme Court Civil Procedure Act 1932 ss 10–11.

Tasmania enacted the Judicature System.

New South Wales Explaining why New South Wales was the last Australian jurisdiction to enact legislation is related to the establishment of the Supreme Court and the reception of English law. The following five steps need careful analysis. ‘An Act to enable His Majesty to Establish a Court of Criminal Judicature on the Eastern Coast of New South Wales and the Points Adjacent’ [1787] 22 Geo III c 2 (New South Wales Charter of Justice) Letters Patent 2 April 1787.

Referred to as the First Charter of Justice, it enabled the first courts to be established with civil and criminal jurisdiction by Letters Patent. There was no distinction between common law and equity. Letters Patent to establish Courts of Civil Judicature in New South Wales 2 April 1814.

The Second Charter of Justice abolished the earlier court of civil jurisdiction, and replaced it with the first superior court of the Colony of New South Wales. Doubts were raised as to the legitimacy of this activity and this led to the legislation in 1823. ‘An Act to provide, until the First Day of July One thousand eight hundred and twenty-seven, and until the End of the next Session of Parliament, for the better Administration of Justice in New South Wales and Van Diemen’s Land, and for

Chapter 1: The Nature and History of Equity

the more effectual Government thereof and for other Purposes relating thereto’ [1823] 4 Geo IV c 96 (New South Wales Act 1823). Third Charter of Justice for New South Wales, Letters Patent 13 October 1823.

This statute permitted Tasmania to separate from the colony at New South Wales and legislative councils were established in both jurisdictions. The Supreme Court of New South Wales was established as a superior court of record, the first chief justice appointed but there was no clear statement regarding equitable jurisdiction. ‘An Act to provide for the administration of justice in New South Wales and Van Diemen’s Land, and for the more effectual government thereof and for other purposes relating thereto’ [1828] 9 Geo IV c 83 (Australian Courts Act 1828).

As noted above in Tasmania, this legislation provided that new laws enacted by the English Parliament did not apply in New South Wales unless there were specifically stated to apply. Reception day was 25 July 1828. ‘An Act to provide for the more effectual Administration of Justice in New South Wales and its Dependencies’ [1840] 4 Vic Act No. 22 (Administration of Justice Act 1840).

This statute acknowledged the separate operation of law and equity. It created the office of a Judge in Equity. These events form the background to the Supreme Court of New South Wales prior to the Supreme Court Act 1970 (NSW) ss 57–62 and the Law Reform (Law and Equity) Act 1972 (NSW). In comparison to the other states, the New South Wales Supreme Court had a curious development. More information about Australian legal history is available from the following sources: • AC Castles An Australian Legal History Law Book Co.1982 • J Bennett ‘Historical Trends in Australian Law Reform’ 9 UWALR (1969) 211, 227–32 • B Kercher An Unruly Child A History of Law in Australia Allen & Unwin 1995 • J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 1–102.

Fusion fallacies The effect of the judicature system has been the subject of significant discussion. The prevailing view in Australia is that the Judicature Act only fused procedure and not substantive law. In other words, no new laws were created. If a matter came before the courts prior to the Judicature Act a particular result would be achieved. If the same matter came before the court today, there would be no difference in the

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outcome. This approach is largely the legacy of Meagher, Gummow and Lehane, who have published extensively in this area (see Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, LexisNexis Butterworths, 2002) and were among the first in Australia to analyse the equitable principles. The term fusion fallacy is given to decisions where the courts, in considering the effects of the judicature system, have made an error of judgment. The judicature system fused the procedures of common law and equity. It did not change the substantive law. At common law there is only one remedy—that is, damages. In equity there are a range of remedies including an injunction, an order for specific performance (see Chapter 12: Equitable Remedies) and a constructive trust (see Chapter 9: Constructive Trusts). Fusion fallacies occur when damages under the common law are awarded for purely equitable wrongs. Alternatively, fusion fallacies arise when substantive principles from both the common law and equity are applied interchangeably.

A case to remember Walsh v Lonsdale (1882) 21 Ch D 9 Facts: A landlord entered into a written agreement to lease a weaving shed for seven years. English law required such an agreement to be in a deed, but this did not occur so the arrangement was not recognised at common law. After the tenant took possession, the landlord demanded a year’s rent in advance under the terms of the agreement. The tenant refused, so the landlord seized the tenant’s personal effects. The tenant sued for damages. Issue: Inconsistency between the common law and equity. Decision: Sir George Jessel MR in the English Court of Appeal dismissed the tenant’s claim. His Honour held that it was an agreement to enter into a lease with specific performance to complete the common law requirements. Emphasis was placed on the Judicature Acts whereby equity and common law were fused. In such circumstances, there is only one court and where there is a contest between equity and common law, equity principles prevail.

This decision is an example of a fusion fallacy involving Jessel MR being confused about the judicature system. There was no conflict of rules or principles arising on the facts presented to the court. Holding that opinion means that the distinction between equity and the common law has been abolished. On this reasoning, a trust could never exist.

Chapter 1: The Nature and History of Equity

A case to remember Seager v Copydex (No. 1) [1967] 2 All ER 415 Facts: The plaintiff invented the ‘Klent’ carpet grip. After being awarded a patent, they entered into negotiations with an agent but no contract was formed. In the course of discussions the agent acquired information that was in confidence. They were not to take advantage of the situation. This information was later given to the defendant company, who produced their own version without infringing the patent. The defendant company called their product the ‘Invisigrip’. Issue: Awarding common law exemplary damages for a breach of confidence. Decision: The English Court of Appeal held that there had been a breach of confidence. Lord Denning MR, together with Salmon LJ and Winn LJ, considered that damages should be awarded as reasonable compensation, rather than an injunction or an account of profits. The matter did not involve any issue of contracts or torts.

It would be relatively easy to dismiss fusion fallacies if they simply occurred shortly after the judicature system was enacted. This is not the situation. Fusion fallacies continue to arise.

A case to remember Harris v Digital Pulse Pty Ltd [2003] 56 NSWLR 298; 197 ALR 626 Facts: An employee who was a fiduciary benefited from the position when he established himself as a competitor to his employer. He was in breach of an express term in his contract and was dismissed. The employer sought exemplary damages. The trial judge, Palmer J in the New South Wales Supreme Court, ordered exemplary damages together with an account of profits. The matter was then appealed. Issue: The availability of common law damages for a breach of fiduciary obligations. Decision: Spigelman CJ and Heydon JA in the New South Wales Court of Appeal held that exemplary damages are not available for equitable wrongs. They emphasised the historical development of equity and noted that the Judicature Act 1873 (UK) only simplified procedure. It did not create new legal principles, so the decision would be the same. Mason P, in dissent, came to the view that the decision by Palmer J did not subvert any of equity’s general doctrines.

In Harris, Mason P challenged the traditional view of Meagher, Gummow and Lehane regarding the fusion of common law and equity. Mason P considered that substantive principles in both law and equity need not be kept isolated from each other.

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Questions about fusion fallacies frequently appear as essay questions in exams. An example is provided in the tutorial questions at the end of this chapter.

Equitable maxims The maxims of equity are not rules. Mason CJ and McHugh J in Corin v Patton (1990) 169 CLR 540 at 33 noted they are ‘a summary statement[s] of a broad theme which underlies equitable concepts and principles. [Their] precise scope is necessarily ill-defined and somewhat uncertain’. Maxims are an indication as to how equity has developed and are useful in applying equitable principles. Maxims can overlap with one another; they are discretionary and the use of individual maxims can change over time. Equity follows the law: This maxim is useful in establishing the need to consider the matter first at common law, then in equity. A consequence of this approach is that equity recognises the existence of common law rights, titles and interests, but these would not be enforced if they were unconscionable. Equity will not suffer a wrong to be without a remedy: The historical development of equity as a response to the difficulties presented by the common law is encapsulated in this maxim. Attention is focused on technical or procedural requirements, but it does not guarantee that relief will always be available. Whoever seeks equity must practice it: A plaintiff cannot seek equitable relief if they have not already fulfilled their own obligations in both law and equity. Equity does not assist a volunteer: This maxim is a reminder that equity only acts on the conscience. A voluntary promise that is made in the absence of valuable consideration does not constitute a legal obligation or contract. In other words there is nothing for equity to act on in order to enforce the promise. An extension of this maxim is the phrase equity ‘does not perfect an imperfect gift’. Where the equities are equal, the first in time prevails: This maxim refers to the law of priorities where competing interests arise concerning particular property. • Two equitable interests: if the nature of the equitable interest is the same, then whichever was created first will take priority. • Prior equitable interest and a later legal interest: if the party who acquired the legal interest took their title for value and without notice of the equitable interest then their interest prevails. • Prior legal interest and a later equitable interest: the legal interest is stronger and takes priority. Attention should focus on how the later equitable interest came into existence as this may affect the legal interest. Whoever comes to equity must have clean hands: Any improper conduct by the plaintiff that is connected to the particular circumstances will deny equitable relief. Equity assists the diligent and not the tardy: A plaintiff seeking equitable relief must act promptly and without delay.

Chapter 1: The Nature and History of Equity

Equity is equality: This maxim refers to the proportionate distribution of losses according to liability. Equity looks to intent, rather than form: This is the distinction between form and substance. Equity will focus on substantive matters rather than the technicalities of procedural requirements. The latter is the concern of the common law with its emphasis on rules. Equity considers that which ought to be done, as done: This maxim refers to the nature of the transaction. Equity may act on the conscience of the party to give effect to those obligations that will later arise. A good example would be contractual disputes where future obligations are concerned, such as the doctrine of estoppel. Equity acts in personam: Historically equity acted on the conscience of the person (in personam) rather than property (in rem). This distinction is not strictly applicable since equitable interests are also proprietary in nature (see Chapter 2: The Concept of Property in Equity). An example is the statutory requirement about the transfer of real property and the need for it to be in writing. In all Australian jurisdictions legislation has been enacted. In the next two chapters these matters will be discussed in detail.

Further reading J Bennett, ‘Historical Trends in Australian Law Reform’ 9 UWALR (1969) 211, pp. 227–32. A Burrows, ‘We Do This at Common Law but That in Equity’ 22(1) Oxford Journal of Legal Studies (2002) 1–16. AC Castles, An Australian Legal History Law Book Co., 1982. G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 1–33. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 1–34. M Evans, ‘Equity and Trusts, LexisNexis Butterworths, 2012, pp. 3–34. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 1–102. J Heydon, M Leeming Cases and Materials on Equity and Trusts LexisNexis Butterworths 2011, pp. 3–46. B Kercher, An Unruly Child A History of Law in Australia Allen & Unwin 1995. M Kirby, ‘Equity’s Australian Isolationism’, WA Lee Equity Lecture, Queensland University of Technology, Brisbane, 19 November 2008, . P Loughlan, ‘The Historical Role of the Equitable Jurisdiction’ in P Parkinson (Ed.), The Principles of Equity, Lawbook Co., 2003, pp. 3–27. P Parkinson, ‘The Conscience of Equity’ in P Parkinson (Ed.), The Principles of Equity, Lawbook Co., 2003, pp. 29–54. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 1–48. G Taylor, ‘South Australia’s Judicature Act reforms of 1853: The First Attempt to Fuse Law and Equity in the British Empire’ 22(1) Journal of Legal History (2001) 54. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 1–50.

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Assessment preparation Test your knowledge 1 Which of the following statements is the best explanation of ‘equity’? (a) Equity is equality. (b) Equity is related to the common law. (c) Equity refers to the principles that were initially created by the English High Court. (d) Equity is rather messy. 2 The judicature system brought significant changes. Which one of the following statements is the most accurate? (a) Procedures but not substantive principles were affected. (b) Equity prevails over the common law. (c) Every state in Australia enacted legislation. (d) Equity and the common law were fused. 3 Complete the sentence: The phrase ‘against the conscience’ refers to: (a) the Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485. (b) a recurring theme throughout equity. (c) assistance provided by the Monarch or Chancellor. (d) morality. 4 Complete the sentence: The decision in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; 197 ALR 626 is significant because it: (a) is a recent example of a fusion fallacy. (b) highlights that judges can disagree with one another. (c) involves fiduciary obligations in an employment situation. (d) involves intellectual property and fiduciary obligations. 5 Complete the sentence: The equitable maxims are useful when answering legal problems because they indicate: (a) the rules. (b) how equity has developed. (c) how equity developed, and provide guidance. (d) how the rules have been developed. 6 Equity is based upon the concept of ‘unconscionability’, that is to say, (a) the exploitation of the vulnerable and abuse of positions of confidence (b) abuse of positions of confidence, insisting on rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, the exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, the exploitation of the vulnerable and abuse of positions of confidence. 7 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’

Chapter 1: The Nature and History of Equity

8 The judicature system has been adopted throughout Australia. Which Australian jurisdiction was the first and which was the last to do so? (a) Queensland was the first and South Australia was the last. (b) South Australia was the first and New South Wales was the last. (c) New South Wales was the first and Queensland was the last. (d) Queensland was the first and Western Australia was the last. 9 Which of the following statements is most accurate? (a) Equity follows the law, equity is equality and equity is about money. (b) Equity follows the law, equity is equality and equity acts in personam. (c) Equity follows the law, equity is about money and equity is focused on morality. (d) Equity follows the law; whoever seeks equity must practise it and equity is about money. 10 Which of the following statements is the best explanation of the judicature system? (a) New substantive legal principles came into existence. (b) Procedure was fused and both common law and equitable principles could now be administered by the one court. (c) New substantive legal principles came into existence and procedural requirements were fused. (d) Where there is a conflict or inconsistency between equity and the common law, equity would prevail. Essay/discussion questions 1 In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [No. 2] (2000) 96 FCR 491 at 498 French J noted: The fundamental principle according to which equity acts is that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct … So it can be said that the overriding aim of all equitable principle is the prevention of unconscionable behaviour—a term which can be seen to encompass duress, undue influence and ‘unconscionable dealing as such’ … This is not to say that unconscionable conduct … is any conduct which attracts the intervention of equity. Too broadly defined it may become, in the words of Professor Julius Stone, a ‘category of meaningless reference’.

Do you agree? Discuss when equity will intervene to prevent unconscionable conduct. 2 ‘The reception of equity in the Australian colonies was awkward and clumsy. This can be partly explained given the nature of the British Empire and the legal system in the emerging colonies. It can also be understood with reference to particular individual personalities.’ Critically discuss this statement. 3 Explain the following equitable maxims: (a) Equity follows the law. (b) Equity looks to intent, rather than form. (c) Equity acts in personam. 4 ‘Problems are still occurring in equity despite the Judicature Act 1873 (UK).’ Do you agree? Critically discuss this statement with reference to relevant cases and statutes. For answers to these questions, please refer to: .

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The Concept of Property in Equity Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish between legal and equitable interests • understand the flexible nature of equitable interests • explain the role of equitable interests • appreciate how competing interests in property are resolved.

Cases to remember Baker v Archer-Shee [1927] AC 844 Livingston v Commissioner of Stamp Duties (1960) 107 CLR 411 Commissioner of Stamp Duties v Livingston [1965] AC 694 Re Leigh’s Will Trusts [1970] Ch 277 Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265

Statutes to remember Land Titles Act 1925 (ACT) s 59 Real Property Act 1900 (NSW) s 43 Land Titles Act 2000 (NT) s 188(2), (3) Land Title Act 1994 (Qld) s 184(2), (3) Real Property Act 1886 (SA) ss 186, 187 Land Titles Act 1980 (Tas) s 41 Transfer of Land Act 1958 (Vic) s 43 Transfer of Land Act 1893 (WA) s 134

Overview Figure 2.1 provides an overview of the concept of property in equity. The first (top) part of this figure shows how property can be divided. Property can be divided into real (land and fixtures) and personal (chattels). Personal property can then be further divided between intangible property (chose in action) and tangible property (chose in possession).

Chapter 2: The Concept of Property in Equity

Figure 2.1 The concept of property in equity Property

Real (land and fixtures)

Personal (chattels)

Intangible (chose in action) For example: – intellectual property – debts – money in the bank – company shares Equitable interests

Tangible (chose in possession) For example: – car – clothes – book

The recognition of equitable interests Flexible nature Baker v Archer-Shee [1927] House of Lords

Priorities

Real property – prior equitable and subsequent equitable interests – Competing legal and equitable interests Land Titles Act 1925 (ACT) s 59 Real Property Act 1900 (NSW) s 43 Land Titles Act 2000 (NT) s188(2), (3) Land Titles Act 1994 (Qld) s184(2), (3) Real Property Act 1886 (SA) ss186, 187 Land Titles Act 1980 (Tas) s 41 Transfer of Land Act 1958 (Vic) s 43 Transfer of Land Act 1893 (WA) s 134 Personal property

– A personal interest Livingston v Commissioner of Stamp Duties (1960) High Court of Australia Commissioner of Stamp Duties v Livingston [1965] House of Lords – A proprietary interest Re Leigh’s Will Trust [1970] Ch 277 Chancery Division – A mere equity Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) High Court of Australia

Equitable interests can arise in personal and real property Note: There is no clear definition of an equitable interest. The terms equitable right, title, estate or beneficial interest may also be used. It is important to focus on the

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particular circumstances and take care to identify if it is a personal equitable interest or a proprietary equitable interest. In other words, context is paramount when the nature of the equitable interest is being determined. The material in this chapter has been organised following the structure in the second part of this figure.

Equitable interests Equity developed in response to the difficulties and shortcomings of the common law. As the common law is based on rules, problems arose regarding their strict application. Over time dissatisfied parties approached the Chancery, and later the courts of equity, for relief that was unavailable at common law. Equitable interests are flexible, but their structures are not as clearly defined as those of legal interests in the common law. Equity acknowledges the existence of legal interests. (See the Judicature System in Chapter 1: The Nature and History of Equity on pages 1–17 and ‘Priorities’ discussed on pages 25–26.)

The recognition of equitable interests Viscount Radcliffe in Commissioner of Stamp Duties v Livingston [1965] AC 694 (discussed later in this chapter) at 712 noted: Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.

An equitable interest comes into existence to enable equity to enforce an equitable principle. A good example of an equitable interest is the beneficiary of a trust. Prior to the Judicature Act (see Chapter 1: The Nature and History of Equity) the trustee held the legal interest. The trustee would then be prevented in equity from acting inappropriately with the property that was held by the trust. Equity recognised that a beneficiary would have an action against the trustee—the person, and not the property. (See the equitable maxim—equity acts in personam—in Chapter 1: The Nature and History of Equity.) It is wrong to consider that property comprises of both legal and equitable interests. In DKLR Holdings Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 463 Aickin J noted: If one person has both the legal and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable. If he first holds the legal estate upon trust for some other person

Chapter 2: The Concept of Property in Equity

and thereafter that other person transfers to him the entire equitable interest, then again the first-named person does not hold two separate interests, one legal and the other equitable estate, he holds a single entire interest—he is the absolute owner of an estate in fee simple in that land. The equitable interest merges into the legal estate to comprise a single absolute interest in the land.

If a person holds both the legal interest and the equitable interest in a piece of property, they are the absolute owner. Note: Equitable interests can act in personam or on property (see the equitable maxims, which are discussed in Chapter 1: The Nature and History of Equity). It is a matter of construction, whether a dealing in property creates a conditional gift, a gift subject to a personal equitable obligation or a trust. In Gill v Gill (1921) 21 SR (NSW) 400 a farm was transferred to the eldest son on the condition that he allow the testator’s daughters live on the property until they marry. Harvey J at 407 noted: In some cases the court may see that what the testator intended was to attach a charge or a trust upon the property, in other cases it may include a personal liability is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation.

In this matter the property was subject to a personal equitable obligation on the son to make provision for his sisters. Heydon and Leeming noted: Equitable estates and interests are rooted in the remedies by which they are protected; the strength or resilience of one equitable right as compared with another will be determined by the availability of equitable remedies to those asserting the claim to the subject matter. JD Heydon, MJ Leeming Cases and Materials on Equity and Trusts LexisNexis Butterworths 2011, [3.3] p. 79.

In other words, the identification of an equitable interest is connected with the availability of an appropriate remedy in the particular context in which the matter arose. (See ‘A mere equity’ discussed on page 24, ‘Priorities’ considered on pages 25–26 and Equitable Remedies discussed in Chapter 12. See also Specific Performance and Injunctions (pages 165 and 166) and Equitable Compensation and Damages on page 168.)

Flexible nature Equitable interests are flexible. They arise where equity needs to enforce one of its doctrines. They can also change their character depending on what equity requires.

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Adapting the words of Palmer J in Mills v Ruthol Pty Ltd [2002] NSWSC 294 [125], equity is not focused on universal notions of justice or fairness but rather retaining flexibility to respond circumstances where equitable principles apply.

A case to remember Baker v Archer-Shee [1927] AC 844 Facts: The testator was a US citizen who left property in their will to their daughter for her life so that she had an equitable life estate. The trustee was a US corporation and the property subject to the trust consisted of foreign securities and shares. Income from the property was deposited into a US bank account and no money was sent to the UK. The daughter of the testator was the wife of Lord Archer-Shee. Under the relevant UK tax legislation, the authorities sought to assess income. Issue: The nature of the interest Lord Archer-Shee acquired from his wife’s estate. Decision: The House of Lords held that it was taxable income so it was an equitable proprietary interest rather than a personal interest. The significance of this decision is that the House of Lords identified that in English law equitable interests were not simply personal in character. They could be based on property. Note the interest in the matter was based on intangible personal property.

The flexible nature of equitable interests means that they can change their character depending on the circumstances. An equitable interest may be personal, proprietary, or something less than a full equitable interest—in other words, a mere equity. Note: The classification process is temporal and dynamic. The same interest may have different characteristics at different points in time. The nature of the relationship between the parties needs careful attention.

A personal interest While the House of Lords in Baker v Archer-Shee [1927] AC 844 determined the nature of the equitable interest in an estate was proprietary, but that does not mean that it will be the same for every estate.

A case to remember Livingston v Commissioner of Stamp Duties (1960) 107 CLR 411 Facts: At the time of Mrs Coulson’s death she had acquired a one-third share in the residue of her husband’s partially administered estate. Both real and personal property were situated in Queensland and New South Wales. The executors were domiciled in New South Wales. The Commissioner of Stamp Duties for Queensland sought to impose taxation on the basis of her interest. Issue: The nature of an interest acquired under a partially administered estate.

Chapter 2: The Concept of Property in Equity

Decision: The majority of the High Court of Australia, when examining the Queensland statute, held that it was a personal interest based on the location of the beneficiary. It was not taxable in Queensland.

The matter was then on appeal before the Privy Council. Viscount Radcliffe in Commissioner of Stamp Duties v Livingston [1965] AC 694 at 712 noted: The court will control the executor in the use of his rights over assets that come to him in that capacity; but it will do it by the enforcement of remedies which do not involve the admission or recognition of equitable rights of property in those assets.

Furthermore, Viscount Radcliffe noted at 717 that, on the facts before the court, Mrs Coulson was not entitled to any beneficial interest in any property in Queensland at the date of her death. What she was entitled to in respect of her rights under the deceased husband’s will was a chose in action, capable of being invoked for any purpose connected with the proper administration of his estate.

It was in the Privy Council’s decision that Viscount Radcliffe identified that property does not comprise an equitable and legal estate. Title is unified unless equity calls into existence certain interests. Hope JA also explored this idea in DKLR Holdings Co. (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510. The Privy Council in Commissioner of Stamp Duties v Livingston [1965] AC 694 overturned the High Court’s decision and held that a beneficiary in a partially administered estate does not acquire a beneficial interest. A beneficiary has the power to compel the executor to properly administer the estate (chose in action). The executor of the estate has all property rights.

A proprietary interest The flexible and discretionary nature of equitable interests is also highlighted when it is acknowledged that an equitable interest can also be proprietary in the context of personal property.

A case to remember Re Leigh’s Will Trusts [1970] Ch 277 Facts: Mrs Leigh in her will gave the following bequest: ‘All shares which I hold and any other interest or assets which I may have in Sheet Metal Fabricators (Battersea) Ltd.’ At the time of her death, Mrs Leigh was the sole beneficiary in her husband’s partially administered estate.

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Issue: Nature of the interest that Mrs Leigh had acquired from her husband’s partially administered estate. Decision: Buckley J held that the words were sufficiently clear and definite so as to permit the interest in the company shares or chose in action to survive as a bequest in her will.

This decision extends the idea expressed in Commissioner of Stamp Duties v Livingston [1965] AC 694. In the context of death duties, the interest in a partially administered estate was personal. In the context of Re Leigh’s Will Trusts [1970] Ch 277 concerning a gift by will, the equitable chose in action was considered to be proprietary. Lord Wilberforce in National Provincial Bank v Ainsworth [1965] AC 1175 at 1247–8 noted: [B]efore a right or interest can be admitted into the category of property or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability.

In other words, Lord Wilberforce identified a number of indicia that are useful when seeking to identify whether an interest is proprietary. Meagher, Heydon and Leeming have noted four criteria regarding equitable proprietary interests: • the power to recover property, rather than compensate for loss • the power to transfer the interest to another person • the availability of tracing and remedies attached to the property • the extent to which the interest may take priority where there are competing interests. (J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015)

Note that the list is not intended to be exhaustive and that it is not essential that a proprietary equitable interest satisfy all four indicia. Apart from being a personal or proprietary interest, an equitable interest may also be a mere equity.

A mere equity The flexible nature of equitable interests is further explored in the context of a mere equity. In certain circumstances, equity may call into existence an equitable interest that is less that a full equitable interest.

Chapter 2: The Concept of Property in Equity

A case to remember Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 Facts: Hotel Terrigal was the owner of a hotel that was being mortgaged by Latec Investments. Hotel Terrigal defaulted under their mortgage and Latec Investments exercised their power of sale over the property. It was subsequently sold to Southern Hotels, which was a wholly owned subsidiary of Latec Investments, so the power of sale was fraudulent. Twelve months later, the property was given as security by way of a floating charge to debenture holders MLC, as trustees, who had no notice of the sale to the purchaser. The floating charge subsequently crystallised and the mortgagor sought to set aside the transfer as a fraudulent transfer. Issue: Competing interests and the nature of a mere equity. Decision: The High Court of Australia held in favour of MLC. Kitto J considered that the mortgagor had a proprietary equitable interest that was a mere equity. MLC had a full equitable interest so MLC prevailed over the mere equity. Menzies J considered that an equitable interest could set aside the fraudulent sale and he also noted that it may be a proprietary interest in the context of priorities. Like Taylor, Menzies J noted that given MLC was a bona fide purchaser without notice of the prior interest, it would prevail over the mortgagor. Taylor J held that the situation was similar to a proprietary equitable interest but with an impediment on the title. The court could not provide assistance because of MLC being a bona fide purchaser without notice. The decision is significant as it reinforces what Viscount Radcliffe noted in Commissioner of Stamp Duties v Livingston [1965] AC 694 (discussed above). Equity is flexible and equitable interests will arise when it is necessary to give effect to its doctrines.

Priorities One of the qualities of a proprietary equitable interest is the ability to prevail over competing interests. In dealing with real property there are a number of scenarios involving equitable and legal interests.

Real property Real property includes land and things attached to land known as fixtures.

Prior equitable and subsequent equitable interests The general rule is that when the equities are equal, the first in time prevails. This is also known as Qui prior est tempore potiore est jure. Note that a mere equity is less than a full equitable interest and so it cannot prevail over a full equitable interest.

Competing legal and equitable interests The general rule is that legal interest will take priority, where there is a bona fide purchaser who does not have notice of the prior equitable interest.

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Notice that in these circumstances it includes actual, constructive and imputed notice.

Statutes to remember Land Titles Act 1925 (ACT) s 59 Real Property Act 1900 (NSW) s 43 Land Titles Act 2000 (NT) s 188(2), (3) Land Title Act 1994 (Qld) s 184(2), (3) Real Property Act 1886 (SA) ss 186, 187 Land Titles Act 1980 (Tas) s 41 Transfer of Land Act 1958 (Vic) s 43 Transfer of Land Act 1893 (WA) s 134

Under the Torrens Title system of holding real property, there is one qualification embodied in statute concerning competing legal and equitable interests. Unless the transferee has been in involved in fraudulent activity, they are not subject of any unregistered (equitable) interest.

Personal property Where there are competing equitable interests in personal property, the rule in Dearle v Hall (1828) 3 Russ 1 applies. Priority will be afforded according to when the interests arose, so that the first in time prevails. Note that the general rule can be set aside if the later interest is for value or the later interest holder had no notice of the earlier interest.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 33–70. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 35–73. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 35–66. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 103–38 and 325–62. J Heydon, M Leeming, Cases and Materials on Equity and Trusts, LexisNexis Butterworths 2011 pp. 47–130. P Parkinson and D Wright, ‘Equity and Property’ in P Parkinson (Ed.), The Principles of Equity, 2003, LawBook Co., pp. 55–92. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 49–64. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 53–65.

Chapter 2: The Concept of Property in Equity

Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains equitable interests? (a) They refer to property held by one person in favour of another person. (b) They are the best method of reducing the imposition of taxation. (c) They arise when equity needs to give effect to its doctrines and principles. (d) They follow the common law. 2 Complete the sentence: Equitable interests are recognised in (a) equity but not by the common law. (b) equity and the common law. (c) equity when they are in the form of an assignment. (d) equity when they are in the form of a direction to a trustee. 3 Which one of the following statements most accurately explains personal property? (a) Personal property comprises both tangible items (choses in action) and intangible items (choses in possession). (b) Personal property comprises both tangible items (choses in action) such as a debt and intangible items (choses in possession) such as a car. (c) Personal property comprises both tangible items (choses in possession) such as a debt and intangible items (choses in action) such as a car. (d) Personal property comprises both tangible items (choses in action) and intangible items (choses in possession) and must be evidenced in writing. 4 Complete the sentence: An equitable interest may be (a) personal, proprietary or a mere equity. (b) personal or proprietary. (c) personal and proprietary. (d) personal or proprietary, but not a mere equity. 5 Which one of the following statements most accurately explains the concept of property? (a) Property comprises both real (land and fixtures) and personal (chattels). Personal property can then be classified as intangible (choses in action) and tangible (choses in possession). (b) Property comprises both legal and equitable interests, which cannot exist at the same time. (c) Property comprises both real (land and fixtures) and personal (chattels). Personal property can then be classified as intangible (choses in possession) and tangible (choses in action). (d) Equitable interests are only created from real property. 6 Which of the following statements is the most accurate? (a) ‘Equity in fact calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.’ (b) ‘Equity in fact calls into existence equitable rights and interests in property only where their recognition has been found to be required in order to give effect to objective fairness and justice.’

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(c) ‘Equity in fact calls into existence equitable rights, estates and interests in property only where their recognition has been found to be required.’ (d) ‘Equity calls into existence equitable rights and interests in property where their recognition has been found to be required for subjective fairness and justice issues.’ 7 Which of the following statements is the most accurate? (a) ‘The general rule is that legal interest will take priority, where there is a bona fide purchaser who does not have notice of the prior equitable interest. This includes actual, constructive and imputed notice but is subject to legislation.’ (b) ‘The general rule is that legal interest will take priority, where there is a bona fide purchaser who does not have notice of the prior equitable interest. This includes actual, constructive and imputed notice.’ (c) ‘The general rule is that legal interest will take priority, where there is a bona fide purchaser who does not have notice of the prior equitable interest.’ (d) The general rule is that legal interest will take priority, where there is a bona fide purchaser who does not have notice of the prior equitable interest. This includes actual and constructive notice.’ 8 Which of the following statements is the most accurate? (a) ‘In some cases the court may see that what the testator intended was to attach a charge or a trust on the property, in other cases it may include a personal liability is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation.’ (b) ‘In some cases the court may see that what the testator intended was to attach a charge or a trust on the property, in other cases it may include a personal liability is intended. The view taken would depend partly on the intention of the party concerned, partly on the nature of the property given to the obligee, and partly on the nature of the obligation.’ (c) ‘In some cases the court may see that what the testator intended was to attach a charge or a trust on the property, in other cases it may include a personal liability is intended. The view taken would depend partly on the language used to describe the obligation, and partly on the nature of the obligation.’ (d) ‘In some cases the court may see that what the testator intended was to attach a charge or a trust on the property, in other cases it may include a personal liability is intended. The view taken would depend partly on the language used to describe the obligation.’ 9 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’

Chapter 2: The Concept of Property in Equity

10 Equity is based upon the concept of ‘unconscionability’, that is to say, (a) the exploitation of the vulnerable and abuse of positions of confidence. (b) abuse of positions of confidence, insisting on rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, the exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, the exploitation of the vulnerable and abuse of positions of confidence. Essay/discussion questions 1 ‘A mere equity is an equitable interest that is less than a full equitable interest. An equitable chose in action is very similar.’ Do you agree? Critically discuss this statement. Is it possible to distinguish between a mere equity and an equitable chose in action? 2 ‘Like an “equitable interest”, a “mere equity” is a slippery creature. It can be cornered and illuminated by example but not captured and confined by definition.’ Mills v Ruthol Pty Ltd [2002] NSWSC 294 [126]

Do you agree? Critically discuss this statement with reference to the nature of equitable interests. Do equitable interests create rather than solve more problems? 3 Ong has noted: ‘Conceptually, there are four kinds of equitable interests. In descending order of strength they are:

(i) Equitable Proprietary Interests in specific property; (ii) Mere Equities in specific property; (iii) Equitable Proprietary Interests in respect of, but not in, specific property; and (iv) Personal Equities, being equitable interests that are neither interests in, nor even interests related to, specific property.’ D Ong Ong on Equity Federation Press 2011 p.1



Given that the courts have not neatly organised equitable rights, titles and interests into a coherent system, critically discuss the above statement.

Problem question Smith and Brown operate a bed and breakfast business. Given the growth of other competitors in the local area, they want to refurbish and extend their premises. They contact A Really Big Bank as a means of financing the work. The bank agrees with their plans and the funds are secured by a mortgage on the property. About eighteen months later, as interest rates have been rapidly rising, Smith and Brown fail to make the necessary repayments and default under the mortgage. Despite a high-profile marketing campaign by A Really Big Bank indicating that they are ‘a friendly bunch of people’, they exercise their mortgagee power of sale on the property. When the bed and breakfast property is put on the market, A Really Small Bank ultimately purchases the property. A Really Small Bank subsequently uses it as security for the purchase of other property from ABC Ltd. Given the uncertainty

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surrounding the global financial markets, A Really Small Bank fails to maintain its repayments. Smith and Brown have been very upset about the actions of A Really Big Bank. Approximately two years after the power of sale was exercised, they have discovered that it was fraudulently exercised. Smith and Brown seek your advice. For answers to these questions, please refer to: .

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Chapter 3

Dealings with Property in Equity Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish between legal and equitable assignments • understand the difference between legal and equitable interests • explain what is required to achieve an effective assignment at law and in equity • appreciate the difference between assignments, agreements to assign, • declarations of trust and directions to a trustee as dealings with property.

Cases to remember Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 Milroy v Lord (1862) 4 De GF & J 264 Anning v Anning (1907) 4 CLR 1049 Corin v Patton (1990) 169 CLR 540

Statutes to remember Real property Civil Law (Property) Act 2006 (ACT) s 201 Conveyancing Act 1919 (NSW) s 23C Law of Property Act 2000 (NT) s 10 Property Law Act 1974 (Qld) s 11 Law of Property Act 1936 (SA) s 29 Conveyancing and Law of Property Act 1884 (Tas) s 60(2) Property Law Act 1958 (Vic) s 53 Property Law Act 1969 (WA) s 34 Intangible personal property (choses in action) Civil Law (Property) Act 2006 (ACT) s 205 Conveyancing Act 1919 (ACT) s 12 Conveyancing Act 1919 (NSW) s 12 Law of Property Act 2000 (NT) s 182 Property Law Act 1974 (Qld) s 199 Law of Property Act 1936 (SA) s 15 Conveyancing and Law of Property Act 1884 (Tas) s 86 Property Law Act 1958 (Vic) s 134 Property Law Act 1969 (WA) s 20

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Overview Figure 3.1 provides an overview of dealings with property. The material in this chapter has been organised following the structure indicated in this figure. Emphasis has been placed on the assignment of legal and equitable property at both law and in equity. Other dealings, such as an agreement to assign, declaration of trust and directions to a trustee, are identified. Reference should also be made to Chapter 6: The Nature of Trusts, for discussion on the declaration of an express trust.

Property: legal and equitable interests In the previous chapter, the nature of property was considered. In that material a distinction was made between real and personal property, and between tangible and intangible personal property. It is important to remember that an interest in property may be dealt with at law and in equity: • Legal interests are recognised at law and also in equity. • Equitable interests are recognised only in equity. There are different requirements that need to be satisfied in order to achieve an effective dealing with an interest at law or in equity. Note that the presence of valuable consideration simplifies the process, because equity regards that the ‘conscience is bound’. These requirements are subject to statutory amendments (discussed below).

Property incapable of being dealt with There are certain pieces of property that cannot be dealt with in law or in equity. They include rights under a contract for personal services and a bare right to litigate a legal wrong. While these rights cannot be dealt with, there is no impediment about dealing with the fruits of these activities. These include the proceeds from a contract of personal services and the potential proceeds from litigation. In Glegg v Blomley [1912] 3 KB 474 the potential proceeds from a defamation action were dealt with and in Trendtex Trading Corp. v Credit Suisse [1982] AC 679 the insurance company, not the applicant, brought the matter before the court.

Assignment Windeyer J in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26 noted an assignment is ‘the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee’. In other words, the interest must be in existence at the time the purported assignment is made. It cannot be contingent upon something else happening.

Chapter 3: Dealings with Property in Equity

Figure 3.1 Dealings with property in equity Equitable maxims (See Chapter 1: The Nature and History of Equity) Property: legal and equitable interests (See Chapter 2: The Concept of Property in Equity) Property incapable of being dealt with Dealings Assignment Presently existing or future property Shepherd v Federal Commissioner of Taxation (1965) High Court of Australia Norman v Federal Commissioner of Taxation (1963) High Court of Australia Voluntary assignment at law Norman v Federal Commissioner of Taxation (1963) High Court of Australia Milroy v Lord (1862) English Court Anning v Anning (1907) High Court of Australia Corin v Patton (1990) High Court of Australia

Voluntary assignment in equity Partial satisfaction of the common law requirements and sufficiently manifest intention for the property to pass

An agreement to assign Declaration of trust Inter vivos (See Chapter 6: The Nature of Trusts)

Post mortem/testamentary (See Chapter 6: The Nature of Trusts)

Direction to a trustee

Statutory requirement for writing: real property Conveyancing Act 1919 (NSW) s 23C Property Law Act 1974 (Qld) ss 5, 9 Law of Property Act 1936 (SA) s 29 Conveyancing and Law of Property Act 1884 (Tas) s 60(2) Property Law Act 1958 (Vic) s 53 Property Law Act 1969 (WA) s 34

Statutory requirement for writing: intangible personal property (choses in action) Conveyancing Act 1919 (ACT) s 12 Conveyancing Act 1919 (NSW) s 12 Law of Property Act 2000 (NT) s 182 Property Law Act 1974 (Qld) ss 199, 200 Property Law Act 1936 (SA) s 15 Conveyancing and Law of Property Act 1884 (Tas) s 86 Property Law Act (Vic) s 134 Property Law Act 1969 (WA) s 20

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Presently existing or future property By definition, an assignment may only occur if the interest is presently existing and not an interest in property that may come into existence at a later date.

A case to remember Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 Facts: A purported assignee was entitled to receive dividends on certain company shares and interest on a loan. The terms of the loan agreement permitted the debtor to pay out the balance at any time without notice. The Taxation Commissioner considered the purported voluntary assignment to be ineffective in avoiding the payment of tax. Issue: The characterisation of property as either future or presently existing. Decision: There was a unanimous decision with respect to the dividends being regarded as future property—a mere expectancy. The directors of the company could not be compelled to pay a dividend. The majority of the court, comprising Dixon CJ, Menzies and Owen JJ, considered the interest on the loan to be future property because it could be repaid at any time without notice. The minority, comprising Windeyer and McTiernan JJ, held that the interest was a present right to receive interest that was payable in the future.

Three years later another matter came before the High Court of Australia regarding the nature of future property. Although the facts are similar, it led to a different result.

A case to remember Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 Facts: A distributor was granted a licence to manufacture castors in return for a monthly payment of five per cent of the sale price. He then purported voluntarily to assign ‘all [his] rights title and interest in and to an amount equal to ninety per centum of the royalties which may accrue during a period of three years from the date of this assignment’. The Federal Commissioner of Taxation sought to subsequently assess the property for the purpose of taxation. Issue: Distinguishing between a presently existing interest in property and an interest in future property. Decision: The High Court of Australia held in favour of the taxpayer because the purported assignment involved future property. The purported assignment was ineffective in the absence of consideration. The court considered that the purported assignment could be considered as achieving one of the following: (a) 90 per cent of any royalties which actually accrued (mere expectancy = future property) or (b) 90 per cent of his existing contractual right to receive royalties (presently existing right). Kitto J referred to (a) as the fruit that may occur sometime in the future and to (b) as the tree, because it exists here and now. Barwick CJ noted that distinguishing between future and presently existing property is a matter of construing the deed or the intentions of the parties.

Chapter 3: Dealings with Property in Equity

The idea expressed by the court in Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 regarding the nature of future property is largely one of drafting.

Voluntary assignment at law In the absence of valuable consideration, a voluntary assignment at law must comply with the statutory requirements of writing. Emphasis is placed on the type of property subject to the purported assignment.

Statutory requirements for writing For an effective dealing with an interest in property, there are different statutory requirements that need to be satisfied at law. Non-compliance renders the purported dealing ineffective at law. It may be that Equity will recognise that something has been achieved. Understanding the nature of the interest in property was the focus of the material in Chapter 2: The Concept of Property in Equity. If it is a proprietary interest, it is either real or personal.

Real property An interest in real property must be reduced to writing.

Statutes to remember Civil Law (Property) Act 2006 (ACT) s 201 Conveyancing Act 1919 (NSW) s 23C Law of Property Act 2000 (NT) s 10 Property Law Act 1974 (Qld) s 11 Law of Property Act 1936 (SA) s 29 Conveyancing and Law of Property Act 1884 (Tas) s 60(2) Property Law Act 1958 (Vic) s 53 Property Law Act 1969 (WA) s 34

Note: This requirement does not affect the resulting implied or constructive trusts. These matters are discussed in Chapter 8: Resulting Trusts, and Chapter 9: Constructive Trusts.

Intangible personal property (choses in action) In Chapter 2: The Concept of Property in Equity, intangible personal property such as a debt was characterised as a chose in action.

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Statutes to remember Civil Law (Property) Act 2006 (ACT) s 205 Conveyancing Act 1919 (ACT) s 12 Conveyancing Act 1919 (NSW) s 12 Law of Property Act 2000 (NT) s 182 Property Law Act 1974 (Qld) s 199 Law of Property Act 1936 (SA) s 15 Conveyancing and Law of Property Act 1884 (Tas) s 86 Property Law Act 1958 (Vic) s 134 Property Law Act 1969 (WA) s 20

An effective legal assignment of a chose in action will be achieved if the following requirements are satisfied: • The assignment is absolute (part of a chose in action cannot be assigned in law). • The assignment is in writing. • Written notice is provided to the debtor. Note: Non-compliance with these statutory requirements (real property/chose in action) means that the purported assignment at law has been ineffective. Equity, however, may recognise that something has been achieved.

A case to remember Milroy v Lord (1862) 4 De GF & J 264 Facts: Thomas Medley voluntarily assigned 50,000 shares to Lord, to be held on trust for Milroy, but the register was never updated. Medley lived for a further three years. Issue: Whether the shares formed part of the estate. Decision: Turner LJ held that the shares did form part of the estate. For a voluntary settlement to be valid: (i) ‘the settlor must have done everything which was necessary to be done to transfer the property’ and (ii) ‘if settlement is intended to be effected by a particular mode, the court will not give effect to it by applying another form’.

The two principles identified by Turner LJ are referred to as the two limbs or legs. The first leg of Milroy v Lord (1862) 4 De GF & J 264 was later considered by the High Court of Australia.

A case to remember Anning v Anning (1907) 4 CLR 1049 Facts: A settlor who was close to death purportedly assigned via a deed his personal estate to wife and children. The property included both real and personal property. Each item except for an interest in partnership (only equitable) could have been dealt with at law.

Chapter 3: Dealings with Property in Equity

Issue: Whether a purported assignment that failed at law would be effectively assigned in equity. Note the statutory requirements for legal assignments of choses in action (discussed above). Decision: Griffith CJ referred to Milroy v Lord (1862) 4 De GF & J 264 in that the settlor had to do ‘everything that was necessary to be done’—those things that only the settlor could do. In his opinion the assignment was effective in equity, since notice, which was required by statute, could be given by someone else. Isaacs J held that the assignment was ineffective in equity unless it was for valuable consideration. All requirements must be met if it is to be effective in equity. Higgins J held that the assignment was ineffective since notice as required by law was something that only the assignor could do.

It was more than eighty years before the High Court of Australia endorsed the approach of Griffith CJ in Anning v Anning (1907) 4 CLR 1049.

A case to remember Corin v Patton (1990) 169 CLR 540 Facts: Mr and Mrs Patton held Torrens title land as joint tenants. Mrs Patton was seriously ill and did not want her property passing to Mr Patton (right of survivorship). She preferred her property to be given to the children. In an effort to break the joint tenancy, she assigned her interest. Three documents were executed: • A memorandum of transfer was completed in favour of her brother, Mr Corin, subject to a mortgage with the State Bank of New South Wales, which held the certificate of title. • A •

trust deed indicated that he held the property in favour of Mrs Patton.

The will of Mrs Patton gave her estate in equal shares to the children.

When Mrs Patton died, the transfer had not been registered nor had any other steps been completed. Issue: Whether anything had been achieved at law or in equity. Decision: Nothing was achieved at law or in equity because transfer had not been registered, nor had there been any effort to produce the certificate of title for registration. The most liberal view in Anning v Anning (1907) 4 CLR 1049 was that of Griffith CJ, which would have required the production of the title documents—something that only Mrs Patton could do.

The second leg of Milroy v Lord (1862) 4 De GF & J 264 was discussed by the High Court of Australia in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 (discussed above). In that matter the court affirmed that the second leg of Milroy v Lord (1862) 4 De GF & J 264 is less controversial in that if the parties intended a particular dealing to be used and it is ineffective, the court will not attempt to give effect to it by using another dealing.

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An agreement to assign An agreement to assign is the transfer of an interest in property that is contingent on something else occurring. A voluntary agreement to assign achieves nothing at common law or in equity. An agreement to assign for value achieves an equitable assignment of the equitable interest in equity (see Chapter 2: The Concept of Property in Equity). The decision in Oughtred v Inland Revenue Commissioner [1960] Ch 383 is unclear with respect to the need for writing where, in the presence of valuable consideration, a constructive trust arises if an agreement to assign company shares (chose in action) is specifically enforceable (see section ‘Intangible personal property (choses in action)’ above).

Declaration of trust A clear and definite statement is required to declare a trust. The exception is where there is a statutory requirement for writing, such as, for example, real property (see above). When making a declaration of trust, note the requirement to satisfy the ‘three certainties’ (intention, subject and object) as discussed in Chapter 6: The Nature of Trusts. In Paul v Constance [1977] 1 All ER 19, Mr Constance had separated from his first wife in 1965. A couple of years later he met Ms Paul and before long he moved in to live with her as husband and wife. In 1969 he was injured at work and received £950 as compensation. When he approached the bank about placing the funds in an account the bank manager asked if he was married. Mr Constance said no, so the funds were placed in the account under his name only. Later joint deposits were made including winnings from bingo. On his death, Mrs Paul sought to recover the funds. The trial judge, Rawlings J, held that half the funds should be paid to Mrs Paul. The matter was subsequently dismissed on appeal. Lord Justice Scarman agreed with Rawlings J on the need to satisfy the ‘three certainties’ when seeking to declare an inter vivos trust. Note that when a person drafts their will, they are making a trust that will come into operation at the time of their death. The formalities for the creation of such a post mortem trust, or testamentary declaration of trust, are discussed in Chapter 6: The Nature of Trusts.

Direction to a trustee Note: This form of dealing only occurs in equity.

Chapter 3: Dealings with Property in Equity

The decision in Saunders v Vautier (1849) 49 ER 282 is an authority for the ability of a person who has legal capacity (sound mind and legal age) and a beneficial interest to give directions to a trustee. There are two kinds of directions: to hold property for a third party; and to transfer property to a third party.

Hold property for a third party There is no special wording or terms to make an effective direction to a trustee to hold property for a third party, except that the statutory requirements for writing must be satisfied and the intention must be clear. In Grey v Inland Revenue Commissioners [1960] AC 1, Mr Hunter transferred 18,000 company shares to trustees. Grey was one of the trustees to hold the property in favour of Hunter. Later Mr Hunter orally directed the trustees to hold the shares in favour of his grandchildren. A couple of months later, the trustees executed a deed to give effect to the direction. Upjohn LJ rejected the argument for the need for writing after considering the relevant statute. This approach was overturned by the English Court of Appeal and the Court of Appeal decision was endorsed in a subsequent appeal to the House of Lords. With reference to the relevant statute it was held that a direction to a trustee is a disposition and does require writing. As a consequence of the decision, Mr Hunter was required to pay tax according to the value of the interest that was evidenced in writing. Note reference in the statute to ‘disposition’—this was the basis of the decision. Note: In this type of direction to a trustee, the beneficiary changes but the trust is still in existence.

Transfer property to a third party Where a beneficiary directs a trustee to transfer property to a third party, the trust is brought to an end. In Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, Mr Vandervell was the sole beneficiary of a trust that comprised shares. He verbally directed that the shares be transferred to the Royal College of Surgeons so that both the legal and equitable interests would pass. The matter was brought before the House of Lords as to whether writing was required. The court held that writing was not required for this type of direction.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 75–98. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 56–94.

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M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 67–119. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 225–324. J Heydon, M Leeming Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2011, pp. 131–266. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 133–46. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 51–142.

Chapter 3: Dealings with Property in Equity

Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains an assignment? (a) An assignment is a transfer. (b) An assignment is an immediate transfer. (c) An assignment is an immediate transfer of a pre-existing right, title or interest. (d) An assignment is the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee. 2 Complete the sentence: Writing is required when (a) an interest in real property is involved in a dealing. (b) an interest is being assigned. (c) an equitable interest is being assigned. (d) a beneficiary is directing a trustee. 3 Interests that cannot be dealt with include which of the following? (a) A bare right to sue. (b) Future property when it is a mere expectancy. (c) When the three certainties are not satisfied. (d) Legal interests when they are not in writing. 4 Complete the sentence: When making a declaration of trust (a) intention is paramount. (b) the three certainties must be satisfied. (c) writing is essential. (d) general, special and hybrid powers are involved. (e) all of the above apply. 5 What does the law require to be satisfied when a chose in action is purportedly being assigned? (a) It must be reduced to writing. (b) It must be reduced to writing and notice must be given to all responsible parties. (c) It must be absolute, reduced to writing, and notice must be given to the debtor. (d) A manifest intention for the property to pass must be shown. 6 In Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385, a distributor was granted a licence to manufacture castors in return for a monthly payment of five per cent of the sale price. He then purported voluntarily to assign ‘all [his] rights title and interest in and to an amount equal to ninety per centum of the royalties which may accrue during a period of three years from the date of this assignment’. Which of the following statements is the most accurate? (a) The decision is significant because it involved the imposition of taxation on the purported assignment. (b) The decision is significant because it involved the High Court of Australia. (c) The decision is significant because the High Court of Australia held in favour of the Australian Taxation Office since the purported assignment involved future property. The purported assignment was ineffective in the absence of consideration. (d) The decision is significant because the High Court of Australia held in favour of the taxpayer since the purported assignment involved future property. The purported assignment was ineffective in the absence of consideration.

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7 In Anning v Anning (1907) 4 CLR 1049, a settlor who was close to death purportedly assigned via a deed his personal estate to his wife and children. The property included both real and personal property. Each item except for an interest in partnership (only equitable) could have been dealt with at law. The question before the court was whether a purported assignment that failed at law would be effectively assigned in equity. How did the High Court of Australia decide the matter? (a) Griffith CJ referred to Milroy v Lord (1862) 4 De GF & J 264 in that the settlor had to do ‘everything that was necessary to be done’—those things that only the settlor could do. In his opinion the assignment was effective in equity, since notice, which was required by statute, could be given by someone else. Isaacs J held that the assignment was ineffective in equity unless it was for valuable consideration. All requirements must be met if it is to be effective in equity. Higgins J held that the assignment was ineffective since notice as required by law was something that only the assignor could do. (b) Griffith CJ referred to Milroy v Lord (1862) 4 De GF & J 264 in that the settlor had to do ‘everything that was necessary to be done’—those things that only the settlor could do. In his opinion the assignment was effective in equity, since notice, which was required by statute, could be given by someone else. Isaacs J held that the assignment was effective in equity unless it was for valuable consideration. All requirements must be met if it is to be effective in equity. Higgins J held that the assignment was effective since notice as required by law was something that only the assignor could do. (c) Griffith CJ referred to Milroy v Lord (1862) 4 De GF & J 264 in that the settlor had to do ‘everything that was necessary to be done’—those things that only the settlor could do. In his opinion the assignment was effective in equity, since notice, which was required by statute, could be given by someone else. Isaacs J held that the assignment was ineffective in equity unless it was for valuable consideration. All requirements must be met if it is to be effective in equity. Higgins J held that the assignment was effective since notice as required by law was something that only the assignor could do. (d) Griffith CJ referred to Milroy v Lord (1862) 4 De GF & J 264 in that the settlor had to do ‘everything that was necessary to be done’—those things that only the settlor could do. In his opinion the assignment was effective in equity, since notice, which was required by statute, could be given by someone else. Isaacs J and Higgins J agreed. 8 In Milroy v Lord (1862) 4 De GF & J 264, Thomas Medley voluntarily assigned 50,000 shares to Lord, to be held on trust for Milroy, but the register was never updated. Medley lived for a further three years. The question for the court was whether anything had been effectively achieved in law or equity for the shares to have formed part of the estate. Which of the following statements is correct? (a) Turner LJ held that the shares did form part of the estate. For a voluntary settlement to be valid: (i) ‘the settlor must have done everything which was necessary to be done to transfer the property’ and (ii) ‘if settlement is intended to be effected by a particular mode, the court will not give effect to it by applying another form’.

Chapter 3: Dealings with Property in Equity

(b) Turner LJ held that the shares did not form part of the estate. For a voluntary settlement to be valid: (i) ‘the settlor must have done everything which was necessary to be done to transfer the property’ and (ii) ‘if settlement is intended to be effected by a particular mode, the court will not give effect to it by applying another form’. (c) Turner LJ held that the shares did not form part of the estate. For a voluntary settlement to be valid: (i) ‘the settlor must have done everything which was necessary to be done to transfer the property’ and (ii) ‘if settlement is intended to be effected by a particular mode, the court will give effect to it by applying another form’. (d) Turner LJ held that the shares did form part of the estate but did not give any reasons. 9 In Corin v Patton (1990) 169 CLR 540, Mr and Mrs Patton held Torrens title land as joint tenants. Mrs Patton was seriously ill and did not want her property passing to Mr Patton (right of survivorship). She preferred her property to be given to the children. In an effort to break the joint tenancy, she assigned her interest. Three documents were executed: • A memorandum of transfer was completed in favour of her brother, Mr Corin, subject to a mortgage with the State Bank of New South Wales, which held the certificate of title. • A trust deed indicated that he held the property in favour of Mrs Patton. • The will of Mrs Patton gave her estate in equal shares to the children. When Mrs Patton died, the transfer had not been registered nor had any other steps been completed. Which of the following statements is correct? (a) The case is significant because nothing had been achieved at law or in equity. The most liberal view in Anning v Anning (1907) 4 CLR 1049 was that of Griffith CJ, which would have required the production of the title documents— something that only Mrs Patton could do. (b) The case is significant because it involves the severing of a joint tenancy and that nothing was achieved at law or in equity. (c) The case is significant because nothing had been achieved at law or in equity. The most liberal view in Anning v Anning (1907) 4 CLR 1049 was that of Higgins J, which would have required the production of the title documents—something that only Mrs Patton could do. (d) The case is significant because nothing had been achieved at law or in equity. The most liberal view in Anning v Anning (1907) 4 CLR 1049 was that of Isaacs J, which would have required the production of the title documents—something that only Mrs Patton could do. 10 In Norman v Federal Commissioner of Taxation (1963) 109 CLR 9, a purported assignee was entitled to receive dividends on certain company shares and interest on a loan. The terms of the loan agreement permitted the debtor to pay out the balance at any time without notice. The Taxation Commissioner considered the purported voluntary assignment to be ineffective to avoid the payment of tax. The question before the court was whether the property could be classified as either future or presently existing property. Which of the following statements is accurate?

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(a) There was a unanimous decision with respect to the dividends being regarded as future property—a mere expectancy. The directors of the company could not be compelled to pay a dividend. The majority of the court, comprising Dixon CJ, Menzies and Owen JJ, considered the interest on the loan to be future property because it could be repaid at any time without notice. The minority, comprising Windeyer and McTiernan JJ, held that the interest was a present right to receive interest that was payable in the future. (b) There was a unanimous decision with respect to the dividends being regarded as future property—a mere expectancy. The directors of the company could not be compelled to pay a dividend. The majority of the court, comprising Dixon CJ, and Menzies, considered the interest on the loan to be future property because it could be repaid at any time without notice. The minority, comprising Windeyer and McTiernan JJ, held that the interest was a present right to receive interest that was payable in the future. (c) There was a unanimous decision with respect to the dividends being regarded as presently existing property. The directors of the company could not be compelled to pay a dividend. The majority of the court, comprising Dixon CJ, Menzies and Owen JJ, considered the interest on the loan to be future property because it could be repaid at any time without notice. The minority, comprising Windeyer and McTiernan JJ, held that the interest was a present right to receive interest that was payable in the future. (d) There was a unanimous decision with respect to the dividends being regarded as future property—a mere expectancy. Essay/discussion question 1 In Corin v Patton (1990) 169 CLR 540 at 582 Deane J said: The test [for a voluntary assignment of Torrens title land] is a twofold one. It is whether the donor has done all that is necessary to place the vesting of legal title within the control of the donee and beyond the recall and intervention of the donor. Once that stage is reached and the gift is complete and effective in Equity, the equitable interest in the land vests in the donee and, that being so, the donor is bound in conscience to hold the property as trustee for the donee pending the vesting of the legal title.



Critically discuss this statement. Do you agree with Deane J, who together with Mason CJ and McHugh J formed the majority in Corin v Patton (1990) 169 CLR 540?

Problem questions 1 Bill is the absolute owner of a house in Gisborne. Last night while he was talking to his brother he said, ‘I want you to have my house in Gisborne’. Answer both parts. (a) What, if anything, has been achieved in this discussion between Bill and his brother regarding the property in Gisborne? (b) Would it make any difference if Bill had visited his solicitor and signed a memorandum of transfer?

Chapter 3: Dealings with Property in Equity

2 Susan has just been diagnosed with a terminal illness. She is very keen to put her affairs in order. After thinking of all her relatives and friends, the next day she telephones her solicitor and tells her she wants the following to occur: • Please transfer my 10,000 XYZ shares to my cousin Rita. • I want my sister Mary to have my house at Brighton. The solicitor carefully notes down Susan’s instructions and informs Susan that she will need to come into the office the next day and sign some papers. Susan says, ‘I will be there tomorrow at 9 am’. The next day Susan is running late and unfortunately is killed crossing the road in front of her solicitor’s office. Andrew is a beneficiary under Susan’s will. He seeks your advice on whether any of the purported dealings have been effective. He would like to know if the company shares and the house are still part of Susan’s estate. 3 Andrew owes $5000 to Ben. When talking to Mary on the telephone, Ben decides to give the money Andrew owes him to Mary. Has anything been achieved in law or equity? Would it make any difference if Mary provided valuable consideration or if the purported dealing was reduced to writing? For answers to these questions, please refer to: .

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Undue Influence, Unconscionable Conduct and Estoppel Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish undue influence, unconscionable conduct and estoppel • understand how preventing unconscionable activities is a theme in equity • explain how equity will assist commercial parties • appreciate the role of legislation.

Cases to remember Undue influence Garcia v National Australia Bank Ltd [1998] 194 CLR 395 Johnson v Buttress (1936) 56 CLR 113 Bester v Perpetual Trustee Co. Ltd [1970] 3 NSWLR 30 Unconscionable conduct Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Bridgewater v Leahy (1998) 194 CLR 457 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153 Estoppel Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582

Statutes to remember Competition and Consumer Act 2010 (Cth) Schedule 2 Australian Consumer Law (ACL) ss 20, 21 and 22 formerly Trade Practices Act 1974 (Cth) ss 51AA, 51AB and 51AC Fair Trading Act 1992 (ACT) Fair Trading Act 1987 (NSW) Consumer Affairs and Fair Trading Act 1990 (NT) Fair Trading Act 1989 (Qld) Fair Trading Act 1987 (SA) Fair Trading Act 1990 (Tas) Fair Trading Act 1999 (Vic) Fair Trading Act 1987 (WA)

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

Overview Figure 4.1 provides an overview of undue influence, unconscionable conduct and estoppel. While preventing unconscionable activity is a recurring theme throughout equity, it is important to be able to distinguish between undue influence, unconscionable conduct and estoppel because they have had separate development. The material in this chapter follows the structure indicated in this figure.

Undue influence Protecting the vulnerable is the main focus of undue influence. Attention is placed on the nature and quality of consent. Equity will set aside a transaction where it is established, or a presumption arises, that a party has not entered into an agreement with an independent mind. In most undue influence matters it is the nature of the antecedent relationship that is critical. There are two types of undue influence: categories of relationships where undue influence is presumed; and relationships that may support undue influence.

Relationships with a presumption of undue influence Equity presumes that in some relationships any transactions that have occurred are a product of undue influence. The onus of disproving undue influence is on the party benefiting from the transaction. Fiduciary duties are a separate cause of action though they involve a relationship of confidence and trust. Established categories include: • trustee and beneficiary • legal practitioner and client • medical practitioner and patient • religious advisor and follower • parent and child. Note that the categories are not closed. Factors that may indicate undue influence include the following: the relative ages of the parties; experience in financial and commercial matters; health; and the level of education. Family relationships can give rise to undue influence, although ‘husband and wife’ is not an established category.

Yerkey v Jones (1938) and the ‘wife’s special equity’ The relationship between a husband and wife contains presumptions that may set aside a transaction. The principle was identified by the High Court of Australia in

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Figure 4.1 Undue influence, unconscionable conduct and estoppel Undue influence

Relationships with a presumption of undue influence − trustee and beneficiary − legal practitioner and client − medical practitioner and patient − religious advisor and follower − parent and child Yerkey v Jones (1938) and the’wife’s special equity’ Garcia v National Australia Bank Ltd (1998) High Court of Australia Other relationships Johnson v Buttress (1956) High Court of Australia Independent advice Bester v Perpetual Trustee Co. Ltd (1970) NSW Supreme Court

Remedies (See Chapter 12: Equitable Remedies) Unconscionable conduct

Constructive trust (See Chapter 9: Constructive Trusts) Special disadvantage Commercial Bank of Australia v Amadio (1983) High Court of Australia Bridgewater v Leahy (1998) High Court of Australia ACCC v CG Berbatis Holdings Pty Ltd (2003) High Court of Australia

Legislation Competition and Consumer Act 2010 (Cth) Schedule 2 Australian Consumer Law (ACL) ss 20, 21 and 22 formerly Trade Pratices Act 1974 (Cth) ss 51AA, 51AB and 51AC Fair Trading Act 1992 (ACT) Independent advice Fair Trading Act 1987 (NSW) Consumer Affairs and Fair Trading Act 1990 (NT) Fair Trading Act 1989 (Qld) Fair Trading Act 1987 (SA) Fair Trading Act 1990 (Tas) Remedies Fair Trading Act 1999 (Vic) (See Chapter 12: Equitable Remedies) Fair Trading Act 1987 (WA) Estoppel

History

Fusion (See Chapter 1: The Nature and History of Equity)

Equitable estoppel Waltons Stores (interstate) Ltd v Maher (1988) High Court of Australia 1. legal relationship 2. inducement 3. representation 4. knowledge 5. reliance 6. detriment Commonwealth of Australia v Verwayen (1990) High Court of Australia Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) NSW Court of Appeal Constructive trusts (See Giumelli v Giumelli (1996) 196 CLR 101 in Chapter 9: Constructive Trust)

Remedies (See Chapter 12: Equitable Remedies)

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

Yerkey v Jones (1938) 63 CLR 649. Emphasis in that decision was placed on the need to protect a wife in her subordinate role concerning financial matters of her husband. The High Court of Australia was provided with an opportunity to revisit the matter almost sixty years later.

A case to remember Garcia v National Australia Bank Ltd [1998] 194 CLR 395 Facts: In 1979 Mrs Garcia and her husband executed a mortgage of their house to secure a loan of $5000. The money was used to support Citizens Gold Pty Ltd. Several years later, Mrs Garcia acted as guarantor for her husband on a number of occasions. In 1988 Mrs Garcia separated from her husband. Issue: Undue influence when a wife is a guarantor for her husband. Decision: At trial, Young J held that Mrs Garcia was not bound by the guarantees. Her husband had been in complete control of Citizens Gold Pty Ltd. The Court of Appeal overturned this decision. Mrs Garcia appealed to the High Court. Gaudron, McHugh, Gummow and Hayne JJ reflected on changing social norms. They upheld the trial judge’s decision and the principle in Yerkey v Jones (1938) 63 CLR 649—not on the basis that women were inferior but rather because of the trust and confidence that exists between a husband and wife. Callinan J agreed with the majority in affirming Yerkey v Jones. Kirby J agreed, but noted that the idea that women were vulnerable because of marriage was inappropriate and outdated. Note: The wife in Garcia was a volunteer.

The High Court generally affirmed the ‘wife’s special equity’. Financial institutions need to be aware of the matter. There are two limbs. The first is when a wife provides security for her husband’s debts and she is under actual undue influence. If the creditor had knowledge of the relationship, they are prevented from taking the security. The second limb arises where the wife provides security for her husband’s debts but does not understand the nature and purpose of the transaction. Undue influence is not involved in this situation. The creditor in the second limb carries the onus to sufficiently explain the consequences to the wife. If this has occurred, then they may enforce the security.

Other relationships Any relationship may give rise to undue influence. In these relationships the onus is on the party asserting undue influence to establish the claim.

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A case to remember Johnson v Buttress (1936) 56 CLR 113 Facts: A 67-year-old illiterate man with limited commercial experience transferred all his property to a relative of his recently deceased wife. Issue: Existence of undue influence. Decision: The High Court of Australia set aside the transaction. Dixon J noted that where the parties have a pre-existing relationship, the party in position of influence cannot retain the benefit of the transaction unless they can establish the free mind of the other party.

This approach was supported by the High Court of Australia in Louth v Diprose (1992) 175 CLR 621. In that matter a middle-aged solicitor was infatuated with a woman. In response to being informed about her possible eviction, the solicitor purchased a house in her name. The court set aside the transaction, not on the basis of infatuation but because the woman had presented a ‘false atmosphere of crisis’.

Independent advice The provision of independent advice that explores the consequences and questions the value of the transaction is a means of rebutting undue influence. More is involved than simply explaining the consequences of the transaction.

A case to remember Bester v Perpetual Trustee Co. Ltd [1970] 3 NSWLR 30 Facts: A 21-year-old girl, who was an orphan and who possessed no business experience, relied on the advice of one of her uncles. She transferred all of the capital in her inherited estate in exchange for a very modest income. Arrangements were made for her to seek the advice of an independent solicitor. After he read through the document, he asked her if she had any questions. She said no. Twenty years later she challenged the settlement. Issue: The nature of independent advice with matters involving undue influence. Decision: Street J noted that the lack of any questions being asked by the girl indicated her not understanding the settlement. Undue influence was apparent since the solicitor did not consider alternative forms of action or comment on the desirability of the arrangement. The quality of advice depends on the nature of the transaction. The more involved the dealings, the greater the level of discussion that is required.

Another relevant issue is the improvidence of the transaction. Being part of a transaction that is not on its face beneficial, may give rise to the inference of undue influence. This was noted in both Johnson v Buttress (1936) 56 CLR 113 and Bester v Perpetual Trustee Co. Ltd [1970] 3 NSWLR 30 (discussed above).

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

Unconscionable conduct The action of the stronger party is the focus of unconscionable conduct. Equity will set aside a transaction where the following is established: one party is under a special disadvantage and, the other party is aware of the matter (or ought to have been aware) and unconscionably benefits from the situation.

Special disadvantage Several factors may contribute to a special disadvantage, such as age, infirmity or the level of education, but more is needed than inequality of bargaining power.

A case to remember Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Facts: The parents of Mr Amadio were elderly migrants who spoke very little English. They executed a mortgage on their property so that their son could raise finance for his business. Their son had told them that their liability was limited to $50,000 for the next six months and that his business was very successful. The bank manager did not check if they had received independent advice when the documents were executed in front of him. In 1977 their son’s business went into liquidation. The bank sought to seize the property held under the mortgage. Issue: The ability of a bank to rely on their rights under a mortgage when they knew the other party was under a special disadvantage. Decision: The trial judge held for the bank, but on subsequent appeal to the High Court of Australia the mortgage was set aside. Mason, Wilson and Deane JJ held that the bank had actual knowledge of the couple’s language difficulties and limited knowledge of financial affairs. The bank manager was aware of the significant risks involved and was put on notice of their disadvantage.

In unconscionable conduct, the stronger party must have knowledge of the special disadvantage. It may be actual knowledge, constructive knowledge (in that they ought to have known) or imputed knowledge (bound by an agent). In Blomley v Ryan (1959) 99 CLR 362 an elderly sheep farmer was fond of a drink. Prior to entering into negotiations regarding the sale of his property to his neighbours at a substantially reduced price, he had spent the entire afternoon drinking alcohol. In seeking to enforce the contract, the neighbours sought to assert that they were not aware of his condition. The High Court of Australia set aside the transaction as the neighbours had sought to exploit his disadvantage for their own benefit. This matter can be distinguished from Kakavas v Crown Melbourne Ltd (2013) 87 ALJR 708 where the High Court of Australia considered the situation of a ‘high roller’ gambler. The appellant sought to recover $20 million dollars he had lost at the casino. It was submitted to the court that the respondent had taken advantage of

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his gambling affliction by permitting him to continue to use the facility. The court held that Crown Casino lacked the requisite degree of knowledge and as a consequence unconscionable conduct was not established.

A case to remember Bridgewater v Leahy (1998) 194 CLR 457 Facts: The four daughters of Mr York sought to set aside a transaction whereby a grazing property had been given to his nephew at a significantly reduced price. Mr York always thought that men should work on the property and women should be in the home. His nephew had worked considerable hours on the property. Issue: Emotional attachment. Decision: The High Court of Australia held that the transaction was unconscionable. Gummow, Gaudron and Kirby JJ held that the affection of Mr York for his nephew significantly affected the transaction. Emphasis was placed not just on Mr York’s age and health but also on the fact that no independent advice was involved. They noted that his nephew did not have an ulterior plan to exploit Mr York. Gleeson CJ and Callinan J were unable to identify any special disadvantage in the circumstances.

Special disadvantage is not dependent on the other party suffering from a particular weakness such as old age or level of education. It can also exist from the circumstances surrounding the transaction (see Bridgewater v Leahy (1998) 194 CLR 457 above). Note that Louth v Diprose (1992) 175 CLR 621, in which infatuation was involved, was discussed as an example of undue influence. This decision may be considered very similar to that of Bridgewater v Leahy (1998) 194 CLR 457, which was discussed in the context of unconscionable conduct. Although they have similar aspects, the courts have historically maintained a strict demarcation between undue influence and unconscionable conduct. In undue influence attention is focused on the nature and quality of consent. Unconscionable conduct is concerned with the actions of the stronger party.

Independent advice The absence of independent advice where the transaction is improvident or lacks consideration is a factor supporting the setting aside of the transaction due to unconscionable conduct (see Bridgewater v Leahy (1998) 194 CLR 457 above).

Legislation While unconscionable conduct was developed in equity, it has been incorporated into legislation. From 1 January 2011 the Trade Practices Act 1974 (Cth) was effectively

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

renamed the Competition and Consumer Act 2010 (Cth) and Schedule 2 contains the Australian Consumer Law (ACL). The relevant subsections are 20, 21 and 22. Section 20 prohibits a person from engaging in conduct that is unconscionable within the meaning of the ‘unwritten law’. It is similar to s 51AA of the former Trade Practices Act 1974 (Cth). Section 21 applies to unconscionable consumer transactions and is equivalent to s 51AB of the former Trade Practices Act 1974 (Cth). Section 22 operates so as to protect small traders from unconscionable activities with respect to large companies and as such is like s 51AC of the former Trade Practices Act 1974 (Cth). The ACL operates in all Australian jurisdictions and operates alongside several state and territory statutes including the Fair Trading Act 1992 (ACT), Fair Trading Act 1987 (NSW), Consumer Affairs and Fair Trading Act 1990 (NT), Fair Trading Act 1989 (Qld), Fair Trading Act 1987 (SA), Fair Trading Act 1990 (Tas), Fair Trading Act 1999 (Vic) and Fair Trading Act 1987 (WA).

A case to remember Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153 Facts: Mr and Mrs Roberts had a commercial lease in a shopping centre. They wanted to renegotiate the lease for another term then sell the business as a going concern and use the proceeds to care for their sick daughter. In agreeing to the extension, shopping centre management insisted that Mr and Mrs Roberts forgo their ongoing legal claims regarding the centre’s overcharging of management fees. Later they sought relief under s 51AA Trade Practices Act 1974 (Cth) for unconscionable conduct. Issue: Unconscionable conduct under s 51AA Trade Practices Act 1974 (Cth). Decision: The trial judge, French J, held that they were under a ‘special disadvantage’ because of their situation. Before the Full Federal Court the decision was overturned. On a subsequent appeal, the High Court of Australia agreed with the Full Federal Court in deciding that no unconscionable conduct occurred. The majority considered that in all commercial bargaining there are differences in bargaining power and that this was no exception.

The extent to which equity will assist commercial participants is not certain. In United Dominion Corporation v Brian Ltd (1985) 157 CLR 1 the High Court held that parties to a joint venture agreement were fiduciaries (see Chapter 5: Fiduciary Obligations and Confidential Information). See also Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582 (discussed below). The Commonwealth Constitution does not regulate intrastate trade and commerce. Protection at the state/territory level is provided in other legislation.

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Statutes to remember Competition and Consumer Act 2010 (Cth) Schedule 2 Australian Consumer Law ss 20, 21 and 22 formerly Trade Practices Act 1974 (Cth) ss 51AA, 51AB and 51AC Fair Trading Act 1992 (ACT) Fair Trading Act 1987 (NSW) Consumer Affairs and Fair Trading Act 1990 (NT) Fair Trading Act 1989 (Qld) Fair Trading Act 1987 (SA) Fair Trading Act 1990 (Tas) Fair Trading Act 1999 (Vic) Fair Trading Act 1987 (WA)

Estoppel Where an expectation has been created that certain things will occur, the doctrine of estoppel prevents a party from departing from that expectation, if it would be unconscionable in the circumstances.

History The doctrine of estoppel came about largely due to difficulties surrounding the satisfaction of consideration in the formation of contracts. There are many different types, including: • Estoppel by representation, or common law estoppel: Existing facts are agreed and then one party seeks to change or alter the circumstances by a representation and the other party consents. If a party seeks to assert the original facts, they will be estopped. The House of Lords in Jorden v Money (1854) 5 HL Cas 184 is an example regarding the payment of money where the representation did not require consideration. • Promissory estoppel: A pre-existing legal relationship is essential to promissory estoppel. In Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130 the landlord company reduced the tenant’s rent for the duration of the Second World War. When peace was declared, the landlord company sought to recover the original contractual amount and was estopped. Promissory estoppel is a defence or ‘shield’. • Proprietary estoppel: Representations are made regarding property but there is no necessity for a pre-existing legal relationship. This form of estoppel can be a cause of action or ‘sword’. In Dillwyn v Llewellyn (1862) 4 DE GF & J 517, 45 ER 1285 an ineffective conveyance of land to another was upheld because the donee

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

had relied on the inducement by the donor to build a house on the property (see ‘Equitable maxims’ in Chapter 1: The Nature and History of Equity).

Equitable estoppel The ‘fused’ or equitable doctrine of estoppel was developed by the High Court of Australia in a number of cases when promissory estoppel and proprietary estoppel were merged.

A case to remember Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Facts: Waltons Stores had been negotiating with the Mahers for a commercial lease in a shopping centre. Most of the terms had been agreed although documents had not been exchanged. The Mahers were going to demolish the existing building and erect the shopping centre. Mahers’ solicitors told Waltons that demolition would not be completed until the agreement was signed. On 7 November 1983 Waltons indicated that they had not received final instructions, but thought it was a mere formality. On 11 November 1983 documents were exchanged and demolition continued. In January 1984 Waltons told Mahers that they had decided not to sign the lease. At no earlier stage had there been any indication that the matter would not proceed. Issue: Equitable estoppel. Decision: On appeal before the High Court of Australia, Mason CJ, Wilson and Brennan JJ identified equitable estoppel. Brennan J outlined six elements: • The parties were in a pre-existing legal relationship or they were about to enter into a legal relationship. •

The defendant induced the plaintiff to make an assumption that certain things were to occur.

•

The plaintiff conducted their affairs in reliance on this expectation.

•

The defendant knew or ought to have known what the plaintiff was doing.

•

The plaintiff suffered detriment.

•

The defendant failed to minimise the detriment.

On the facts before the court Waltons was estopped from asserting their contractual rights. Words and conduct were taken into account. It was unconscionable for Waltons to remain silent while the Mahers had demolished approximately forty per cent of the building. Waltons were also aware of the urgency of the matter from Mahers’ perspective. This case is the most significant decision in Australia regarding the doctrine of estoppel. It is important to have a clear understanding of the matter.

The case is also significant because Deane J reviews the history of estoppel and reflects on the fusion of common law and equity (see Chapter 1: The Nature and History of Equity).

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A case to remember Commonwealth of Australia v Verwayen (1990) 170 CLR 394 Facts: In 1964 HMAS Melbourne, Australia’s only aircraft carrier, collided with HMAS Voyager near New South Wales. Mr Verwayen was severely injured in the disaster. In 1984 he brought legal proceedings against the Commonwealth seeking damages. The Commonwealth consistently denied that it would defend the claim by making use of the statute of limitations or asserting that he received the injuries in a combat operation. Subsequently the government changed policy and sought to raise these defences. Issue: The nature of detriment. Decision: The High Court of Australia by majority held that the Commonwealth could not raise either defence. Deane J further developed the ideas he had expressed in Waltons about the convergence of the doctrine of estoppel. Toohey and Gaudron JJ considered that the Commonwealth had waived its rights regarding those defences. Two views regarding detriment prevailed in the court: the narrow view limited damages to cover legal fees because the matter had been ongoing for a considerable period of time; the wider view encompassed the psychological harm Mr Verwayen had suffered. The latter was a very significant aspect regarding the collision of two ships.

Less than twelve months after Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (discussed above), the Supreme Court of Appeal in New South Wales had an opportunity to consider the doctrine of estoppel in the context of another shopping centre.

A case to remember Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582 Facts: Austotel was the developer of a shopping centre. In negotiations with Franklins, several letters had been exchanged about the terms of a commercial lease although they were only in the early stages of reaching an agreement. Fundamental matters such as price and tenure were yet to be determined. Construction commenced following the instructions of Franklins. Negotiations broke down and the lease was given to another party. Issue: Equitable estoppel existing between commercial parties. Decision: The Court of Appeal held that estoppel did not arise. Kirby P expressed concern that equity should refrain from providing assistance to commercial parties where they have infinite resources to assess the risks in negotiations and take appropriate steps to minimise them. Priestley JA noted that this matter could be distinguished from Waltons because the parties had not reached the same point in their negotiations.

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

Constructive trusts as a remedy for estoppel and unconscionable conduct In Chapter 9 constructive trusts are discussed as being both a remedy and an institution in preventing unconscionable conduct. In both Baumgartner v Baumgartner (1987) 164 CLR 137 and Muschinski v Dodds (1985) 160 CLR 583 the High Court of Australia considered the imposition of a constructive trust because of unconscionability. In Giumelli v Giumelli (1999) 196 CLR 101 the Supreme Court of Western Australia imposed a constructive trust on the basis of representations between parents and their son. It is possible, based on these decisions and others, that a general view about preventing unconscionable activity might be considered a theme in equity. Nevertheless, it is critical to distinguish between estoppel and unconscionable conduct as separate principles, because they have had separate development. Note: Chapter 12: Equitable Remedies discusses other forms of equitable relief.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 243–410. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 217–402. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 213–327. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 433–604. J Heydon, M Leeming Cases and Materials on Equity and Trusts, LexisNexis Butterworths 2011 pp. 371–94 and 471–508. D Ong, Ong on Equity, Federation Press, 2011, pp. 175–257 and 469–550. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 222–308. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 143–242.

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Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains undue influence? (a) Property is held by one person in favour of another person. (b) Attention is focused on the actions of the stronger party in the relationship. (c) Attention is focused on the mind of the weaker party. (d) It protects the vulnerable and is concerned with the nature and quality of consent. 2 Complete the sentence: The ‘wife’s special equity’ (a) arises in the context of relationships that have a presumption of undue influence. The onus is on the party benefiting from the transaction to establish that no undue influence was apparent. (b) is in the context of unconscionable conduct. The onus is on the party raising undue influence to establish that it existed. (c) arises in the context of estoppel. (d) is part of family law and does not involve equity. 3 Which of the following is the most accurate description of unconscionable conduct? (a) It is a slogan for most of equity and is not a separate principle. (b) It is very similar to undue influence and estoppel. (c) It involves the ‘three certainties’. (d) Unconscionable conduct must be evidenced in writing. 4 Complete the sentence: Equitable estoppel (a) was defined by Deane J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and comprises six elements. (b) is part of unconscionable conduct and is involved in undue influence. (c) is confusing because it does not mean anything. (d) was defined in Commercial Bank of Australia v Amadio (1983) 151 CLR 447. 5 Complete the sentence: The phrase ‘against the conscience’ refers to (a) the Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485. (b) a recurring theme throughout equity. (c) assistance provided by the Monarch or Chancellor. (d) morality. 6 Louth v Diprose (1992) 175 CLR 621 is a significant decision because (a) infatuation was involved. (b) infatuation was discussed as an example of undue influence. (c) the lack of education is a factor in establishing undue influence but infatuation was enough for the court to set aside the transaction in favour of the 40-year-old solicitor. (d) infatuation was not enough for equity to intervene and set aside the dealing with property. 7 The decision in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153 involved the following: (a) The trial judge, French J held that Mr and Mrs Roberts were under a ‘special disadvantage’ because of their situation. Before the Federal Court the decision was overturned. On a subsequent appeal, the High Court of Australia agreed with the Full Federal Court in deciding that no unconscionable conduct occurred. The majority considered that in all commercial bargaining there are differences in bargaining power and that this was no exception.

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel

(b) The trial judge, French J held that Mr and Mrs Roberts were under a ‘special disadvantage’ because of their situation. Before the Federal Court the decision was overturned. On a subsequent appeal, the High Court of Australia disagreed with the Full Federal Court in deciding that unconscionable conduct occurred. The majority considered that in all commercial bargaining there are differences in bargaining power and that this was an exception. (c) The trial judge, French J held that Mr and Mrs Roberts were under a ‘special disadvantage’ because of their situation. Before the Federal Court the decision was upheld. On a subsequent appeal, the High Court of Australia agreed with the Full Federal Court in deciding that unconscionable conduct occurred. The majority considered that in all commercial bargaining there are differences in bargaining power and that this was an exception. (d) The trial judge, French J held that Mr and Mrs Roberts were under a ‘special disadvantage’ because of their situation. Before the Federal Court the decision was upheld. On a subsequent appeal, the High Court of Australia agreed with the Full Federal Court in deciding that unconscionable conduct occurred. The majority considered that in all commercial bargaining there are differences in bargaining power and that this was an exception. 8 Equity is based upon the concept of ‘unconscionability’, that is to say, (a) the exploitation of the vulnerable and abuse of positions of confidence. (b) abuse of positions of confidence, insisting upon rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, the exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, the exploitation of the vulnerable and abuse of positions of confidence. 9 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’ 10 In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Brennan J identified the following elements with regard to the doctrine of estoppel: (a) The parties were in a pre-existing legal relationship or they were about to enter into a legal relationship. The defendant induced the plaintiff to make an assumption that certain things were to occur. The plaintiff conducted their affairs in reliance on this expectation. The defendant knew or ought to have known what the plaintiff was doing. The plaintiff suffered detriment. The defendant failed to minimise the detriment. (b) The parties were in a pre-existing legal relationship or they were about to enter into a legal relationship. The defendant induced the plaintiff to make an assumption that certain things were to occur. The plaintiff conducted their affairs

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in reliance on this expectation. The defendant knew or ought to have known what the plaintiff was doing. The plaintiff suffered detriment. (c) The defendant induced the plaintiff to make an assumption that certain things were to occur. The plaintiff conducted their affairs in reliance on this expectation. The defendant knew or ought to have known what the plaintiff was doing. The plaintiff suffered detriment. The defendant failed to minimise the detriment. (d) The defendant induced the plaintiff to make an assumption that certain things were to occur. The plaintiff conducted their affairs in reliance on this expectation. The defendant knew or ought to have known what the plaintiff was doing. The plaintiff suffered detriment. Essay/discussion questions 1 ‘Unconscionable conduct underlies undue influence and estoppel. It is not possible, nor necessary, to distinguish individual principles. When in doubt, unconscionable conduct can be used as a slogan when seeking to set aside a transaction.’ Critically discuss this statement. 2 ‘In Kakavas v Crown Melbourne Ltd (2013) 87 ALJR 708 the High Court of Australia found that Crown Casino lacked knowledge that a “high roller” patron suffered from a pathological affliction to gambling. In these circumstances Equity did not intervene.’ Do you agree with the decision of the court? Should a casino as a matter of public policy attract problem gamblers? Problem questions 1 Bruce is a 55-year-old legal practitioner. Maria, whom he has known for twelve months, contacted him three days ago. Maria told Bruce that she was in a desperate state and unless he gave her sufficient money to buy a house, she would commit suicide. Having been romantically linked with Maria, Bruce gives her $450,000 in a burst of generosity. Bruce seeks your advice. He would like to have the transaction set aside. 2 Michael has been selling secondhand cars for several years. Two years ago he met Susan. After a brief courtship, they married. Since the start of the year, Michael has been having difficulty in selling cars. Michael would like to raise $200,000 so that the showroom can be refurbished. If the showroom was painted and new carpet was laid, more customers would be interested in the cars. Michael approaches the bank and applies for a loan. The bank is prepared to provide the funds if Susan is the guarantor, since the home that they live in is in her name. Susan is initially reluctant, but after a couple of days, Michael convinces her that this is the best means of obtaining finance. Together, they complete the paperwork and collect the money. Work on the showroom starts immediately and is completed within a week. Six months later Michael is struggling to make the loan repayments. The bank advises Susan that, since she was the guarantor for the loan, they will be seeking repayment of the loan from her. Advise Susan. 3 Tom’s Sausages is a gourmet smallgoods business that was established by Thomas Pattie. The business is very successful and Thomas is keen to move into the new shopping centre that is being built across town. He had been assured by the developer that a large department store will be a foundation tenant for the centre. Lots of people

Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel







will be attracted to the department store and they will be passing his shop window. After giving the matter careful thought, Thomas signs a ten-year lease. He would only agree to such a long lease because of the department store being in the complex. Over the last few months the manager of the department store has been speaking with the developer about changing the layout of the shopping centre. Discussions have broken down, and the two parties are no longer speaking with one another. Twenty minutes before Thomas signed the ten-year lease, the developer was informed by the manager of the department store that they had decided not to occupy the shopping centre. Thomas contacts the shopping centre developer with some questions regarding the fit-out of his store. At no time does the developer indicate that the department store has cancelled their plans to be in the centre. When Tom’s Sausages opens in the shopping centre, he immediately contacts the developer to see when the department store will open. The developer replies that the department store will not be part of the centre and that the space will be converted into a series of small shops. Thomas Pattie seeks your advice about the lease.

For answers to these questions, please refer to: .

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Fiduciary Obligations and Confidential Information Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish fiduciary obligations and confidential information • understand established and emerging categories of fiduciary obligations • explain the scope of confidential information • appreciate appropriate remedies.

Cases to remember Fiduciary obligations Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223 Chan v Zacharia (1984) 154 CLR 178 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 United Dominion Corporation v Brian Ltd (1985) 157 CLR 1 LAC Minerals v International Corona Resources Ltd (1969) 61 DLR (4th) 14 Breen v Williams (1996) 138 ALR 259 Pilmer v Duke Group Ltd (in liq.) (2001) 207 CLR 165 Boardman v Phipps [1967] 2 AC 46 Confidential information Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 Coco v AN Clark (Engineers) [1969] RPC 41 Smith Kline and French Laboratories (Australia) Ltd v Secretary Dept. of Community Services and Health (1991) 99 ALR 679 Duchess of Argyll v Duke of Argyll [1967] 1 Ch 302 Victoria Park Racing and Recreation Grounds Co. Ltd v Taylor (1937) 58 CLR 479

Statutes to remember Fiduciary Obligations Corporations Act 2001 (Cth) ss 180–4 Partnership Act 1963 (ACT) Partnership Act 1892 (NSW) Partnership Act 2007 (NT)

Chapter 5: Fiduciary Obligations and Confidential Information

Partnership Act 1891 (Qld) Partnership Act 1891 (SA) Partnership Act 1891 (Tas) Partnership Act 1958 (Vic) Partnership Act 1895 (WA) Privacy Privacy Act 1988 (Cth) Information Privacy Act 2014 (ACT) Privacy and Personal Information Protection Act 1998 (NSW) Health Records and Information Act 2002 (NSW) Information Privacy Act 2014 (ACT) Information Act 2009 (Qld) Information and Protection Act 2004 (Tas) Privacy and Data Protection Act 2014 (Vic) Health Records Act 2001 (Vic) Human Rights Act 2004 (ACT) Charter of Human Rights and Responsibilities Act 2006 (Vic)

Overview Fiduciary obligations and confidential information are special relationships. They are separate and discrete doctrines. Figure 5.1 provides an overview. The material in this chapter has been organised on this basis.

Fiduciary obligations The term ‘fiduciary’ is derived from the Latin word fiducia, meaning ‘confidence’. If you are found to be in breach of your fiduciary obligations, it is a very serious matter. It means that you cannot be trusted. The general principles of unconscionable conduct encompass circumstances where fiduciary obligations do not exist. See Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel for further information.

Nature and purpose Fiduciary obligations arise from the ‘position of the parties’.

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Figure 5.1 Fiduciary obligations and confidential information Fiduciary obligations

Nature and purpose Keech v Sandford (1726) Chancery Division

Established categories – Trustees (See Chapter 10: Trustees and Beneficiaries) – Legal Practitioners Boardman v Phipps (1967) House of Lords – Partners in a partnership Chan v Zacharia (1984) High Court of Australia – Agent and principals Hospital Products Ltd v United States Surgical Corporations (1984) High Court of Australia – Company directors Corporations Act 2001 (Cth) ss 180–4 Regal (Hastings) Ltd v Gulliver (1967) House of Lords Emerging categories

Breach of duty Boardman v Phipps (1967) House of Lords

Defences Disclosure

Remedies (See Chapter 12: Equitable Remedies)

– Joint venturers United Dominion Corporation v Brian Ltd (1985) High Court of Australia LAC Minerals v International Corona Resources Ltd (1969) Supreme Court of Canada – Medical practitioners and patients Breen v Williams (1996) High Court of Australia – Professional advisors Pilmer v Duke Group Ltd (in liq.) (2001) High Court of Australia – Indigenous Australians and government Third parties: Barnes v Addy (1874) LR House of Lords (See Chapter 9: Constructive Trusts) Unconscionable conduct (See Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel) Confidential information

Nature and purpose

Breach of confidence i Information with a ‘quality of confidence’ Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1988) High Court of Australia ii The reasonable man standing in the shoes of the recipient of the information Coco v AN Clark (Engineers) (1969) Chancery Division iii Unauthorised use causing loss or harm Smith Kline and French Laboratories (Australia) Ltd v Secretary Dept of Community Services and Health (1991) Federal Court of Australia

Defences Public interest

Remedies (See Chapter 12: Equitable Remedies)

Unconscionable conduct (See Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel)

Privacy Privacy Act 1988 (Cth) Information Privacy Act 2014 (ACT) Privacy and Personal Information Protection Act 1998 (NSW) Health Records and Information Act 2002 (NSW) Information Act 2009 (Qld) Information and Protection Act 2004 (Tas) Privacy and Data Protection Act 2014 (Vic) Health Records Act 2001 (Vic) Human Rights Act 2004 (ACT) Charter of Human Rights and Responsiblities Act 2006 (Vic)

Chapter 5: Fiduciary Obligations and Confidential Information

A case to remember Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223 Facts: A leasehold interest was held under a trust. The leasor refused to renew the lease on behalf of the trust. Issue: The trustee sought to renew a lease in their personal capacity and not in favour of the tenant/beneficiary. Decision: Lord King LC held that the trustee holds the renewed lease under a constructive trust in favour of the beneficiary. All trustees are fiduciaries. Fiduciary obligations involve two principles: • The fiduciary must avoid any conflict of interest. •

Any property that is acquired by the fiduciary from that position is held under a constructive trust, in favour of the party to whom fiduciary obligations are owed.

There are three general points to note with respect to all of the cases: • The law of fiduciaries often has to fit within a particular context; for example, a particular contract of employment. See Harris v Digital Pulse Pty Ltd [2003] 56 NSWLR 298, discussed in Chapter 1: The Nature and History of Equity. See also Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, which is examined in Chapter 9: Constructive Trusts. •

The concept of fiduciary obligation may involve dishonesty or bad faith, but it is independent of the fiduciary’s liability. See Boardman v Phipps [1967] 2 AC 46, discussed below.

•

The scope of fiduciary obligations will vary depending on the circumstances. It may be that what has occurred does not breach fiduciary obligations.

Note: There is no scientific test that can be used to identify when fiduciary obligations arise. It is a matter of looking at the circumstances and the position of the parties. The courts have identified established categories. There are also emerging categories.

Established categories There are several established categories of fiduciary relationships. They include trustees, partners in a partnership, agents and sole distributors, and company directors.

Trustees All trustees are fiduciaries. See Keech v Sandford (1726) Sel Cas T King 61, discussed above. See also Chapter 10: Trustees and Beneficiaries for more information.

Legal practitioners A legal practitioner is a fiduciary for their client.

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The High Court of Australia in Maguire v Markaronis (1997) 188 CLR 149 held that a legal firm who had lent money to a client to enable the purchase of a property had breached their fiduciary obligations. There was a conflict of interest between the firm’s financial position and the needs of their client. They were also in a position to benefit from their client in the circumstances. See also Boardman v Phipps [1967] 2 AC 46, discussed below. The decision is also examined in Chapter 9: Constructive Trusts.

Partners in a partnership All partners in a partnership are by definition jointly and severally liable for the business. Each partner is a fiduciary for the other partners.

A case to remember Chan v Zacharia (1984) 154 CLR 178 Facts: Dr Chan and Dr Zacharia entered into a partnership agreement to operate a medical practice. They entered into a three-year lease with an option for renewal of a further two years. Prior to the conclusion of the first term, the partnership was dissolved. One of the parties then renewed the lease in their own name. Issue: The nature of fiduciary obligations in a partnership agreement. Decision: The High Court of Australia held that fiduciary obligations exist between partners in a partnership agreement. Given that the lease was originally an asset of the partnership; the new lease should be held under a constructive trust in favour of all former partners.

State and territory legislation governing partnerships embodies these principles.

Statutes to remember Corporations Act 2001 (Cth) ss 180–4 Partnership Act 1963 (ACT) Partnership Act 1892 (NSW) Partnership Act 2007 (NT) Partnership Act 1891 (Qld) Partnership Act 1891 (SA) Partnership Act 1891 (Tas) Partnership Act 1958 (Vic) Partnership Act 1895 (WA)

Partners in a partnership agreement might be deemed to be the equivalent of parties to a joint venture. See LAC Minerals v International Corona Resources Ltd (1969) 61 DLR (4th) 14 and United Dominion Corporation v Brian Ltd (1985) 157 CLR 1, discussed below.

Chapter 5: Fiduciary Obligations and Confidential Information

Agents and principals Not all agents are fiduciaries. Depending on the nature of the agency agreement, fiduciary obligations may arise. A critical feature is whether the agent is to put the interests of their principal ahead of their own. The same approach applies to the position of sole distributors.

A case to remember Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Facts: The United States Surgical Corporation manufactured surgical staples. The company entered into an agreement with Blackman, who was to become the exclusive Australian distributor for their products. While in that capacity, Blackman engineered his own surgical staples and presented them to the marketplace as being superior to those of the United States Surgical Corporation. Issue: Fiduciary obligations between agent and principal. Decision: The trial judge considered that fiduciary obligations arose in the particular circumstances and awarded an account of profits. The New South Wales Court of Appeal arrived at the same conclusion. The court emphasised that there was an implied term in the agreement between Blackman and the US Surgical Corporation in which Blackman would only act in the best interests of the corporation. In a subsequent appeal to the High Court, this approach was overturned. Gibbs CJ, with whom Wilson and Dawson JJ agreed, did not consider that the implied term amounted to imposing a fiduciary relationship because it was a commercial agreement with the intent that both parties would financially benefit. On this basis damages were available for breach of contract. Mason Jagreed with the majority but also considered that limited fiduciary obligations existed between the parties on the basis of exclusive marketing arrangements in Australia.

The aspect of a commercial relationship is further considered in the context of joint venture agreements. See United Dominion Corporation v Brian Ltd (1985) 157 CLR 1, discussed below.

Company directors The following decision is frequently regarded as being a narrow interpretation concerning fiduciary obligations and company directors, but it is still good law.

A case to remember Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Facts: The directors of Regal Hastings Ltd formed a subsidiary called Hastings Amalgamated Cinemas Ltd. Their intention was for the subsidiary to acquire the lease of two cinemas. The prospective landlord refused to grant the lease unless the company had a paid-up capital of £5000. Regal Hastings Ltd contributed part of the funds and

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the directors contributed the balance. Two weeks after the lease had been obtained, both companies were sold and the directors made a profit on the shares that had been issued to them in the subsidiary. The new management of Regal Hastings Ltd brought proceedings against the former company directors. Issue: The existence of fiduciary obligations for company directors. Decision: The House of Lords were unanimous in holding that the former directors were liable to Regal Hastings Ltd to account for the profit they made in the subsidiary. Lord Russell at 144 noted that the directors were fiduciaries and they had breached their obligations in the absence of fraud because they had acquired a profit from their position. Lord Macmillan at 153 also noted that they had made a profit because they had ‘utilised the position and knowledge … in virtue of their office as directors’. The House of Lords ordered an account of profits.

A company director has fiduciary obligations imposed by statute. Sections 180–4 of the Corporations Act 2001 (Cth) are relevant.

Emerging categories New emerging categories of fiduciary obligations are constantly being identified. The following matters largely focus on financial or business concerns, but it is important to remember it is ‘the position of the parties’ which is critical. Emerging categories of relationships include partners to a joint venture (even if no final agreement is formed), medical practitioners and their patients, professional advisors and their clients, and Indigenous Australians and the Australian Government.

Joint venturers A case to remember United Dominion Corporation v Brian Ltd (1985) 157 CLR 1 Facts: United Dominion Corporation Ltd, Security Projects Ltd and Brian Ltd entered into a joint venture agreement to develop a block of land. A substantial profit was made but United Dominion Corporation Ltd refused to distribute the proceeds to Brian Ltd because of a ‘collaterisation clause’. The collaterisation clause had been entered into between United Dominion Ltd and Security Projects Ltd prior to the joint venture agreement including Brian Ltd being concluded, the consequence being that the land had been security for all debts owed to Security Projects Ltd by United Dominion Ltd. Issue: The existence of fiduciary obligations between joint venturers. Decision: The High Court held that fiduciary obligations existed between the parties. United Dominion Corporation Ltd should have disclosed to Brian Ltd the nature of the

Chapter 5: Fiduciary Obligations and Confidential Information

collaterisation clause. Dawson J at 16 noted that a fiduciary relationship ‘may arise from circumstances leading to the final agreement as much as from the fact of the final agreement itself’. In the circumstances the joint venturers had gone beyond early negotiations and fiduciary obligations arose with respect to knowledge of the project. United Dominion Corporation Ltd and Security Projects Ltd had information which should have been disclosed to Brian Ltd.

In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, discussed above, the majority of the High Court focused on the nature of a commercial relationship as being a basis upon which to indicate fiduciary obligations did not arise. In United Dominion Corporation v Brian Ltd (1985) 157 CLR 1 the High Court was more prepared to accept fiduciary obligations arising in such circumstances.

A case to remember LAC Minerals v International Corona Resources Ltd (1969) 61 DLR (4th) 14 Facts: International Corona Resources Ltd owned a block of land. In the course of negotiations with LAC Minerals about forming a joint venture, the mineral value of the particular land was disclosed. Later LAC Minerals acquired mining rights to the land. Issue: Fiduciary obligations existing between joint venturers. Decision: The majority of the Supreme Court of Canada, comprising Sopinka, Lamer and McIntyre JJ, held that no fiduciary obligations arose in the circumstances. They found that the information was bound by an obligation of conscience; in other words, confidential information had been breached. La Forest J in dissent held that because of the position of the parties, fiduciary obligations were involved. His Honour also emphasised vulnerability as being a critical component and that the parties were under an obligation to act honestly.

This decision by the Supreme Court of Canada is another matter involving joint venture agreements. Here the court held that the provision of information was only done so as to assess the prospect of entering into the joint venture agreement. It is useful to contrast this decision with that of the Australian High Court in United Dominion Corporation v Brian Ltd (1985) 157 CLR 1, which is discussed above. Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 (24 May 2007) is another matter involving commercial interests and the existence of fiduciary obligations. It is discussed in Chapter 9: Constructive Trusts.

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Medical practitioners and patients The relationship between medical practitioner and patient is very close.

A case to remember Breen v Williams (1996) 138 ALR 259 Facts: A number of patients were seeking access to their medical records for use in proceedings being instituted in the United States concerning the manufacturer of silicone breast implants. Issue: The doctor–patient relationship. Decision: The majority of the High Court of Australia, consisting of Brennan CJ, McHugh, Dawson, Toohey and Gummow JJ, rejected the idea that a doctor owes a fiduciary duty to give a patient access to their medical records. Brennan CJ considered that fiduciary obligations are based on agency or a relationship of trust. In the circumstances neither was involved. Gummow J noted that the relationship between a medical practitioner and patient is fiduciary, but there was no breach. The court distinguished fiduciary obligations from other legal relationships, since the former is based on loyalty.

It should be noted that this decision concerned access to medical records. It did not involve direct financial advice, profit or misconduct by the medical practitioner. Particular legislation and ethical protocols would apply in such circumstances. These largely occur at the state level.

Statutes to remember Health Records and Information Act 2002 (NSW) Health Records Act 2001 (Vic)

Professional advisors In a commercial context, financial advice and other information is sought and relied on to make particular decisions. There is potential for such a relationship to embody fiduciary obligations.

A case to remember Pilmer v Duke Group Ltd (in liq.) (2001) 207 CLR 165 Facts: A financial report for use in a proposed corporate takeover was negligently prepared. Issue: The existence of fiduciary obligations when preparing financial reports or references.

Chapter 5: Fiduciary Obligations and Confidential Information

Decision: The majority of the High Court of Australia, comprising McHugh, Gummow, Hayne and Callinan JJ, held that no fiduciary obligations arose in the particular circumstances. They emphasised the role of contract and torts to provide relief. The majority also noted that the position of the parties has the potential to be fiduciary. Financial advisors, investment brokers and superannuation consultants may be bound by legislation in the near future.

There has been ongoing discussion for many years about the close relationship between financial advisors and their clients/customers. Given the growth of superannuation funds and the increasing numbers of people who are self-funded retirees, the matter has only taken on greater significance.

Indigenous Australians and government The Honourable Justice Toohey in Mabo v Queensland (No. 2) (1992) 175 CLR 1 noted at 199–205 the idea that the Crown has fiduciary obligations to Indigenous Australians. In that decision Toohey J was alone in holding that such obligations existed. He noted these obligations did not preclude the Crown from legislating to extinguish native title rights. The idea of fiduciary obligations existing between Indigenous Australians and the Crown has received very little judicial attention. Brennan CJ in Wik Peoples v Queensland (1996) 187 CLR 1 (at 83–4) commented that the Crown’s power to legislate with respect to Indigenous people does not of itself give rise to fiduciary obligations. Where such a power exists, it must only be used for their benefit. Dawson J and McHugh J agreed.

Breach of duty Note: In answering questions involving fiduciary obligations there are three essential parts. • First, establish that fiduciary obligations arise with respect to the ‘position of the parties’. It is important to consider both established and emerging categories. • Second, provide commentary as to the nature and purpose of fiduciary obligations. In this context the best reference is Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223, which is discussed above. Attention should focus upon the need to avoid conflicts of interest and the potential of profiting. • Third, characterise the scope of the obligations by carefully examining the facts in the question. It may be that what has occurred is outside the fiduciary obligations and therefore no breach has occurred. The following decision needs to be carefully analysed because it involves almost all aspects of fiduciaries.

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A case to remember Boardman v Phipps [1967] 2 AC 46 Facts: There were three executors of CW Phipps’ estate: the testator’s widow, one of his daughters and an accountant. His widow was elderly and lacked legal capacity due to dementia. A substantial number of shares in a particular company formed part of the estate. Under the terms of the will, the executors could not acquire any further shares. The solicitor who had been appointed to assist in the administration of the estate was Boardman. Together with another beneficiary, Tom Phipps, Boardman considered that the particular company was undervalued so they acquired the remaining shares in their own names. In the process of changing the management of the company, Boardman told everyone that he was acting on behalf of the estate. Issue: The respondent, who was one of the beneficiaries, brought the matter before the court on the basis that Boardman and Tom Phipps through their actions were fiduciaries and had breached their obligations. Decision: The majority of the House of Lords, comprising Hodson, Guest and Cohen LJ, held that both Boardman and Tom Phipps were fiduciaries. During negotiations with the company, Boardman as solicitor had represented himself as acting on behalf of the estate. It was in this position that he had acquired information about the true value of the company. Tom Phipps was a fiduciary because he had also presented himself as an agent of the trust. Because a potential conflict of interest could arise involving their own interests and those of the trust, breach had occurred. Although both Boardman and Tom Phipps had attempted to disclose to the executors their actions, insufficient information had been provided. The minority judgment consisted of Viscount Dilhorne and Lord Upjohn. Viscount Dilhorne LJ held that fiduciary obligations arose and that information about the company was trust property. His Honour noted that no breach had occurred because the trust could not acquire any more shares. Lord Upjohn held that Boardman and Tom Phipps were only agents of the trust and not fiduciaries. He noted that an exception would be if the information was bound by an obligation of confidence—in other words, if it was confidential information. The concept of confidential information is considered later in this chapter.

Defences No breach has occurred if the party to whom such obligations are owed has given consent or permission to the fiduciary. Note that complete disclosure is required. See Boardman v Phipps [1967] 2 AC 46 above.

Remedies The range of remedies that are available for a breach of fiduciary obligation includes: • the imposition of a constructive trust • an order for an account of profits • an injunction • an order for equitable compensation.

Chapter 5: Fiduciary Obligations and Confidential Information

In determining what is appropriate, attention should be directed to the nature of the loss or harm. Further information is provided in Chapter 12: Equitable Remedies.

Third parties: Barnes v Addy (1874) LR House of Lords Fiduciary obligations may also extend to third parties. Under the second limb of Barnes v Addy (1874) LR 9 Ch App 244, this can occur if third parties have knowledge of a dishonest and fraudulent design on behalf of the fiduciary or trustee. See Chapter 9: Constructive Trusts for a discussion of this issue. The same approach applies to confidential information.

Confidential information Confidential information concerns material that is provided in confidence or imparted for a restricted purpose. The information must be not commonly known, and therefore a secret. Information that is subject to an obligation of confidence might be thought of as being based in contracts or property. The obligation could be expressly stated or implied as a term in a contract. Frequently, commercially sensitive information and intellectual property matters are governed by an obligation of confidence. On this basis it is correct to indicate that such information is proprietary. Yet personal relationships can also be subject to obligations of confidence and, as such, would not be based on property issues. Equity has its own jurisdiction that is independent of contract and property.

Nature and purpose Seager v Copydex (No. 1) [1967] 2 All ER 415 was discussed in Chapter 1: The Nature and History of Equity, with respect to fusion fallacies. The decision is also relevant for the nature and purpose of confidential information. The English Court of Appeal, comprising Lord Denning MR, Salmon LJ and Winn LJ, held that the obligation arose not from an express or implied term of the contract, but from the general principles of equity.

Breach of confidence Megarry J in Coco v AN Clark (Engineers) [1969] RPC 41 at 47 identified three elements that need to be satisfied if a breach of confidence is to be established. First, the quality of confidence needs to be assessed. Time may have elapsed since the obligation arose or other matters may have intervened so as to significantly reduce its nature.

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A case to remember Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 Facts: The government of the United Kingdom brought proceedings in Australia to prevent Peter Wright from publishing his memoirs. Powell J acknowledged that Peter Wright, as a member of MI5, had received information in confidence when working as a spy for the government. His Honour noted that since a considerable amount of time had passed and large amounts of the information had been placed in the public domain, no action for breach of confidence could be maintained. The matter was then referred to the New South Wales Court of Appeal and later the High Court of Australia. Issue: Quality of confidence. Decision: Both the New South Wales Court of Appeal and the High Court did not deal with the quality of confidence. This decision is significant because it emphasises the need for an examination to be undertaken regarding the scope and purpose of the confidential obligation. It may be that the obligation has ceased to be effective. Alternatively, the obligation may not encompass what has occurred.

Second, an objective test must be applied. If a reasonable man ‘standing in the shoes’ of the recipient of the information considered that an obligation of confidence arose, the information would be confidential. While the idea of a reasonable man or objective test in equity may seem unusual, it has been generally accepted. It is important that all circumstances be considered.

A case to remember Coco v AN Clark (Engineers) [1969] RPC 41 Facts: Negotiations had commenced about forming a joint venture for the manufacture of a moped. The plaintiff provided information about design. The parties did not enter into business together. After a period of time had elapsed, the defendant adopted the plaintiff’s design ideas. An injunction was sought. Issue: An objective test—the reasonable person. Decision: Megarry J held that the test to be applied whether information has been communicated with an obligation of confidence is objective. In the circumstances an injunction was refused.

Third, the purported unauthorised use must result in loss or harm. Unlike the common law in torts or contract, the level of detriment that needs to be established is low.

Chapter 5: Fiduciary Obligations and Confidential Information

A case to remember Smith Kline and French Laboratories (Australia) Ltd v Secretary Dept of Community Services and Health (1991) 99 ALR 679 Facts: The applicant had provided information to the government department regarding the chemical applications of certain drugs that they were seeking to import. The department sought to use that information to assess other applications from different parties. Issue: Unauthorised use causing loss or harm from breach of confidence. Decision: The trial judge refused to grant an injunction. Gummow J noted that the purpose for a breach of confidence is to vindicate potential loss. The Full Court of the Federal Court agreed, because the applicant had not informed the respondent as to what use could be made of the information. No harm would result in such circumstances.

Note: All three elements should be carefully considered regarding a breach of confidence. If any are not satisfied, breach has not taken place and no remedies are available. Information bound by an obligation of confidence can also arise in noncommercial activities.

A case to remember Duchess of Argyll v Duke of Argyll [1967] 1 Ch 302 Facts: During divorce proceedings both the Duke and Duchess sought to publish disturbing accounts of each other’s personal and financial affairs. Issue: Nature of marital relationship and an obligation of confidence. Decision: Ungoed-Thomas J considered confidentiality as the cornerstone of a marriage relationship. The Duchess sought and was granted an injunction against her husband. The court held that given the nature of the relationship and the type of material her husband threatened to release such a remedy was justified. Relief was available not simply because they were married. Similarly, equity will intervene when confidential information has been obtained illegally or improperly to prevent unconscionable conduct. See Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 per Kirby J at 271–2 per Kirby J and per Callinan J at 316.

Defences When dealing with government information in particular, the public interest may provide a complete defence to breach of confidence proceedings. This necessarily involves balancing competing interests for and against disclosure.

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Remedies The same types of relief as those for breach of a fiduciary relationship are available for breach of confidential information—see above and Chapter 12: Equitable Remedies.

Privacy There is no clear link between confidential information and privacy. The Australian High Court in Victoria Park Racing and Recreation Grounds Co. Ltd v Taylor (1937) 58 CLR 479 noted that there was no cause of action for breach of privacy. The matter involved a radio station broadcasting the results of a horse race without purchasing a ticket to enter the racetrack. Latham CJ at 496 noted that no ‘general right of privacy exists’. Rich J (at p 504–5), who was in dissent (together with Evatt J), considered technology might ‘force the courts to recognise that protection against the complete exposure of the doings of the individual may be a right indispensable to the enjoyment of life’. In ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 the High Court had another opportunity to consider privacy. The issue before the court was whether a media organisation, which had received certain information from another party, could be prevented from distributing the material. The court declined to provide assistance. Although the facts were not established, the court considered that equity might provide assistance if the activity which had been videotaped was considered private. The court upheld the appeal by the ABC that the matter did not involve some legal or equitable wrong. Specific privacy legislation has been enacted throughout most Australian jurisdictions.

Statutes to remember Privacy Act 1988 (Cth) Information Privacy Act 2014 (ACT) Privacy and Personal Information Protection Act 1998 (NSW) Health Records and Information Act 2002 (NSW) Information Act 2009 (Qld) Information and Protection Act 2004 (Tas) Privacy and Data Protection Act 2014 (Vic) Health Records Act 2001 (Vic)

There are two exceptions with respect to dedicated privacy legislation; namely, South Australia and Western Australia.

Chapter 5: Fiduciary Obligations and Confidential Information

South Australia has no legislation with respect to privacy but it does have the Cabinet Administrative Instruction 1/89, also known as the Information Privacy Principles (IPPs) Instruction, and Premier and Cabinet Circular 12. The Privacy Committee of South Australia deals with compliance and disputes arising from the privacy principles. Western Australia also does not have specific privacy legislation, though some matters are contained in the Freedom of Information Act 1992 (WA). Aside from privacy legislation, the Australian Capital Territory and Victoria have an additional source of protection through their Charter of Rights legislation. This legislation acknowledges an individual’s right to privacy.

Statutes to remember Human Rights Act 2004 (ACT) Charter of Human Rights and Responsibilities Act 2006 (Vic)

No other Australian jurisdictions have comparable mechanisms. Although these schemes may be attractive they also give parliament the ability to override these safeguards.

Further reading Australian Law Reform Commission Serious, Invasions of Privacy in the Digital Era ALRC Final Report 123 (June 2014). C Brien, J Brien NetLaw, LexisNexis Butterworths, 2004. G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 95–242. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 99–216. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 122–212. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 139–224. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2011, pp. 267–332 and 543–74. D Ong, Ong on Equity, Federation Press 2011, pp. 46–174. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 147–260. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 143–221.

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Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains fiduciary obligations? (a) Fiduciary obligations arise from the ‘position of the parties’. (b) Fiduciary obligations are important in equity. (c) Fiduciary obligations involve many complex and confusing principles. (d) Fiduciary obligations are exaggerated. 2 Another way of explaining fiduciary obligations would be to indicate that where they arise: (a) the party who is a fiduciary must avoid any conflict of interest and must not profit from that position. (b) the party who is a fiduciary must avoid any conflict of interest and any profit acquired is held under a constructive trust in favour of the party to whom fiduciary obligations are owed. (c) they should be considered a subset of confidential information. (d) the party who is a fiduciary must not profit from that position. 3 Complete the sentence: Joint venturers are (a) automatically presumed to have fiduciary obligations. (b) fiduciaries when a final agreement has been concluded. (c) fiduciaries depending on the circumstances. (d) never fiduciaries. 4 Complete the sentence: Confidential information only occurs (a) in a commercial context. (b) in the context of intellectual property. (c) when information is subject to an obligation of confidence. (d) in limited circumstances. 5 Complete the sentence: Information subject to an obligation of confidence may be (a) expressly stated. (b) expressly stated or an implied term. (c) expressly stated, an implied term or arise because equity would acknowledge that the information has been received in confidence. (d) part of a fiduciary relationship. 6 Which is the most accurate statement with regard to protecting privacy? (a) Privacy legislation operates in all Australian jurisdictions. (b) Privacy protection is piecemeal and haphazard. (c) Specific privacy legislation has been enacted in most Australian jurisdictions. (d) Specific privacy legislation has been enacted in most Australian jurisdictions except South Australia and Western Australia. 7 Complete the sentence: A charter of rights and responsibilities (a) has been enacted in all Australian jurisdictions. (b) has been enacted in New South Wales and Victoria. (c) has been enacted in the Australian Capital Territory. (d) has been enacted in the Australian Capital Territory and Victoria.

Chapter 5: Fiduciary Obligations and Confidential Information

8 Equity provides little protection for confidential information, unless (a) the nature of the relationship is established and how the information is communicated is assessed. (b) it is encompassed in legislation. (c) a proprietary interest is established. (d) it is challenged in the courts. 9 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’ 10 Equity is based on the concept of ‘unconscionability’, that is to say, (a) the exploitation of the vulnerable and abuse of positions of confidence. (b) abuse of positions of confidence, insisting on rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, the exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, the exploitation of the vulnerable and abuse of positions of confidence. Essay/discussion questions 1 ‘Information is property.’ Is this an accurate statement regarding fiduciary obligations and confidential information? Comment on the extent to which equity will provide assistance when information has been mishandled. 2 In Roads and Traffic Authority of New South Wales v Dederer (2007) 324 CLR 330 at [57] Gummow J noted: The common law technique … looks to precedent and operates analogically as a means of accommodating certainty and flexibility in the law. Equity, by contrast, involves the application of doctrines themselves sufficiently comprehensive to meet novel cases. The question of a plaintiff ‘what is your equity?’[as posed by Gleeson CJ in ABC v Lenah Game Meats Pty Ltd] thus has no common law counterpart.



Do you agree? In what circumstances will equity intervene to provide assistance?

Problem question Bill is a director of ABC Ltd. The company is involved in the exploration for and processing of precious metals. It is currently undertaking exploratory drilling at a particular location.

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Ben is a close friend of Bill. Over lunch, Ben indicates that his own company, XYZ Ltd, has undertaken exploratory drilling in an adjacent block of land in the same area. In the course of discussion, Ben expresses great excitement at the prospect of them joining forces to exploit the resources of this parcel of land. Ben indicates that he will provide the data that his company has collated so that Bill will be in a position to consider entering the joint project. The next day the information is sent to Bill. Several months pass and Bill refuses to talk with Ben. Later, Ben discovers that ABC Ltd has acquired the mining rights to the land and that work has started on the site. Ben is furious. He has always thought Bill was a loyal friend. His own company is now on the brink of collapse. Ben regarded information as valuable property. ABC Ltd had spent considerable money and time in producing the document. Ben now regrets providing the information to Bill. Ben is adamant that over lunch he clearly indicated that the information was being provided so that Bill could assess the potential in contributing to the joint project. Ben seeks your advice. For answers to these questions, please refer to: .

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The Nature of Trusts Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish a trust from other legal relationships • understand different types of trusts including express, resulting and constructive • explain how an express trust may be created • appreciate the role of trustees and beneficiaries.

Cases to remember Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178 Hunter v Moss [1994] 3 All ER 214 Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424 Re Baden’s Deed Trusts (No. 2) [1973] Ch 9

Statutes to remember Certainty of subject Trustee Act 1925 (ACT) s 2 Trustee Act 1925 (NSW) s 5 Trustee Act (NT) s 82 Trusts Act 1973 (Qld) s 5 Trustee Act 1936 (SA) s 4 Trustee Act 1898 (Tas) s 4 Trustee Act 1958 (Vic) s 3 Trustees Act 1962 (WA) s 6 Certainty of object or charitable purpose—testamentary powers of appointment Wills Act 1968 (ACT) s 14A Succession Act 2006 (NSW) s 44 Wills Act 2000 (NT) s 43 Succession Act 1981 (Qld) s 33R Wills Act 1997 (Vic) s 48 Complete constitution: transfer to create a post mortem/testamentary trust Wills Act 1968 (ACT) s 9 Wills Probate & Administration Act 1898 (NSW) s 7 Wills Act 2000 (NT) s 8

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Succession Act 1981 (Qld) s 10 Wills Act 1936 (SA) s 8 Wills Act 1992 (Tas) s 10 Wills Act 1997 (Vic) s 7 Wills Act 1970 (WA) s 8

Overview Figure 6.1 provides an overview of the nature of trusts. The material in this chapter follows the structure indicated in this figure. Emphasis has been placed on defining and distinguishing different categories of trusts from other legal relationships. A valid express trust must satisfy the ‘three certainties’ and be completely constituted. The material regarding declaration of a trust, creating a trust by transfer and a direction to a trustee is brief (see Chapter 3: Dealings with Property in Equity for more information).

The nature of a trust The concept of a trust originated in equity. In a trust, a person (known as a trustee) holds property in favour of another person (known as a beneficiary), a group of people (known as beneficiaries) or for a charitable purpose. Note that there may be more than one person acting as a trustee and a company can also perform the functions of the office.

History The trust (known as a use) was developed during feudal times. It enabled a land owner to transfer property to a person, with the obligation that it would be for the benefit of a third person. At common law, when the trustee had acquired legal title, they were not bound by any obligation (see Chapter 1: The Nature and History of Equity). The Court of Chancery recognised legal title, but prevented the trustee from dealing with the property in a manner that was inconsistent with their obligation. In other words, the trustee was bound by their conscience. In these circumstances, equity would act against the person (known as acting in personam) if they were to breach their undertaking (see Chapter 2: The Concept of Property in Equity). Trusts are created for a variety of reasons, including superannuation schemes, reducing taxation and charitable activities.

Chapter 6: The Nature of Trusts

Figure 6.1 The nature of trusts History

The nature of a trust Classification

Express

Language Resulting (See Chapter 8: Resulting Trusts) Constructive (See Chapter 9: Constructive Trusts)

The three certainties 1. Certainty of intention Commissioner of Stamp Duties v Joliffe (1920) High Court of Australia 2. Certainty of subject Hunter v Moss (1994) Court of Appeal Trustee Act 1925 (ACT) s 2 Trustee Act (NT) s 82 Trustee Act 1925 (NSW) s 5 Trustee Act 1973 (Qld) s 5 Trustee Act 1936 (SA) s 4 Trustee Act 1898 (Tas) s 4 Trustee Act 1958 (Vic) s 3 Trustees Act 1962 (WA) s 6 3. Certainly of object or charitable purpose Inter vivos Re Baden’s Deed Trusts, McPhail v Doulton (1971) House of Lords Re Baden’s Deed Trusts (No.2) (1973) Court of Appeal

Other legal relationships Contract Bailment Unincorporated association Agency Debt Fiduciary obligation Condition/personal equitable obligation Power of appoinment

Complete constitution Declaration of a trust (Statutory requirements for writing—See Chapter 3: Dealings with Property in Equity) Creation of a trust by transfer Inter vivos (See Chapter 3: Dealings With Property in Equity) Post mortem/testamentary Wills Act 1968 (ACT) s 9 Wills Probate & Administration Act 1898 (NSW) s 7 Wills Act 2000 (NT) S 8 Succession Act 1981 (Qld) s 10 Wills Act 1936 (SA) s 8 Wills Act 1992 (Tas) s 10 Wills Act 1997 (Vic) s 7 Wills Act 1970 (WA) s 8 Direction to a trustee (See Chapter 3: Dealings with Property in Equity)

Testamentary powers of appointment Wills Act 1968 (ACT) s 14A Succession Act 2006 (NSW) s 44 Wills Act (NT) s 43 Succession Act 1981 (Qld) s 33R Wills Act 1997 (Vic) s 48 OR Charitable purpose (See Chapter 7: Charitable Trusts) Trustees and beneficiaries (See Chapter 10: Trustees and Beneficiaries)

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Classification of trusts There are three types of trusts.

Express trust In creating an express trust, the parties must have expressed an intention to create a trust. There must also be clarity regarding the property to be held under the trust and the identity of the beneficiaries must be established. These elements—comprising intention, property and beneficiaries—are called the ‘three certainties’. An express trust may be private or public. A private express trust is created when it is for the benefit of a person or a number of people. A public express trust is one created with a charitable purpose (see Chapter 7: Charitable Trusts). An express trust may be fixed or discretionary. In a fixed trust, the identification of the charitable purpose or beneficiaries is a matter of interpretation of the document creating the trust. In a discretionary trust, the trustee(s) select the beneficiaries.

Resulting trust A resulting trust is imposed through the operation of law. There are largely two types: automatic and presumed. An automatic resulting trust comes into existence when there is a gap in the beneficial interest. A rebuttable presumption of a resulting trust arises when property has been purchased in the name of another person (see Chapter 8: Resulting Trusts).

Constructive trust A constructive trust is also imposed through the operation of law. Unlike a resulting trust, it largely arises contrary to the intention of the parties. A constructive trust comes into operation where it would be fraudulent or unconscionable to deny the existence of the trust. A constructive trust may be considered a form of equitable relief and it can also be viewed as a separate principle (see Chapter 9: Constructive Trusts).

Other legal relationships Being able to distinguish a trust from other legal relationships is important because it leads to a deeper understanding of the nature of trusts.

Chapter 6: The Nature of Trusts

Contract A contract is an agreement that the law will enforce. Trusts are based on intention and not agreement. The doctrine of privity in contract law provides that only parties to a contract may enforce the contract. The majority of the High Court of Australia in Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 permitted a third party to an insurance contract to sue as if it was a party to the contract. In a trust it is usually one of the beneficiaries that may bring an action based on the trust. Note that remedies for a breach of contract are also different from those of a trust (see Chapter 12: Equitable Remedies).

Bailment Bailment was created in the common law. It is based on the law of contract. A bailor may transfer possession of personal property to a bailee. An express or implied term is that the property will be returned upon request at a later period in time. Examples include leaving a car to be serviced at a garage, having shoes repaired at a cobbler or using a locker at the gym. Bailment is limited to personal property whereas a trust may involve personal and/or real property. A trustee in a trust must have title to the property, but in bailment possession is the focus.

Unincorporated association Beneficiaries of a trust are not an unincorporated association. Beneficiaries under a trust do not owe any mutual obligations to one another. Trustees are fiduciaries to each of the beneficiaries under a trust. An unincorporated association is not a legal person. Problems may arise when purported trusts leave property to unincorporated associations, because the objects of both the trust and the unincorporated association may lack sufficient certainty or they may be considered to have a non-charitable purpose (see Leahy v Attorney General of NSW  (1959) 101 CLR 611 and Morice v the Bishop of Durham (1805) 9 Ves 399, discussed in Chapter 7: Charitable Trusts).

Agency Agency is a legal relationship between one person (the principal) and another person (the agent). The agent is given legal authority to act on behalf of the principal. If the agent acts within the scope of their authority, they bind the principal. The creation of an agency relationship is usually based on contract. An agent may also be a fiduciary (see Chapter 5: Fiduciary Obligations and Confidential Information). Property is not a prerequisite of an agency relationship. In a trust, a trustee holds title to

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property. If an agent collects money on behalf of their principal, then such funds may be held on trust in favour of the principal.

Debt A debt is a piece of intangible personal property known as a ‘chose in action’. A debt enables the creditor to demand payment at common law (see Chapter 2: The Concept of Property in Equity). Debtors are not usually trustees because they do not have an identifiable piece of property (see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 and Legal Services Board v Gillespie-Jones (2013) 249 CLR 493, discussed below and in Chapter 8: Resulting Trusts). In a trust, beneficiaries have an equitable interest in the property held by the trustee.

Fiduciary obligation A fiduciary must act in the best interests of their principal and avoid conflicts of interest. All trustees are fiduciaries, but not all fiduciaries are trustees (see Chapter 5: Fiduciary Obligations and Confidential Information). Company directors are fiduciaries, but they are not necessarily trustees since they do not hold property on behalf of another.

Condition/personal equitable obligation A gift may be provided on the condition that something else occurs. There are two types: a condition precedent and a condition subsequent. If a condition precedent is not satisfied, the disposition will not proceed. If a condition subsequent is not satisfied, then the gift still takes place but is subject to a personal equitable obligation. Expressions such as ‘with the hope’ or ‘desire’ may also indicate a personal equitable obligation, though it is a matter of construction as to what was intended.

Power of appointment A power is the ability to distribute property. There are three main types of powers: • general—where the trustee may appoint the property to anyone including themselves • special—where the trustee may appoint the property to a particular class of objects or beneficiaries • hybrid—where the trustee may appoint the property to anyone including themselves, except for a defined class of objects or beneficiaries. Powers of appointment can be further be classified as ‘trust’ or ‘mere’. A trust power that gives discretion to a trustee must be exercised, but trustees are not compelled to exercise mere powers. The latter are also known as ‘bare powers’. Distinguishing between trust and mere powers is a matter of construction by

Chapter 6: The Nature of Trusts

examining what the creator intended to occur in the circumstances. These matters are further discussed below in ‘3 Certainty of object or charitable purpose’.

The three certainties An express trust must satisfy the three certainties.

1  Certainty of intention A valid express trust will only occur where the creator had a clear intention to create a trust. It is a matter of construction. The person may have intended to create another legal relationship such as bailment, agency or a contract. The presence of the word ‘trust’ where no trust was intended does not satisfy certainty of intention.

A case to remember Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178 Facts: A husband opened a bank account, claiming it was on trust for his wife. When she died, death duties became liable. Issue: Significance of the words ‘on trust’ or ‘trust’ with respect to intention to create a trust. Decision: The majority of the High Court, comprising Knox CJ and Gavin-Duffy J, held that the use of ‘precatory’ words such as ‘on trust’ where there was no intention did not create a trust. Mr Joliffe had deposited money into the account and withdrawn it for his own purposes and for the benefit of his wife. In dissent, Isaac J noted that it was a declaration of trust.

Note the maxim ‘Equity looks to intent, rather than form’ in these circumstances in the creation of an express trust. No special words or phrases are required. The receipt of money in a commercial transaction from one party to another will not always bring about the creation of a trust. More is required to make it a fiduciary relationship (see Chapter 5: Fiduciary Obligations and Confidential Information). Words and/or conduct need to be carefully examined when seeking to ascertain certainty of intention. The activities of the creator are where attention is usually focused. It may be that the mutual intention of both the creator and the trustee are critical in the creation of a trust. In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 a company lacked sufficient funds to pay a share dividend that had already been declared. A loan agreement was entered into and the funds were placed in a special bank account. The company then went into liquidation and the share dividend was not paid.

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The House of Lords held that given the mutual intention of all the relevant parties, an express trust had been created. When the funds could no longer be used to pay the dividend, the monies were held under a resulting trust in favour of the creditor (see Chapter 8: Resulting Trusts for further information). If intention to create a trust cannot be established, then the purported trust will fail and it may be considered an absolute gift or a gift subject to a personal equitable obligation, or the property may be held under a resulting trust in favour of the creator.

2  Certainty of subject Trust property must be identifiable or ascertainable when the express trust is created. By definition, future property cannot be the subject of a trust (see Chapter 3: Dealings with Property in Equity).

A case to remember Hunter v Moss [1994] 3 All ER 214 Facts: The settlor declared himself trustee of five per cent of the 1000 shares in Moss Electrical Co. Ltd. Issue: Certainty of subject matter where identical property is involved. Decision: The English Court of Appeal held that the subject matter was sufficiently certain. All of the shares were of the same class and they came from the one company.

Statutes to remember Trustee Act 1925 (ACT) s 2 Trustee Act 1925 (NSW) s 5 Trustee Act (NT) s 82 Trusts Act 1973 (Qld) s 5 Trustee Act 1936 (SA) s 4 Trustee Act 1898 (Tas) s 4 Trustee Act 1958 (Vic) s 3 Trustees Act 1962 (WA) s 6

Note: It may be that a particular phrase or label that is used in the trust instrument can be understood in the circumstances or by reference to some objective criteria.

3  Certainty of object or charitable purpose The class of objects or beneficiaries must be sufficiently certain if the trust is to be valid. In a fixed trust this usually does not present many problems. In a discretionary trust, the ‘criterion of certainty’ is relevant, especially with powers of appointment.

Chapter 6: The Nature of Trusts

A case to remember Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424 Facts: A settlor created a trust, which gave discretion to the trustees to use the net income of the property for the benefit of the staff or former staff of a particular company, their ‘relatives’ and ‘dependants’. The executors claimed that since it was a trust power it was void for uncertainty because it was impossible to ascertain the number of beneficiaries. Issue: Certainty test for trust powers in a discretionary trust. Decision: The House of Lords unanimously considered it a trust power. The majority, comprising Viscount Dilhorne, Lord Reid and Lord Wilberforce, pronounced the ‘criterion of certainty’ test: whether it was possible to indicate that a particular person was a member of the class. Lord Wilberforce also made a distinction between linguistic/semantic uncertainty and evidentiary uncertainty. The trust may fail under the former because the language is too vague. In the latter, it may simply be an evidentiary problem. Lord Wilberforce also noted that a trust power might also fail if the trust was administratively unworkable.

A couple of years later, the matter was before the court again.

A case to remember Re Baden’s Deed Trusts (No. 2) [1973] Ch 9 Facts: See above. Issue: Linguistic or semantic uncertainty regarding the words ‘dependants’ and ‘relatives’. Decision: The English Court of Appeal held that the trust was valid and the beneficiaries were certain. Sachs LJ noted that it was essential to prove whether a person was in the class. Megaw LJ emphasised that the criterion of certainty test would be satisfied if a substantial number of objects were included in the class. Stamp LJ considered that it was a matter of construction when looking at the particular words.

Testamentary powers of appointment In Australia, a distinction is made between inter vivos trusts and testamentary trusts. Based on the non-delegation will-making power, hybrid powers of appointment (see ‘Power of appointment’, discussed in ‘Other legal relationships’ above) are not permitted in Australia. In Tatham v Huxtable (1950) 81 CLR 639 the High Court of Australia by majority held that a hybrid power of appointment in a will was invalid. Kitto J considered that general or special powers of appointment were valid. Fullagher J emphasised certainty of objects. Although the principle of non-delegation will-making powers originated in England, the distinction has not been maintained. In Re Mainstay’s Settlement [1974] Ch 17,

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Templeman J held that a hybrid power of appointment did not infringe the principle and was not void for uncertainty. The Australian courts had an opportunity to follow suit but declined to act. In Horan v James [1982] 2 NSWLR 376 the New South Wales Court of Appeal held that the approach in Tatham v Huxtable (1950) 81 CLR 639 was preferable. Although the principle in McPhail v Doulton was satisfied, the New South Wales Court of Appeal considered that it was invalid since the testator gave the trustees distribution of the beneficial estate. The following jurisdictions in Australia have enacted legislation to overcome this issue.

Statutes to remember Wills Act 1968 (ACT) s 14A Succession Act 2006 (NSW) s 44 Wills Act 2000 (NT) s 43 Succession Act 1981 (Qld) s 33R Wills Act 1997 (Vic) s 48

In the remaining jurisdictions, the class of objects who may take property under a testamentary hybrid power of appointment will have difficulty. Note: If certainty of object is not satisfied, the inter vivos or testamentary trust may still be valid if it is for a charitable purpose (see Chapter 7: Charitable Trusts).

Complete constitution A valid express trust must satisfy the three certainties and also be completely constituted. The constitution of an express trust involves the disposition of property and the creation of a beneficial interest. There are three methods in which constitution can be achieved. Below is a brief overview of the relevant principles (see Chapter 3: Dealings with Property in Equity for further information).

Declaration If a person declares themselves to be the sole trustee, regarding real property, then it must be evidenced in writing. If such a declaration involves personal property, no writing is required. In some jurisdictions, such as New South Wales, the legislation distinguishes between a ‘disposition’ and the ‘creation’ of an interest. The statutory requirements for both real and personal property are discussed in Chapter 3: Dealings with Property in Equity.

Chapter 6: The Nature of Trusts

Transfer Property may be transferred inter vivos or post mortem. Inter vivos: A trust created by an inter vivos transfer may need to be evidenced in writing if it involves real property or concerns an equitable interest in personalty (see Chapter 3: Dealings with Property in Equity). Post mortem: A post mortem or testamentary trust must satisfy the statutory requirements for the creation of a valid will. It must be in writing, signed by the testator and witnessed by two people.

Statutes to remember Wills Act 1968 (ACT) s 9 Wills Probate & Administration Act 1898 (NSW) s 7 Wills Act 2000 (NT) s 8 Succession Act 1981 (Qld) s 10 Wills Act 1936 (SA) s 8 Wills Act 1992 (Tas) s 10 Wills Act 1997 (Vic) s 7 Wills Act 1970 (WA) s 8

Failure to comply with the formal requirements does not automatically result in the will or testamentary trust being invalid; it may be saved by the legislation depending on the nature of the defect.

Direction to a trustee When a beneficiary directs the trustee to hold their interest on behalf of another person, a trust is created. This is a disposition of an existing equitable interest (see Chapter 3: Dealings with Property in Equity).

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 497–608. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 483–588. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 389–448. J Glister, ‘The Role of Trusts in the PPSA’ 34(2) University of New South Wales Law Journal (2011) 628. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2011, pp. 575–802. D Ong, Trusts Law in Australia, Federation Press, 2012, pp. 1–232. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 415–532. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2012, pp. 309–401.

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Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains a trust? (a) Property held by one person in favour of another person. (b) The best method of reducing the imposition of taxation. (c) Taxation, superannuation and charitable purposes. (d) The ‘three certainties’ must be satisfied and it must be completely constituted before it can be called a trust. 2 Complete the sentence: Trustees are fiduciaries (a) but not all fiduciaries are trustees. (b) but it will not occur very frequently. (c) and this will cause significant problems for beneficiaries. (d) but they must not confuse their roles. 3 In creating an express trust, which of the following must occur? (a) Intention to create a trust must be sufficiently certain. (b) There must be certainty of intention, subject and object. (c) The ‘three certainties’ must be satisfied, and it must be completely constituted. (d) It must be evidenced in writing. 4 Complete the sentence: Powers of appointment create problems because (a) no one really understands what they are or how they operate. (b) hybrid testamentary powers in discretionary trusts infringe the principle prohibiting the delegation of will-making power. (c) general, special and hybrid powers do not make sense. (d) the matter is clear in England but is confusing in Australia. 5 Complete the sentence: ‘Precatory’ words (a) are required to be used when creating a trust. (b) are not required when creating a trust. (c) may be implied if they are not expressly used when creating a trust. (d) are critical when you start to write a will. 6 In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, a company lacked sufficient funds to pay a share dividend that had already been declared. A loan agreement was entered into and the funds were placed in a special bank account. The company then went into liquidation and the share dividend was not paid. Which of the following statements is accurate with regard to how the matter was resolved? (a) The House of Lords held that given the mutual intention of all the relevant parties, an express trust had been created. When the funds could no longer be used to pay the dividend, the monies were held under a resulting trust in favour of the creditor. (b) The House of Lords held that given the mutual intention of all the relevant parties, an express trust had been created. When the funds could no longer be used to pay the dividend, the monies were held in favour of the bank. (c) The English Court of Appeal held that given the mutual intention of all the relevant parties, an express trust had been created. When the funds could no longer be

Chapter 6: The Nature of Trusts

used to pay the dividend, the monies were held under a resulting trust in favour of the creditor. (d) The Privy Council held that given the mutual intention of all the relevant parties, an express trust had been created. When the funds could no longer be used to pay the dividend, the monies were held under a resulting trust in favour of the creditor. 7 ‘Complete constitution’ of a trust may be achieved (a) three ways: by the declaration of a trust, the transfer of property by inter vivos or in a will and by a direction to a trustee. (b) three ways: by the declaration of a trust, the transfer of property by inter vivos and in a will. (c) two ways: by the declaration of a trust, the transfer of property by inter vivos or in a will. (d) four ways: by the declaration of a trust, the transfer of property by inter vivos, by a testamentary or post mortem expression of intention and by a direction to a trustee. 8 In Re Baden’s Deed Trusts, McPhail v Doulton [1971] AC 424, a settlor created a trust, which gave discretion to the trustees to use the net income of the property for the benefit of the staff or former staff of a particular company, their ‘relatives’ and ‘dependants’. The executors claimed that since it was a trust power it was void for uncertainty as it was impossible to ascertain the number of beneficiaries. Which of the following statements accurately indicates how the matter was decided? (a) The House of Lords unanimously considered it a trust power. The majority, comprising Viscount Dilhorne, Lord Reid and Lord Wilberforce, pronounced the ‘criterion of certainty’ test: whether it was possible to indicate that a particular person was a member of the class. Lord Wilberforce also made a distinction between linguistic/semantic uncertainty and evidentiary uncertainty. The trust may fail under the former because the language is too vague. In the latter, it may simply be an evidentiary problem. Lord Wilberforce also noted that a trust power might also fail if the trust was administratively unworkable. (b) The Privy Council unanimously considered it a trust power. The majority, comprising Viscount Dilhorne, Lord Reid and Lord Wilberforce, pronounced the ‘criterion of certainty’ test: whether it was possible to indicate that a particular person was a member of the class. Lord Wilberforce also made a distinction between linguistic/ semantic uncertainty and evidentiary uncertainty. The trust may fail under the former because the language is too vague. In the latter, it may simply be an evidentiary problem. Lord Wilberforce also noted that a trust power might also fail if the trust was administratively unworkable. (c) The House of Lords unanimously considered it a trust power. The majority, comprising Viscount Dilhorne and Lord Reid, pronounced the ‘criterion of certainty’ test: whether it was possible to indicate that a particular person was a member of the class. Lord Wilberforce also made a distinction between linguistic/semantic uncertainty and evidentiary uncertainty. The trust may fail under the former because the language is too vague. In the latter, it may simply be an evidentiary problem. Lord Wilberforce also noted that a trust power might also fail if the trust was administratively unworkable.

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(d) The English Court of Appeal unanimously considered it a trust power. The majority, comprising Viscount Dilhorne and Lord Wilberforce, pronounced the ‘criterion of certainty’ test: whether it was possible to indicate that a particular person was a member of the class. Lord Wilberforce also made a distinction between linguistic/semantic uncertainty and evidentiary uncertainty. The trust may fail under the former because the language is too vague. In the latter, it may simply be an evidentiary problem. Lord Wilberforce also noted that a trust power might also fail if the trust was administratively unworkable. A couple of years later, the matter was before the court again. 9 A post mortem or testamentary trust must satisfy the statutory requirements for the creation of a valid will. They are: (a) it must be in writing, signed by the testator and witnessed by two people. (b) it must be in writing, signed by the testator and witnessed by a person. (c) it must be in writing, signed by the testator and witnessed by three people. (d) it must be in writing, signed by the testator and witnessed by two people—one of whom must be a lawyer. 10 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’ Essay/discussion questions 1 ‘When the Australian courts have considered testamentary powers of appointment in discretionary trusts the result has been confusing. This has occurred because the Australian High Court has placed great emphasis on early English authorities. If lower courts have a role to play in developing the law the problem could be overcome. The alternative solution is via legislation.’ How have the Australian courts dealt with the matter? Compare and contrast the situation in England and Australia. Is legislation the best solution to the problem? 2 ‘Problems occur when attempting to distinguish between express, constructive and resulting trusts. It is possible for one set of circumstances to give rise to both constructive and resulting trusts, even though they are separate principles.’ Do you agree? Critically discuss this statement. Problem questions 1 Bruce makes the following dispositions: (a) I give my car to Mary, on the condition that she pays my debts to Susan. (b) The sum of $50,000 is held on trust for my sister. (c) I give my house to Glenis for life, who may, in her absolute discretion, give the property to Bill and Ben. Discuss each of these dispositions and consider whether a trust has been created.

Chapter 6: The Nature of Trusts

2 Mary, when talking on the telephone, informed her brother that she had decided to place her house on trust for him. The next day, on a scrap of paper, she wrote a note to remind herself and placed it in her diary. Mary, wanting to make sure everything was done appropriately, contacted her solicitor. The solicitor told Mary that she would need to visit the office and sign the paperwork. On Monday, while travelling to the solicitor’s office, Mary was killed in a car accident. Mary’s will makes no reference to the house and her brother seeks your advice. For answers to these questions, please refer to: .

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Charitable Trusts Covered in this chapter After successfully completing this chapter, you will be able to: • define what the law regards to be a charitable purpose • understand the four classes of charitable purposes • distinguish between a private trust and a public charitable trust • explain a cy-près scheme • understand the administration of trusts containing mixed purposes (charitable and non-charitable).

Cases to remember Formation Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 Scottish Burial Reform & Cremation Soc. Ltd v Glasgow Corporation [1968] AC 138 Royal National Agricultural and Industrial Association v Chester (1974) 48 ALJR 304 Public benefit Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 287 Dingle v Turner [1972] AC 60 National Anti-Vivisection Society v IRC [1948] AC 31 Le Cras v Perpetual Trustee Co. Ltd [1969] 1 AC 514 Downing v FCT (1971) 125 CLR 185 Re Shaw (Dec’d) [1957] 1 All ER 745 Re Hopkins Will Trusts [1965] Ch 669 Church of the New Faith v Commissioner of Payroll Tax (1983) 154 CLR 120 Leahy v Attorney General of NSW [1959] AC 459 Incorporated Council of Law Reporting v FCT (1971) 125 CLR 659 IRC v Baddeley [1955] 1 All ER 525 Cy-près schemes Re Lysaght (Dec’d) [1966] Ch 191 Mixed purposes Morice v the Bishop of Durham (1805) 9 Ves 399 Bacon v Pianta (1966) 114 CLR 634 Re Astor’s Settlement Trusts [1952] Ch 534

Chapter 7: Charitable Trusts

Statutes to remember Australian Charities and Not-for-profits Commission Act 2012 (Cth) Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (Cth) Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) Charities Act 2013 (Cth) Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth) Charitable Trusts Act 1993 (NSW) Trusts Act 1973 (Qld) Trustee Act 1936 (SA) Variation of Trusts Act 1994 (Tas) Charities Act 1978 (Vic) Trustees Act 1962 (WA)

Overview Figure 7.1 provides an overview of charitable trusts. Issues about charitable trusts involve matters of formation (certainty of intention, certainty of subject and charitable purpose), cy-près schemes (impossibility) and where the purported trust has mixed purposes (charitable and non-charitable). The material in this chapter has been organised following the structure indicated in this figure.

Formation Charitable trusts are a type of express trust. Common features include the need to satisfy certainty of intention and certainty of subject (see Chapter 6: The Nature of Trusts). The certainty of objects or beneficiaries that is required for an express trust is replaced with a charitable purpose. Valid charitable trusts have the advantage of avoiding many forms of taxation. Charitable trusts can be created inter vivos or in a will. They also do not infringe the rule against perpetuities. A charitable trust must be for a ‘charitable purpose’ and benefit the public. The preamble to the Statute of Charitable Uses 1601 provides several examples of ‘charity’. These include: • relieving the aged and poor • maintenance of the sick, and wounded soldiers • schools and universities

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Figure 7.1 Charitable trusts Australian Charities & Not-for-profits Commission Australian Charities and Not-for-profits Commission Act 2012 (Cth) Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (Cth) Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) Charities Act 2013 (Cth) Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth) Certainty of intention (See Chapter 6: The Nature of Trusts) Certainty of subject (See Chapter 6: The Nature of Trusts)

Charitable trusts Formation

Charitable purpose Statute of charitable Uses 1601 Commissioners for Special Purposes of Income Tax v Pemsel (1891) House of Lords Scottish Burial Reform & Cremation Soc. Ltd v Glasgow Corp (1968) House of Lords Royal National Agricultural Society v Chester (1974) High Court of Australia I. Relief of poverty Le Cras v perpetual Trustee Co. Ltd (1969) Privy Council Downing v FCT (1971) High Court of Australia II. Advancement of education Re Shaw (Dec’d) (1957) Chancery Division Re Hopkins Will Trusts (1965) Chancery Division III. Advancement of religion Church of the New Faith v Commissioner of Payroll Tax (1983) High Court of Australia Leahy v Attorney General of NSW (1959) Privy Council IV. Other purposes beneficial to the community Incorporated Council of Law Reporting v FCT (1971) High Court of Australia IRC v Baddeley (1955) House of Lords + Public benefit Oppenheim v Tobacco Securities Trust Co.Ltd (1951) House of Lords Dingle v Turner (1972) House of Lords National Anti-Vivisection Society v IRC (1948) House of Lords Cy-près schemes Re Lysaght (Dec’d) (1966) Chancery Division Statutes Charitable Trusts Act 1993 (NSW) ss 9–11 Trusts Act 1973 (Qld) s 105 Trustee Act 1936 (SA) s 69B Variation of Trusts Act 1994 (Tas) s 5 Charities Act 1978 (Vic) Part 1 Trustees Act 1962 (WA) s 7

Mixed purpose (charitable and non-charitable) Morice v the Bishop of Durham (1805) Chancery Re Endacott (1960) Court of Appeal Bacon v Pianta (1966) High Court of Australia Re Astor’s Settlement Trusts (1952) Chancery Division Statutes Charitable Trusts Act 1993 (NSW) s 23 Trusts Act 1973 (Qld) s 104 Trustee Act 1936 (SA) s 69 Variation of Trusts Act 1994 (Tas) s 4 Charities Act 1978 (Vic) s 7M Trustees Act 1962 (WA) s 102

Chapter 7: Charitable Trusts

repair of bridges, ports, highways and churches maintenance for houses of correction • marriages of poor maids • assisting young tradesmen. A charitable purpose is either stated expressly in the preamble to the Statute of Charitable Uses 1601 or is one that is ‘within the spirit and intendment’. • •

A case to remember Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 Facts: A trust involving real property was created. Part of the rent was directed to assist missionary work of the Moravian Church in ‘heathen’ nations. If this were a charitable purpose, taxation would be reduced. Issue: The definition of charity and understanding the preamble to the Statute of Charitable Uses 1601. Decision: After carefully examining the preamble to the Statute of Charitable Uses 1601, Lord Justice McNaughten considered ‘charity’ as comprising four classes; namely: • relief of poverty •

advancement of religion

•

advancement of education

•

other purposes beneficial to the community.

Lords Watson, Herschell and Morris agreed with Lord Justice McNaughten’s approach. In dissent, Lord Halsbury and Lord Bramwell held that ‘charity’ should only relate to the relief of poverty.

A purported trust for charitable purposes will be valid if it: • satisfies certainty of intention (see Chapter 6: The Nature of Trusts) • satisfies certainty of subject (see Chapter 6: The Nature of Trusts) • falls within at least one of Lord Justice McNaughten’s four classes • is a benefit to the public. Central Bayside Division of General Practice Ltd v Commissioner for Payroll Tax (Vic) [2006] HCA 43 is another matter regarding the imposition of tax on a purported charity. Several judges provided commentary regarding the use that can be made of Lord Justice McNaughten’s four classes. Kirby J [at 92] expressed concern for the need to use Pemsel’s case from 1895, given that the contemporary notions of what is considered charitable include matters such as human rights, the advancement of science, the protection of animals and the environment, which were not even within contemplation at that time. Gleeson CJ, Heydon and Crennan JJ considered that it is appropriate to make the reference to Pemsel’s case since it legally defined the words ‘charitable purpose’. Both approaches should be carefully considered.

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A case to remember Scottish Burial Reform & Cremation Soc. Ltd v Glasgow Corporation [1968] AC 138 Facts: A trust for the promotion of cremation services. Issue: Incorporating new activities by analogy within the preamble to Statute of Charitable Uses 1601. Decision: The House of Lords held that it was for a public benefit. Lord Justice Wilberforce noted that although cremation was not expressly contained in the statute, by analogy it was related to the maintenance of graveyards.

The decision in Scottish Burial Reform is useful with respect to technological change and how it may be considered within the context of the preamble to the Statute of Charitable Uses 1601. The fourth class of Lord Justice McNaughten, ‘other purposes beneficial to the community’, might be considered the means with which more remote and far-ranging purposes might be brought within the legal definition of charity; however, this view would be incorrect.

A case to remember Royal National Agricultural and Industrial Association v Chester (1974) 48 ALJR 304 Facts: Income from property under a trust was to be used for the breeding of homing pigeons. Issue: Limitations on extending the meaning of charitable purpose—if not in the preamble to the Statute of Charitable Uses 1601, must be ‘within the spirit and intendment’. Decision: McTiernan, Menzies and Mason JJ had great difficulty in classifying the purported charitable trust regarding homing pigeons as being valid. The only means with which they could be considered a charitable purpose would be if they were within the ‘spirit and intendment’. Although homing pigeons might be deemed to be beneficial to the community, they considered the subject of homing pigeons as being too far removed from charitable purposes.

These two decisions, Scottish Burial Reform and Royal National Agricultural, highlight the process by which new activities may be deemed to be valid charitable purposes.

Public benefit After satisfying one of the four classes, a purported trust for charitable purposes must also be for the benefit of the public. In other words, there must be some beneficiaries but they cannot be linked together by a personal relationship or a particular organisation.

Chapter 7: Charitable Trusts

A case to remember Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 287 Facts: Funds from a property trust were to be used for ‘the education of children of employees or former employees’ of a company or any of its associated companies. Issue: The total number of employees was in excess of 100,000 people. Decision: Lord Simonds held that a charitable trust must benefit a section of the public. There needs to be some people who satisfy the criteria but their relationship needs to be more than a personal one. The trust failed because it was dependent on the employees’ relationship with the company. Lord Justices Normand, Oakey and Morton concurred.

It was not so much the relatively large number of potential beneficiaries, but rather the need for them to be connected with the company.

A case to remember Dingle v Turner [1972] AC 60 Facts: Property was held under a trust to provide pensions for the poor employees of a particular company. Issue: The number of potential beneficiaries was very limited—less than fifty people. Decision: Lord Cross of Chelsea held that a distinction must be made between private express trusts, in which identifiable beneficiaries are established, and a public charitable trust.

Frequently, purported charitable trusts are created in an effort to avoid the imposition of taxation. There is a substantive difference between private and public trusts.

A case to remember National Anti-Vivisection Society v IRC [1948] AC 31 Facts: The object of the society was the total abolition of vivisection. Issue: Purported charitable trust to bring about a change in the law. Decision: Lord Simonds noted that trusts for political purposes, which involve changing the law, are not a charitable purpose. A member of the judiciary cannot determine if they are for the public benefit. This is the role of parliament. Viscount Simon and Lord Wright concurred. Lord Porter was in dissent.

The National Anti-Vivisection Society case should be considered with reference to Kirby J in Central Bayside Division of General Practice (discussed above).

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Relief of poverty The relief of poverty expressly appears in the preamble of the Statute of Charitable Uses 1601. Lord McNaughten in Pemsel considered the relief of poverty as the first class of ‘charitable purposes’.

A case to remember Le Cras v Perpetual Trustee Co. Ltd [1969] 1 AC 514 Facts: Funds were made available under a trust for St Vincent’s Private Hospital. Issue: Private hospitals or organisations and benefit to the public. Decision: Lord Wilberforce determined that the institution had been in existence for many years providing a level of care not available in the public hospitals. The private hospital’s actions are not to make a profit when treating private patients. St Vincent’s Private Hospital, like other private hospitals, does provide benefits to the community.

Note that the distinction between public and private health facilities relates to contemporary values that can change over time.

A case to remember Downing v FCT (1971) 125 CLR 185 Facts: Property was held under a trust, and funds were directed to assist the children of current or former military personnel. Issue: No requirement for the word ‘poverty’ to be expressly stated in the trust. Decision: Walsh J noted the particular terms of the trust and that poverty was not expressly mentioned. The words used in the trust instrument were ‘amelioration of the condition of dependants’ and in context referred to the relief of poverty. Menzies and Gibbs JJ agreed.

There is no need for a purported charitable trust to expressly use ‘poverty’. It is a matter of construction (see Chapter 6: The Nature of Trusts).

Advancement of education The advancement of education also appears in the preamble to the Statute of Charitable Uses 1601. Lord McNaughten in Pemsel considered the advancement of education as a second-class definition of charitable purpose.

Chapter 7: Charitable Trusts

A case to remember Re Shaw (Dec’d) [1957] 1 All ER 745 Facts: In George Bernard Shaw’s will, funds were held in a trust for the purpose of promoting a new alphabet. There were two objectives: namely, to show how much time could be saved if the new British alphabet was adopted; and to transliterate one of Shaw’s plays, Androcles and the Lion. Issue: Education involves teaching. Decision: Harman J observed that it was not a charitable purpose due to the absence of teaching.

The critical aspect from Shaw as to the meaning of education is the need for public benefit. Teaching in this concept of education was the means by which knowledge would be communicated.

A case to remember Re Hopkins Will Trusts [1965] Ch 669 Facts: Property held under a trust for the purpose of ‘finding the Bacon Shakespeare manuscripts’. Issue: Education includes research and teaching is not an essential aspect. Decision: Wilberforce J noted that research can be a charitable purpose. Teaching is not required. Finding the manuscripts was important to society with respect to history and literature.

At first instance it may seem that the decision in Shaw and that of Hopkins are inconsistent. This view would be wrong. In Hopkins the court is emphasising the requirement that if research is going to be undertaken by an individual or a private organisation then it must be shared with the public. A good example of the distinction may be found in Re Pinon [1965] Ch 85. The English Court of Appeal found that an artist leaving his studio and its contents to be kept as a museum was not a valid trust for charitable purposes. Harman LJ after receiving expert advice held that the material that was subject to the trust was worthless and had no intrinsic value. No member of the public would learn or benefit from the trust.

Advancement of religion Trusts for the advancement of religion are not mentioned in the preamble to the Statute of Charitable Uses 1601. Lord McNaughten in Pemsel called the advancement of religion another definition of ‘charity’.

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A case to remember Church of the New Faith v Commissioner of Payroll Tax (1983) 154 CLR 120 Facts: The issue was whether the Church of Scientology was a religion. Issue: Religion is defined by the High Court of Australia. Decision: Mason ACJ and Brennan J held that religion involves two elements: a belief in a ‘supernatural being, thing or principle’ and ‘canons of conduct in order to give effect to that belief’. Murphy J extended this approach by indicating the list of religions is not closed. Murphy J considered that freedom of religion was a critical part of Australian society and not a matter for the courts. Wilson and Deane JJ noted that there are additional criteria such as that the ways of behaving must have some spiritual significance, the group must be recognisable and the participants must consider themselves to be practising a particular religion. The court held that the Church of Scientology was considered to be a religion.

When applying the Church of the New Faith decision, it is important to consider all opinions to determine if the purported charitable trust is valid for the advancement of religion.

A case to remember Leahy v Attorney General of NSW [1959] AC 459 Facts: A trust in a will gave the trustees discretion to select such order of nuns or Christian Brothers to benefit. Issue: Cloistered order of nuns—spiritual, but no public connection. Decision: Where a trust has mixed (charitable and non-charitable) purposes it may be saved by legislation. The trust must have a clear charitable purpose or intent.

Construction of the trust instrument is critical to resolving the purpose of the trust. The relevant legislation regarding management of a mixed trust is discussed at the end of this chapter.

Other purposes beneficial to the community Lord McNaughten in Pemsel used the term ‘other purposes beneficial to the community’ to encompass all of the other examples of charitable purposes in the Statute of Charitable Uses 1601. Lord McNaughten labelled this the fourth class of ‘charity’. When establishing the different classes, Lord McNaughten sought to group similar activities together.

Chapter 7: Charitable Trusts

A case to remember Incorporated Council of Law Reporting v FCT (1971) 125 CLR 659 Facts: The production of law reports. Issue: Public benefit by the production of books/reports. Decision: Barwick CJ held that the production of accurate law reports was necessary for the system of law in Australia. The Council is not for profit and all monies derived from the law reports are directed to public libraries. This is a charitable purpose. McTiernan J concurred with Barwick CJ. Windeyer J agreed but regarded the matter as for the advancement of education.

Note that it is necessary to satisfy one of McNaughten’s classes to establish a valid trust for charitable purposes. It may be that more than one class needs to be considered.

A case to remember IRC v Baddeley [1955] 1 All ER 525 Facts: Real property was transferred so that a recreational and social centre might be created for Methodists in a particular area. Issue: Community centre a charitable purpose. Decision: Viscount Simonds held that this was not a charitable trust. There was insufficient connection between the centre itself and why it should be restricted to participants of a particular religious belief. Lord Somerville of Harrow agreed with Viscount Simonds. Lord Reid dissented. Lords Porter and Tucker did not consider the public benefit issue.

Many activities such as community, social or recreational centres are now saved by legislation. See Trusts Act 1973 (Qld) s 103, Trustee Act 1936 (SA) s 69C, Variation of Trusts Act 1994 (Tas) s 4(1), Charitable Trusts Act 1962 (WA) s 5.

Cy-près schemes Where the intended purpose of a charitable trust is impracticable or impossible or illegal, the trustee may apply to court for a cy-près scheme. The trust instrument may provide where the funds are to be distributed if the purported charitable purpose cannot be fulfilled.

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A case to remember Re Lysaght (Dec’d) [1966] Ch 191 Facts: A testatrix provided funds to establish a series of scholarships for British-born students who were not of the Roman Catholic or Jewish faiths to attend the Royal College of Surgeons. The College rejected the gift and sought assistance from the Court. Issue: Discriminatory/offensive terms in the trust. Decision: Buckley J noted that there was an overriding charitable intent to provide funds to the Royal College of Surgeons. The College was keen to accept the gift if it was free from religious discrimination. It was held that the restrictive part was not an essential element in the testatrix’s intention and could be severed under a cy-près scheme.

All states in Australia have enacted legislation to clarify when a charitable trust may be varied.

Statutes to remember Charitable Trusts Act 1993 (NSW) ss 9–11 Trusts Act 1973 (Qld) s 105 Trustee Act 1936 (SA) s 69B Variation of Trusts Act 1994 (Tas) s 5 Charities Act 1978 (Vic) Part I Trustees Act 1962 (WA) s 7

Effectively, the legislation permits the offending provisions to be read down or severed from the gift. A general charitable intention must be identified if the trust is to be saved. If there is a specific intention by the creator of the trust, they may have intended the trust to fail if it could not be given effect. Legislation outlines when a cy-près scheme will be established in circumstances such as where there is a surplus of funds or the charitable institution never existed. Courts are reluctant to find a general charitable intention if the institution ceased operating prior to the formation of the trust. A cy-près scheme involves variation of the creator’s intention. The courts may provide a general administrative scheme where insufficient details about the workings of the trust are provided. A general administrative scheme does not vary the creator’s intention, only gives effect to it.

Mixed purposes (charitable and non-charitable) Trusts that have both charitable and non-charitable purposes often fail. This result occurs because of the lack of certainty in establishing the trust. Remember that

Chapter 7: Charitable Trusts

a charitable trust is a type of express trust—certainty of intention and certainty of object with a charitable purpose.

A case to remember Morice v the Bishop of Durham (1805) 9 Ves 399 Facts: The testatrix gave all her personal property to the Bishop on trust to pay her debts and to use the residue for ‘such objects of benevolence and liberality as the Bishop in his own discretion shall approve’. Issue: Certainty regarding discretion given to trustees. Decision: Grant MR noted that every trust must have certainty. The trust failed due to a lack of certainty surrounding the phrase and the means the trustees were to use to achieve them.

In Morice, it was not possible to determine whether the purported trust was for charitable purposes. Attention focused upon construction. Given the lack of detail used in the particular phrase for the purpose of the trust, it was unable to be brought within the preamble to the Statute of Charitable Purposes 1601 or any of McNaughten’s classes, so it failed. Re Endacott [1960] Ch 232 is a similar matter. The testator gave the residue of his estate to the parish council ‘to provide some useful memorial of himself’. The trust was held to be invalid due to the lack of certainty. Re Endacott affirms the decision in Morice. Unincorporated organisations do not have a separate legal personality from their members. Problems sometimes occur because they may also infringe the rule against perpetuities.

A case to remember Bacon v Pianta (1966) 114 CLR 634 Facts: Estate put in a trust for the sole use and benefit of the Communist Party of Australia. Issue: Unincorporated organisation. Decision: The Communist Party of Australia was unincorporated. Dispositions to such an organisation give rise to three possibilities: as an absolute gift to be held as joint tenants, as a gift to the members to be held according to the rules of the association or as a trust for the purposes of the organisation. Membership of the Communist Party of Australia fluctuated and there was no detail in the party’s documents about ending the association or how property would be distributed. These factors led to the trust being invalid.

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Whereas the attorney-general may enforce a valid charitable trust under statute, dispositions for non-charitable purposes may be invalid because they offend the beneficiary principle (see Chapter 6: The Nature of Trusts).

A case to remember Re Astor’s Settlement Trusts [1952] Ch 534 Facts: A series of trusts were created involving company shares. Issue: Beneficiary principle. Decision: Roxburgh J held that the trusts were invalid. They were not for the benefit of individuals but for non-charitable purposes which no one could enforce and there was a general lack of certainty.

All states in Australia have enacted legislation where a purported trust which has mixed purposes can be saved. Note that each statute is slightly different with respect to the amount of power given to the court to save a charitable trust.

Statutes to remember Charitable Trusts Act 1993 (NSW) s 23 Trusts Act 1973 (Qld) s 104 Trustee Act 1936 (SA) s 69 Variation of Trusts Act 1994 (Tas) s 4 Charities Act 1978 (Vic) s 7M Trustees Act 1962 (WA) s 102

Generally the legislation provides that the inclusion of a non-charitable purpose will not invalidate the trust.

Australian charities and not-for-profits commission The Australian Charities and Not-for-profit Commission came into operation on 1 January 2014. It provides a registration system for charitable trusts and not-forprofit entities within a national framework. Upon registration tax concessions are obtained. Good government notions such as audit requirements for large entities. An advisory board comprising of between two and eight members provides assistance to the Commissioner.

Chapter 7: Charitable Trusts

Statutes to remember Australian Charities and Not-for-profits Commission Act 2012 (Cth) Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012 (Cth) Australian Charities and Not-for-profits Commission Regulation 2013 (Cth) Charities Act 2013 (Cth) Charities (Consequential Amendments and Transitional Provisions) Act 2013 (Cth)

On 31 March 2014 approximately 60,311 charities were registered. Note: The jurisdiction of the Commission is not limited to charitable trusts. It includes amongst other bodies not-for-profit entities. The legislation generally adopts the common law understanding of charity. This is reflected in ss 5–7 where certain purposes are presumed to be for the benefit of the public. Reference is made if a purpose is directed to benefit Indigenous individuals. Section 10 concerns entities that would be for a public benefit but for selected membership in certain situations. This includes closed or contemplative religious orders. A disqualifying purpose is defined in s 11 and includes activities that are contrary to law or public policy, promoting or proposing a political party or candidate. Section 12 defines charitable purpose including the advancing of health; education; social or public welfare; religion; culture, promoting reconciliation; mutual respect and tolerance; human rights; security or safety of the public; preventing or relieving the suffering of animals; the natural environment; and any other purpose that might be considered analogous. The latter includes promoting or opposing a change in the law, policy or practice in the Commonwealth, a state, a territory or another country. Section 18 provides for a cy-près scheme when required. Internal review provides for the resolution of any disputes. Access to merits review before the Commonwealth Administrative Appeals Tribunal is also provided. The Commission may issue formal warnings, give directions, obtain an interim or restraining injunction and seek a warrant to enter the premises of any registered entity. The Commission also has the power to suspend the operations of the entity and appoint acting trustees.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 915–84. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 841–900.

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G Dal Pont, Law of Charity LexisNexis Butterworths 2010. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 505–52. J Heydon and M Leeming, Jacob’s Law of Trusts in Australia, LexisNexis, 2007, pp. 138–225. D Ong, Trusts Law in Australia, Federation Press, 2012, pp. 361–437. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 533–76. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 402–44.

Chapter 7: Charitable Trusts

Assessment preparation Test your knowledge 1 Which of the following statements is the best explanation of a charitable trust? (a) A charitable trust is a technique for avoiding taxation. (b) A charitable trust is a form of an express trust where a charitable purpose replaces beneficiaries. (c) A charitable trust is about ‘doing good’. (d) A charitable trust involves morality. 2 Complete the sentence: The preamble to the Statute of Charitable Uses 1601 is a ‘shopping list’ of charitable purposes. Lord Justice McNaughten in Pemsel noted four classes of charitable trusts: (a) relief of poverty, advancement of education, advancement of science and other purposes beneficial to the community. (b) relief of poverty, advancement of education, providing for the care of animals and other purposes beneficial to the community. (c) relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community. (d) relief of poverty, advancement of education, advancement of science and other purposes beneficial to the community, especially political debate. 3 Complete the sentence: The phrase ‘against the conscience’ refers to (a) the Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485. (b) a recurring theme throughout equity. (c) assistance provided by the Monarch or Chancellor. (d) morality. 4 Complete the sentence: A cy-près scheme enables (a) a will to be altered. (b) a trustee who disagrees with the trust instrument to challenge it in the courts. (c) the court to sever or read down charitable purposes that are illegal, impracticable or impossible to be fulfilled if there is a general charitable intention. (d) the court to replace the original intention with their own interpretation. 5 Complete the sentence: Where a trust has both charitable and non-charitable purposes (a) the trust fails. (b) the trust is very complex. (c) the trust fails but may be saved by legislation. (d) the trust is illegal and a cy-près scheme may be applicable. 6 Trusts for political purposes are charitable. Which statement below is correct? (a) Under the common law, they are not if they seek to bring about a change in the law. (b) Under the common law, they are not if they seek to bring about a change in the law. Statute now overrides this prohibition. (c) Under the common law, they are not if they seek to bring about a change in the law. Commonwealth legislation now provides a means for this activity to be considered charitable. (d) Trusts for political purposes can never be charitable.

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7 Legislation concerning charitable activities has recently been enacted by the Commonwealth. Which of the following statements is the best explanation of this development? (a) The statute overrides existing equitable charitable principles. (b) The statute embraces but does not extend existing charitable principles. (c) The statute embraces and extends existing charitable principles. (d) The statute is only concerned with administrative matters and does affect substantive equitable principles. 8 In Church of the New Faith v Commissioner of Payroll Tax (1983) 154 CLR 120, the issue was the meaning of religion. Which of the following statements accurately reflects the decision of the High Court of Australia? (a) Mason ACJ and Brennan J held that religion involves two elements: a belief in a ‘supernatural being, thing or principle’ and ‘canons of conduct in order to give effect to that belief’. Murphy J extended this approach by indicating the list of religions is not closed. Murphy J considered that freedom of religion was a critical part of Australian society and not a matter for the courts. Wilson and Deane JJ noted that there are additional criteria such as that the ways of behaving must have some spiritual significance, the group must be recognisable and the participants must consider themselves to be practising a particular religion. (b) Mason ACJ and Brennan J held that religion involves two elements: a belief in a ‘supernatural being, thing or principle’ and ‘canons of conduct in order to give effect to that belief’. Murphy J extended this approach by indicating the list of religions is not closed. (c) Mason ACJ and Brennan J held that religion involves two elements: a belief in a ‘supernatural being, thing or principle’ and ‘canons of conduct in order to give effect to that belief’. Murphy J extended this approach by indicating the list of religions is not closed. Murphy J considered that freedom of religion was a critical part of Australian society and not a matter for the courts. (d) Mason ACJ and Brennan J held that religion involves two elements: a belief in a ‘supernatural being, thing or principle’ and ‘canons of conduct in order to give effect to that belief’. Murphy J extended this approach by indicating the list of religions is not closed. Murphy J considered that freedom of religion was a critical part of Australian society and not a matter for the courts. Wilson and Deane JJ noted that there are no additional criteria. 9 In Re Lysaght (Dec’d) [1966] Ch 191, a testatrix provided funds to establish a series of scholarships for British-born students who were not of Roman Catholic or Jewish faiths to attend the Royal College of Surgeons. The college rejected the gift and sought assistance from the Court. Which of the statements is correct? (a) The case is significant since the court found a general charitable intention by the testatrix. This is the essential part of a cy-près scheme. (b) The case is significant since the court found a general charitable intention by the testatrix. This is the essential part of a cy-près scheme that enabled the severing of the religious discriminatory part of the gift. (c) The case is significant since the court found the purported dealing charitable. (d) The case is not important because it is an English decision.

Chapter 7: Charitable Trusts

10 Commonwealth legislation has greatly assisted charities and not-for-profit entities. Which of the following statements is correct? (a) The legislation reflects society’s changing values as to what is charitable. (b) The legislation reflects society’s changing values as to what is charitable. It also provides for greater accountability and confidence by such entities. (c) The legislation reflects society’s changing values as to what is charitable. It expands the common law definition of charity. It also provides for greater accountability and confidence by such entities. (d) The legislation reflects society’s changing values as to what is charitable. It expands the common law definition of charity and operates throughout Australia as a national scheme. It also provides for greater accountability and confidence by such entities. Essay/discussion question 1 ‘Lord Simonds in Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 287 noted that a charitable trust must benefit a section of the community.’ Critically discuss this statement with reference to relevant cases and legislation. 2 ‘Legislation continues to intervene and disrupt the equitable development of charitable activities. This is only appropriate since parliament is supreme and is able to respond in a more timely fashion to changes in society’s values.’ Do you agree? Critically discuss this statement with reference to relevant legislation and the experience in the courts. Problem question Fred is a wealthy businessman. Just before the world financial crisis occurred he sold all of his shares on the stock market and made an enormous profit. Since he has no immediate family, he rewrites his will and makes the following provisions: (a) $100,000 to the Royal College of Plastic Surgeons to provide scholarships for students. Applicants must be of the Roman Catholic or Jewish faiths. (b) $2,000,000 to the Inner City Private Hospital to assist in treating patients. (c) $200,000 to encourage Australia to become a republic. Fred has always been very interested in education. He directs that these funds be used to publish his notes on the political change. He is confident that after people read this material they will be able to make an informed choice about Australia becoming a republic. (d) $250,000 to help his brother John who has just commenced legal practice as a barrister. (e) $20,000 to the local branch of the ‘Cosmic Beings are Visiting Earth Association’. The group believes that society must be prepared for when aliens make contact. According to the association it is important to follow a strict diet and engage in prayer sessions. The association is incorporated. (f) $50,000 to ameliorate the conditions of those workers of a particular company who have been retrenched or made redundant because of the world financial crisis. Fred seeks your advice about whether any of the above statements are charitable trusts. Refer to relevant cases and statutes. For answers to these questions, please refer to: .

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Resulting Trusts Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish resulting trusts from express and constructive trusts • understand the role of resulting trusts • explain how a resulting trust may arise • appreciate illegality and the rebuttable presumption of a resulting trust.

Cases to remember Re Gillingham Bus Disaster Fund [1958] Ch 300 Re West Sussex Constabulary’s Widows, Children & Benevolent (1930) Trust Funds [1971] Ch 1 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Calverley v Green (1984) 155 CLR 242 Nelson v Nelson (1995) 184 CLR 538

Overview Figure 8.1 provides an overview of resulting trusts. The material in this chapter has been organised following the structure indicated in this figure. Trusts can exist in many different forms. They include: • express trusts (see Chapter 6: The Nature of Trusts). • trusts for a charitable purpose (see Chapter 7: Charitable Trusts). • non-charitable purpose trusts (see Chapter 7: Charitable Trusts). • constructive trusts (see Chapter 9: Constructive Trusts). Resulting trusts are similar to constructive trusts, since they are not subject to the statutory writing requirements (see Chapter 3: Dealings with Property in Equity) and are imposed by law (see Chapter 9: Constructive Trusts). Resulting trusts may be distinguished from constructive trusts on the following basis. A resulting trust is imposed by law because of the non-disposal of the beneficial interest or the presumed intention of the creator. A constructive trust is imposed according to law because it would infringe equitable principles to deny the existence of the trust.

Chapter 8: Resulting Trusts

Figure 8.1 Resulting trusts The nature of trusts (See Chapter 6: The Nature of Trusts)

Not subject to the statutory requirements of writing (See Chapter 3: Dealings with Property in Equity) Resulting trusts Presumed intention: the purchase of property Calverley v Green (1984) High Court of Australia

Automatic: non-disposal of the beneficial interest

Failure of an express trust Re Gillingham Bus Disaster Fund (1958) Chancery Division

Surplus property Re West Sussex Constabulary’s Widows, Children & Benevolent (1930) Trust Funds (1971) Chancery Division

The Quistclose trust Barclays Bank Ltd v Quistclose Investments Ltd [1970] House of Lords

Rebutting the presumption

Contrary evidence

Advancement

IIIegality Nelson v Nelson (1995) High Court of Australia Constructive trusts (See Chapter 9: Constructive Trusts)

A resulting trust arises through the operation of law. Megarry J in Re Vandervell’s Trusts (No. 2) [1974] Ch 269 distinguished two types: 1 Automatic—where there is non-disposal of the beneficial interest. This may occur where a purported express trust fails or if there is a surplus of property after a general purpose trust has been satisfied. The particular circumstances involved in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 can be considered an example of the latter, but might also be deemed a separate principle supporting the imposition of a resulting trust. See also Legal Services Board v Gillespie-Jones [2013] HCA 35 which is discussed below. 2 Presumed intention—when property is purchased in the name of another, there is a rebuttable presumption for the property to be held in favour of those who directly contributed to the purchase. Resulting trusts are sometimes referred to as ‘implied trusts’. It is important not to confuse the matter with express trusts, where intention to create a trust is paramount and this may be implied from the surrounding circumstances (see Chapter 6: The Nature of Trusts).

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Automatic: non-disposal of the beneficial interest An automatic resulting trust occurs where there is a non-disposal of the beneficial interest. A resulting trust operates to ‘fill the gap’ so that the property or interest will ‘result back’ to the creator. Examples include the failure of a purported express trust and where there is a surplus of property in a non-charitable purpose trust.

Failure of an express trust When an express trust fails for uncertainty a resulting trust arises to hold the beneficial interest in favour of the settlor. The three certainties—certainty of intention, subject and object—must be satisfied if a purported express trust is to be valid (see Chapter 6: The Nature of Trusts for further information). A resulting trust will also occur if a purported gift fails.

A case to remember Re Gillingham Bus Disaster Fund [1958] Ch 300 Facts: A memorial fund was created after twenty-four Royal Marine cadets were killed in a motor vehicle crash. Contributions were received from the local people. A trust was established by the mayors of the affected towns ‘to defray funeral expenses, care for the disabled and such worthy causes …’. A total of £9000 was collected, with a surplus of £6000. Issue: Clarification was sought as to what was understood by the term ‘and such worthy causes’. Decision: Harman J held that the trust failed for uncertainty. His Honour considered that an inquiry should be undertaken to ascertain the identities of the donors. His Honour noted that a cy-près scheme should not be applied. Such a scheme would involve a variation of the creator’s intention and this could only take place where there was a general charitable intention.

See Chapter 7: Charitable Trusts for more information about cy-près schemes.

Surplus property Where a valid non-charitable purpose trust has been created, and a surplus of funds remains after the purpose has been fulfilled, these funds may be held under a resulting trust. Such property would be held in favour of the contributor(s) where their identities are known.

Chapter 8: Resulting Trusts

A case to remember Re West Sussex Constabulary’s Widows, Children & Benevolent (1930) Trust Funds [1971] Ch 1 Facts: Two police forces were to be merged. Money in their trust funds had been obtained from three different sources: • gifts and legacies (personal property under a will) •

street collections

•

money that was raised in sweepstakes.

Issue: The status of the funds collected when there was a surplus after the non-charitable purpose had been fulfilled. Decision: Gough J noted that the identities of the people who contributed to the first category (gifts and legacies) were known, so the property was held under a resulting trust. Contributions in the second category (street collections) were given anonymously, so the surplus would be directed to the Crown. The third category (sweepstakes), in which raffle tickets were purchased, was a simple contract. People bought a chance to win—it was out and out.

Disaster funds that have been established to aid in the recovery of earthquake or tsunami victims are a further example. If surplus funds occur then the trustees may approach the court for guidance regarding the terms of the trust (see Re Gillingham Bus Disaster Fund [1958] Ch 300, discussed above, and Chapter 10: Trustees and Beneficiaries). In Re British Red Cross Balkan Fund [1914] 2 Ch 419 a public appeal was created during the Balkan war to assist the sick and injured. Astbury J held that the surplus funds should be held under a resulting trust, rateable according to the amount provided by the subscribers.

The Quistclose trust The Quistclose trust can be viewed as another example of a resulting trust arising where there is a surplus in the context of a non-charitable purpose trust. It can also be considered a new type of resulting trust.

A case to remember Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Facts: Rolls Razor Ltd needed to raise £200,000 to pay share dividends that had already been declared. The funds were borrowed from Quistclose Investments Ltd and placed into a separate account with Barclays Bank. Before the dividends were paid, Rolls Razor Ltd went into liquidation. Issue: There was competition between Barclays Bank and Quistclose Investments Ltd. Barclays Bank sought to use the money to cover other Rolls Razor debts. Quistclose

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claimed the money under a resulting trust when the purpose of the trust could not be performed. Decision: Wilberforce LJ noted the mutual interest of Rolls Razor and Quistclose was critical in determining whether a trust existed. Emphasis was placed on the particular terms of the loan that indicated that the funds were to be used exclusively for a defined purpose. Discussion also focused on a primary trust being established on behalf of the shareholders, and when that trust could not proceed, a second trust arose in favour of Quistclose.

The House of Lords decision in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 was very controversial. The decision was considered to have ‘opened the door’ in allowing company directors to structure their affairs so as to raise funds and give priority to certain creditors irrespective of the order prescribed in bankruptcy/ liquidation proceedings. This view needs to be tempered with the circumstances with which the matter arose. Gummow J in Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681 at 692–3 noted that a significant factor in the Quistclose matter was the way in which the money was held in a special account to achieve a particular purpose. It was not held in a general bank account and mixed with other funds. (See also Chapter 11: The Process of Tracing.) The intention to use the money for the payment of the dividend was expressed to all parties by words and conduct. Note: The Corporations Law makes company directors fiduciaries and this would restrict the likelihood of Quistclose trusts reappearing. (See Chapter 5: Fiduciary Obligations and Confidential Information. See also Chapter 6: The Nature of Trusts.) The High Court of Australia had an opportunity to consider the Quistclose trust scenario in Legal Services Board v Gillespie-Jones (2013) 249 CLR 493. In this matter a client who was facing criminal proceedings, gave money to their solicitor to cover costs. The funds were deposited according to the Legal Profession Act 2004 (Vic). Under the statute monies could only be dealt with on instructions from the client. Unfortunately the solicitor had decamped with most of the funds and a barrister had yet to be paid for their services. The Barrister’s claim to the Fidelity Fund would only succeed if it was a proprietary interest. The High Court focused on statutory interpretation and distinguished the Quistclose decision.

Presumed intention: the purchase of property When purchasing property, certain transactions give rise to the presumption of a resulting trust. Fairness is not involved. The courts imply the intention of the creator. Examples include: • where property is purchased in the name of another person. Equity presumes that the purchaser will retain the beneficial interest.

Chapter 8: Resulting Trusts

where two parties have made equal contributions to the purchase price but the property is held only in one name. In these circumstances equity will presume that the property is to be held equally as tenants in common. Notes: • It is a rebuttable presumption. Evidence of contrary intention between the parties will displace the presumption. • The courts will recognise direct contributions in the purchasing of property. Matters such as mortgage repayments and home improvements are not encompassed in a resulting trust. These types of ongoing financial activities including non-financial contributions are recognised by the imposition of a constructive trust (see Chapter 9: Constructive Trusts for further information). •

A case to remember Calverley v Green (1984) 155 CLR 242 Facts: A de facto couple lived together for a period of ten years from 1968. In 1973 they bought a house at Baulkham Hills as joint tenants for $27,250. Mr Calverley provided the deposit of $9250, with the balance of $18,000 under a mortgage. When Mr Calverley had difficulty in obtaining finance, Ms Green’s name was added to the mortgage documents. Mr Calverley made all of the repayments. Five years after purchasing the property, Ms Green left the relationship. Issue: The rebuttable presumption of a resulting trust and advancement. Decision: The High Court of Australia held that: • There is a rebuttable presumption when property is transferred to several parties and they have made unequal contributions. The property is held under a resulting trust as tenants in common in proportion to their contributions. •

The presumption may be displaced by evidence of contrary intention.

• Since

Ms Green had placed her name on the mortgage documents, she was considered to have contributed half of the money borrowed to purchase the property. Ms Green had received half of the legal responsibility to repay the loan.

The presumption also applies to personal property. In Russell v Scott (1936) 55 CLR 440 the High Court of Australia held that when an elderly woman opened a bank account containing a substantial amount of money in the name of her nephew, who was acting as her carer, the presumption would apply.

Rebutting the presumption The presumption of a resulting trust arising where property is purchased may be rebutted by contrary evidence of the intention and the presumption of advancement. Illegality may also arise whenever property is purchased in the name of another.

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Contrary evidence If contrary evidence is produced that, at the time of transfer, there was an intention to provide the property as a gift, then the presumption is rebutted. Contrary evidence may be shown by words or conduct between the parties.

Advancement In certain relationships, the court will presume there was an intention to give the property as a gift. The relationships that support this presumption include mother to child, father to child and husband to wife. (See Nelson v Nelson (1995) 184 CLR 538, discussed below.) Note that these categories are not closed. Note also that the presumption of advancement did not apply to de facto couples when Calverley v Green (1984) 155 CLR 242 (discussed above) was considered by the court. In that matter, several members of the court noted that the presumption of advancement may not accurately reflect contemporary society. Rather than reconsider the presumption of advancement and the circumstances within which it will arise, the court preferred to leave the matter for parliament, given developments in family law. In Chapter 9: Constructive Trusts, Muschinski v Dodds (1985) 160 CLR 583 and Baumgartner v Baumgartner (1987) 164 CLR 137 are discussed with reference to family relationships.

Illegality The courts will not provide assistance to parties that seek to enforce rights or interests that are illegal or contrary to public policy. When property is purchased in the name of another, it may be that an attempt is being made to avoid taxation.

A case to remember Nelson v Nelson (1995) 184 CLR 538 Facts: Mrs Nelson, using her own funds, purchased a house in the name of her son and daughter. She then subsequently submitted a statutory declaration under the Defence Service Homes Act 1918 (Cth), indicating that she had no interest in any other property. By entering into the scheme established by the Act, Mrs Nelson was entitled to receive a $25,000 grant and a reduction in the applicable variable market interest rate for the term of the loan. Mrs Nelson used the funds to acquire another property. A few years later, the daughter of Mrs Nelson sought to claim the proceeds of sale when the property was sold. Issue: The matter involved the following three elements: • the imposition of a resulting trust on the first property, in favour of Mrs Nelson since she had purchased the property and placed it in the name of her children •

the application of the presumption of advancement, in that Mrs Nelson had acquired the first property as a gift to her children

•

rebuttal of the presumption of advancement on the basis of illegality, by Mrs Nelson putting the property in the names of her children.

Chapter 8: Resulting Trusts

Decision: The High Court of Australia considered the general principle of a resulting trust, that it would arise where property is acquired in the name of another. The children would hold the property under a resulting trust in favour of their mother. The court also noted that Mrs Nelson had only intended to fraudulently gain access to the grant and reduced interest rate. She never considered that the property was a gift to her children. Evidence to rebut the presumption of advancement could be admitted, despite it indicating illegal activity. In these circumstances contrary intention was used to rebut the presumption of advancement. Mrs Nelson argued that she held the equitable interest in the property because of the presumption of a resulting trust. The court held that while illegality is a relevant consideration, illegality may not rebut the presumption of a resulting trust. Deane and Gummow JJ Their Honours noted that illegality is based on the statute. The presumption of a resulting trust will not be defeated by illegality, unless it defeats the purpose of the statute. It is important to determine illegality by reference to the policy behind the legislation. The Defence Service Homes Act 1918 (Cth) contained penalty provisions regarding false declarations. McHugh J Equitable rights would not be denied on the basis of unlawful activity unless the statute indicates otherwise. Examples include clear language in the statute, the intention of parliament and the construction of the statute as a whole. The court held that illegally making a false declaration in these circumstances with reference to the Defence Service Homes Act 1918 (Cth) did not affect the purpose of the legislation. Mrs Nelson was entitled to benefit under a resulting trust on the basis that she repay the initial grant of $25,000 and the difference in interest rates.

Constructive trusts Resulting and constructive trusts may arise from similar circumstances. This is highlighted in the breakdown of domestic relationships. It is important to consider both resulting and constructive trusts in these types of situations. Note that family law statutory provisions are also relevant matters. See Chapter 9: Constructive Trusts for further information.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2007, pp. 449–73. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp.745–68. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 449–64. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2011, pp. 879–920. D Ong, Trusts Law in Australia, Federation Press, 2012, pp. 438–500. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 577–606. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2010, pp. 445–66.

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Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains a resulting trust? (a) Property held by one person in favour of another person. (b) It is the best method of reducing the imposition of taxation. (c) Taxation, superannuation and charitable activities. (d) The three certainties must be satisfied and it must be completely constituted before it can be called a resulting trust. 2 Complete the sentence: A resulting trust is imposed by law (a) automatically: where there is non-disposal of the beneficial interest, and this may arise where an express trust has failed. (b) automatically: where there is non-disposal of the beneficial interest, and this may arise where an express trust has failed or there is a surplus of property after a noncharitable trust has been satisfied. (c) automatically: where there is non-disposal of the beneficial interest, and this may arise where an express trust has failed or there is a surplus of property after a non-charitable trust has been satisfied. Alternatively, a resulting trust may come into operation based upon the presumed intention between the parties. (d) when there is a surplus of property or the intention can be presumed. 3 In creating an express trust, which of the following is true? (a) Intention to create a trust must be sufficiently certain. (b) There must be certainty of intention, subject and object. (c) The three certainties must be present and it must be completely constituted. (d) It must be evidenced in writing. 4 Is a resulting trust subject to the statutory requirements of writing? (a) Yes. (b) Yes, but it depends on the circumstances. (c) No. (d) All trusts, including resulting trusts, are subject to the statutory requirements of writing. 5 Complete the sentence: Illegality (a) may be used to rebut the presumption of advancement. (b) may be used to rebut the presumption of advancement but it is dependent on statutory interpretation. (c) is irrelevant to resulting trusts. (d) is related to the common law and is not involved when discussing equitable principles. 6 In Re Gillingham Bus Disaster Fund [1958] Ch 300, a memorial fund was created after twenty-four Royal Marine cadets were killed in a motor vehicle crash. Contributions were received from the local people. A trust was established by the mayors of the affected towns ‘to defray funeral expenses, care for the disabled and such worthy causes …’. A total of £9000 was collected, with a surplus of £6000. Clarification was sought as to what was understood by the term ‘and such worthy causes’. How did the court decide the matter? (a) Harman J held that the trust failed for uncertainty. His Honour considered that an inquiry should be undertaken to ascertain the identities of the donors. His Honour

Chapter 8: Resulting Trusts

noted that a cy-près scheme should not be applied. Such a scheme would involve a variation of the creator’s intention and this could only take place where there was a general charitable intention. (b) Harman J held that the trust failed for uncertainty. His Honour considered that an inquiry should not be undertaken to ascertain the identities of the donors. His Honour noted that a cy-près scheme should be applied. Such a scheme would not involve a variation of the creator’s intention and this could only take place whether or not there was a general charitable intention. (c) Harman J held that the trust failed for uncertainty. His Honour considered that an inquiry should be undertaken to ascertain the identities of the donors. (d) Harman J held that the trust failed for uncertainty. His Honour considered that an inquiry should be undertaken to ascertain the identities of the donors. His Honour noted that a cy-près scheme should be applied. Such a scheme would not involve a variation of the creator’s intention and this could only take place whether or not there was a general charitable intention. 7 In Re West Sussex Constabulary’s Widows, Children & Benevolent (1930) Trust Funds [1971] Ch 1, two police forces were to be merged. Money in their trust funds had been obtained from three different sources: • gifts and legacies (personal property under a will) • street collections • money that was raised in sweepstakes. The question before the court involved the status of the funds collected when there was a surplus after the non-charitable purpose had been fulfilled. How did the court resolve the matter? (a) Gough J noted that it was not possible to identify the people who had contributed, so all monies went to the Crown. (b) Gough J noted that the identities of the people who contributed to the first category (gifts and legacies) were known, so the property was held under a resulting trust. Contributions in the second category (street collections) were given anonymously, so the surplus would be directed to the Crown. The third category (sweepstakes), in which raffle tickets were purchased, was a simple contract. People bought a chance to win—it was out and out. (c) Gough J noted that the identities of the people who contributed to the first category (gifts and legacies) were known, so the property was held under a resulting trust. Contributions in the second category (street collections) and the third category (sweepstakes) were given anonymously, so the surplus would be directed to the Crown. (d) Gough J noted that no trust came into existence. All contributions were given—out and out. 8 In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, Rolls Razor Ltd sought to raise £200,000 to pay share dividends that had already been declared. The funds were borrowed from Quistclose Investments Ltd and placed into a separate account with Barclays Bank. Before the dividends were paid, Rolls Razor Ltd went into liquidation. There was competition between Barclays Bank and Quistclose Investments Ltd. Barclays Bank sought to use the money to cover other Rolls Razor debts. Quistclose claimed the money under a resulting trust when the purpose of the trust could not be performed. How did the court decide the matter?

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(a) Wilberforce LJ noted the mutual interest of Rolls Razor and Quistclose was critical in determining whether a trust existed. Emphasis was placed on the particular terms of the loan that indicated that the funds were to be used exclusively for a defined purpose. Discussion also focused on a primary trust being established on behalf of the shareholders, and when that trust could not proceed, a second trust arose in favour of Quistclose. (b) Wilberforce LJ noted the mutual interest of Rolls Razor and Quistclose was critical in determining whether a trust existed. Emphasis was placed on the particular terms of the loan that indicated that the funds were to be used exclusively for a defined purpose. (c) Wilberforce LJ noted the mutual interest of Rolls Razor and Quistclose was critical in determining whether a trust existed. (d) Wilberforce LJ focused on a primary trust being established on behalf of the shareholders, and when that trust could not proceed, a second trust arose in favour of Quistclose. 9 Complete the sentence: The phrase ‘against the conscience’ refers to (a) the Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485. (b) a recurring theme throughout equity. (c) assistance provided by the Monarch or Chancellor. (d) morality. 10 Equity is based upon the concept of ‘unconscionability’, that is to say, (a) exploitation of the vulnerable and abuse of positions of confidence. (b) abuse of positions of confidence, insisting on rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, exploitation of the vulnerable and abuse of positions of confidence.

Combination questions 1 Answer both parts. Part A Paul and Mary have been living as a de facto couple for almost ten years. In 2005 they decide to purchase a house together since Paul had recently received $20,000 from his aunt’s will as a beneficiary. Although neither of them was legally qualified, they wanted to hold the property as joint tenants, since this term, they thought, more accurately described the nature of their relationship. The Really Big Bank did not look favourably on the loan application by Paul. He had a dubious credit history, having struggled in the past to pay his credit cards. Mary said she could help and her name was added to the loan agreement since Paul had trouble in obtaining finance. A few years later, the couple separated after their relationship irretrievably broke down. Mary sought to assert her title in the property as one of two joint tenants when it was sold. Paul seeks your advice regarding the proceeds of sale.

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Part B Susan decides to rewrite her will. She makes the following notations: • $50,000 to the Royal Private Hospital, so that they can continue their precious work in advancing medical science and healing the sick. • $25,000 on trust to my brother to be used in educating his daughters Claire and Ann, who are aspiring to become qualified school teachers. • $100,000 to my trustees, for such acts of benevolence as they see fit. • $25,000 to the Spirits of the Next World Association so that they can continue their important work. The association is concerned with aliens visiting the planet Earth. When Susan died, Claire was twelve years old and Ann had died many years earlier in a car accident. The Royal Private Hospital had been taken over by the government and was now part of the Greater Royal Public Hospital. The Spirits of the Next World Association had been disbanded. The remainder of Susan’s estate is given to Penelope, and she seeks your advice about these purported dealings. 2 Answer both parts. Part A The Quistclose trust is a new development. It has a separate existence from other resulting trusts. You are misguided if you believe that the Quistclose trust is just another example of a resulting trust.

Do you agree? Critically discuss this statement. Part B In Nelson v Nelson (1995) 184 CLR 538 the High Court of Australia placed emphasis on statutory interpretation when considering the role of illegality and the presumption of a resulting trust.

Discuss the decision and explain how statutory interpretation affects equitable principles. For answers to these questions, please refer to: .

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Constructive Trusts Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish constructive trusts from express and resulting trusts • understand different types of constructive trusts • explain how a constructive trust may arise • appreciate the role of constructive trusts as a remedy and as an institution.

Cases to remember Giumelli v Giumelli (1999) 196 CLR 101 Barnes v Addy (1874) LR 9 Ch App 244 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 Muschinski v Dodds (1985) 160 CLR 583 Baumgartner v Baumgartner (1987) 164 CLR 137

Statutes to remember Family Law Act 1975 (Cth) Domestic Relationships Act 1994 (ACT) Property Relationships Act 1984 (NSW) De Facto Relationships Act (NT) Property Law Act 1974 (Qld) Domestic Partners Property Act 1996 (SA) Relationships Act 2003 (Tas) Relationships Act 2008 (Vic) Family Court Act 1997 (WA)

Overview Figure 9.1 provides an overview of constructive trusts. The material in this chapter has been organised following the structure indicated in this figure. Constructive trusts can be distinguished from express trusts as they arise through the operation of law, are largely contrary to the intentions of the parties and are not subject to the statutory requirements of writing (see Chapter 6: The Nature of Trusts).

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Resulting trusts also arise through law, but they are based on intention unless there is contrary evidence (see Chapter 8: Resulting Trusts). In constructive trusts the basis is not intention, but whether it would be against equitable principles to deny the existence of the trust. There are four types of constructive trusts: • where equity gives effect to that which ought to have been done (see Chapter 1: The Nature and History of Equity) • where property has been acquired under a transaction that is liable to be set aside in equity—this includes undue influence, fraud or mistake (see Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel) • where a profit has been made improperly by a fiduciary (see Chapter 5: Fiduciary Obligations and Confidential Information) • where a third party, with or without receipt of trust property, participates with the requisite degree of knowledge in a breach of trust or other fiduciary duty.

Figure 9.1 Constructive trusts Not subject to the statutory requirements of writing (See Chapter 3: Dealings with Property in Equity)

The nature of trusts (See Chapter 6: The Nature of Trusts) Constructive trusts An institution and a remedy Giumelli v Giumelli (1996) High Court of Australia Breach of fiduciary obligations (See Chapter 5: Fiduciary Obligations and Confidential Information)

Third parties Barnes v Addy (1874) LR House of Lords Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) High Court of Australia Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] High Court of Australia

Preventing unconscionable conduct and common intention Muschinski v Dodds (1985) High Court of Australia Baumgartner v Baumgartner (1987) High Court of Australia Family/domestic relationships Family Law Act 1975 (Cth) Domestic Relationships Act 1994 (ACT) Property Relationships Act 1984 (NSW) De Facto Relationships Act (NT) Property Law Act 1974 (Qld) Domestic Partners Property Act 1996 (SA) Relationships Act 2003 (Tas) Relationships Act 2008 (Vic) Family Court Act 1997 (WA) Resulting trusts (See Chapter 8: Resulting Trusts)

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An institution and a remedy A constructive trust is both an institution and an equitable remedy. There is considerable academic debate about the matter. Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 612–14 noted the constructive trust as a ‘remedial institution’. As an institution, a constructive trust is imposed when circumstances come into existence. As a remedy, a constructive trust is imposed from the date the order is made by the court. Other distinguishing features of a constructive trust as a remedy include that it is imposed after an examination of appropriate alternative forms of relief, and the possible effects on third parties.

A case to remember Giumelli v Giumelli (1999) 196 CLR 101 Facts: Mr and Mrs Giumelli operated an orchard in partnership. They encouraged their son Robert to work in the business without receiving remuneration with the promise that he would receive an unspecified part of the land. The agreement allowed Robert to build a house or subdivide the portion of property. Robert’s first marriage broke down in 1981 and he later remarried. His parents disapproved of his new wife and refused to transfer the land. Issue: The imposition of a constructive trust as a remedy based on the doctrine of estoppel. Decision: The Supreme Court of Western Australia imposed a constructive trust over the entire orchard, to secure the transfer of the promised land.

On appeal before the High Court of Australia, Gleeson CJ, McHugh, Gummow and Callinan JJ (with Kirby J in agreement) upheld the finding of detriment in acting in reliance on the promise to transfer land. The court considered that the imposition of a constructive trust was inappropriate since the partnership was an ongoing business and other family members had made improvements to the land. The court ordered payment of money to represent the value of the agreement and it was to be a charge on the property until paid. Constructive trusts are flexible. They may be considered as an institution and as a form of equitable relief. (See Chapter 12: Equitable Remedies for further information.)

Breach of fiduciary obligations Essentially, fiduciary obligations involve two principles: ‘no conflict’ and ‘no profit’. A constructive trust will be imposed where there has been a breach of fiduciary obligations. It may also occur where there has been a breach of confidential

Chapter 9: Constructive Trusts

information. (See Chapter 5: Fiduciary Obligations and Confidential Information for further information.)

Third parties Third parties or strangers may be held responsible under a constructive trust in circumstances where they: • have acted as a trustee without authority (trustee de son tort) • knowingly receive trust property or • participate in a breach of trust.

A case to remember Barnes v Addy (1874) LR 9 Ch App 244 Facts: In a deceased estate, three trustees had been named. Two trustees had predeceased the testator and the sole surviving trustee wanted to retire. He gave instructions to his solicitor to appoint a trustee as a replacement. His solicitor advised against the matter and indicated that independent legal advice should be sought. Nevertheless the solicitor was directed to complete the necessary paperwork. After the new trustee was appointed, the property held under the trust was quickly exhausted. The beneficiaries under the will sought to hold the solicitor responsible for the loss. Issue: The circumstances when a third party or stranger will be held liable as a constructive trustee. Decision: Selbourne LJ in the House of Lords noted that a third party may become responsible as if they were a trustee, in three circumstances: • if a stranger acts as a trustee without authority •

if a third party receives trust property with the knowledge that it was held under a trust

•

if a third party does not receive trust property, but has assisted the trustee in breaching their fiduciary obligations.

The action against the solicitor failed, since he did not receive any property and did not have any knowledge of or any reason to suspect what the new trustee was about to do.

This imposition of a constructive trust on a third party where they have either received trust property or assisted the trustee(s) in breaching their fiduciary obligations has been considered by many courts in Australia and England. It is the requisite degree of knowledge and notice that is required to establish responsibility that the courts have struggled with. Note: The courts when discussing Barnes v Addy have made the distinction between first limb and second limb situations: • A first limb Barnes v Addy situation is where the third party receives trust property with knowledge that it was held under a trust.

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•

A second limb Barnes v Addy situation is where the third party does not receive trust property, but has ‘knowledge of a dishonest and fraudulent design’ on the part of the fiduciary.

A case to remember Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Facts: DPC Estates Pty Ltd is a company controlled by a solicitor called Walton. The company engages in the purchase and renovation of property. Walton hired a man called Grey to manage the affairs of the company. A term in his contract prohibited him from engaging in the real estate business without Walton’s prior permission. Clowes was undertaking an articled clerkship with Grey. Walton was also the solicitor to Consul Development Pty Ltd. Grey told Clowes about a particular property he had found which DPC Estates Pty Ltd could not buy because of a lack of finance. Clowes made independent enquiries about the financial status of DPC Estates and confirmed the result. Consul Development Pty Ltd, which was Clowes’ family company, later purchased the property and split the profits. Issue: DPC Estates Pty Ltd claimed both Grey and Consul Developments Pty Ltd held the property on constructive trust—in other words, that Grey was in breach of fiduciary duties owed to DPC Estates and that the profit went directly to Consul Development Pty Ltd and never passed to Grey. The court was asked to clarify the requisite degree of knowledge in a second limb Barnes v Addy situation. Decision: Both Clowes and Consul Development Pty Ltd had assisted in a fraudulent design in Grey’s breach of fiduciary obligations. In the New South Wales Court of Appeal, Hardy J agreed with Hutley J in the majority in noting that Consul Development’s knowledge was the same as Clowes’. Furthermore, Clowes had been under a duty to enquire as to what Grey was doing, In other words, it was constructive notice. Jacobs P held that constructive notice was sufficient for the first limb, but the second limb of Barnes v Addy requires actual notice. On appeal before the High Court of Australia, the majority reversed the New South Wales Court of Appeal decision. Barwick CJ agreed with Stephen J, who referred to Jacobs P and accepted different notice requirements between the two limbs. In a second limb situation, there must be actual knowledge to establish responsibility.

Buckley LJ in the English Court of Appeal decision, Belmont Finance Corporation v Williams Furniture Ltd (No. 2) [1980] 1 All ER 393, agreed with Jacobs P in the New South Wales Court of Appeal decision, Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. The two limbs of Barnes v Addy have different knowledge requirements. The Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 made a number of observations. These included that courts have wrestled with the meaning of the decision in Barnes v Addy for many years. Furthermore, that beneficiaries are

Chapter 9: Constructive Trusts

entitled to expect that third parties will not interfere in a fiduciary relationship and that ‘dishonesty’ is the best way to understand the matter. The House of Lords in Twinsectra v Yardley [2002] 2 All ER 377 considered the situation of a solicitor in breach of their fiduciary obligations. The majority accepted the Royal Brunei Airlines v Tan principles and considered that in a second limb Barnes v Addy situation, dishonesty was a subjective and not an objective test. It was not until 2007 that the High Court of Australia had an opportunity to revisit Barnes v Addy after the 1975 decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373.

A case to remember Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 Facts: Farah Constructions Pty Ltd and Say-Dee Pty Ltd entered into a joint venture agreement to purchase and develop a parcel of land. The local council rejected two development applications as the land was too narrow for the proposed building. The principal of Farah Constructions, Mr Elias, and his wife and two daughters purchased adjoining properties. Mr Elias, who controlled Lesmint Pty Ltd, wanted to purchase the narrow land from Say-Dee. Issue: Imposition of a constructive trust as a second limb Barnes v Addy situation. Decision: In the High Court of Australia, Gleeson CJ, Gummow, Heydon, Callinan and Crennan JJ endorsed the decision in Consul Development. Assistance in a dishonest and fraudulent design on behalf of the trustee or fiduciary is essential. In a second limb Barnes v Addy situation, a third party will be held responsible if they have: • actual knowledge •

wilful shutting of one’s eyes to the obvious

•

wilful and reckless failure to make enquiries that a reasonable person would make

or • knowledge of the facts that would have indicated the circumstances to a reasonable person. Farah Constructions had not breached their fiduciary obligations to Say-Dee. Mrs Elias and the children were not liable under the second limb of Barnes v Addy.

The nature and degree of the requisite knowledge required under a second limb Barnes v Addy situation identified in Farah Constructions are the first four elements of knowledge set out by Gibson J in Baden, Delvaux and Lecuit v Societe Generale [1983] BCLC Ch D 325 at 436. The High Court in Farah Constructions did not accept the fifth element identified by Gibson J; namely, knowledge of the circumstances that would have put an honest and reasonable person on notice.

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Preventing unconscionable conduct and common intention In Chapter 8: Resulting Trusts reference was made to the presumption of intention when property is purchased to support a resulting trust. Note that one series of facts may also give rise to the prospect of a constructive trust being imposed. This frequently occurs in family or domestic relationships that have broken down.

A case to remember Muschinski v Dodds (1985) 160 CLR 583 Facts: Muschinski and Dodds were a de facto couple. They combined their resources to purchase a property at Picton, with the intention to build a new prefabricated house and open an arts and crafts business. Muschinski provided the entire purchase price. The property was held as tenants in common in both of their names. The relationship broke down and the property was sold. Issue: Muschinski had contributed $254,259.45; Dodds had contributed $2549.77. Decision: At both the trial level and before the New South Wales Court of Appeal, a resulting trust arose with the presumption in favour of Muschinski. The court held that the presumption of a resulting trust had been rebutted by evidence of Muschinski’s intention to give Dodds an interest in the property in return for his promise to work on the property. In the High Court of Australia, the majority comprising of Gibbs CJ, Mason, Deane and Brennan JJ imposed a constructive trust to protect Muschinski’s beneficial interest. Gibbs CJ noted that there should be an equitable accounting of the proceeds of sale. Deane J (with Mason J in agreement) considered the matter as a common plan in the context of a joint venture. It would be unconscionable for Dodds to assert legal title in light of the contributions made by Muschinski. A constructive trust had to be imposed to adjust respective interests/rights.

In Baumgartner v Baumgartner (1987) 164 CLR 137 Deane J’s approach in Muschinski v Dodds (1985) 160 CLR 583 was accepted by the majority of the High Court of Australia.

A case to remember Baumgartner v Baumgartner (1987) 164 CLR 137 Facts: During the course of a de facto relationship a property was purchased. When the relationship broke down, the de facto wife claimed she owned a beneficial interest in half of the property. The de facto husband had purchased the property in his name. They pooled their income. One child was born from the relationship. The de facto wife left her employment for a period of three months to take care of the child. When she left the relationship she took all the furniture, which was valued at $7000.

Chapter 9: Constructive Trusts

Issue: Accounting for financial and non-financial contributions in a domestic relationship. Decision: The trial judge considered that there was no intention to create a trust and there was nothing to prevent the de facto husband from retaining the legal and equitable interest in the property. When the matter came before the New South Wales Court of Appeal, the majority held that there was common intention to create a trust. Upon a further appeal before the High Court of Australia, Mason CJ, Wilson and Deane JJ held that a constructive trust could be imposed as a remedy to prevent unconscionable retention of a benefit. Given the nature of the relationship, it was only appropriate that financial and non-financial contributions should be taken into account. The court noted the period in which the couple had pooled their income to create a home. In light of all the circumstances the beneficial interest in the property was held as tenants in common on the following basis: husband, fifty-five per cent; wife, forty-five per cent.

A similar set of circumstances involving the principle of common intention for the imposition of a constructive trust occurred in Green v Green (1989) 17 NSWLR 343. In this matter a man who already had a wife and a de facto partner induced a girl (who was then aged fourteen) to come from Thailand with the promise that he would look after her education. The man had two children with the girl and later purchased a house for her to live in. No financial contributions were made. When the man died, there was a competition among the spouses for the house. The majority of the New South Wales Court of Appeal, comprising Gleeson CJ and Priestley JA, held that a constructive trust should be imposed in favour of the girl acting on reliance to her detriment. The issue of non-financial contributions in such matters as a consequence of Muschinski v Dodds (1985) 160 CLR 583 has troubled the courts. Legislation has greatly assisted the process of assessing the nature of interests.

Family/domestic relationships Legislation has been enacted in all Australian jurisdictions with respect to family and domestic relationships.

Statutes to remember Family Law Act 1975 (Cth) Domestic Relationships Act 1994 (ACT) Property Relationships Act 1984 (NSW) De Facto Relationships Act (NT) Property Law Act 1974 (Qld) Domestic Partners Property Act 1996 (SA) Relationships Act 2003 (Tas) Relationships Act 2008 (Vic) Family Court Act 1997 (WA)

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The development of the constructive trust in equity has largely been overshadowed by these legislative developments.

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 1183–238. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 1113–64. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 818–41. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2012, pp. 921–54. D Ong, Trusts Law in Australia, Federation Press, 2012, pp. 501–618. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 811–54. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 649–708.

Chapter 9: Constructive Trusts

Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains the differences between an express trust and a constructive trust? (a) In a constructive trust, property is held by one person in favour of another person. (b) Constructive trusts, rather than express trusts, are the best method of reducing the imposition of taxation. (c) Constructive trusts are imposed by law, are largely contrary to the intentions of the parties and are not subject to the statutory requirements of writing. (d) The only difference between a constructive trust and an express trust is that in the latter the intention must be certain. 2 Which of the following statements most accurately explains the differences between a resulting trust and a constructive trust? (a) There is no difference between constructive and resulting trusts. (b) Resulting trusts, unlike constructive trusts, are subject to the statutory requirements of writing. (c) Resulting trusts, like constructive trusts, arise through the operation of law, but the latter come into existence when it would be contrary to equitable principles to deny the existence of the trust. (d) Constructive trusts are a means of avoiding the imposition of tax, whereas a resulting trust will attract a high rate. 3 In Barnes v Addy (1874) LR 9 Ch App 244 the House of Lords identified two limbs by which third parties may be held responsible under a constructive trust. Which of the following statements is most accurate? (a) Under the first limb actual knowledge is required, but under the second limb constructive notice will suffice. (b) Actual knowledge is required under both limbs. (c) Under the first limb constructive knowledge will suffice, but under the second limb actual knowledge is required. (d) Under the second limb, more is required that under the first limb. 4 The High Court of Australia in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 had an opportunity to review their earlier decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. This enabled the court to do which of the following? (a) Disregard the principles developed in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. (b) Revisit the same issues and endorse the decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. (c) Introduce new ideas. (d) Consider developments in New Zealand. 5 De facto/domestic relationships are considered in which of the following matters? (a) Baumgartner v Baumgartner (1987) 164 CLR 137, Muschinski v Dodds (1985) 160 CLR 583 and Barnes v Addy (1874) LR 9 Ch App 244. (b) Baumgartner v Baumgartner (1987) 164 CLR 137, Muschinski v Dodds (1985) 160 CLR 583 and Giumelli v Giumelli (1999) 196 CLR 101.

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(c) Baumgartner v Baumgartner (1987) 164 CLR 137, Muschinski v Dodds (1985) 160 CLR 583 and Green v Green (1989) 17 NSWLR 343. (d) Baumgartner v Baumgartner (1987) 164 CLR 137, Muschinski v Dodds (1985) 160 CLR 583, Green v Green (1989) 17 NSWLR 343 and Calverley v Green (1984) 155 CLR 242. 6 In Giumelli v Giumelli (1999) 196 CLR 101, Mr and Mrs Giumelli operated an orchard in partnership. They encouraged their son Robert to work in the business without receiving remuneration with the promise that he would receive an unspecified part of the land. The agreement allowed Robert to build a house or subdivide the portion of property. Robert’s first marriage broke down in 1981 and he later remarried. His parents disapproved of his new wife and refused to transfer the land. The issue involved the imposition of a constructive trust as a remedy based on the doctrine of estoppel. Which of the following statements accurately describes how the matter was resolved? (a) The Supreme Court of Western Australia imposed a constructive trust over the entire orchard, to secure the transfer of the promised land. On appeal before the High Court of Australia, Gleeson CJ, McHugh, Gummow and Callinan JJ (with Kirby J in agreement) upheld the finding of detriment in acting in reliance on the promise to transfer land. The court considered that the imposition of a constructive trust was inappropriate since the partnership was an ongoing business and other family members had made improvements to the land. The court ordered payment of money to represent the value of the agreement and it was to be a charge on the property until paid. (b) The Supreme Court of Western Australia imposed a constructive trust over the entire orchard, to secure the transfer of the promised land. On appeal before the High Court of Australia, Gleeson CJ, McHugh, Gummow and Callinan JJ (with Kirby J in agreement) upheld the finding of detriment in acting in reliance on the promise to transfer land. (c) The Supreme Court of Western Australia imposed a constructive trust over the entire orchard, to secure the transfer of the promised land. On appeal before the High Court of Australia, Gleeson CJ, McHugh, Gummow and Callinan JJ (with Kirby J in agreement) upheld the finding of detriment in acting in reliance on the promise to transfer land. The court considered that the imposition of a constructive trust was appropriate. (d) The Supreme Court of Western Australia imposed a charge over the entire orchard. On appeal before the High Court of Australia, Gleeson CJ, McHugh, Gummow and Callinan JJ (with Kirby J in agreement) upheld the finding of detriment in acting in reliance on the promise to transfer land. The court considered that the imposition of a constructive trust was appropriate. 7 Selbourne LJ in Barnes v Addy (1874) LR 9 Ch App 244 noted that a third party may become liable as if they were a trustee, in which of the following circumstances? (a) If a stranger acts as a trustee without authority, if a third party receives trust property with the knowledge that it was held under a trust, or if a third party does not receive trust property, but has assisted the trustee in breaching their fiduciary obligations. (b) If a stranger acts as a trustee without authority or if a third party receives trust property with the knowledge that it was held under a trust.

Chapter 9: Constructive Trusts

(c) If a third party receives trust property with the knowledge that it was held under a trust, or if a third party does not receive trust property, but has assisted the trustee in breaching their fiduciary obligations. (d) If a stranger acts as a trustee without authority and receives trust property with the knowledge that it was held under a trust, or if a third party does not receive trust property, but has assisted the trustee in breaching their fiduciary obligations. (e) If a stranger acts as a trustee without authority, or if a third party does not receive trust property, but has assisted the trustee in breaching their fiduciary obligations. 8 In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22, the parties entered into a joint venture agreement to purchase and develop a parcel of land. The local council rejected two development applications as the land was too narrow for the proposed building. The principal of Farah Constructions, Mr Elias, and his wife and two daughters purchased adjoining properties. Mr Elias, who controlled Lesmint Pty Ltd, wanted to purchase the narrow land from Say-Dee. It was in these circumstances that a second limb Barnes v Addy situation arose. Which of the following statements accurately describes how the court resolved the matter? (a) In the High Court of Australia, Gleeson CJ, Gummow, Heydon, Callinan and Crennan JJ endorsed the decision in Consul Development. Assistance in a dishonest and fraudulent design on behalf of the trustee or fiduciary is essential. In a second limb Barnes v Addy situation, a third party will be held responsible if they have: • actual knowledge • wilful shutting of one’s eyes to the obvious • wilful and reckless failure to make enquiries that a reasonable person would make or • knowledge of the facts that would have indicated the circumstances to a reasonable person. (b) In the High Court of Australia, Gleeson CJ, Heydon, Callinan and Crennan JJ endorsed the decision in Consul Development. Assistance in a dishonest and fraudulent design on behalf of the trustee or fiduciary is essential. In a second limb Barnes v Addy situation, a third party will be held responsible if they have: • actual knowledge • wilful shutting of one’s eyes to the obvious or • wilful and reckless failure to make enquiries that a reasonable person would make. (c) In the High Court of Australia, Gleeson CJ, Heydon, Callinan and Crennan JJ endorsed the decision in Consul Development. Assistance in a dishonest and fraudulent design on behalf of the trustee or fiduciary is essential. In a second limb Barnes v Addy situation, a third party will be held responsible if they have: • actual knowledge • wilful shutting of one’s eyes to the obvious • wilful and reckless failure to make enquiries that a reasonable person would make or • knowledge of the facts that would have indicated the circumstances to a reasonable person.

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(d) In the High Court of Australia, Gleeson CJ, Heydon and Crennan JJ endorsed the decision in Consul Development. Assistance in a dishonest and fraudulent design on behalf of the trustee or fiduciary is essential. In a second limb Barnes v Addy situation, a third party will be held responsible if they have: • actual knowledge • wilful shutting of one’s eyes to the obvious • wilful and reckless failure to make enquiries that a reasonable person would make or • knowledge of the facts that would have indicated the circumstances to a reasonable person. 9 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’ 10 Which of the following statements is accurate with respect to constructive trusts? (a) There are four types of constructive trusts: • where equity gives effect to that which ought to be done. • where property has been acquired under a transaction that is liable to be set aside in equity. • where a profit has been made improperly by a fiduciary. • where a third party, with or without receipt of trust property, participates with the requisite degree of knowledge in a breach of trust or other fiduciary duty. (b) There is only one type of constructive trust: • where equity gives effect to that which ought to be done. (c) There are three types of constructive trusts: • where property has been acquired under a transaction that is liable to be set aside in equity. • where a profit has been made improperly by a fiduciary. • where a third party, with or without receipt of trust property, participates with the requisite degree of knowledge in a breach of trust or other fiduciary duty. (d) It is not possible to distinguish different types of constructive trusts. Essay/discussion questions Answer either 1 or 2. 1 Cardozo CJ noted in Beatty v Guggenheim Exploration Co. 255 NY 380 at 386 (1919) (SC USA): A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances

Chapter 9: Constructive Trusts

that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.

Do you agree? Critically discuss this statement. 2 In Barnes v Addy (1874) LR 9 Ch App 244 at 251–2 Lord Selbourne LC noted: That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

Discuss this statement. Problem question ABC Constructions Ltd heard about the state government’s policy of urban consolidation and purchased a narrow strip of land alongside a suburban railway station. Since the site looks ideal, ABC Constructions Ltd has recently submitted plans to the local council regarding 350 apartments to be built on the site. Raising the necessary finance has not been an easy process for ABC Constructions Ltd. In the past, ABC Constructions Ltd has partnered with XYZ Ltd on similar projects. After informing XYZ Ltd of the enormous potential for the site, they agree to enter into negotiations about the development. XYZ Ltd will supply the necessary finance but other significant matters regarding the project are yet to be finalised. The local council has recently rejected the first development application on the basis that the land is too narrow for such a large number of apartments. There has also been increasing community protest over similar projects in the area. Mr Boulder is the principal of XYZ Ltd, and through his private company Sneaky Pty Ltd acquires the adjoining properties. Sneaky Pty Ltd then approaches ABC Ltd to purchase the narrow land. ABC Ltd decides to sell the property to Sneaky Pty Ltd. A revised development application is submitted and the project is approved by the state government. ABC Ltd seeks your advice about this lost commercial opportunity. For answers to these questions, please refer to: .

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Trustees and Beneficiaries Covered in this chapter After successfully completing this chapter, you will be able to: • understand who has capacity to be a trustee • acknowledge the powers and duties of trustees • explain how beneficiaries may request information from trustees • appreciate that trustees are fiduciaries.

Cases to remember Turner v Turner [1984] Ch 100 Cowan v Scargill [1985] Ch 270 Harries v The Church Commissioners for England [1993] 2 All ER 300 Hardoon v Belilios [1901] AC 118 Saunders v Vautier (1841) 4 Beav 115 Re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918

Statutes to remember Trustee companies Trustee Companies Act 1947 (ACT) Trustee Companies Act 1964 (NSW) Companies (Trustees and Personal Representatives) Act (NT) Trustee Companies Act 1968 (Qld) Trustee Companies Act 1988 (SA) Trustee Companies Act 1953 (Tas) Trustee Companies Act 1984 (Vic) Trustee Companies Act 1987 (WA) Public/state trustees Public Trustee Act 1985 (ACT) Public Trustee Act 1941 (NSW) Public Trustee Act (NT) Public Trustee Act 1978 (Qld) Public Trustee Act 1995 (SA) Public Trustee Act 1930 (Tas) State Trustees (State Owned Company) Act 1994 (Vic) Public Trustee Act 1985 (WA)

Chapter 10: Trustees and Beneficiaries

Appointment, powers and duties of trustees Trustee Act 1925 (ACT) Trustee Act 1925 (NSW) Trustee Act (NT) Trusts Act 1973 (Qld) Trustee Act 1936 (SA) Trustee Act 1898 (Tas) Trustee Act 1958 (Vic) Trustees Act 1962 (WA)

Overview Figure 10.1 provides an overview of trustees and beneficiaries. The material in this chapter has been organised following the structure indicated in this figure. The role of trustees is discussed, with emphasis placed on capacity, appointment and duties. Trustees are fiduciaries (see Chapter 5: Fiduciary Obligations and Confidential Information). Third parties may also be held liable as if they were trustees, if they have received property formerly held under the trust due to a breach of fiduciary obligations, or if they have knowledge of a fraudulent and dishonest design by the trustee (see Chapter 9: Constructive Trusts) and tracing is available to identify property that has changed hands and been converted into other property (see Chapter 2: The Concept of Property in Equity, and Chapter 11: The Process of Tracing). The relationship between beneficiaries and trustees is also examined with respect to requests for information. Note that beneficiaries possess a chose in action when an estate is partially administered (see Chapter 2: The Concept of Property in Equity), and that they may also give directions to a trustee with respect to the holding of property (see Chapter 3: Dealings with Property in Equity).

Trustees The relationship between trustees and beneficiaries needs to be carefully examined as many principles are involved.

Capacity to be a trustee Any person who is capable of holding property may act as a trustee.

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Figure 10.1 Trustees and beneficiaries Capacity to be a trustee – Legal person – Companies Trustee Companies Act 1947 (ACT) Trustee Companies Act 1964 (NSW) Companies (Trustees and Personal Representatives) Act (NT) Trustee Companies Act 1968 (Qld) Trustee Companies Act 1988 (SA) Trustee Companies Act 1953 (Tas) Trustee Companies Act 1984 (Vic) Trustee Companies Act 1987 (WA) – Public trustee/State trustee Public Trustee Act 1985 (ACT) Public Trustee Act 1941 (NSW) Public Trustee Act (NT) Public Trustee Act 1978 (Qld) Public Trustee Act 1995 (SA) Public Trustee Act 1930 (Tas) State Trustees (State Owned Company) Act 1994 (Vic) Public Trustee Act 1985 (WA) Appointment of a trustee Powers and duties of a trustee – Turner v Turner [1984] Ch 100 – Cowan v Scargill [1985] Ch 270 – Harries v The Church Commissioners for England [1993] 2 All ER 300 – Statutes Trustee Act 1925 (ACT) Trustee Act 1925 (NSW) Trustee Act (NT) Trustee Act 1973 (Qld) Trustee Act 1936 (SA) Trustee Act 1898 (Tas) Trustee Act 1958 (Vic) Trustees Act 1962 (WA)

Responsibilities (See Chapter 5: Fiduciary Obligations and Confidential Information) Trustees

Beneficiaries Saunders v Vautier (1841) English Court of Chancery Ability to bring the trust to an end Saunders v Vautier (1841) English Court of Chancery Beneficiaries requesting information from trustees Re Londonderry’s Settlement: Peat v Walsh [1965] English Court of Appeal Fiduciary obligations (See Chapter 5: Fiduciary obligations and Confidential Information) Tracing (See Chapter 11: The Process of Tracing) Chose in action to compel proper administration of estate (See Chapter 2: The Concept of Property in Equity) Barnes v Addy (1874): fiduciaries and third parties (See Chapter 9: Constructive Trusts)

Companies can act as trustees, but not as executors and trustees of deceased estates. Trustee companies that have been authorised by statute are the exception. All states and territories have legislation concerning these corporations.

Chapter 10: Trustees and Beneficiaries

Statutes to remember Trustee Companies Act 1947 (ACT) Trustee Companies Act 1964 (NSW) Companies (Trustees and Personal Representatives) Act (NT) Trustee Companies Act 1968 (Qld) Trustee Companies Act 1988 (SA) Trustee Companies Act 1953 (Tas) Trustee Companies Act 1984 (Vic) Trustee Companies Act 1987 (WA)

The public trustee or state trustee largely exists to assist those people who are unable to manage their own affairs. Relevant state and territory legislation includes the following.

Statutes to remember Public Trustee Act 1985 (ACT) Public Trustee Act 1941 (NSW) Public Trustee Act (NT) Public Trustee Act 1978 (Qld) Public Trustee Act 1995 (SA) Public Trustee Act 1930 (Tas) State Trustees (State Owned Company) Act 1994 (Vic) Public Trustee Act 1985 (WA)

Appointment of a trustee The trust instrument may contain provisions regarding the appointment and removal of trustees (see Chapter 6: The Nature of Trusts). Legislation provides assistance in the matter and also enables the court to appoint.

Statutes to remember Trustee Act 1925 (ACT) ss 6, 70 Trustee Act 1925 (NSW) ss 6, 70 Trustee Act (NT) ss 11, 27 Trusts Act 1973 (Qld) ss 12, 80 Trustee Act 1936 (SA) ss 14, 36 Trustee Act 1898 (Tas) ss 13, 32 Trustee Act 1958 (Vic) ss 41, 48 Trustees Act 1962 (WA) ss 7, 77

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Powers and duties of a trustee A trustee must become familiar with the terms of the trust. Sir George Jessel MR in Re Speight; Speight v Gaunt (1883) 22 Ch D 727 noted that the requisite standard of care to be observed by a trustee is that of the ordinary prudent businessperson.

A case to remember Turner v Turner [1984] Ch 100 Facts: A settlor created a trust and three trustees were appointed. The trustees were never consulted when decisions were made. They simply supplied their signatures as required by the settlor. Issue: The decisions of trustees. Decision: Mervyn Davies J noted that the trustees did not exercise their powers appropriately since they did not understand what documents they were asked to sign. In exercising discretion, a trustee must act in good faith and exercise any powers for the purpose for which the powers were given.

Note: All trustees are fiduciaries because of the position they occupy with reference to the beneficiaries (see Chapter 5: Fiduciary Obligations and Confidential Information for further information). In other words, a trustee must avoid any conflict of interest, and any property acquired from that position is held on constructive trust for those to whom the fiduciary obligations are owed. Trustees are also under a duty to invest trust property. A wide discretion is given by statute to trustees.

Statutes to remember Trustee Act 1925 (ACT) s 14 Trustee Act 1925 (NSW) s 14 Trustee Act (NT) s 5 Trusts Act 1973 (Qld) s 21 Trustee Act 1936 (SA) s 6 Trustee Act 1898 (Tas) s 6 Trustee Act 1958 (Vic) s 5 Trustees Act 1962 (WA) s 17

Note that there is a different level of skill to be exercised if the trustee has been involved in business prior to being appointed a trustee, compared with a person who does not engage in similar matters. Statute reflects the dual level with respect to investment decisions.

Chapter 10: Trustees and Beneficiaries

Statutes to remember Trustee Act 1925 (ACT) s 14A Trustee Act 1925 (NSW) s 14A Trustee Act (NT) s 6 Trusts Act 1973 (Qld) s 22 Trustee Act 1936 (SA) s 7(1) Trustee Act 1898 (Tas) s 7 Trustee Act 1958 (Vic) s 6 Trustees Act 1962 (WA) s 18

A case to remember Cowan v Scargill [1985] Ch 270 Facts: The United Kingdom National Coal Board was managed by a committee comprising both union and non-union trustees. The union trustees preferred that funds be invested in the United Kingdom rather than in overseas ventures. Issue: The investment decisions of trustees. Decision: Megarry V-C noted that trustees were required to act in the best interests of all beneficiaries and future beneficiaries. Personal views were not to direct investment decisions of the trust.

In this matter it was a pension fund for individual members. The same issues arise with respect to discretionary trusts for charitable purposes (see Chapter 7: Charitable Trusts).

A case to remember Harries v The Church Commissioners for England [1993] 2 All ER 300 Facts: The purpose of the trust was to pay for pensions and housing for the clergy. The trustees adopted an investment policy that focused on financial returns but excluded investment in gambling or tobacco companies or in engaging in business with South Africa while the apartheid government was in office. Issue: Whether the investment policy should have focused on morality. Decision: Sir Donald Nicholls V-C considered the investment policy to be appropriate in focusing on financial return. Examples of trusts that would have inappropriate investment schemes would be if the trust was for cancer treatment and the charity was investing in alcohol or tobacco companies.

Statute provides clear guidance with respect to the types of matters trustees should have regard to when making investment decisions.

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Statutes to remember Trustee Act 1925 (ACT) s 14C Trustee Act 1925 (NSW) s 14C Trustee Act (NT) s 8 Trusts Act 1973 (Qld) ss 20, 24 Trustee Act 1936 (SA) s 9 Trustee Act 1898 (Tas) s 8 Trustee Act 1958 (Vic) s 8(1) Trustees Act 1962 (WA) s 20

Note that there is no consistency among the states and territories with respect to the trust instrument being able to override statute. Statute also provides for trustees to be indemnified from trust funds where they have acted within the scope of authority.

Statutes to remember Trustee Act 1925 (ACT) s 59 Trustee Act 1925 (NSW) s 59 Trustee Act (NT) s 26 Trusts Act 1973 (Qld) s 72 Trustee Act 1936 (SA) s 35 Trustee Act 1898 (Tas) s 27 Trustee Act 1958 (Vic) s 36(2) Trustees Act 1962 (WA) s 71

A case to remember Hardoon v Belilios [1901] AC 118 Facts: The registered holder of certain partly paid Hong Kong bank shares sought indemnification upon winding up the monies he was responsible for because he held the legal title. The beneficial interest in the shares was held by the defendant. Issue: Beneficiaries to indemnify trustees. Decision: The trustee’s indemnity is not limited to trust assets. If funds are not sufficient then trustees can seek indemnity against the beneficiaries themselves. Trustee indemnity is available in rem and in personam.

The same principles were followed in JW Broomhead (Vic) Pty Ltd (in liq.) v JW Broomhead Pty Ltd [1985] VR 891. The Supreme Court of Victoria extended the principle from Hardoon v Belilios [1901] AC 118 to apply to unit trusts. Those unit trust holders who have not disowned the trust and who are sui juris (of age) and not bankrupt or insolvent must indemnify the trustee.

Chapter 10: Trustees and Beneficiaries

Beneficiaries Ability to bring the trust to an end A beneficiary holds the equitable interest in the property that is subject to the trust and can at any time bring the trust to an end.

A case to remember Saunders v Vautier (1841) 4 Beav 115 Facts: The testator gave all his East India stock at the time of his death to a trustee until Daniel Vautier was twenty-five years of age. At the age of twenty-one Vautier requested to have all the property transferred. Issue: The ability of a beneficiary to bring a trust to an end. Decision: The court held that Vautier was entitled to have the trust brought to an end and have all property transferred. The sole beneficiary of the trust, who is of age and entitled to an absolute interest, may call on the trustee to distribute the property under the trust even though a later date is indicated in the trust instrument.

The principle is applicable where there are multiple beneficiaries who are absolutely entitled and are in agreement about bringing the trust to an end. The High Court of Australia considered the matter in Teague v Trustees, Executors and Agency Company Ltd (1923) 32 CLR 252. Note: A discretionary trust has a class of objects and does not have beneficiaries. The Saunders v Vautier principle may have difficulty applying (see Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 287, discussed in Chapter 7: Charitable Trusts).

Beneficiaries requesting information from trustees The ability of beneficiaries to request information from trustees is limited to the trust property. It does not include documents establishing the reasons why a trustee exercised a discretionary power under the trust in a particular manner.

A case to remember Re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918 Facts: A trust was created which gave the trustee discretion to distribute capital and consequently bring the trust to an end. A beneficiary was entitled to the residuary estate if the discretionary power had not been exercised.

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Issue: Beneficiary requesting information regarding the exercise of a trustee’s discretion. Decision: Salmon LJ in the English Court of Appeal noted that a beneficiary could access documents based on their proprietary interest but that access could be refused where it was related to exercise of discretion.

The proprietary interest idea was subsequently considered by the New South Wales Court of Appeal in Hartigan Nominees Pty Ltd (1992) 29 NSWLR 405. In that matter both Mahoney JA and Sheller JA considered the matter with respect to competing demands to keep the information confidential. Kirby P noted that a beneficiary is entitled to trust documents and that disclosure needs to be balanced against nondisclosure. Related issues are that it may lead to a beneficiary consistently interfering in a power of a trustee and that it may erode a trustee’s autonomy. On balance, disclosure would assist a beneficiary in reviewing a decision made in bad faith. In other words, trust documents comprise correspondence between beneficiaries and trustees, including minutes of meetings but no other documents.

Tracing Tracing is a process whereby property can be identified where it has changed form and been transferred to other parties (see Chapter 11: The Process of Tracing for information). Only proprietary interests can be traced (see Chapter 2: The Concept of Property in Equity).

Chose in action to compel proper administration of estate A beneficiary in a partially administered estate may have an equitable chose in action. This can be brought against the executor and trustee to ensure proper administration of the estate (see Livingston v Commissioner of Stamp Duties (1960) 107 CLR 411 and Commissioner of Stamp Duties v Livingston [1965] AC 694, discussed in Chapter 2: The Concept of Property in Equity, for further information).

Directions to a trustee A beneficiary may give a trustee a direction with respect to the holding of property. Note that there are two types: (i) where the trust is ongoing and the property is held by a third party; and (ii) where the trust is brought to an end (see Grey v Inland Revenue Commissioners [1960] AC 1 and Vandervell v Inland Revenue Commissioners [1967] 2 AC 291, discussed in Chapter 3: Dealings with Property in Equity, for further information).

Chapter 10: Trustees and Beneficiaries

Barnes v Addy (1874): fiduciaries and third parties A third party may be held to be in the same position as a trustee if they receive property formerly held under a trust or if they have knowledge of a dishonest and fraudulent design on behalf of a trustee (see Barnes v Addy (1874) LR 9 Ch App 244, discussed in Chapter 9: Constructive Trusts).

Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 609–716. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 615–90. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 553–674. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2012, pp. 955–1124. D Ong, Trusts Law in Australia, Federation Press, 2012, pp. 235–360. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 607–68. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 467–536.

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Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains the role of a trustee? (a) Trustees are fiduciaries. (b) The trust instrument defines trustee duties and powers. (c) Trustees are not fiduciaries. (d) The trust instrument, statute and the court define the role of a trustee. 2 Trustees are fiduciaries. This means they must avoid any conflict of interest, and any property that is acquired because of their position is held under a constructive trust. Which of the following statements is correct with respect to third parties becoming a trustee/fiduciary? (a) A third party can never become a trustee or fiduciary. (b) There are certain circumstances whereby a third party may become effectively a trustee and as a consequence a fiduciary. (c) A third party may become a fiduciary but never a trustee. (d) No matter what happens, a third party always remains a third party. 3 Complete the sentence: A beneficiary may bring a trust to an end when (a) they are a sole beneficiary, who is of age and is entitled to an absolute interest. (b) they are a sole beneficiary. (c) they are part of a class of objects. (d) they make a written request. 4 Who can be a trustee? (a) Any person or corporation or the public trustee/state trustee. (b) Anybody. (c) Anybody or corporation. (d) Any person who is capable of holding property, a statutory trustee company or the public trustee/state trustee. 5 Complete the sentence: Beneficiaries are entitled to receive information from trustees (a) when it is a trust document. (b) when it relates to the exercise of a discretionary power. (c) only if the trust instrument indicates a request may be made. (d) every week. 6 Which of the following statements is correct with regard to the source of a trustee’s powers and responsibilities? (a) The trust instrument, the court and the relevant trustee legislation for the particular jurisdiction. (b) The trust instrument and the court. (c) The trust instrument so as to carry out the intentions of the creator of the trust. (d) The trust instrument, the court, the relevant trustee legislation for the particular jurisdiction and fiduciary obligations. 7 In Hardoon v Belilios [1901] AC 118, the registered holder of certain partly paid Hong Kong bank shares sought indemnification upon winding up the monies he was responsible for since he held the legal title. The beneficial interest in the shares was held by the defendant. The issue before the court was whether beneficiaries had to indemnify the trustees. Which of the following statements most accurately describes the decision of the court?

Chapter 10: Trustees and Beneficiaries

(a) The trustee’s indemnity is not limited to trust assets. If funds are not sufficient then trustees can seek indemnity against the beneficiaries themselves. Trustee indemnity is available in rem and in personam. (b) The trustee’s indemnity is not limited to trust assets. If funds are not sufficient then trustees can seek indemnity against the beneficiaries themselves. (c) The trustee’s indemnity is limited to trust assets. Trustees are fiduciaries. They are just like company directors. (d) The trustee’s indemnity is limited to trust assets. This is often contained in the trust instrument. 8 The Supreme Court of Victoria in JW Broomhead (Vic) Pty Ltd (in liq.) v JW Broomhead Pty Ltd [1985] VR 891 extended the principle from Hardoon v Belilios [1901] AC 118 to apply to unit trusts. (a) Those unit trust holders who have not disowned the trust must indemnify the trustee. (b) Those unit trust holders who have not disowned the trust and who are sui juris (of age) and not bankrupt or insolvent must indemnify the trustee. (c) Those unit trust holders who have not disowned the trust and who are sui juris (of age) and not bankrupt or insolvent may indemnify the trustee. (d) Those unit trust holders who have not disowned the trust and who are sui juris (of age) may indemnify the trustee. 9 A third party or stranger may be held responsible under a constructive trust in which of the following circumstances? (a) They have acted as a trustee without authority (b) They knowingly receive trust property (c) They participate in a breach of trust (d) In all of the above. 10. Which of the following statements most accurately summarises who can be a trustee? (a) Any person who is capable of holding property, a statutory trustee company or a public trustee/state trustees. (b) A third party or stranger may be held responsible under a constructive trust when have acted as a trustee without authority, knowingly receive trust property or participate in a breach of trust. (c) Anybody. (d) Both (a) and (b) above. Problem questions 1 Albert was appointed as executor and trustee of his cousin’s will. The estate consists of 100,000 XYZ company shares, three million dollars and an inner city apartment. There are three beneficiaries; namely Edward, Mary and Elizabeth. Edward is very concerned with how Albert is administering the estate. Albert has been a farmhand for all of his life and has not had to deal with large sums of money or been involved in the stock market. Albert has announced that he intends to sell the company shares and put the money into a very risky online project. Mary has been a very successful stockbroker for a number of years. Mary approaches Albert and encourages him to reconsider investing in the very risky online project. She would like to be appointed as a fellow trustee.

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Elizabeth is aware that Albert has been placing significant sums of money into his own bank account. She knows the money has come from the estate since she saw Albert’s bank statement that indicated $40,000 had been transferred. Edward, Mary and Elizabeth seek your advice about Albert. 2 Tom has recently been appointed as a trustee. The trust instrument indicates that the trust cannot acquire any more shares in a particular company. Anne, who is the solicitor acting on behalf of the trust, encourages Tom to acquire shares in the particular company. She is aware that the company is grossly undervalued and that if new management were appointed the shares would dramatically increase in value. Anne knows about this company because one of her clients disclosed the information when he sought her advice about a taxation matter. Anne already holds a sizeable proportion of the shares in the company. Tom decides to acquire the remaining shares not held by the trust in his own name. Being majority shareholders, Anne and Tom appoint new management. Almost immediately the shares double in value. Eric, who is one of the beneficiaries under the trust, seeks your advice about Anne and Tom. Eric believes that the enormous profit made by Tom and Anne is trust property. He also thinks that it is inappropriate for them to benefit personally in the circumstances. For answers to these questions, please refer to: .

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The Process of Tracing Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish tracing at common law and in equity • understand the process of tracing in equity • explain the role of fiduciary obligations and proprietary equitable interests • appreciate that third parties who are bona fide purchasers for value and without notice bring the process of tracing to an end.

Cases to remember Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 Foskett v McKeown [2001] 1 AC 102 Re Diplock [1948] 1 Ch 465

Overview Figure 11.1 provides an overview of tracing. The material in this chapter has been organised following the structure of this figure. Emphasis has been placed on the existence of a fiduciary relationship (see Chapter 5: Fiduciary Obligations and Confidential Information) or a proprietary equitable interest (see Chapter 2: The Concept of Property in Equity). Tracing is a process that permits proprietary interests to be pursued where property has changed hands or been exchanged for other property. Lord Millet in Foskett v McKeown [2000] 3 All ER 97 at 120 (discussed below) noted that tracing is not a remedy and it is not a cause of action. The following is an example of how tracing may operate. A trustee breaches their fiduciary obligations and misappropriates trust property. The beneficiaries may then use tracing to identify property that was formerly held under the trust, but has been exchanged for other property. The cause of action is the breach of fiduciary obligations (see Chapter 5: Fiduciary Obligations and Confidential Information). The remedy might be the imposition of a constructive trust (see Chapter 9: Constructive Trusts and Chapter 12: Equitable Remedies).

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Figure 11.1 The process of tracing Tracing

An evidentiary matter The process in equity

Prerequisite: fiduciary relationship/proprietary interest (See Chapter 5: Fiduciary Obligations and Confidential Information and Chapter 2: The Concept of Property in Equity)

Third parties and the bona fide purchaser for value without notice Re Diplock [1948] House of Lords

Trustee mixes the property with their own, and acquires new property – ‘Money first in’ Re Hallett’s Estate; Knatchbull v Hallett (1880) House of Lords

Remedies (See Chapter 12: Equitable Remedies)

– ‘Pari passu’ Foskett v McKeown [2000] 3 All ER 97 House of Lords

Priorities (See Chapter 2: The Concept of Property in Equity)

The process of tracing would identify the property that would be subject to the constructive trust.

An evidentiary matter Historically, a distinction has been made between tracing at common law and that of equity. Where property is mixed with other property, tracing at common law cannot occur. Equity permits beneficiaries to pursue their interests in these circumstances. Lord Millett and Lord Steyn in Foskett v McKeown [2000] 3 All ER 97 at 106 and 121 (discussed below) noted that tracing is essentially an evidentiary matter.

The process in equity For tracing to be effective, it is necessary to identify two elements: 1 A breach of fiduciary obligations or a beneficial proprietary interest must be established. 2 The property must still be in existence in that it has not been destroyed or that the interest has not been exhausted.

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Prerequisite: fiduciary relationship/ proprietary interest The existence of a pre-existing fiduciary relationship is usually the basis on which tracing will operate. The existence and content of fiduciary relationships are discussed in Chapter 5: Fiduciary Obligations and Confidential Information. Lord Millett in Foskett v McKeown [2000] 3 All ER 97 (discussed below) at 128 considered that the better view is that tracing is activated in the presence of an equitable interest in property. The flexible nature of equitable interests is discussed in Chapter 2: The Concept of Property in Equity.

Trustee mixes the property with their own, and acquires new property In this situation, the property that is sought to be traced has been mixed with other property and further property has been acquired. ‘Money first in’ and ‘pari passu’ are two methods that need to be considered.

‘Money first in’ In Clayton’s Case (1816) 1 MER 572 the assumption is that money first deposited into a single account is money that is first withdrawn. This approach was modified by the House of Lords.

A case to remember Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 Facts: A solicitor held two parcels of bonds. The first parcel was derived from a client and the other parcel was his marriage settlement that the trustees had given him. He later sold both parcels and died insolvent. Issue: The ability to trace property where it has been mixed. Decision: Sir George Jessel MR held that both parties were able to place a charge over the proceeds of sale for the bonds. This decision is based on the notion that given the property was mixed, it was not possible for it to be individually identified and held under a trust. It was also noted that the rule in Clayton’s Case be displaced (where money is put into a mixed account, the presumption is that the person withdraws their own money first).

This approach was clarified in the High Court of Australia decision in Brady v Stapleton (1952) 88 CLR 322. This matter concerned company shares and the court held that tracing was not limited to money but could include any property that could be identified.

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‘Pari passu’ While the principles in Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 are a means of resolving tracing issues, they were critically reviewed as being inappropriate when they would lead to exhausting the funds.

A case to remember Foskett v McKeown [2001] 1 AC 102 Facts: Approximately £2.6 million was put forward in an express trust to develop a number of properties in Spain. The funds were misappropriated and a proportion was used to pay the life insurance premium of a Mr Murphy. The trustee subsequently committed suicide. Issue: Tracing property in a mixed fund. Decision: The English Court of Appeal held that the contributors were able to trace their property but they were not entitled to a pro rata of the insurance proceeds. On appeal before the House of Lords, the majority comprising Lord Millet and Lord Browne-Wilkinson held that the contributors were entitled to a claim as a proportionate share of the proceeds on the basis of their contributions.

If the ‘first in’ principle is taken to its completion, it may be that the first beneficiary or proprietary equitable interest holder recovers their property. Any subsequent beneficiary or proprietary equitable interest holders would not recover any property because the fund has been exhausted. If the ‘pari passu’ or proportionate method is used, each beneficiary or proprietary equitable interest holder would be able to recover at least some of their property according to the nature of their contribution. Note: Where tracing is available, apply Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 and the principles in Foskett v McKeown [2000] 3 All ER 97. Note also the High Court of Australia’s decision in Scott v Scott (1963) 109 CLR 649, where beneficiaries were entitled to a proportionate share of profit if the asset that had been bought with their funds, as a breach of fiduciary obligations by the trustee, had increased in value.

Priorities If the property that has been acquired has decreased in value, there may also be an issue of competing interests in the same piece of property. The issue of priorities in both real and personal property was discussed in Chapter 2: The Concept of Property in Equity.

Chapter 11: The Process of Tracing

Third parties and the bona fide purchaser for value without notice Even though the prerequisite for tracing has been satisfied, tracing may be ineffective if the property is purchased for value and without notice of the prior interest. A third party in these circumstances keeps the property and tracing is brought to an end.

A Case to remember Re Diplock [1948] 1 Ch 465 Facts: In 1936 a testator died and devised his residue estate to ‘such charitable institutions or benevolent object or objects as his executors should in their absolute discretion think fit’. Approximately £210,000 was distributed to almost 200 charitable institutions over the next few years. Issue: The ability to trace where a third party has received property. Decision: The House of Lords considered that the devise was invalid. It lacked sufficient certainty. The court allowed the property to be traced into the hands of the charities because they were volunteers, •

If the property had not been mixed with other property.

•

If a charity had used the funds to refurbish or extend a building, then tracing could not occur.

•

If a charity had used the funds to pay a creditor, then tracing could not continue.

•

If the property was placed in a mixed fund, the rule in Clayton’s Case (1816) 1 MER 572 would operate so ‘money first deposited is assumed to be money first withdrawn’.

There are two significant issues to be further considered in this matter. 1 Note the equitable maxim—‘equity will not assist a volunteer’. Equitable maxims are discussed in Chapter 1: The Nature and History of Equity. 2 Remember that Clayton’s Case (1816) 1 MER 572 should be viewed in the context of the later decision Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 (discussed above).

Remedies The imposition of a constructive trust is a proprietary equitable remedy (see Chapter 9: Constructive Trusts). If tracing is not possible, then a personal remedy such as an order for an account of profits may be brought against the offending trustee for being in breach of their fiduciary obligations. Remedies are examined in Chapter 12: Equitable Remedies.

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Further reading G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 1239–56. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 1165–82. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012,pp. 659–75. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2012, pp. 1065–124. D Ong, Trusts Law in Australia, Federation Press, 2012,pp. 619–711. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 855–82. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 709–24.

Chapter 11: The Process of Tracing

Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains tracing? (a) Tracing is both a remedy and a cause of action. (b) Tracing is best considered as a remedy. (c) Tracing is not a remedy, nor a cause of action. (d) Tracing is a cause of action that may support the imposition of a constructive trust. 2 Complete the sentence: A bona fide purchaser for value and without notice of the prior interest (a) brings tracing to an end. (b) takes the property subject to the earlier interest. (c) takes the property subject to an equitable lien. (d) brings tracing to an end, and the third party takes the property subject to an equitable lien. 3 Complete the sentence: Tracing may take place where there is (a) a sufficiently manifest intention to do so. (b) a pre-existing fiduciary relationship. (c) a pre-existing fiduciary relationship or a proprietary equitable interest. (d) a pre-existing fiduciary relationship or a proprietary equitable interest evidenced in writing. 4 Complete the sentence: ‘Pari passu’ is (a) a method no one really understands. (b) a method used when tracing property in equity. (c) a method used when the other techniques at common law are not appropriate. (d) a method of proportioning property according to the value of contributions when undertaking tracing in equity. 5 Complete the sentence: ‘Money first in’ (a) is a principle derived from Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696. (b) is presumed to be money first withdrawn from the account and is derived from Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696. (c) is a principle derived from Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 and modified by Foskett v McKeown [2001] 1 AC 102. (d) is a principle derived from Clayton’s Case (1816) 1 MER 572 and modified by Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696. 6 The House of Lords in Re Diplock [1948] 1 Ch 465 considered the following events. In 1936 a testator died and devised his residue estate to ‘such charitable institutions or benevolent object or objects as his executors should in their absolute discretion think fit’. Approximately £210,000 was distributed to almost 200 charitable institutions over the next few years. The issue before the court was the ability to trace property where it is in the hands of a third party. Which of the following statements is an accurate description of the court’s decision? (a) The property could be traced into the hands of a charity because they were volunteers, • if the property had not been mixed with other property. • if a charity had used the funds to refurbish or extend a building, then tracing could not occur.

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•

if a charity had used the funds to pay a creditor, then tracing could not continue. if the property was placed in a mixed fund, the rule in Clayton’s Case (1816) 1 MER 572 would operate so ‘money first deposited is assumed to be money first withdrawn’. (b) The property could be traced into the hands of a charity because they were volunteers under any circumstances. (c) The property could not be traced into the hands of a charity because they were volunteers, • if the property had not been mixed with other property. • if a charity had used the funds to refurbish or extend a building, then tracing could not occur. • if a charity had used the funds to pay a creditor, then tracing could not continue. • if the property was placed in a mixed fund, the rule in Clayton’s Case (1816) 1 MER 572 would operate so ‘money first deposited is assumed to be money first withdrawn’. (d) The property could be traced into the hands of a charity because they were volunteers, • if the property had not been mixed with other property. • if a charity had used the funds to refurbish or extend a building, then tracing could not occur. • if the property was placed in a mixed fund, the rule in Clayton’s Case (1816) 1 MER 572 would operate so ‘money first deposited is assumed to be money first withdrawn’. 7 In Foskett v McKeown [2001] 1 AC 102 the English Court of Appeal considered these events. Approximately £2.6 million was put forward in an express trust to develop a number of properties in Spain. The funds were misappropriated and a proportion was used to pay the life insurance premium of a Mr Murphy. The trustee unfortunately subsequently committed suicide. The issue in question was that of tracing into a mixed fund. How did the court resolve the matter? (a) The English Court of Appeal held that the contributors were able to trace their property but they were not entitled to a pro rata of the insurance proceeds. On appeal before the House of Lords, the majority comprising Lord Millet and Lord Browne-Wilkinson held that the contributors were entitled to a claim as a proportionate share of the proceeds on the basis of their contributions. (b) The English Court of Appeal held that the contributors were not able to trace their property but they were entitled to a pro rata of the insurance proceeds. On appeal before the House of Lords, the majority comprising Lord Millet and Lord BrowneWilkinson held that the contributors were entitled to a claim as a proportionate share of the proceeds on the basis of their contributions. (c) The English Court of Appeal held that the contributors were not able to trace their property. (d) The English Court of Appeal held that the contributors were able to trace their property but they were not entitled to a pro rata of the insurance proceeds. On appeal before the House of Lords, the majority comprising Lord Millet and Lord Browne-Smith held that the contributors were entitled to a claim as a proportionate share of the proceeds on the basis of their contributions. •

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8 How do you apply the process of tracing? (a) Where tracing is available, apply Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 and the principles in Foskett v McKeown [2000] 3 All ER 97. (b) Where tracing is available, apply Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696 and the principles in Foskett v McKeown [2000] 3 All ER 97. If the ‘first in’ principle is taken to its completion, it may be that the first beneficiary or proprietary equitable interest holder recovers their property. Any subsequent beneficiary or proprietary equitable interest holders would not recover any property because the fund has been exhausted. If the ‘pari passu’ or proportionate method is used, each beneficiary or proprietary equitable interest holder would be able to recover at least some of their property according to the nature of their contribution. (c) If the ‘first in’ principle is taken to its completion, it may be that the first beneficiary or proprietary equitable interest holder recovers their property. Any subsequent beneficiary or proprietary equitable interest holders would not recover any property because the fund has been exhausted. If the ‘pari passu’ or proportionate method is used, each beneficiary or proprietary equitable interest holder would be able to recover at least some of their property according to the nature of their contribution. (d) Where tracing is available, apply Foskett v McKeown [2000] 3 All ER 97 and the principles in Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696. If the ‘first in’ principle is taken to its completion, it may be that the first beneficiary or proprietary equitable interest holder recovers their property. Any subsequent beneficiary or proprietary equitable interest holders would not recover any property because the fund has been exhausted. If the ‘pari passu’ or proportionate method is used, each beneficiary or proprietary equitable interest holder would be able to recover at least some of their property according to the nature of their contribution. 9 Complete the sentence: ‘The High Court of Australia’s decision in Scott v Scott (1963) 109 CLR 649 is significant.’ It is ‘significant’ because (a) it is an authority for the principle that beneficiaries are entitled to a proportionate share of profits if the asset that had been bought with their funds, as a breach of fiduciary obligations by the trustee, had increased in value. (b) it is an authority for the principle that beneficiaries are entitled to a share of profits if the asset that had been bought with their funds, as a breach of fiduciary obligations by the trustee, had increased in value. (c) it is an authority for the principle that beneficiaries are not entitled to a proportionate share of profits if the asset that had been bought with their funds. (d) it is an authority for the principle that beneficiaries are entitled to a one-third share of profits if the asset that had been bought with their funds, as a breach of fiduciary obligations by the trustee, had increased in value. 10 Equity is based upon the concept of ‘unconscionability’, that is to say, (a) the exploitation of the vulnerable and abuse of positions of confidence. (b) abuse of positions of confidence, insisting upon rights in circumstances that are harsh, the inequitable denial of obligations and the unjust retention of property. (c) insisting on rights in circumstances that are harsh, the exploitation of the vulnerable and abuse of positions of confidence. (d) the inequitable denial of obligations, the exploitation of the vulnerable and abuse of positions of confidence.

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Essay/discussion questions 1 ‘Tracing is not a remedy or a cause of action. It is a process that enables the proprietary rights of a beneficiary to be pursued when there is a breach of trust. Without the existence of a fiduciary relationship, tracing cannot be undertaken.’ Do you agree? Critically discuss this statement with respect to the role of fiduciary obligations and proprietary interests when tracing in equity is undertaken. 2 In Barnes v Addy (1874) LR 9 Ch App 244 the action brought by the beneficiaries was unsuccessful (see Chapter 9: Constructive Trusts). When will a third party be held responsible as a constructive trustee? Does the process of tracing have a role in these circumstances? Problem questions 1 John enters into an agreement with Susan. They have been talking for several years about joining forces in the fiercely competitive toy market. John has been importing high-quality toys from a number of international manufacturers and Susan has an extensive network of retail shops on the east coast of Australia. The agreement enables them to pool their resources and share the profits. All monies are to go into a central bank account. As part of the agreement, they both acknowledge the importance of acting honestly and not benefiting individually at the expense of the other party. After twelve months in business together, they are both surprised with how successful they have been. Unfortunately, Susan has not been keeping John accurately informed regarding sales. Over the last six months Susan has been placing twenty-five per cent of all sales into a separate bank account that John does not know about. The account contained $50,000 but over the last few days, Susan has withdrawn $20,000 to buy shares in Brown Ltd. Susan has always believed that aliens are visiting Earth. Six months ago she attended several meetings of ‘like-minded’ people. In an effort to assist these beliefs, Susan transfers $20,000 from her account to establish the Aliens Are Visiting Earth trust. Susan considers this is a worthwhile and noble pursuit since the trust will educate others and improve society. Susan also donates $10,000 to a local charity that cares for the elderly and infirm. The charitable organisation uses the money to refurbish and extend the nursing home they operate. John has just discovered what Susan has been doing. He found out about the separate account when he was collating some papers in the office. Susan has recently been declared bankrupt and the company shares are her only asset. The shares are now valued at $25,000. John seeks your advice. 2 The problem questions in Chapter 5: Fiduciary Obligations and Confidential Information and Chapter 9: Constructive Trusts involve references to ABC Ltd and XYZ Ltd. Consider how the process of tracing might be used to provide an appropriate remedy in each of these matters individually. For answers to these questions, please refer to: .

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Equitable Remedies Covered in this chapter After successfully completing this chapter, you will be able to: • distinguish equitable remedies from the common law • understand different types of equitable remedies such as an order for specific performance • explain how equitable remedies may assist a breach of fiduciary obligations • appreciate the role of discretion with equitable remedies.

Cases to remember Coulls v Bagot’s Trustee (1967) 119 CLR 460 Lumley v Wagner (1852) 42 ER 687 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 Nocton v Lord Ashburton [1914] AC 932 Dart Industries Inc. v The Décor Corporation Pty Ltd (1993) 116 ALR 385

Statutes to remember Chancery Amendment Act 1858 (UK) (Lord Cairns Act) Supreme Court Act 1933 (ACT) s 26 Supreme Court Act 1970 (NSW) s 68 Supreme Court Act 1979 (NT) s 14 Judicature Act 1876 (Qld) s 4 Supreme Court Act 1935 (SA) s 30 Supreme Court Civil Procedure Act 1932 (Tas) s 11 Supreme Court Act 1986 (Vic) s 38 Supreme Court Act 1935 (WA) s 25

Overview Figure 12.1 provides an overview of equitable remedies. The material in this chapter has been organised following the structure indicated in this figure. Emphasis has been placed on distinguishing equitable remedies from the common law. Issues concerning the fusion of common law and equity are also relevant (see Chapter 1: The Nature and History of Equity for further information). Another matter that has been discussed previously which is also relevant is the

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Figure 12.1 Equitable remedies The fusion of common law and equity (See Chapter 1: The Nature and History of Equity) The recognition of equitable interests (See Chapter 2: The Concept of the Property in Equity) A remedial constructive trust (See Chapter 5: Fiduciary Obligations and Confidential Information, and Chapter 9: Constructive Trusts) Equitable remedies An order for specific performance Coulls v Bagot’s Trustee (1967) High Court of Australia Injunctions Lumley v Wagner (1852) English Court of Appeal Mareva orders Anton Piller orders Anton Piller KG v Manufacturing Processes Ltd [1976] English Court of Appeal Damages in equity Nocton v Lord Ashburton [1914] House of Lords Chancery Amendment Act 1858 (UK) (Lord Cairns Act) Supreme Court Act 1933 (ACT) s 26 Supreme Court Act 1970 (NSW) s 68 Supreme Court Act 1979 (NT) s 14 Judicature Act 1876 (Qld) s 4 Supreme Court Act 1935 (SA) s 30 Supreme Court Civil Procedure Act 1932 (Tas) s 11 Supreme Court Act 1986 (Vic) s 38 Supreme Court Act 1935 (WA) s 25 An account of profits Dart Industries Inc. v The Décor Corporation Pty Ltd High Court of Australia

imposition of a remedial constructive trust (see Chapter 5: Fiduciary Obligations and Confidential Information, and Chapter 9: Constructive Trusts). Unlike the common law—where damages are available as a right after having established a cause of action—equitable remedies are at the discretion of the court. Equitable remedies are flexible. In many instances one series of events may give rise to a range of equitable remedies including the imposition of a remedial constructive trust (see Chapter 9: Constructive Trusts) due to a breach of fiduciary obligations (see Chapter 5: Fiduciary Obligations and Confidential Information), an account of profits, and an injunction. The remedy that is awarded by the court may be limited, to do justice in the circumstances.

The fusion of common law and equity One equitable maxim is that ‘equity follows the common law’, but this does not mean that equity will also provide a remedy when common law damages are not appropriate (see Chapter 1: The Nature and History of Equity for further information). It may be that no award of damages is made at common law because of noncompliance with the common law rules regarding foreseeability, proximity or mitigation. Equity may also refuse to grant relief because the party bringing the

Chapter 12: Equitable Remedies

matter before the court has ‘unclean hands’ (see Chapter 1: The Nature and History of Equity). It is possible for a party to be unsuccessful at common law and also fail to obtain a remedy in equity.

An order for specific performance An order for specific performance is to bring about an act to change the legal relationship between the parties. Such orders frequently arise in the context of compelling parties to perform their outstanding obligations under a valid enforceable contract. They may also be available where no contract is in existence but an estoppel has been awarded (see Chapter 4: Undue Influence, Unconscionable Conduct and Estoppel). Lord Justice Selborne in Wilson v Northampton and Banbury Junction Railway Co. (1874) LR 9 Ch App 279 at 284 noted: ‘The court gives specific performance instead of damages only when it can by that means do more perfect and complete justice.’ Usually an order for specific performance is available for contracts involving real property. It is also available for personal property if the item is unique or is difficult to replace.

A case to remember Coulls v Bagot’s Trustee (1967) 119 CLR 460 Facts: A contract gave a construction company the right to carry on a business on the property of Mr and Mrs Coulls. Royalties were to be paid to Mr and Mrs Coulls as joint tenants. Note that the contract was between Mr Coulls and the company. Issue: When Mr Coulls died, the issue arose as to whether the company should pay the estate of Mr Coulls or Mrs Coulls, as she was the surviving joint tenant. Decision: The High Court held that there had been no assignment of Mr Coulls’ interest to his wife. Mrs Coulls was not privy to the contract and could not obtain relief. Barwick CJ and Windeyer J both considered the rights of Mrs Coulls as a third party to compel payment under the contract. Windeyer J at 503–4 noted that a party who has contracted for the conferral of a benefit to a third party is entitled to an order of specific performance compelling payment of that benefit, but the third party has no rights of her own.

In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1 the landlord of a shopping centre sought to restrain a tenant, a supermarket, from breaking a 35-year lease with several years remaining. In the English Court of Appeal Roch LJ at 296 noted that damages would not be an appropriate remedy since it would: not compensate the plaintiffs [the landlord] for the disappearance of the supermarket, or for the effect of that on the other businesses in the shopping centre … who

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assumed obligations under their leases in reliance on there being a supermarket in the shopping centre and who will be adversely affected [and who] have no remedy against the defendants.

An order for specific performance was suitable in these circumstances to assist the landlord and the other tenants in the shopping centre. Note: The court is reluctant to make an order for specific performance where it involves a contract for personal services. An order for specific performance may also be declined by the court where the contract would result in hardship or undue influence or unconscionable conduct is involved, or where the other party is unwilling to perform the contract. The High Court of Australia in Patrick Stevedores Operations (No. 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 46–7 noted that an order for specific performance will not be refused simply because the matter involves ongoing maintenance, since ‘the courts are well accustomed to the exercise of supervisory applications by trustees’ (see Chapter 10: Trustees and Beneficiaries for further information).

Injunctions An injunction is an order to prohibit or to compel particular conduct.

A case to remember Lumley v Wagner (1852) 42 ER 687 Facts: Wagner was a famous opera singer who was under a contract to perform at a particular theatre. A clause in her contract of employment prevented her for three months from performing at another venue without approval. Issue: Wagner sought to breach this covenant and Lumley sought an injunction. Decision: Lord St Leonards at 693 noted that since it was a contract for personal services, an order for specific performance was not appropriate but an injunction could be made to prevent Wagner from breaching the negative covenant.

In Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337 a similar situation arose and an injunction was granted concerning a ‘restraint of trade clause’ because of the relatively short time involved and the defendant’s previous unsatisfactory conduct. An interlocutory injunction maintains the status quo until the court makes a final determination. The High Court of Australia in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 noted that for an interlocutory injunction to be granted three principles would need to be satisfied; namely that:

Chapter 12: Equitable Remedies

1 There was a prima facie case to be heard. 2 The balance of convenience favoured granting the injunction. 3 An undertaking for damages must be given to compensate for any loss. Almost twenty years later, the High Court of Australia in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 replaced the first principle with the approach of Diplock J in American Cynamid Co. v Ethican Ltd [1975] AC 396—whether the matter involved a serious question to be tried. Other matters involved include the effect on the defendant.

Mareva orders A Mareva order is a specialist form of relief based on the decision in Mareva Compania Naviera SA v International Bulk Carriers [1975] 2 Lloyds Rep 509. A Mareva order is made to preserve assets so that a successful plaintiff has the ability to enforce a judgment. The order is made where it appears that a defendant would deal with their property to put it beyond the jurisdiction of the court. The plaintiff when seeking a Mareva order must establish a strong prima facie cause of action against the defendant. Note that this is a higher standard than the ‘serious question to be tried’ that is involved with interlocutory injunctions (above). The plaintiff must convince the court that there is a risk the assets will be removed, and also give an undertaking as to damages.

Anton Piller orders An Anton Piller order is similar to a Mareva order but the former is used to gather and protect evidence. Anton Piller orders are complex and need careful attention if they are to be presented to the court in an effective manner.

A case to remember Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 Facts: The plaintiffs were German manufacturers of frequency converters for use in computers. The defendants were agents for the manufacturers and were located in the United Kingdom. The plaintiffs claimed that the defendants were in secret communications with other German manufacturers and that they were passing on confidential information. Issue: Elements that need to be satisfied to obtain an Anton Piller order. Decision: In the English Court of Appeal Ormond LJ noted at 62 that there are four elements that must be satisfied. First, there must be an extremely strong prima facie case; second, the likelihood of damage for the applicant must be very strong; and third, there must be clear evidence that the material is in the possession of the defendants and that there is a real possibility the information may be destroyed. The final or fourth requirement is that an undertaking as to damages must be made.

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equitABLE COMPENSATION AND Damages The term ‘damages’ usually refers to the award of money at common law and is governed by principles such as causation and remoteness. In Re Dawson (Deceased) (1966) 2 NSWR 211, Street J at 214–5 noted that an award of money in equity is to compensate the affected party but is not based on common law principles, and that liability for breach of trust or fiduciary obligations is more absolute than common law or tort. Lord Browne-Wilkinson in Target Holdings v Redferns (1996) 1 AC 421 at 432 observed that ‘the detailed rules of equity as to causation and the quantum of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same’.

A case to remember Nocton v Lord Ashburton [1914] AC 932 Facts: Nocton was a solicitor. In giving advice to Lord Ashburton concerning a mortgage he allowed another creditor to obtain priority over the same land. Issue: An award of money in equity to compensate for loss arising from breach of fiduciary obligations. Decision: The House of Lords held that Nocton had breached his fiduciary duty to his client and was liable to indemnify him for the loss. Viscount Haldane LC at AC 952 noted: operating in personam as a court of conscience it could order the defendant, not, in those days, to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as good a position pecuniarily as that in which he was before the injury.

Equitable compensation is permitted for a purely equitable wrong. It may be substituted for or in addition to an order for specific performance or an injunction according to the Chancery Amendment Act 1858 (UK) (Lord Cairns Act). All jurisdictions in Australia have equivalent legislation.

Statutes to remember Chancery Amendment Act 1858 (UK) (Lord Cairns Act) Supreme Court Act 1933 (ACT) s 26 Supreme Court Act 1970 (NSW) s 68 Supreme Court Act 1979 (NT) s 14 Judicature Act 1876 (Qld) s 4 Supreme Court Act 1935 (SA) s 30 Supreme Court Civil Procedure Act 1932 (Tas) s 11 Supreme Court Act 1986 (Vic) s 38 Supreme Court Act 1935 (WA) s 25

Chapter 12: Equitable Remedies

Exemplary damages are not available in equity, since the goal is to compensate and not punish. This matter was discussed by the New South Wales Court of Appeal in Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; 197 ALR 626 (see Chapter 1: The Nature and History of Equity for further information).

An account of profits In Warman International v Dwyer (1995) 182 CLR 544 the court emphasised that mathematical accuracy is not required, but only an approximation to measure the true profits obtained by a party in breach of their obligations. The court noted that the resources of the fiduciary may be taken into account and that it is for the defendant to establish that it is inappropriate to order an account of the entire profits. Frequently an account of profits arises in the context of intellectual property rights and from the breach of fiduciary obligations.

A case to remember Dart Industries Inc. v The Décor Corporation Pty Ltd (1993) 116 ALR 385 Facts: The plaintiff sued the defendant on the basis of a patent infringement. The matter concerned the mechanism used to seal plastic kitchen containers. The trial judge found in favour of the plaintiff and an account of profits was ordered. The assessment of an account of profits was argued on appeal before the High Court of Australia. Issue: Assessing the value of an account of profits. Decision: Mason CJ, Deane, Dawson and Toohey JJ noted that the purpose of an account of profits is not to punish but is based on unjust enrichment. The defendant has the onus of establishing that overhead costs are attributable to the manufacturing of products. McHugh J considered that it is a question of examining all the facts as to whether overhead costs ought to be deducted.

A similar approach is undertaken regarding the imposition of a constructive trust for breach of fiduciary obligations (see Chapter 5: Fiduciary Obligations and Confidential Information). In Victoria University of Technology v Wilson (2006) VSC 186 (19 May 2006) the Supreme Court of Victoria held that two university employees were fiduciaries to their employer. In not seeking approval from the university they had breached their fiduciary obligations and the shares they held in the company that was to market their creations were held under a constructive trust in favour of the university. It was decided that an allowance would be made to recognise the defendants’ own skills and costs. An independent assessor was appointed and this led to subsequent appeals regarding the quantum. Harper J referred to relevant university policies and the behaviour of the employees as to whether an allowance would be made for the defendants’ skills and efforts.

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Further reading E Bant, M Bryan Principles of Proprietary Remedies Law Book Co/Thomson 2013. G Dal Pont, Equity and Trusts: Commentary and Materials, Lawbook Co., 2011, pp. 1015–238. G Dal Pont, Equity and Trusts in Australia, Lawbook Co., 2011, pp. 927–1048. M Evans, Equity and Trusts, LexisNexis Butterworths, 2012, pp. 705–817. J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, 5th edn, LexisNexis Butterworths, 2015, pp. 605–996. J Heydon and M Leeming, Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2012, pp. 1125–298. D Ong, Ong on Equity Federation Press 2011, pp. 258–550. P Radan and C Stewart, Principles of Australian Equity and Trusts: Cases and Materials, LexisNexis Butterworths, 2013, pp. 695–854 and 883–922. P Radan and C Stewart, Principles of Australian Equity and Trusts, LexisNexis Butterworths, 2013, pp. 537–708 and 724–50.

Chapter 12: Equitable Remedies

Assessment preparation Test your knowledge 1 Which of the following statements most accurately explains equitable relief? (a) Equitable relief is flexible. (b) Equitable relief is discretionary. (c) Equitable relief is both flexible and discretionary—first consider whether damages at common law are adequate. (d) Equitable relief is both flexible and discretionary—there is no need to first consider whether damages at common law are adequate. 2 Complete the sentence: Injunctions, Mareva orders and Anton Piller orders are (a) simply examples of the same equitable remedy. (b) separate equitable remedies. (c) separate equitable remedies that involve different principles. (d) examples of remedies which are part of the common law and not equity. 3 Complete the sentence: When damages in equity are awarded (a) they may be in addition to other equitable remedies. (b) they may be in substitution of other equitable remedies. (c) they may be in addition to or in substitution for other equitable remedies. (d) they may be substituted for or in addition to an order for specific performance or an injunction. 4 Complete the sentence: Damages in equity are awarded (a) to punish the wrongdoer. (b) to compensate. (c) to both punish and to compensate. (d) on the same basis as damages at common law and involve remoteness, foreseeability and causation. 5 Complete the sentence: A breach of fiduciary obligations may give rise to (a) the imposition of a remedial constructive trust. (b) an account of profits. (c) an award of exemplary damages. (d) the imposition of a remedial constructive trust, an account of profits or damages in equity. 6 In Harris v Digital Pulse Pty Ltd [2003] 56 NSWLR 298, an employee who was a fiduciary benefited from the position when he established himself as a competitor to his employer. He was in breach of an express term in his contract and was dismissed. The employer sought exemplary damages. The trial judge, Palmer J in the New South Wales Supreme Court, ordered exemplary damages together with an account of profits. The matter was then appealed. The considered in what circumstances common law damages were available for a breach of fiduciary obligations.Which of the following statements accurately reflects the views of the New South Wales Court of Appeal? (a) Spigelman CJ and Heydon JA in the New South Wales Court of Appeal held that exemplary damages are not available for equitable wrongs. They emphasised the historical development of equity and noted that the Judicature Act 1873 (UK) only simplified procedure. It did not create new legal principles, so the decision would

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be the same. Mason P, in dissent, came to the view that the decision by Palmer J did not subvert any of equity’s general doctrines. (b) Spigelman CJ and Heydon JA in the New South Wales Court of Appeal held that exemplary damages are available for equitable wrongs. They emphasised the historical development of equity and noted that the Judicature Act only simplified procedure. It did not create new legal principles, so the decision would be different. Mason P, in dissent, came to the view that the decision by Palmer J did subvert equity’s general doctrines. (c) Spigelman CJ and Mason JA in the New South Wales Court of Appeal held that exemplary damages are not available for equitable wrongs. They emphasised the historical development of equity and noted that the Judicature Act only simplified procedure. It did not create new legal principles, so the decision would be the same. Heydon P, in dissent, came to the view that the decision by Palmer J did not subvert any of equity’s general doctrines. (d) Spigelman CJ and Heydon JA in the New South Wales Court of Appeal held that exemplary damages are not available for equitable wrongs. Mason P, in dissent, came to the view that the decision by Palmer J did not subvert any of equity’s general doctrines. 7 In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, the landlord of a shopping centre sought to restrain a tenant, a supermarket, from breaking a 35-year lease with several years remaining. The English Court of Appeal had to determine if damages would be an appropriate remedy. How did the court resolve the matter? (a) Roch LJ at 296 noted that damages would not be an appropriate remedy since it would: not compensate the plaintiffs [the landlord] for the disappearance of the supermarket, or for the effect of that on the other businesses in the shopping centre.

(b) Roch LJ at 296 noted that damages would be an appropriate remedy since it would: compensate the plaintiffs [the landlord] for the disappearance of the supermarket, or for the effect of that on the other businesses in the shopping centre … who did not assume obligations under their leases in reliance on there being a supermarket in the shopping centre and who would not be adversely affected [and who] have no remedy against the defendants.

(c) Rich LJ at 296 noted that damages would not be an appropriate remedy since it would: not compensate the plaintiffs [the landlord] for the disappearance of the supermarket, or for the effect of that on the other businesses in the shopping centre … who assumed obligations under their leases in reliance on there being a supermarket in the shopping centre and who will be adversely affected [and who] have no remedy against the defendants.

(d) Roch LJ at 296 noted that damages would not be an appropriate remedy since it would:

Chapter 12: Equitable Remedies

not compensate the plaintiffs [the landlord] for the disappearance of the supermarket, or for the effect of that on the other businesses in the shopping centre … who assumed obligations under their leases in reliance on there being a supermarket in the shopping centre and who will be adversely affected [and who] have no remedy against the defendants.

8 In Coulls v Bagot’s Trustee (1967) 119 CLR 460, a contract gave a construction company the right to carry on a business on the property of Mr and Mrs Coulls. Royalties were to be paid to Mr and Mrs Coulls as joint tenants. Note that the contract was between Mr Coulls and the company. The matter came before the court when Mr Coulls died, as to whether the company should pay his estate or Mrs Coulls since she was the surviving joint tenant. How did the High Court of Australia decide the issue? (a) Since there had been no assignment of Mr Coulls’ interest to his wife. Mrs Coulls was not privy to the contract and could not obtain relief. Barwick CJ and Windeyer J both considered the rights of Mrs Coulls as a third party to compel payment under the contract. Windeyer J at 503–4 noted that a party who has contracted for the conferral of a benefit to a third party is entitled to an order of specific performance compelling payment of that benefit, but the third party has no rights of her own. (b) Since there had been no assignment of Mr Coulls’ interest to his wife. Mrs Coulls was not privy to the contract and could not obtain relief. Barwick CJ and Menzies J both considered the rights of Mrs Coulls as a third party to compel payment under the contract. Menzies J at 503–4 noted that a party who has contracted for the conferral of a benefit to a third party is entitled to an order of specific performance compelling payment of that benefit, but the third party has no rights of her own. (c) Since there had been no assignment of Mr Coulls’ interest to his wife. Mrs Coulls was not privy to the contract and could not obtain relief. Barwick CJ considered the rights of Mrs Coulls as a third party to compel payment under the contract. Furthermore he noted at 503–4, that a party who has contracted for the conferral of a benefit to a third party is entitled to an order of specific performance compelling payment of that benefit, but the third party has no rights of her own. (d) Since there had been no assignment of Mr Coulls’ interest to his wife. Mrs Coulls was not privy to the contract and could not obtain relief. 9 In Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55, the plaintiffs were German manufacturers of frequency converters for use in computers. The defendants were agents for the manufacturers and were located in the United Kingdom. The plaintiffs claimed that the defendants were in secret communications with other German manufacturers and that they were passing on confidential information. The English Court of Appeal had to consider what was required in the circumstances for Equity to provide relief. Which of the following statements accurately describes the decision by the court? (a) Ormond LJ noted at 62 that there are three elements that must be satisfied. First, there must be an extremely strong prima facie case; second, the likelihood of damage for the applicant must be very strong; and third, there must be clear evidence that the material is in the possession of the defendants and that there is a real possibility the information may be destroyed.

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(b) Ormond LJ noted at 62 that there are four elements that must be satisfied. First, there must be an extremely strong prima facie case; second, the likelihood of damage for the applicant must be very strong; and third, there must be clear evidence that the material is in the possession of the defendants and that there is a real possibility the information may be destroyed. The final or fourth requirement is that an undertaking as to damages must be made. (c) Ormond LJ noted at 62 that there are four elements that must be satisfied. First, there must be an extremely strong prima facie case; second, the likelihood of damage for the applicant must be very strong; and third, there must be clear evidence that the material is in the possession of the defendants and that there is a real possibility the information may be destroyed. The final or fourth requirement is that it must be reasonable for the court to intervene. (d) Ormond LJ noted at 62 that there are three elements that must be satisfied. First, there must be an extremely strong prima facie case; second, the likelihood of damage for the applicant must be very strong; and third, that there is an undertaking as to damages. 10 Complete the phrase: ‘Circumstances of inequality do not of themselves call for the intervention of equity. It is … (a) only where there is a problem of morality.’ (b) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct. It must be established that it would be against the conscience for a court of equity not to acknowledge what has occurred between the parties.’ (c) the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.’ (d) only when the court decides to act.’ Essay/discussion questions 1 Two law students were overheard discussing equitable relief. One student said to the other: ‘The only remedy at common law is damages—whereby a sum of money is awarded to put the parties in the position they would have occupied if the contract had been fulfilled or the tort had never occurred. If damages at common law are not an appropriate remedy, then you can come to equity since equity follows the common law.’ Do you agree? Critically discuss this statement. Are there any other limitations imposed on the use of equitable relief? 2 In Target Holdings v Redferns (1996) 1 AC 421 at 432 Lord Browne-Wilkinson noted: [A]t common law there are two principles fundamental to the award of damages. The first, that the defendant’s wrongful act must cause the damage complained of. Second, that the plaintiff is to be put “in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation” … Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law.

Chapter 12: Equitable Remedies

Critically discuss this statement. How similar or different is the assessment of damages at common law and in equity? 3 In Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582 at 585–6 Kirby J noted: [C]ourts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people … If courts do not show caution here they will effectively force on commercial parties terms which the court may think to be reasonable and as ought commonly to govern such a contract but which the parties themselves held back from concluding. Moreover, the contract then enforced will not be that which the parties have concurred in but a different one, determined by the court … The wellsprings of the conduct of commercial people are self-evidently important for the efficient operation of the economy. Their actions typically depend on self-interest and profitmaking not conscience or fairness. In particular circumstances protection from unconscionable conduct will be entirely appropriate. But courts should, in my view, be wary lest they distort the relationship of substantial, well advised corporations in commercial transactions by subjecting them to the overly tender consciences of judges.

When should equitable remedies be available in commercial matters? Discuss relevant cases. For answers to these questions, please refer to: .

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Glossary Agreement to assign—A type of dealing

in which the transfer of an interest in property is dependent on something else occurring. Assignee/transferee—The intended

recipient or person of the assigned property (see also donee). Assignment—A type of dealing which

involves the immediate transfer of an interest that presently exists. Assignor/transferor—The person who is

attempting to assign their property. Bailment—Developed under the common law, it is based upon the law of contract and is concerned with possession and not title to personal property. Charitable purpose—A charitable purpose

is either expressly stated in the preamble to the Statute of Charitable Uses 1601 or is within one of the four classes identified by Lord Justice McNaughten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531. Note also the role of legislation.

law as distinguished from statute and (3) law laid down by common law courts, as distinguished from the rules of equity. Complete constitution—A valid private

express trust must satisfy the three certainties and also be completely constituted. Complete constitution involves the disposition of property and the creation of a beneficial interest. Constructive trust—Can be distinguished

from an express trust, because they arise through the operation of law, are largely contrary to the intentions of the parties and are not subject to the statutory requirements of writing. Constructive trusts arise when equitable principles are infringed. Constrictive trusts are both an institution and a remedy. Creditor—The person to whom money

is owed. Debtor—The person who owes money. Declaration of trust—A clear statement to

create a trust. Note the need to satisfy the ‘three certainties’ and that the trust must be completely constituted. When a person drafts their will, they are making a trust that will come into operation at the time of their death.

Charitable trust—This is a particular type of express trust. Common features include the need to satisfy certainty of intention and certainty of subject. The certainty of objects or beneficiaries that is required for an express trust is replaced with a charitable purpose.

Direction to a trustee—This form of dealing only occurs in equity and involves a beneficiary giving instructions to a trustee(s).

Chose in action—A bundle of rights

Donee—A term for the intended recipient or

involving intangible personal property. Examples include money in the bank, a debt and intellectual property rights (such as copyright, patents and trademarks).

person of the assigned property. Donor—A term for a person who is

attempting to assign their property.

Chose in possession—A bundle of rights involving tangible personal property. Examples include a car, a book or clothes.

Equity—The body of law developed in the Court of Chancery.

Common law—This term has three

Fiduciary—Fiduciary obligations arise from

potential meanings: it refers to (1) laws inherited from England, (2) judge-made

Estate—All of the property under a will.

the position of the parties. A fiduciary is

Glossary

the party in whom confidence is held. A beneficiary is the party to whom the obligations are owed. A fiduciary must avoid any conflict of interest and any property acquired from the position they occupy is held in favour of the beneficiary. For example, a legal practitioner is a fiduciary for their client. Fusion fallacy—A term used in respect of

decisions where the courts, in considering the effects of the judicature system, have made an error of judgment. The fusion of equity and law is an ongoing debate. There are largely two schools of thought: (1) those who maintain that the only consequence of the Judicature Act was the fusion of procedure and (2) those who prefer to consider that substantive law, together with procedure, was also fused. The term fusion fallacy is used when a decision indicates that new substantive legal principles were created by the fusion of common law and equity because of the judicature system. Future property—Property that does not

presently exist and may come into existence at some future date. Future property is also known as a mere expectancy. Inter vivos trust—A trust that has been created during the life of a person. Legal interest—An interest recognised

by law. Maxims of equity—Maxims are not rules

Mortgagor—The borrower of money under

a mortgage. Personal property—A bundle of rights that

may be picked up and removed. Tangible personal property includes books, cars and clothes. Intangible personal property includes intellectual property rights (such as copyright, patents and trademarks). Post mortem or testamentary trust—

A trust created by a will. Priorities—Where there is competition between different interests in a particular piece of property, the rules regarding priorities assist in establishing who has the better entitlement to the property. Property—A bundle of rights. Real property—A bundle of rights involving

land. Things attached to land are known as fixtures and are also considered to be real property. Resulting trust—Arises through the

operation of law and is based upon the intention of the parties unless there is contrary evidence. Resulting trusts are not subject to the statutory requirements for writing. Testator—A deceased male who has left a

valid will. Testatrix—A deceased female who has left

a valid will.

and so they do not have to be followed. They are an indication as to how equity has developed and are useful in applying equitable principles. Maxims can overlap with one another; they are discretionary and the use of individual maxims can change over time.

Three certainties—Certainty of intention, certainty of subject and certainty of object are required to create an express trust. Note also that for the trust to be valid there must be complete constitution and any statutory requirements for writing must also be satisfied.

Mere equity—An equitable interest that is

Tracing—A process of identifying property that has changed hands and changed form. It is not a cause of action, nor is tracing a remedy.

less than a full equitable interest. Mortgage—The lending of money to

purchase property. The property itself has been used as security for the loan. Mortgagee—The lender of money under a

mortgage.

Trust—A person (known as a trustee) holds

property in favour of another person (known as a beneficiary), a group of people (known

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Glossary

as beneficiaries) or for a charitable purpose. There are many different types of trusts, including express trusts, constructive trusts and resulting trusts. Trust deed or trust instrument—

A document used in the creation of a trust. Note that not all trusts need to be evidenced

in writing. If there is no trust deed, equity and statute outline duties and responsibilities. Volunteer—A person who seeks to assign property without the presence of valuable consideration.

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Table of Cases Bold entries indicate ‘Cases to Remember’ ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199  76, 79 American Cynamid Co. v Ethican Ltd [1975] AC 396  167 Anning v Anning (1907) 4 CLR 1049  31, 33, 36–7, 42–3 Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55  163–4, 167, 173–4 Astor’s Settlement Trusts, Re [1952] Ch 534  96, 98, 108 Attorney General (UK) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30  62, 64, 74 Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582  46, 48, 53, 56, 175 Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 75 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153  46, 48, 53, 58 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [No. 2] (2000) 96 FCR 491  3, 17 Australian Elizabethan Theatre Trust, Re (1991) 102 ALR 681  118 Bacon v Pianta (1966) 114 CLR 634  96, 98, 107 Baden, Delvaux and Lecuit v Societe Generale [1983] BCLC Ch D 325  131 Baden’s Deed Trusts, McPhail v Doulton, Re [1971] AC 424  81, 83, 89–90, 93 Baden’s Deed Trusts (No. 2), Re [1973] Ch 9  81, 83, 89 Baker v Archer-Shee [1927] AC 844  18–19, 22 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567  86–7, 92, 114–15, 117–18, 123 Barnes v Addy (1874) LR 9 Ch App 244  64, 73, 126–7, 129–31, 135–9, 142, 149, 162 Baumgartner v Baumgartner (1987) 164 CLR 137  57, 120, 126–7, 132, 135–6 Beatty v Guggenheim Exploration Co. 255 NY 380  138–9 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618  166–7 Belmont Finance Corporation v Williams Furniture Ltd (No. 2) [1980] 1 All ER 393  130 Bester v Perpetual Trustee Co. Ltd [1970] 3 NSWLR 30  46, 48, 50 Blomley v Ryan (1959) 99 CLR 362  51 Boardman v Phipps [1967] 2 AC 46  62, 64–6, 72 Brady v Stapleton (1952) 88 CLR 322  155 Breen v Williams (1996) 138 ALR 259  62, 64, 70 Bridgewater v Leahy (1998) 194 CLR 457  46, 48, 52 British Red Cross Balkan Fund, Re [1914] 2 Ch 419  117 Calverley v Green (1984) 155 CLR 242  114–15, 119–20, 136 Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148  167 Central Bayside Division of General Practice Ltd v Commissioner for Payroll Tax (Vic) [2006] HCA 43  99, 101

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Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130  54 Chan v Zacharia (1984) 154 CLR 178  62, 64, 66 Church of the New Faith v Commissioner of Payroll Tax (1983) 154 CLR 120  96, 98, 104, 112 Clayton’s Case (1816) 1 MER 572  155, 157, 160 Coco v AN Clark (Engineers) [1969] RPC 41  62, 64, 73–4 Commercial Bank of Australia v Amadio (1983) 151 CLR 447  46, 48, 51, 58 Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178  81, 83, 87 Commissioner of Stamp Duties v Livingston [1965] AC 694  18–20, 23–5, 148 Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531 96, 98–9, 102–4 Commonwealth of Australia v Verwayen (1990) 170 CLR 394  46, 48, 56 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373  65, 126–7, 130–1, 135, 137–8 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1  165, 172 Corin v Patton (1990) 169 CLR 540  14, 31, 33, 37, 43–4 Coulls v Bagot’s Trustee (1967) 119 CLR 460  163–5, 173 Cowan v Scargill [1985] Ch 270  140, 142, 145 Curro v Beyond Productions Pty Ltd (1993) 30 NSWLR 337  166 Dart Industries Inc. v The Décor Corporation Pty Ltd (1993) 116 ALR 385  163–4, 169 Dawson (Deceased), Re (1966) 2 NSWR 211  168 Dearle v Hall (1828) 3 Russ 1   26 Dillwyn v Llewellyn (1862) 4 DE GF & J 517, 45 ER 1285  54 Dingle v Turner [1972] AC 60  96, 98, 101 Diplock, Re [1948] 1 Ch 465  153–4, 157 DKLR Holdings Co (No2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431  20, 23 Downing v FCT (1971) 125 CLR 185  96, 98, 102 Duchess of Argyll v Duke of Argyll [1967] 1 Ch 302  62, 75 Earl of Oxford’s Case (1615) 1 Ch Rep 1; 21 ER 485  1–2, 5, 16, 58, 111, 124 Endacott, Re [1960] Ch 232  98, 107 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22  69, 126–7, 131, 135, 137 Foskett v McKeown [2000] 3 All ER 97  154–5, 161 Foskett v McKeown [2001] 1 AC 102  153, 156, 159–60 Garcia v National Australia Bank Ltd [1998] 194 CLR 395  46, 48–9 Gill v Gill (1921) 21 SR (NSW) 400  21 Gillingham Bus Disaster Fund, Re [1958] Ch 300  114–17, 122 Giumelli v Giumelli (1999) 196 CLR 101  48, 57, 126–8, 135–6 Glegg v Blomley [1912] 3 KB 474  32

Table of Cases

Green v Green (1989) 17 NSWLR 343  133, 136 Grey v Inland Revenue Commissioners [1960] AC 1  39, 148 Hallett’s Estate; Knatchbull v Hallett, Re (1880) 13 Ch D 696  4, 153–7, 159, 161 Hardoon v Belilios [1901] AC 118  140, 146, 150–1 Harries v The Church Commissioners for England [1993] 2 All ER 300  140, 142, 145 Harris v Digital Pulse Pty Ltd [2003] 56 NSWLR 298  2, 65, 171 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; 197 ALR 626  1, 13, 16, 169 Hartigan Nominees Pty Ltd (1992) 29 NSWLR 405  148 Hopkins Will Trusts, Re [1965] Ch 669  96, 98, 103 Horan v James [1982] 2 NSWLR 376  90 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41  62, 64, 67, 69 Hunter v Moss [1994] 3 All ER 214  81, 83, 88 Incorporated Council of Law Reporting v FCT (1971) 125 CLR 659  96, 98, 105 IRC v Baddeley [1955] 1 All ER 525  96, 98, 105 Johnson v Buttress (1936) 56 CLR 113  46, 48, 50 Jorden v Money (1854) 5 HL Cas 184  54 JW Broomhead (Vic) Pty Ltd (in liq.) v JW Broomhead Pty Ltd [1985] VR 891  146, 151 Kakavas v Crown Melbourne Ltd (2013) 87 ALJR 708  51, 60 Keech v Sandford (1726) Sel Cas T King 61; 25 ER 223  62, 64–5, 71 LAC Minerals v International Corona Resources Ltd (1969) 61 DLR (4th) 14  62, 64, 66, 69 Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265  18–19, 25 Le Cras v Perpetual Trustee Co. Ltd [1969] 1 AC 514  96, 98, 102 Leahy v Attorney General of NSW [1959] AC 459  96, 98, 104 Leahy v Attorney General of NSW (1959) 101 CLR 611  85 Legal Services Board v Gillespie-Jones [2013] HCA 35  115 Legal Services Board v Gillespie-Jones (2013) 249 CLR 493  86, 118 Leigh’s Will Trusts, Re [1970] Ch 277  18, 23–4 Livingston v Commissioner of Stamp Duties (1960) 107 CLR 411 18–19, 22–3, 148 Londonderry’s Settlement; Peat v Walsh, Re [1965] Ch 918  140, 142, 147 Louth v Diprose (1992) 175 CLR 621  50, 52, 58 Lumley v Wagner (1852) 42 ER 687  163–4, 166 Lysaght (Dec’d), Re [1966] Ch 191  96, 98, 106, 112 Mabo v Queensland (No. 2) (1992) 175 CLR 1  71 Maguire v Markaronis (1997) 188 CLR 149  66 Mainstay’s Settlement, Re [1974]  89–90

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Table of Cases

Mareva Compania Naviera SA v International Bulk Carriers [1975] 2 Lloyds Rep 509  167 Mills v Ruthol Pty Ltd [2002] NSWSC 294  22, 29 Milroy v Lord (1862) 4 De GF & J 264  31, 33, 36–7, 42 Morice v the Bishop of Durham (1805) 9 Ves 399  85, 96, 98, 107 Muschinski v Dodds (1985) 160 CLR 583  57, 120, 126–8, 132–3, 135–6 National Anti-Vivisection Society v IRC [1948] AC 31  96, 98, 101 National Provincial Bank v Ainsworth [1965] AC 1175  24 Nelson v Nelson (1995) 184 CLR 538  114–15, 120–1, 125 Nocton v Lord Ashburton [1914] AC 932  163–4, 168 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9  31–4, 37, 43 Oppenheim v Tobacco Securities Trust Co. Ltd [1951] AC 287  96, 98, 101, 113, 147 Oughtred v Inland Revenue Commissioner [1960] Ch 383  38 Patrick Stevedores Operations (No. 2) Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1  166 Paul v Constance [1977] 1 All ER 19  38 Pilmer v Duke Group Ltd (in liq.) (2001) 207 CLR 165  62, 64, 70–1 Pinon, Re [1965] Ch 85  103 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134  62, 64, 67 Roads and Traffic Authority of New South Wales v Dederer (2007) 324 CLR 330  79 Royal Brunei Airlines v Tan [1995] 2 AC 378  130–1 Royal National Agricultural and Industrial Association v Chester (1974) 48 ALJR 304  96, 98, 100 Russell v Scott (1936) 55 CLR 440  119 Saunders v Vautier (1841) 4 Beav 115  140, 142, 147 Saunders v Vautier (1849) 49 ER 282  39 Scott v Scott (1963) 109 CLR 649  156, 161 Scottish Burial Reform & Cremation Soc. Ltd v Glasgow Corporation [1968] AC 138  96, 98, 100 Seager v Copydex (No. 1) [1967] 2 All ER 415  1–2, 13, 73 Shaw (Dec’d), Re [1957] 1 All ER 745  96, 98, 103 Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385  31, 33–5, 41 Smith Kline and French Laboratories (Australia) Ltd v Secretary Dept of Community Services and Health (1991) 99 ALR 679  62, 64, 75 Speight; Speight v Gaunt, Re (1883) 22 Ch D 727  144 Target Holdings v Redferns (1996) 1 AC 421  168, 174 Tatham v Huxtable (1950) 81 CLR 639  89–90 Teague v Trustees, Executors and Agency Company Ltd (1923) 32 CLR 252  147 Trendtex Trading Corp. v Credit Suisse [1982] AC 679  32

Table of Cases

Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107  85 Turner v Turner [1984] Ch 100  140, 142, 144 Twinsectra v Yardley [2002] 2 All ER 377  131 United Dominion Corporation v Brian Ltd (1985) 157 CLR 1  53, 62, 64, 66–9 Vandervell v Inland Revenue Commissioners [1967] 2 AC 291  39, 148 Vandervell’s Trusts (No. 2), Re [1974] Ch 269  115 Victoria Park Racing and Recreation Grounds Co. Ltd v Taylor (1937) 58 CLR 479  62, 76 Victoria University of Technology v Wilson (2006) VSC 186  169 Walsh v Lonsdale (1882) 21 Ch D 9  1–2, 12 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387  46, 48, 55–6, 58–9 Warman International v Dwyer (1995) 182 CLR 544  169 West Sussex Constabulary’s Widows, Children & Benevolent (1930) Trust Funds, Re [1971] Ch 1  114–15, 117, 123 Wik Peoples v Queensland (1996) 187 CLR 1  71 Wilson v Northampton and Banbury Junction Railway Co. (1874) LR 9 Ch App 279  165 Yerkey v Jones (1938) 63 CLR 649  47–9

183

184

Table of Statutes Commonwealth Australian Charities and Not-for-profits Commission (Consequential and Transitional) Act 2012  97, 98, 109 Australian Consumer Law (ACL)  53 s 20  3, 46, 48, 53, 54 s 21  3, 46, 48, 53, 54 s 22  3, 46, 48, 53, 54 Charities (Consequential Amendments and Transitional Provisions) Act 2013  97, 98, 109 Competition and Consumer Act 2010 Sch 2  3, 46, 48, 53, 54 Corporations Act 2001 ss 180–4  3, 62, 64, 66, 68 Defence Service Homes Act 1918  120–1 Family Law Act 1975  126, 127, 133 Privacy Act 1988  63, 64, 76 Trade Practices Act 1974  52 s 51AA  3, 46, 48, 53, 54 s 51AB  3, 46, 48, 53, 54 s 51AC  46, 48, 53, 54 s 52  3

Trustee Act 1925  141, 142 s 2  81, 83, 88 s 6  143 s 14  144 s 14A  145 s 14C  146 s 59  146 s 70  143 Trustee Companies Act 1947  140, 142, 143 Wills Act 1968 s 9  81, 83, 91 s 14A  81, 83, 90

New South Wales Administration of Justice Act 1840 11 Charitable Trusts Act 1993  97 ss 9–11  98, 106 s 23  98, 108 Conveyancing Act 1919 s 12  31, 33, 36 s 23C  31, 33, 35 Fair Trading Act 1987  46, 48, 53, 54

Australian Capital Territory

Health Records and Information Act 2002  63, 64, 70, 76

Civil Law (Property) Act 2006 s 201  31, 35 s 205  31, 36

Law Reform (Law and Equity) Act 1972  1, 2, 6, 11

Conveyancing Act 1919 s 12  31, 33, 36 Domestic Relationships Act 1994  126, 127, 133 Fair Trading Act 1992  46, 48, 53, 54 Human Rights Act 2004  63, 64, 77 Information Privacy Act 2014  63, 64, 76 Land Titles Act 1925 s 59  18, 19, 26 Partnership Act 1963  62, 66 Public Trustee Act 1985  140, 142, 143 Supreme Court Act 1933 s 26  163, 164, 168

Partnership Act 1892  62, 66 Privacy and Personal Information Protection Act 1998  63, 64, 76 Property Relationships Act 1984  126, 127, 133 Public Trustee Act 1941  140, 142, 143 Real Property Act 1900 s 43  18, 19, 26 Succession Act 2006 s 44  81, 83, 90 Supreme Court Act 1970 ss 57–62  1, 2, 6, 11 s 68  163, 164, 168

Table of Statutes

Trustee Act 1925  141, 142 s 5  81, 83, 88 s 6  143 s 14  144 s 14A  145 s 14C  146 s 59  146 s 70  143 Trustee Companies Act 1964  140, 142, 143 Wills Probate & Administration Act 1898 s 7  81, 83, 91

Northern Territory

Equity Act 1867  8 Equity Procedure Act 1873  8 Fair Trading Act 1989  46, 48, 53, 54 Information Act 2009  63, 64, 76 Judicature Act 1876 s 4  2, 6, 8, 163, 164, 168 s 5  2, 6, 8 Land Title Act 1994 s 184(2)  18, 19, 26 s 184(3)  18, 19, 26 Moreton Bay Supreme Court Act 1857  7 Partnership Act 1891  63, 66

Consumer Affairs and Fair Trading Act 1990  46, 48, 53, 54

Property Law Act 1974  126, 127, 133 s 5  33 s 9  33 s 11  31, 35 s 199  31, 33, 36 s 200  33

De Facto Relationships Act  126, 127, 133

Public Trustee Act 1978  140, 142, 143

Land Titles Act 2000 s 188(2)  18, 19, 26 s 188(3)  18, 19, 26

Succession Act 1981 s 10  82, 83, 91 s 33R  81, 83, 90

Law of Property Act 2000 s 10  31, 35 s 182  31, 33, 36

Supreme Court Act 1867  8

Partnership Act 2007  62, 66

Trustee Companies Act 1968  140, 142, 143

Companies (Trustees and Personal Representatives) Act  140, 142, 143

Public Trustee Act  140, 142, 143 Supreme Court Act 1979 s 14  163, 164, 168 Trustee Act  141, 142 s 5  144 s 6  145 s 8  146 s 11  143 s 26  146 s 27  143 s 82  81, 83, 88 Wills Act 2000 s 8  82, 83, 91 s 43  81, 83, 90

Queensland Civil Proceedings Act 2011 s 7  1, 2, 6

Supreme Court Constitution Amendment Act 1861  7

Trusts Act 1973  97, 141, 142 s 5  81, 83, 88 s 12  143 s 20  146 s 21  144 s 22  145 s 24  146 s 72  146 s 80  143 s 103  105 s 104  98, 108 s 105  98, 106

South Australia Domestic Partners Property Act 1996  126, 127, 133 Fair Trading Act 1987  46, 48, 53, 54

185

186

Table of Statutes

Law of Property Act 1936 s 15  31, 33, 36 s 29  31, 33, 35 Partnership Act 1891  63, 66 Public Trustee Act 1995  140, 142, 143 Real Property Act 1886 ss 186–7  18, 19, 26 South Australia Colonisation Act 1834  7 Supreme Court Act 1935 ss 17–28  1, 2, 6 s 30  163, 164, 168 Supreme Court Procedure Amendment Act 1853  2, 6, 7 Trustee Act 1936  97, 141, 142 s 4  81, 83, 88 s 6  144 s 7(1)  145 s 9  146 s 14  143 s 35  146 s 36  143 s 69  98, 108 s 69B  98, 106 s 69C  105 Trustee Companies Act 1988  140, 142, 143 Wills Act 1936 s 8  82, 83, 91

Tasmania

Public Trustee Act 1930  140, 142, 143 Relationships Act 2003  126, 127, 133 Supreme Court Civil Procedure Act 1932 s 10  1, 2, 6, 10 s 11  1, 2, 6, 10, 163, 164, 168 Trustee Act 1898  141, 142 s 4  81, 83, 88 s 6  144 s 7  145 s 8  146 s 13  143 s 27  146 s 32  143 Trustee Companies Act 1953  140, 142, 143 Variation of Trusts Act 1994  97 s 4  98, 108 s 4(1)  105 s 5  98, 106 Wills Act 1992 s 10  82, 83, 91

Victoria Administration of Justice Act 1840  9 Charities Act 1978  97 Part 1  98, 106 s 7M  98, 108 Charter of Human Rights and Responsibilities Act 2006  63, 64, 77 Fair Trading Act 1999  46, 48, 53, 54

Administration of Justice Act 1844  10

Health Records Act 2001  63, 64, 70, 76

Administration of Justice Act 1856  10

Judicature Act 1883 s 8  2, 6, 9

Australian Courts Act 1828  10, 11 Conveyancing and Law of Property Act 1884 s 60(2)  31, 33, 35 s 86  31, 33, 36 Fair Trading Act 1990  46, 48, 53, 54

Legal Profession Act 2004  118 Partnership Act 1958  63, 66 Privacy and Data Protection Act 2014  63, 64, 76

Information and Protection Act 2004  63, 64, 76

Property Law Act 1958 s 53  31, 33, 35 s 134  31, 33, 36

Land Titles Act 1980 s 41  18, 19, 26

Relationships Act 2008  126, 127, 133

New South Wales Act 1823  9, 11 Partnership Act 1891  63, 66

State Trustees (State Owned Company) Act 1994  140, 142, 143

Table of Statutes

Supreme Court Act 1986 s 29  1, 2, 6 s 38  163, 164, 168

Public Trustee Act 1985  140, 142, 143

Supreme Court of Victoria Act 1852  9

Supreme Court Act 1935 s 24  1, 2, 6 s 25  1, 2, 6, 163, 164, 168

Transfer of Land Act 1958 s 43  18, 19, 26 Trustee Act 1958  141, 142 s 3  81, 83, 88 s 5  144 s 6  145 s 8(1)  146 s 36(2)  146 s 41  143 s 48  143 Trustee Companies Act 1984  140, 142, 143 Wills Act 1997 s 7  82, 83, 91 s 48  81, 83, 90

Western Australia Charitable Trusts Act 1962 s 5  105 Fair Trading Act 1987  46, 48, 53, 54

Supreme Court Act 1880 s 7  2, 6, 9

Supreme Court Ordinance Act 1861  8 Transfer of Land Act 1893 s 134  18, 19, 26 Trustee Companies Act 1987  140, 142, 143 Trustees Act 1962  97, 141, 142 s 6  81, 83, 88 s 7  98, 106, 143 s 17  144 s 18  145 s 20  146 s 71  146 s 77  143 s 102  98, 108 Wills Act 1970 s 8  82, 83, 91

United Kingdom

Family Court Act 1997  126, 127, 133

Chancery Amendment Act 1858 (Lord Cairns Act)  163, 164, 168

Freedom of Information Act 1992 77

Statute of Charitable Uses 1601  97, 98, 99, 100, 102, 103, 104, 107, 111

Government of Western Australia Act 1830 8

Supreme Court of Judicature Act 1873 (Judicature Act)  9, 11, 13, 17, 20, 171–2 s 24–5  1, 2, 5

Partnership Act 1895  63, 66 Property Law Act 1969 s 20  31, 33, 36 s 34  31, 33, 35

187

188

Index agents/agency 85–6 fiduciary obligations established category, Hospital Products Ltd v United States Surgical Corporation 67 Anton Piller orders 167 Anton Piller KG v Manufacturing Processes Ltd 167 assets preservation see Mareva orders assignment (property) 32–5 agreement to assign 33, 38 effectively in equity—Anning v Anning 36–7 Milroy v Lord limbs/legs 36–7 presently existing/future property 34–5 voluntary assignment at law 35, 38 Australia, law and equity in 5–11 Australian Charities & Not-for-profits Commission 108–9 illustrative Acts 98 jurisdiction 109 see also charitable trusts Australian Consumer Law (ACL), unconscionable conduct 53 bailment 85 beneficial interest, non-disposal—automatic resulting trusts 115, 116–18 beneficiaries 147–9 ability to bring trust to end, Saunders v Vautier 141, 147 charitable trusts beneficiaries, not connected Oppenheim v Tobacco Securities Trust Co. Ltd 101 private express trusts–public charitable trusts distinction 101, 102 chose in action possession 18, 141 fiduciary obligations 141 trustees directions to 38–9, 141, 148–9 an example of equitable interest 20 requesting information from 141, 147–8 Saunders v Vautier 141 trustee–beneficiary relationship 141 beneficiary principle, offending—Re Astor’s Settlement Trusts 108

breach of duty defences 72 essential parts 71 Boardman v Phipps 72 remedies 72–3 certainty certainties (intention, subject, object) 38, 88–90, 97, 106–7, 116 express trusts satisfying 87–90 given to trustees 107 lack of Morice v the Bishop of Durham 85, 107 Re Endacott 107 test for—Re Baden’s Deed Trusts, McPhail v Doulton (No. 1 & 2) 89 see also uncertainty charitable trusts 97–109, 114 beneficiaries (not related by blood/­ contract), Oppenheim v Tobacco Securities Trust Co. Ltd 101 certainties—intention and subject 97 ‘charity’ 97, 99 common law understanding 109 definition—Pemsel 103, 104 cy-près schemes 105–6, 109, 116 discretionary trusts for charitable purposes class of objects 147 Harries v The Church Commissioners for England 145 formation 97–100 invalidity of 107–8 beneficiary principle, offending 108 legislative variations to 106 ‘poverty,’ construction matter, Downing v FCT 102 public benefit 97, 100–6, 109 Le Cras v Perpetual Trustee Co. Ltd 102 purposes (mixed) 109 charitable and non-charitable 106–9, 145, 147 failure due to 106–7 illustrative Acts and cases 98, 109 Leahy v Attorney General of NSW 85, 104 legislative ‘saving’ 108

Index

registration 108–9 Scottish Burial Reform; Royal National Agricultural decisions 100 taxation imposition and avoidance 97, 99, 101 validity criteria 99 charity 99 common law understanding 99 defining—Statute of Charitable Uses 1601 97–9 classes of charity 99 Charter of Rights 77 chattels see personal property chose in action 18, 23, 33, 141 assignment 35–7 debt, illustrative cases 86 chose in possession 18 common law award of money at—damages 168 bailment creation 85 ‘charity,’ understanding of 109 common law–equity distinction 154, 168 fusion 2, 11–14, 164–5 damages, as right 164 equity development due to shortcomings 20 Earl of Oxford’s Case 4–5 no wrong without remedy 14 equity–common law interaction interchangeable substantive ­principles see fusion fallacies laws enacted 5–6 estoppel 54 first at common law, then in equity 14 remedies—compensation damages 5, 12 rules emphasis on 15 English 13th century rules basis 4 non-compliance, no damages awarded 164 regarding causation and loss 168 regarding consideration 3 regarding foreseeability, proximity, mitigation 164 softening/correction by equity 3 Commonwealth Constitution 53 community

legislatively ‘saved’ activities—IRC v Baddeley 105 purposes beneficial to 98, 104–5 companies acting as trustees 142–3 illustrative Acts 143 company directors Corporations Act-imposed statutory obligations 68 fiduciary obligations established category, Regal (Hastings) Ltd v Gulliver 67–8 compensation equitable compensation for purely ­equitable wrong 12, 21 illustrative Acts 164, 168 see also fusion fallacies Paul v Constance 38 versus punishment 169 conduct prohibiting or compelling see injunctions unconscionable conduct, prevention 132–4 confidential information 53 abuse of positions 1, 3 beneficiaries and 141 breach Attorney General (UK) v Heinemann Publishers Australia Pty Ltd 74 breach of confidence 73–5 Coco v AN Clark (Engineers) 74 constructive trust imposition 128 elements 73–5 obligation of confidence—Duchess of Argyll v Duke of Argyll 75 Smith Kline and French Laboratories (Australia) Ltd v Secretary Dept of Community Services and Health 75 defences 75 nature and purpose, Seager v Copydex (No. 1) 73 privacy 76–7 remedies 76 trustees and 144 consent 47 constructive trusts 12, 48, 121, 126–34 Barnes v Addy first and second limb situations 129–30, 149

189

190

Index

constructive trusts cont. Consul Development Pty Ltd v DPC Estates Pty Ltd 130 requisite knowledge under second limb 131 Baumgartner v Baumgartner 57 family relationships breakdown 132–3 classification 84 express trusts, distinction 126 fiduciary obligations breach ­remedy 128–31, 153, 154, 164, 169 Giumelli v Giumelli 128 flexibility 128 Green v Green, family relationships breakdown 133 Muschinski v Dodds 57 family relationships ­breakdown 132, 133 remedy, Giumelli v Giumelli 48 resulting trusts distinction and similarity to ­constructive trusts 114, 127 roles as institution 128 remedial role 126–34, 153, 154, 164, 169 trust existence denial against ­equitable principles 127 types of 127 unconscionable conduct and ­common intention, prevention 132–4 writing statutory requirements, not subject to 126 contract(s) agreement enforceable by law, Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd 85 breach remedies 85 compelling parties to perform 165 formation 3 consideration in 54 involving personal property 165 involving personal services no specific performance order ­given—Lumley v Wagner 166 rights under 32 involving real property 165 convicts 7 Corporations Law, fiduciary obligations 118 courts, errors of judgement 12

cy-près schemes 105–6, 109, 116 illustrative Acts 98, 106 provisions—legislative read down/gift severing 106 Re Lysaght 98, 106 damages 21 award of money at common law definition 168 as common law right 164 equitable remedies at court discretion 164 in equity 168–9 illustrative Acts 164, 168 Nocton v Lord Ashburton 168 exemplary damages unavailability in equity 169 governing principles 168 as loss compensation 167 versus specific performance orders 165 debt 86 declaration of trust 33, 38 testamentary declaration 38 defamation 32 detriment 48, 56, 74 direction to trustee 38–9, 141, 148–9 kinds of to hold property for a third party 39 transfer property to third party 39 only occurs in equity 38 dishonesty 130–1 education advancement as charitable purpose 98, 102–3 involves research—Re Hopkins Will Trusts 103 involves teaching—Re Shaw (Dec’d) 103 Shaw–Hopkins distinction—Re Pinon 103 equitable estoppel 55–6 Austotel Pty Ltd v Franklins Selfserve Stores Pty Ltd 48, 56 Commonwealth of Australia v Verwayen 48, 56 Waltons Stores (Interstate) Ltd v Maher 48, 55 equitable interests 3, 19–20, 32, 155–7 flexible nature 21–5 Baker v Archer-Shee 19, 22 personal/proprietary interests; mere equity 19

Index

a mere equity 19, 21, 22, 24, 24–5 Latec Investments Ltd v Hotel Terrigal Pty Ltd 19, 25 relief unavailable at common law 20 personal interest Commissioner of Stamp Duties v Livingston 19 Livingston v Commissioner of Stamp Duties 19, 22–3 priorities competing interests 14, 19, 25–6, 156–7 first in time prevails—Qui prior est temp­ ore potiore est jure 14, 25, 26 prior and subsequent interests 14, 19, 25 real and personal property 19, 25–6 of property 32 can be separated and held by different parties 3 proprietary interest criteria 24 Re Leigh’s Will Trust 19, 23–4 recognition 19–21 title and 23 equitable remedies 21, 48, 163–9 common law–equity fusion 2, 11–14, 164–5 damages at court discretion 164 in equity 168–9 discretionary nature 3 equitable interests recognition 20–1 flexible nature 3, 164 no relief 164–5 orders Anton Piller orders 167 injunctions 166–7 Mareva orders 167 for specific performance 12, 165–6 parties legal relationships between, changes in 165–6 with ‘unclean hands’ 14, 165 profits, account of 169 proprietary 157 seeking relief promptly 14 substitution/addition, illustrative Acts 164, 168

equity commercial participants assistance 53 common law tracing–at equity, distinction 154 common law–equity distinction 168 fusion 2, 11–14, 164–5 damages in 168–9 common law rules non-compliance, no damages awarded 164 development ad hoc and discretionary 4 due to common law ­shortcomings 4, 20 separate jurisdiction to common law 5 direction to trustee occurring in 38–9 equitable maxims ‘inter vivos to intent, rather than form’ 87 ‘equity will not assist a volunteer’ 157 exemplary damages unavailability in, Harris v Digital Pulse Pty Ltd 169 is equality 15 Judge in Equity (NSW) 11 law and equity in Australia 7–11 equity–common law interaction 5–6 fusion 7 prior to judicature system 5 nature and history 1–15, 33, 55, 127, 164–5, 168–9 Earl of Oxford’s Case 2 equitable maxims 2, 14–15, 21 equity acts in personam 14, 15, 20 Judicature Act 20 judicature system 2, 5–6, 11–14, 20 party—‘unclean hands’ 14, 165 Seager v Copydex (No. 1) 73 property in equity concept 18–26 can be separated and held by different parties 3 equitable interest in 32, 155–6 priorities 156–7 recognition only in equity 32 remedies 12 statutes—expanding principles and doctrines 3 substantive focus 15 interchangeable substantive principles see fusion fallacies tracing process 154–6

191

192

Index

equity cont. fiduciary relationship/proprietary interest prerequisite 155–6 property in existence 155 transaction nature—that which ought to be done, is done 15 ‘unconscionability’ basis 1, 3, 57 undue influence and 47–50 transactions a product of 47 ‘wife’s special equity’ 47, 49 estate 22–3 estoppel in absence of contract 54–5, 165 constructive trusts remedy 57 Giumelli v Giumelli 57, 128 equitable estoppel 55–6 estoppel–unconscionable conduct, distinction 57 history 54–5 overcoming strict common law consideration rules 3 promissory estoppel 54 property transaction liable to be set aside in equity 127 proprietary estoppel 54–5 by representation 54 evidence evidence in rebuttal—resulting trusts 115, 119, 120, 127 evidentiary matters, tracing 154 gathering and protecting see Anton Piller orders exploitation, Blomley v Ryan 1, 51 express trusts 114 certainties—intention, subject and object 88–90, 97, 106–7, 116 lack of—Morice v the Bishop of Durham 85, 107 satisfying 87–90 charitable trusts 97–109, 114, 116, 145, 147 classification 84 complete constitution declaration 90 direction to trustee 91 transfer inter vivos or post mortem 91 constructive trusts, distinction 126 failure of, for uncertainty—Re Gillingham Bus Disaster Fund 115, 116, 117

private express trusts–public ­charitable trusts distinction Dingle v Turner 101 Le Cras v Perpetual Trustee Co. Ltd 102 family/domestic relationships constructive trust imposition illustrative Acts 127, 133 illustrative cases 132, 133 legislative developments 133–4 undue influence, giving rise to, Yerkey v Jones 47, 48, 49 fiduciary obligations 3, 14, 53, 86 of beneficiaries 141 breach constructive trusts 128–31 establishing (tracing element) 154 third parties 129–31 trust property ­misappropriation 153, 169 breach of duty 71–3 defences and remedies 72–3 of directors, under Corporations Law 86, 118 duties categories 47 emerging categories Indigenous Australians and government 71 joint venturers 68–9 medical practitioners and patients 70 professional advisors 70–1 established categories agents and principals 67 company directors 67–8 legal practitioners 65–6 partners in partnership 66 trustees 65 fiduciaries improperly-made profit 127 trustees see trustees ‘fiduciary’ 63 fiduciary relationships, prerequisite component of tracing in equity 155–6 nature and purpose 63 Keech v Sandford 65 ‘position of the parties’ 63 principles—‘no conflict’/‘no profit’ 128 third parties—Barnes v Addy 73 of trustees 144

Index

fraud fraudulent design 73, 130, 149 Farah Constructions Pty Ltd v Say-Dee Pty Ltd 131 property transaction liable to be set aside in equity 127 Freedom of Information Act 1992 (WA) 77 fusion fallacies 11–14, 73 courts’ errors of judgement 12 Harris v Digital Pulse Pty Ltd 2, 13 Seager v Copydex (No.1) 2, 13 Walsh v Lonsdale 2, 12 future property assignment, Shepherd v Federal Commissioner of Taxation 33, 34–5 construing deed or parties’ intentions 34 gifts 21, 24 condition precedent and condition subsequent 86 equity ‘does not perfect an imperfect gift’ 14 provisions—legislative read down/ severing 106 government fiduciary obligations emerging category Mabo v Queensland (No. 2) 71 Wik Peoples v Queensland 71 High Court of Australia (HCA) breach of privacy ABC v Lenah Game Meats Pty Ltd 76 Victoria Park Racing and Recreation Grounds Co. Ltd v Taylor 76 constructive trusts remedy, unconscionability 57 hybrid power of appointment in a will 89–90 illustrative Acts 90 Quistclose scenario—Legal Services Board v Gillespie-Jones 118 religion definition 104 specific performance orders, Patrick Stevedores Operations No. 2 Pty Ltd v Maritime Union of Australia 166 undue influence 47, 49 Louth v Diprose 50, 52 ‘wife’s special equity’ Garcia v National Australia Bank Ltd 48, 49

limbs 49 Yerkey v Jones 47, 48, 49 High Court of Chancery, equity principles creation 3 illegality presumption rebuttal—resulting trusts 120 Nelson v Nelson 115, 120–1 implied trusts see resulting trusts incorporation/unincorporation Bacon v Pianta 107 unincorporated associations 85 Indigenous Australians fiduciary obligations emerging category Mabo v Queensland (No. 2) 71 Wik Peoples v Queensland 71 inducement 48, 55 Information Privacy Principles (IPPs) Instruction 77 injunctions 109, 166–7 interlocutory injunctions 166–7 Lumley v Wagner 166 intangible property (chose in action) 18, 33, 141 assignment, illustrative cases 36–7 intention 38 certainties 87–8, 88–90, 97, 116 Barclays Bank Ltd v Quistclose Investments Ltd 87–8 Commissioner of Stamp Duties v Joliffe 87 charitable intention 106 common intention, prevention 132–4 Baumgartner v Baumgartner 57, 127 Muschinski v Dodds 57, 127 intention basis unless evidence to contrary 127 presumed intention contrary intention displacement 119 purchase of property 115, 118–21 rebutting 115, 119–21 see also contract(s) interest beneficial interest, non-disposal—automatic resulting trusts 115, 116–18 competing interests 19, 25–6, 156–7 illustrative Acts 26 equitable interests 3, 19–20, 155–6 recognition 20–1

193

194

Index

interest cont. fiduciary relationship/proprietary interest prerequisite 155–6 property equitable interest in 3, 18–26, 32, 155, 156–7 legal interest in 32 interlocutory injunctions 166–7 granting principles 167 ‘serious question to be tried’ 167 joint venturers fiduciary obligations emerging category Hospital Products Ltd v United States Surgical Corporation 69 LAC Minerals v International Corona Resources Ltd 69 United Dominion Corporation v Brian Ltd 68–9 joint ventures, partners as parties to 66 Judicature Act 20 judicature system 5–6, 20 equity–common law interaction, laws enacted 5–6 judicature system adoption by states 6–11 fusion fallacies 2, 11–14 states and territories, illustrative Acts 2, 3 knowledge 48, 49, 51–2, 131 land and fixtures see real property legal interests 3, 32 of property 32 can be separated and held by different parties 3 recognition at law and equity 32 legal practitioners fiduciary obligations established category 65–6 Boardman v Phipps 66 Maguire v Markaronis 66 litigation 32 loss damages as compensation for 167 equity—loss according to liability 15 Mareva orders, Mareva Compania Naviera SA v International Bulk Carriers 167 maxims of equity 2, 14–15, 54–5 medical practitioners

doctor–patient relationship, illustrative Acts 70 fiduciary obligations emerging category, Breen v Williams 70 mistake, property transaction liable to be set aside in equity 127 ‘money first in’ principle Clayton’s Case 155 illustrative cases 154, 155, 156, 157 property recovery fund exhaustion by ‘first in’ 155–6 non-charitable trusts 114 surplus property in 115, 116–17, 117 object 88–90 Re Baden’s Deed Trusts, McPhail v Doulton (No. 1 & 2) 89 obligations, inequitable denial of 3 pari passu, Foskett v McKeown 154, 155, 156 parties abuse by stronger parties 3 commercial participants assistance in equity 53 equitable estoppel between 56 contract, compelling parties to perform 165 to joint ventures 66 legal relationships between, changes in 48, 165–6 ‘position of the parties,’ fiduciary obligations 63 property interests can be separated and held by different parties 3 rights, titles and interests, ­recognition of 3 special disadvantage, stronger party knowledge of, Blomley v Ryan 51 third parties see third parties with ‘unclean hands’ 14, 165 partnership partners, Chan v Zacharia 66 state and territory legislation 66 patients doctor–patient relationship, ­illustrative Acts 70 fiduciary obligations emerging ­category, Breen v Williams 70 personal property (chattels) bailment 85 contracts involving 165

Index

equitable interest arising in 19–20 proprietary—Re Leigh’s Will Trust 23–4 first in time prevails—Qui prior est tempore potiore est jure 26 intangible property/tangible property 18 personam, in 14, 15, 20 ‘against the conscience’ categories (unconscionability) 1, 3 poverty charitable trusts, poverty relief 98, 102 no use of ‘poverty’—Downing v FCT 102 power of appointment 86–7 testamentary powers 89–90 Premier and Cabinet Circular 12 77 presently existing property assignment, Norman v Federal Commissioner of Taxation 33, 34 construing deed or parties’ intentions 34 presumption of advancement 115, 119, 120 presumption of resulting trust Calverley v Green 115, 119 advancement, non-applicability of 120 principals, fiduciary obligations established category, Hospital Products Ltd v United States Surgical Corporation 67 priorities 14, 25, 26 privacy 76–7 privacy legislation 76–7 proceeds 32 professional advisors, fiduciary obligations emerging category, Pilmer v Duke Group Ltd (in liq.) 70–1 profit account of 169 Dart Industries Inc. v The Decor Corporation Pty Ltd 169 fiduciaries, improperly-made profit by 127 promissory estoppel, Central London Property Trust Ltd v High Trees House Ltd 54 property acquiring, liable to be set aside in equity 127 beneficial interest in, non-disposal—automatic resulting trusts 115, 116–18 bona fide purchasers, value without notice—ineffective tracing, Re Diplock 154, 157 distribution—power of appointment 86–7

future property assignment, Shepherd v Federal Commissioner of Taxation 34–5 holding of property 31–9 hold property for a third party 39 presently existing property assignment, Norman v Federal Commissioner of Taxation 34 presumed intention contrary intention displacement 119 purchase of property 115, 118–21 rebutting 115, 119–21 property restitution, remedial device for see constructive trusts title 23, 26 transfer property to third party 39 trust properties constructive trust responsibility—knowing receipt of 129 misappropriation, property identification see tracing unjust retention of 3 property in equity concept 33, 38 chose in action to compel proper estate administration 141, 148 dealings with 31–9, 148–9 assignment 32–5, 38 declaration of trust 38 direction to a trustee 38–9, 91 property incapable of being dealt with 32, 33 real property 35–7 writing, statutory requirements for 35 equitable interest 3, 18–26, 32 priorities 156–7 tracing activated in presence of 155, 156 legal interest 32 personal property contracts involving 165 equitable interest arising in 19–20 real property 15 contracts involving 165 equitable interest arising in 19–20 recognition only in equity 32 surplus property known contributor(s) identity 116–17 in non-charitable trusts 116–17 Re West Sussex Constabulary’s Widows, Children & Benevolent 115, 117

195

196

Index

property in equity concept cont. trustee mixing and acquisition of new 156 ‘first in’ acquires versus equal/ proportionate share 156 proprietary estoppel, Dillwyn v Llewellyn 54–5 public benefit (charitable trusts) 97, 100–6 Dingle v Turner 98, 101 private/public trusts, substantive difference 101 education advancement, Shaw–Hopkins distinction—Re Pinon 103 National Anti-Vivisection Society v IRC 98, 101 Oppenheim v Tobacco Securities Trust Co. Ltd 98 beneficiaries’ connections 101 parliamentary determination of, National Anti-Vivisection Society v IRC 101 purpose (charitable/non-charitable) 88–90 beneficiary principle, offending 108 education advancement 109 illustrative cases 98, 102–3 second-class definition (Pemsel) 102 impracticable/impossible/illegal see cy-près schemes mixed purpose, illustrative cases 98 poverty relief 109 illustrative cases 98, 102 purposes beneficial to community 109 illustrative cases 98, 104–5 Incorporated Council of Law Reporting v FCT 105 IRC v Baddeley 105 religious advancement 109 illustrative cases 98, 103–4 Statute of Charitable Uses 1601 98–105 Quistclose trust Barclays Bank Ltd v Quistclose Investments Ltd 115, 117–18 decision controversy 118 see also tracing reappearance 118 real property (land and fixtures) 15, 33, 35–7 contracts involving 165 equitable interest arising in 19–20 illustrative Acts 19, 35 intangible personal property, assignment 35–7 Torrens Title system 26, 37

rebuttable presumption resulting trusts advancement presumption 115, 119, 120 contrary evidence 115, 119, 120 illegality 115, 120–1 relationships commercial relationships 67 doctor–patient relationship 70 family/domestic relationships see family/ domestic relationships fiduciary relationships 155–6 legal relationships 85–6 between parties 48 trusts versus other legal relationships 84–7 parties, legal relationships between 165–6 tracing process, fiduciary ­relationship/ proprietary interest prerequisite 155–6 trustee–beneficiary relationship 47, 141 undue influence, other relationships giving rise to 49–50 with undue influence presumption 47, 48, 49 reliance 48, 51 religion, advancement—Church of the New Faith decision 104 remedies for confidential information breach 76 constructive trusts, remedial role 126–34, 153, 154, 164, 169 equitable remedies see equitable remedies fiduciary obligations breach remedy, constructive trusts 128–31, 153, 154, 169 tracing 157 representation (estoppel by) 48 Jorden v Money 54 resulting trusts 114–21 arising from operation of law 115, 127 automatic 84 express trust failure/surplus property 115, 116–18 Legal Services Board v Gillespie-Jones 115 non-disposal of beneficial interest 115, 116–18 Quistclose trust 115, 117–18 classification 84

Index

constructive trusts 121 distinction 114, 127 similarity to 114, 127 express trusts, distinction 115 imposition, Barclays Bank Ltd v Quistclose Investments Ltd 115, 117–18 intention basis unless evidence to contrary 127 presumed intention 84 fairness non-involvement 118–19 purchase of property 115, 118–21 rebutting 115 types of 115, 117–18 Re Vandervell’s Trusts (No. 2) distinguished 115 writing statutory requirements, not subject to 115 rights bare right to litigate wrong 32 under contract for personal services 32 insistence on in harsh/oppressive circumstances 3 parties’ rights, titles and interests, recognition of 3, 14 proprietary rights transfer—assignment 32 right of survivorship 37 royalties, ‘fruit–tree’ analogy 34 special disadvantage 51–2 Commercial Bank of Australia v Amadio 48, 51 contributing factors 51 specific performance orders 165–6 Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd 165–6 Coulls v Bagot’s Trustee 165 court-declined 166 versus damages 165 estoppel in absence of contract 165 states intrastate trade and commerce 53 judicature system adoption 6–11 convicts, SA’s non-acceptance of 7 NSW—First and Second Charters of Justice 10–11 Qld—court powers 8 Tasmanian jurisdictional restriction on English law 10 Victorian courts similar to Westminster 9 partnership legislation 66

privacy legislation 76–7 unconscionable conduct legislation 53 Statute of Charitable Uses 1601 charitable purpose advancement of education 98, 102–3 advancement of religion 98, 103–4 beneficial to community 98, 104–5 Central Bayside Division of General Practice Ltd v Commissioner for Payroll Tax 99, 101 Pemsel’s case 99, 102, 104 relief of poverty 98, 102 Scottish Burial Reform; Royal National Agricultural 100 ‘charity’ 97, 99 subject, illustrative Acts 88 surplus funds, resulting trust, held under 116–17 tangible property (chose in possession) 18 taxation avoidance 120 by charitable trusts 97, 99, 101 technological change 100 territories partnership legislation 66 unconscionable conduct legislation 53 third parties Barnes v Addy 73 breach fiduciary obligations breach 129–31 illustrative cases 127, 129–31 knowingly participating in breach (trust/fiduciary duty) see constructive trusts constructive trusts responsibility 129 hold property for a third party, Grey v Inland Revenue Commissioners 39 property bona fide purchasers, value without notice—ineffective tracing 157 competing interests in 156–7 transfer property to third party, Vandervell v Inland Revenue Commissioners 39 title 23, 26, 37 parties’ rights, titles and interests, recognition of 3, 14 Torrens Title system 26 Corin v Patton 37

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198

Index

tracing elements 154 in equity 2, 154–6 bona fide purchasers, value without notice 157 an evidentiary matter, Foskett v McKeown 154, 155, 156 operation basis—pre-existing fiduciary relationship 155 example 153 priorities 156–7 process 2, 141, 148, 153–7 remedies 2, 157 Trade Practices Act 1974 (Cth), unconscionable conduct under 53, 54 transactions nature—‘that which ought to be done, is done’ 15 obtaining independent advice 50 property transactions (liable to be set aside in equity) 47, 50, 127 as undue influence product 47 transaction improvidence 50, 52 without transaction understanding 49 transfer of property interest 38 proprietary rights 32, 37, 39 trustees 141–6 acting without authority—trustee de son tort 129 appointment, illustrative Acts 143 beneficiaries Re Londonderry’s Settlement 141, 147–8 Saunders v Vautier 141 capacity to be 142–3 companies, illustrative Acts 141, 143 legal person 141 certainty given to—Morice v the Bishop of Durham 107 directions to 38–9, 141, 148–9 fiduciaries and third parties, Barnes v Addy 141, 149 fiduciary obligations 144 Keech v Sandford 65 indemnity, illustrative Acts 146 investment decisions Cowan v Scargill 145

dual-level 144–5 guidance—illustrative Acts 145–6 powers and duties familiarity with trust terms 144 illustrative Acts and cases 141, 144–6 property, mixing and acquisition of new Barnes v Addy 129–30 ‘money first in’/‘pari passu’ 155–6 public/state trustees, illustrative Acts 141, 143 responsibilities, fiduciary obligations and confidential information 141 statutory discretion, illustrative Acts 144 trustee–beneficiary relationship 141 trusts classifications 84 declaration of trust 38 development in equity 3 forms 114 charitable trusts 97–109, 114, 116, 145, 147 constructive trusts see constructive trusts discretionary trusts 145, 147 express trusts see express trusts non-charitable trusts see non-charitable trusts inter vivos trusts 33 illustrative Acts 91 ‘three certainties satisfaction’ 38 nature of 32, 38, 97, 98, 99, 102, 108 history 82, 83 illustrative Acts 143 legal and equitable interests 3, 32 post mortem trusts 33, 38 illustrative Acts 91 Quistclose trust—Barclays Bank Ltd v Quistclose Investments Ltd 115 third party participation in breach 129 trusts versus other legal relationships 84–7 uncertainty 88–90 express trust failure 115, 115–16 linguistic/semantic uncertainty versus evidentiary uncertainty 89, 93–4 Re Baden’s Deed Trusts 89 trusts, void/failure for uncertainty 89, 93, 116 see also certainty

Index

unconscionability 14 ‘against the conscience’ categories 1, 3 equity basis 1, 3 see also unconscionable conduct unconscionable conduct 51–4 central notion—unfair advantage of serious inequality 3 constructive trusts remedy 57 estoppel–unconscionable conduct, distinction 57 independent advice 48, 52 legislation, incorporation into 52–4 ACL operation 53 Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd 48, 53 illustrative Acts 48, 53, 54 prevention 132–4 Baumgartner v Baumgartner 57, 127 Muschinski v Dodds 57, 127 special disadvantage 51–2 Bridgewater v Leahy 48, 52 stronger party knowledge of 48, 51 taking advantage 51–2 undue influence–unconscionable conduct demarcation 52 undue influence 3, 47–50 disproving—beneficiaries’ responsibility 47 focus—protecting the vulnerable 47 indicative factors 47 property transaction liable to be set aside in equity 47, 50, 127 rebuttal—independent advice, Bester v Perpetual Trustee Co. Ltd 50

relationships antecedent relationship nature 47 family relationships—Yerkey v Jones 47, 49 other relationships 48, 49–50 pre-existing—Johnson v Buttress 48, 50 with presumption of 47, 48, 49 types of 47, 49–50 undue influence–unconscionable conduct demarcation 52 ‘wife’s special equity’ 47 wife provides security under influence 49 wife provides security without transaction understanding 49 valuable consideration 32, 35, 37 Oughtred v Inland Revenue Commissioner 38 vulnerability/weakness (exploitation) 1, 51 writing Oughtred v Inland Revenue Commissioner 38 for real property 35–7 statutory requirements for 33, 35, 39 wrong(s) bare right to litigate legal wrongs 32 common law, no wrong without remedy 14 purely equitable wrong, equitable compensation for 12, 21, 164, 168

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Your guide to the essentials of equity and trusts. Learn how to link the key concepts from your lectures, textbooks and tutorials to get the most from your study, improve your knowledge of law and develop legal problem-solving skills. This guidebook will help you navigate the fundamental points of equity and trusts using: • clear and concise explanations of what you need to know • cases and statutes to remember • assessment preparation sections • ‘test your knowledge’ questions • topic flow charts that summarise major issues • a glossary of equity and trusts terms • up-to-date cases and legislation. Christopher Brien is a Lecturer in the College of Law and Justice, Victoria University.

ISBN 978-0-19-559402-7

9 780195 594027