LAWS2385: EQUITY AND TRUSTS

LAWS2385: EQUITY AND TRUSTS ...... 1 Express Trusts ...... 3 General principles ...... 3 Methods of Creation: RUN THROUGH ASSIGNMENT REQUIREMENTS AND THEN THE CERTAINTIES ...... 3 The : ...... 4 Duties and Powers of Trustees ...... 4 Rights and Liabilities of Trustees ...... 7 Rights of Beneficiaries ...... 7 Breach of Trusts ...... 9

Exculpation in the trust instrument ...... 9 Statutory exculpation ...... 10 Quisclose constructive trusts – not yet adopted in Australia...... 10 Resulting Trusts ...... 11 Presumed Resulting Trusts ...... 11 Automatic Resulting Trusts ...... 12 Policy ...... 12 Assignment ...... 13

Assignment of an equitable chose ...... 15 Assignment of a legal chose – statutory rules ...... 15 Assignment of a legal chose – no legal rules available ...... 15 Priorities ...... 15

Competing legal interests ...... 16 Competing equitable interests: ...... 16 Prior legal interest vs later equitable interest ...... 17 Prior equitable interest vs later legal interest ...... 17 Prior mere equity vs subsequent equitable interest ...... 18 Tracing ...... 18 Third Party Liability: Barnes v Addy ...... 19

1 Knowledge Requirement: Baden ...... 20 Knowing Receipt ...... 20 Knowing Assistance ...... 20 Proprietary Remedies ...... 21

Constructive Trusts ...... 21 Personal Remedies ...... 23

Account of Profits ...... 23 Equitable Compensation ...... 24 Bars to Relief ...... 25

Laches ...... 25 Acquiescence...... 26 Unclean Hands ...... 26 Hardship...... 26 Effect on Third Parties...... 26 Equitable Property ...... 26 Property in common law ...... 26 Equitable proprietary rights ...... 27 Fiduciary Relationships ...... 27 Status-Based ...... 27 Emerging category: financial advisor-client ...... 28 Outside recognised categories ...... 28 Concurrent contractual and fiduciary relationships ...... 29 Scope ...... 29 Fiduciary obligations ...... 29 Defence: informed consent ...... 29

2 Express Trusts

General principles 1. Public or private a. Public: charitable trusts for a purpose (incl education or research) in the public interest b. Private 2. Fixed or discretionary a. Fixed: fixed beneficiaries have fixed benefits, creates a proprietary right b. Discretionary: T to allocate benefits. Two kinds of discretion: i. Who the beneficiary will be and how much; ii. The amount has to be paid and the discretion is to decide to whom (look to wording of the question e.g. “shall be paid”) – no discretion whether to pay or not 3. Ts can be Bs and Bs can be Ts so long as there is NO MIRROR IMAGE

Methods of Creation: RUN THROUGH ASSIGNMENT REQUIREMENTS AND THEN THE CERTAINTIES 1. Self-declaration a. No formalities required for personal property b. Interests in land can only be created or disposed of in writing: s 23C(a) Conveyancing Act 1919 c. Declarations of trust over land must be evidenced (but not necessarily created) in writing: s 23C(a) Conveyancing Act 1919; Byrnes v Kendle d. The assignor must indicate an intention to immediately hold the property on trust for the intended beneficiary: Re Armstrong i. Specific words need not be used provided that the intention is clear: Richards v Delbridge e. The declaration need not be communicated to the assignee: Standing v Bowring 2. Transfer (assignment) a. Declaration (establish that donor intended recipient to take property as trustee); and b. Valid transfer of property to intended trustee (compliance with common law and statutory formalities incl assignment) i. Settlor must have done all they need to do to effect the transfer: Corin v Parron c. Declaration of trust must be made BEFORE transfer of property to be a complete and effective trust: Re Bowden d. Incorporation by reference – document must be in existence at time will executed and will refers to doc as an existing doc: In bonis Smart e. If trust by transfer fails, would-be trustee hold property on resulting trust for the settlor and must transfer back

3 The Three Certainties: Knight v Knight 1. Certainty of intention: a. Need not use the word ‘trust’: Re Armstrong b. Intention determined objectively: Byrnes v Keddie i. Subjective intention only relevant to sham trusts: Midlam v Wyatt c. Intention to be proved is an intention to impose on a property owner an obligation to apply the property for the benefit of beneficiaries or recognised charitable purpose i. Re Armstrong: did not intend to be absolute owner of term deposits he bought but imposed obligation on executor to have them applied for the benefit of his sons after his death ii. Paul v Constance: C imposed obligation on himself to apply half money in a bank account for benefit of P d. Intention must be for trust to take effect immediately i. In the case of a deed or a will, must take effect at the date when document creating the trust takes legal effect: Harper v Levy e. Precatory trusts rejected by courts: Williams v Williams i. Wording e.g. “hoping”; “in full confidence that” f. Quistclose trust (Barclays v Quistclose Investments): i. Two or more parties intend that a loan is for a mutually agreed purpose; and ii. Where third parties are involved, those third parties have notice of the trust 2. Certainty of subject matter: a. Legally recognised property: Norman v FCT i. An expectancy such as expectation of receiving property under a will is not property and cannot be held on trust: Norman v FCT b. Quantum of property must be clearly defined: i. ‘bulk of my estate’ insufficient: Palmer v Simmonds ii. The term ‘reasonable’ is never uncertain: Re Golay’s Will Trusts iii. Subject matter can be certain if quantum to be determined by trustee so long as criteria can be objectively assessed: Re Golay’s Will Trusts iv. Portion of identical shares certain: Hunter v Moss 3. Certainty of objects: a. Fixed trusts – list certainty required (all Bs identifiable at moment the beneficial interests come into effect): IRC v Broadwat Cottages; Kinsella v Caldwell b. Discretionary trusts – criteria certainty i. Must be possible to say with certainty whether or not a given individual is a member of the class defined in the trust instrument (in-out test): McPhail v Doulton; Horanv v James 1. “My friends” = too uncertain 2. Grandchildren if there could possibly be more ii. Where a settlor has created two distinct trusts, the failure of one trust for lack of certainty will not cause the failure of the other unless one group/sub-group unidentifiable iii. Discretionary powers must be administratively workable but bare powers (duty to consider exercising but no obligation to) need not be.

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