T ABLE OF C ONTENTS
Express Trusts ... 3
Summary ... 3
Trusts ... 3
Definition ... 3
Classification of Trusts ... 3
Trust Powers ... 3
Trust Creation ... 4
Category ... 4
Self declaration of a trust ... 4
Ways to create a trust – Inter vivos ... 4
Declaration ... 4
Transfer ... 4
Direction ... 4
Ways to create a trust – testamentary ... 4
Formalities ... 4
Requirements of a valid trust: Summary ... 4
Certainty of intention ... 4 Certainty of subject matter ... Error! Bookmark not defined.
Certainty of objects ... Error! Bookmark not defined.
Incompletely constituted trusts ... Error! Bookmark not defined.
Non-simultaneous declaration and vesting ... Error! Bookmark not defined.
Invalid Trusts – trusts and public policy ... Error! Bookmark not defined.
Trustee Duties ... Error! Bookmark not defined.
Ongoing Management Duties ... Error! Bookmark not defined.
Exercise of discretionary powers ... Error! Bookmark not defined.
Trustee Rights and Liabilities ... Error! Bookmark not defined.
Trustee’s right to indemnification by trust (T323, S414) ... Error! Bookmark not defined.
Trustee’s right to indemnification by beneficiaries (T331) ... Error! Bookmark not defined.
Trustee’s Right to Recover overpayment from beneficiary (T335) Error! Bookmark not defined.
Trustee’s right of contribution from co-trustees (T334) ... Error! Bookmark not defined.
B’ees right to terminate trust ... Error! Bookmark not defined.
Defences/Remedies to Breach of Trust ... Error! Bookmark not defined.
Defences to Breach of Trust ... Error! Bookmark not defined.
Exculpation in the trust instrument ... Error! Bookmark not defined.
Statutory exculpation ... Error! Bookmark not defined.
Remedies to Breach of Trust (T348) ... Error! Bookmark not defined.
Tracing ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Tracing Process ... Error! Bookmark not defined.
Personal claim for equitable compensation can still be made where interest is not traceable ... Error! Bookmark not defined.
Tracing and claiming at CL and equity ... Error! Bookmark not defined.
Recovering property ... Error! Bookmark not defined.
Fiduciary requirement ... Error! Bookmark not defined.
Equitable Tracing Rules ... Error! Bookmark not defined.
Trustee mixing money with his own bank account + spends some of the money ... Error!
Bookmark not defined.
Trustee mixes money w/own in bank and later purchases property with some of the money in the account before exhausting the remaining in the account ... Error! Bookmark not defined.
Trustee mixes trust money with his own in a bank account, and makes payments in and out of that account ... Error! Bookmark not defined.
LIB ... Error! Bookmark not defined.
Trustee mixes the money of more than one beneficiary in a bank account + spends some of the money in the account so that there is not enough left to repay everyone (whose money was spent?) ... Error! Bookmark not defined.
The trustee mixes the beneficiaries money with his own in his bank, withdraws some of the money and invests it successfully: ... Error! Bookmark not defined.
Trustee pays the beneficiary’s money to an honest volunteer who mixes the money with his own in his bank account ... Error! Bookmark not defined.
Defences to Equitable Tracing Claims ... Error! Bookmark not defined.
Tracing Remedies ... Error! Bookmark not defined.
Tracing situations involving more than one beneficiary ... Error! Bookmark not defined.
Priorities ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Doctrine of notice ... Error! Bookmark not defined.
Process of determining equity ... Error! Bookmark not defined.
Competing legal interests ... Error! Bookmark not defined.
Competing equitable interests ... Error! Bookmark not defined.
Prior legal interest competing with a later legal interest ... Error! Bookmark not defined.
Priority of earlier equitable interest competing with a later legal interest ... Error! Bookmark not defined.
Personal Liability of Accessories or Recipient ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Third Party Liability: Rule in Barnes v Addy ... Error! Bookmark not defined.
Knowing Receipt Criteria ... Error! Bookmark not defined.
2
Other forms of Participatory Liability ... Error! Bookmark not defined.
Non Consensual Trusts ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Resulting Trusts ... Error! Bookmark not defined.
Presumed Resulting Trust ... Error! Bookmark not defined.
Automatic Resulting Trust ... Error! Bookmark not defined.
Why Equity recognizes Resulting Trusts ... Error! Bookmark not defined.
Presumption of Advancement? ... Error! Bookmark not defined.
Voluntary Transfer of Property ... Error! Bookmark not defined.
Resulting Trusts arising on failure of an Express Trust ... Error! Bookmark not defined.
Quistclose Trusts ... Error! Bookmark not defined.
Constructive Trusts ... Error! Bookmark not defined.
Summary
... Error! Bookmark not defined.
Constructive trust compared with other trusts ... Error! Bookmark not defined.
Categories and principles ... Error! Bookmark not defined.
CT as a remedy for estoppel – Giumelli ... Error! Bookmark not defined.
CT imposed for breach of FO: Furs v Tomkies; Chan v Zacharia; AG for HK v Reid ... Error!
Bookmark not defined.
CT and stolen money ... Error! Bookmark not defined.
CT and mutual wills – doctrine of mutual wills ... Error! Bookmark not defined.
CT imposed over property transferred under specifically enforceable contracts Chang v
Registrar; Tanwar ... Error! Bookmark not defined.Common intention CT - Allen v Snyder [1977] 2 NSWLR 685 ... Error! Bookmark not defined.
Baumgartner constructive trust ... Error! Bookmark not defined.
Common intention constructive trust and Family Property Disputes ... Error! Bookmark not defined.
Equitable Remedies ... Error! Bookmark not defined.
Summary
... Error! Bookmark not defined.
Comparing proprietary remedies and personal remedies ... Error! Bookmark not defined.
Specific Performance ... Error! Bookmark not defined.
Conditions of SP ... Error! Bookmark not defined.
Pre-requisites to SP ... Error! Bookmark not defined.
Bars to Specific Performance ... Error! Bookmark not defined.
Injunctions ... Error! Bookmark not defined.
Monetary Remedies in Equity ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Account of Profits ... Error! Bookmark not defined.
Calculation of Account of Profits ... Error! Bookmark not defined.
Equitable Compensation ... Error! Bookmark not defined.
How is equitable compensation calculated? ... Error! Bookmark not defined.
Bars to Relief ... Error! Bookmark not defined.
Summary ... Error! Bookmark not defined.
Laches ... Error! Bookmark not defined.
Acquiescence ... Error! Bookmark not defined.
Unclean Hands (Illegality) ... Error! Bookmark not defined.
Hardship (to the def/third parties) ... Error! Bookmark not defined.
Effect of order on 3
rdparties ... Error! Bookmark not defined.
E XPRESS T RUSTS
S UMMARY
• Obligation enforceable in equity, which rests on a person (trustee) as legal owner of the trust property to deal with that property for the benefit of the beneficiary (equitable interest) or for the advancement of certain purposes.
• Trust is deliberately/internationally or impliedly created by the settlor
T RUSTS
Definition
• Trust: mechanism whereby a settlor transfers property to a trustee, who becomes the legal owner and manager of the property
o T’ee must operate trust to the benefit of a nominated beneficiary or a charitable purpose
o Equitable property can be put into a trust (e.g. b’ee’s trust could be put into another trust)
• Settlor: creates the trust
o If trust is created in a will, then settlor = testator of will o has no rights in respect of trust property after creating the trust
o Settlor can be combined with trustee or beneficiary but one person cannot be the sole trustee and the sole beneficiary, however one person can be one of the trustees and one of the b’ee, but the group of t’ee cannot be the same as the group of b’ee.
• Trustee:
o Holds legal title to trust property o Can be Individual or corporation
o Doesn't need to consent to appointment, but if they do not want to act, they must disclaim the trusteeship: Mallot v Wilson [1903] 3 Ch 494.
o Trustees of express trusts, except charitable trusts, must act unanimously o NSW provisions limit no. of trustee to 4
§ Inadvisable having <2 trustees: ^ chance of fraud and administration of trust can be seriously impaired by the death of the sole trustee
§ But lots of trustees can obstruct administration: must act unanimously (except in charity trusts)
§ Trust can subsist without trustee – court will supervise administration of trust until appointed
o Person under 18 can’t be a trustee: Conveyancing Act 1919 (NSW) s 10(1)(b); Minors (Property and Contracts) Act 1970 (NSW)
• Beneficiary:
o Can be individual or corporation o No limit to number of b’ees.
o Objects must be people, not purpose, except for charitable purpose: Morice v Bishop of Durham (1804)
o Must be charitable in law à benefits community o Trusts can be created for unborn beneficiaries
o B’ees interest is not carved out of trustee’s legal interest, but rather the trust property is impressed with obligations which the b’ee is entitled to enforce against the trustee Note:
• Trustee cannot be identical to B’ee
• Settlor can be b’ee (may attract adverse tax consequences)
• Settlor can become t’ee by declaring themselves t’ee of their own property for another
• T’ee can be b’ee, but a trust will terminate where one person is the sole t’ee and b’ee
• T’ee can be a b’ee, however, a trust will terminate where one person is the sole t’ee and beneficiary
Elements of a
trust • Imposes an obligation or duty on a title holder of property to apply the property for the purposes specified by settlor
• A trust is enforceable in equityà courts enforce them according to equity.
• Trustee holds legal or equitable title to the trust property and acts as a manager of it.
• There must be trust property (often referred to as the subject-matter)
• T’ee is not simply the owner of property; they deal with the property and manage it
• T’ee manages trust for the benefit of the b’ee (often referred to as the object of the trust)
• Not all trusts are established for benefit of human b’ees. Some are created for advancement of purposes. Eg may include a charitable trust or trusts to maintain a testator’s pet or gravestone Essential
characteristic s of ET
• Distinguishable from a gift to b’ees à b’ees not immediately entitled to property – must wait until the subject matter of the trust is transferred to them by the trustee or it may be otherwise disposed of on termination of the trust
• Trust has no legal personality à actions in contract and tort brought against trustee NOT trust
• T’ee owes FO to B’ee
• Saunders v Vautier rule: where all b’ees are of full age and capacity, they may terminate the trust by requiring the t’ees to transfer assets to them or at their discretion
o Rule overrides any terms in trust instrument and operates regardless of whether the t’ees are opposed to termination.
o Rule does not apply to a discretionary trust consisting of a fluctuating body of b’ees: only applies where b’ees are entitled to whole beneficial interest in the trust property
C LASSIFICATION OF T RUSTS
Express • Settlor intended to and deliberately created the trust o Public express trusts: Charitable purpose to the trust o Private express trusts – private purpose to the trust
Non-express • Created by statute or by judges (e.g. constructive trusts and superfunds)
Fixed Trust Discretionary Trust
• Where the trust instrument specifies the share of the property which each person is to receive
• Elements
o B’ee are identifiable and ascertainable o B’ee are entitled to a certain/fixed benefit – can
enforce administration & distribution o B’ee have a real right (e.g. interest in the trust
can be used as security when obtaining loan from a bank)
• Proprietary interest
• Definite right to the benefit of the trust or definite beneficial interest
• Can insist trustee perform their duties and distribute property to b’ee in accordance with terms of trust Note:
• Rights of b’ee much greater in fixed trust
• Where the share, if any, which each b’ee is to receive is determined by t’ees and not by trust instrument
• Elements:
o T’ees have a choice/discretion as to which b’ees from a class will receive trust property
o T’ees have a choice as to quantity of trust property each b’ee will receive
• B’ee have no real right – t’ee only obliged to consider which b’ee gets trust property
• No proprietary interest
• No definite right to benefit/beneficial interest
• B’ees are members of a class that t’ee may/may not distribute benefit to
• Can insist t’ee perform their duties but cannot insist t’ee exercise discretion in their favour
T RUST P OWERS
• Sources of trust powers: trust instrument, Trustee Act 1925 (NSW) regulates trustee powers
• Trust power: an obligation + discretion, where a bare power is only a discretion w/out obligation to exercise it.
4
• Powers of appointment (Trust/bare)
o General: entitles the donee to appoint the property to anyone, even donee themselves o Special: entitles the donee to appoint among a class of objects selected by the settlor o Hybrid/immediate: entitles the donee to appoint anyone except a specified class of persons
T RUST C REATION
Category • Testamentary: created by will and only come into effect on death of testator
• Inter vivos trusts: come into effect during the settlor’s life, Self
declaration of a trust
• Settlor can declare themselves trustee of their own property.
• Settlor must intend to impose t’ee obligations upon themselves
o Settlor already holds title so all that is necessary is to make a valid declaration of trust.
o This will satisfy the requirement of certainty of intention to create a trust
• Court will not construe a declaration of trust out of an invalid gift (Richards v Delbridge) Ways to create a trust – Inter vivos
Declaration • Owner (settlor) expresses his/her intention to hold their property on trust for b’ee o Trusts of personality have no formal requirements, except s 23C(1)(c) CA o Trusts on land must comply with s 23C(1)(b) CA
§ Trust does not need writing to create, creation can be done orally through declaration, however writing and signature by the person declaring is required to later prove the declaration
§ Writing signed by the trustee is sufficient to enforce the trust against the trustee (Hagan v Waterhouse)
o Writing is required as evidence of a declaration therefore trusts can be created orally and later reduced to writing
§ Failure to comply with formalities renders the trust unenforceable, not void:
Gardner v Rowe (1828)
§ Constructive, implied and RT are not required to satisfy writing requirements.
• Note: s 23C(1)(a) is more onerous requiring more than evidence in writing – it has been argued that s 23C91)(a) does not apply to declarations of trusts over interest in land as the more onerous requirements would otherwise render s 23C(1)(b)
Transfer • Owner (settlor) transfers own property to a trustee (either via inter vivos transaction (settlement) or post mortem by will)
• Executed when title of trust property has been completely & irrevocably transferred to t’ee
• Trusts on land must comply with s 23C(1)(b) CA – must be evidenced in writing or unenforceable:
o Exception: ‘cloak of fraud’ doctrine which applies the maxim that equity will not allow 'a statute to be used as an instrument of fraud'. (Last v Rosenfeld)
• Inter Vivos trusts:
o Necessary for the disposition to be evidenced in writing if the trust property consists of realty or subsiding equitable interest: Equuscorp Pty Ltd v Jiminez
o Executor trusts may be enforceable if everything necessary to transfer the title has been done by the creator – Milroy v Lord rule applied in Corin Patton
• Post Mortem
o Must satisfy general requirements for creation of a valid will – such trusts must be:
§ In writing
§ Signed by testator in presence of 2+ witnesses (Succession Act 2006 (NSW) s 7)
• Settlor can create an express trust by transferring property to a trustee to hold on trust.
o Requires:
1. Declaration of trust and
a. Must establish that the recipient of the property was intended to take the property in the capacity of a trustee and not beneficially.
i. Words used by the settlor in transferring the property will be construed in the context of the transfer (Choithram International SA v Pagarini)
2. Valid transfer of trust property to trustee OR settlor doing everything in their power to ensure legal title transfers to trustee (show requisite intention to create the trust
Direction • Where an original beneficiary creates a new trust in favour of a new beneficiary by directing the trustee to hold the property for the new beneficiary.
Ways to create a trust – testamentary
Formalities • The will creating the trust must comply with the formalities for creating a will specified in legislation rather than the Statute of Frauds formalities.
• The testator must have legal capacity to make a will and have unimpaired intention to execute a will (for example, not being under undue influence)
Requirements:
• The will to be in writing
• Signature of the will by the testator or some person in the testator’s presence and by the testator’s direction
• Location of the signature in a special position on the material bearing the writing
• Making of the signature in the presence of two or more witnesses
• The presence of the witnesses together at the same time when the signature is made
• Signature by the witnesses.
Requirements of a valid trust: Summary
• Compliance with statutory formalities
• Trust must be fully constituted
o Trust fails if legal title to property of the trust has not been vested in the trustee o Requirements for creating or transferring legal title
§ Old system land: transfer upon deed
§ Chattels: date agreed by parties under Sale of Goods Act
§ Shares: registration of shares
§ Choses in action: s 12 Conveyancing Act
§ Torrens land: transfer upon registration, trust may still come into existence if gifted o Trust may still be constituted by a trustee after death of settlor if the settlor has done everything
sufficient and within her power to enable the property to vested in the t’ee: Corin v Patton
• No fatal illegality
o Trust may fail because it offends against the public policy of the law or a statutory provision o Trusts that infringe public policy include:
§ Trusts which undermine the criminal law: Thrupp v Collett (1858)
§ Trusts prejudicial to the status of marriage e.g. trusts which promote divorce come within this prohibition (refer below): Church Property Trustees, Diocese of Newcastle v Ebbeck (1960)
§ Trusts prejudicial to the administration of justice
• Certainty of intention
o RT and CT will not satisfy requirements they are judicially imposed rather than created by a settlor.
• Certainty of subject matter
• Certainty of object
o Note: charitable trusts not required to satisfy requirement of certainty of objects Certainty of intention
Requirement • Settlor must have intended to create a trust for the benefit of someone else 1. Objective intention: Byrnes v Kendle
a. If ambiguous, courts must consider words and actions of settlor to assess intention:
Paul v Constance
2. Intention must be to create an immediate trust (trust must take effect immediately though the beneficiaries’ enjoyment might be deferred): Harpur v Levy
a. Must be genuine intention, not created for fraudulent or deceptive purposes:
Midland Bank v Wyatt
b. In a trust created by deed or will, must come into effect from date when document creating the trust takes legal effect
c. Can take effect immediately even when settlor settles property on trust for himself for life (inter vivos trust) with remainder to his children after his death
d. Harper v Levy – guy attempted to create a trust prior to death but trust not intended to commence until a later time. He died – court found that his intentions meant trust had never been constituted
e. Exception: contract to create a trust in the future will, if valuable consideration has been provided, be enforceable by the intended trustee unless there is a bar to SP (e.g. lack of clean hands or delay)
3. Words must be directory/imperative (‘in order to give to…’ ‘required to…’) rather than precatory (‘hoping that…’, ‘in full confidence that…’,’please give it to…’, ‘with full belief that…’): Williams v Williams
a. Settlor need not actually use the word ‘trust’: Re Armstrong
• Rebutting expressed intention: using the word “Trust” may not satisfy requirement for certainty of intention if a trust was not actually intended by the purported settlor (Midland Blank PLC v Wyatt – sham trusts)
Re
Armstrong • Shortly before his death, a father deposited £1500 for each of his two sons on a two-year term deposit at the bank, the title of the accounts being “George Armstrong in re William Armstrong” and “George Armstrong in re Bernard Armstrong”. When he died before the deposit term expired Herring CJ held that the father had intended to create a trust.
• Trust had been created even though word “trust” did not appear in titles of the accounts.
• Father did not intend to make an immediate gift of the money because he intended to collect interest on the accounts.
• Trust, conferring life interest in the money on the father and remainder on the sons, was the most appropriate method of giving effect to the father’s wishes with respect to the money.
Byrnes v
Kendle Intention to create a trust is determined objective – what is said, not meant Facts
• B and K married couple who purchased house in K’s name
• K signed a deed of acknowledgement that he held half interest in the property on trust for B
• B and K separated, K argued that he had not intended to create a trust for B Issue: Did K create a trust?
Judgment
• Held K created trust, deed showed that K have objectively intended to create a trust for B
• Deed was explicitly worded and signed thus showed K’s objective intention to create a trust
• Subjective intention is irrelevant to the question of whether a trust exists and to its terms
• K’s mental reservations were irrelevant in construing the deed
• Subjective intention will be relevant to if a trust is being challenged for mistake, or misrepresentation or some other fraud in equity, or an allegation of ‘sham’
• Sham trust is where settlor deals with property otherwise than in accordance with terms of the trust he created, with the intention of deceiving third parties (usually creditors) as to settlor’s real interest in property (T229)
Williams v
Williams Precatory trusts (s321, T 230) (Precatory: expressing a hope or wish without intending to impose enforceable obligations ) à Precatory words don’t create a trust
Facts
• W left estate to wife ‘in the fullest confidence that she will carry out my wishes’ (will)
• Wishes were that wife leave by will a life insurance policy on her and his life to daughter
• Wife did not leave her own life insurance policy proceeds to daughter Judgment
• Held no – “in fullest confidence” not sufficient to create obligation
• “Equitable obligations…can be imposed by any language which is clear enough to show an intention to impose an obligation”
• The wording was insufficient to create an obligation on wife to leave either insurance policy to daughter – words simply expressed his trust in wife’s discretion
Cobcroft v Bruce [2013]
NSWSC
Precatory trusts (s321, T 230) Facts
• C left D ‘my shares in public companies, to deal with as she in her absolute discretion sees fit…on condition that she ultimately gives those shares, or the remainder thereof, to my nephews…”
• When D died, her will left the shares to four charities
• Issue: Whether C’s will created a trust in favour of nephews and thus impose enforceable obligation on D?
Judgment
• Held C’s will imposed equitable condition on D to leave shares to nephews
• Four possibilities arise from situation where person has made a gift testamentary – giving payment to one person and expressing the purpose to be beneficial to another person
o Expression of purpose can be taken as merely a statement of motive or expectation which imposes no legal or equitable obligation on first person – person takes gift absolutely
o Purpose might amount to a condition which imposes equitable duty on first person to perform duty
o Statement of purpose operates as an equitable charge in favour of second person o Purpose might be such that first person receives the gift as a trustee
• C’s will imposed equitable obligation on D to pass shares on to nephews Harpur v
Levy [2007]
VSCA
Intention to create immediate trust (T231, S324)
• Facts: Deed of trust executed in August was expressed to come into effect in October
• Issue: whether trust was valid?
Judgment
• Held not valid, no trust was created because settlor had not expressed a clear intention to create an immediately operative trust
• If the intention is to create a trust in the future: equity will not enforce the trust
• If intention is to create a trust immediately: equity recognises the trust
