TOPIC 2: CREATION OF EXPRESS TRUSTS (THE THREE CERTAINTIES)

Step 1. Introduction - As [X] is purporting to create a [type] trust, the trust must satisfy [requirements]. o To create a valid express trust, there must be certainty of intention, subject matter and object (Knight), in addition to compliance with statutory formalities and constitution of the trust property. o If the trust fails for some reason, the property will go back to the settlor (trustee would hold on resulting trust for S if trust by transfer) or be disposed of by the rest of the will. a. Consequences of creating a trust - When a trust is validly created, the beneficial interest passes to the beneficiaries. - Therefore, there are IMMEDIATE and BINDING consequences. - These can’t be undone if the settlor changes her mind, or the trustee refuses to act. - Mallott v Wilson established the principle that a trust cannot be revoked, once created, unless a power of revocation exists. - Legal title returns to settlor, who holds ppty subject to the trust.

Step 2. Certainty of Intention - RED FLAGS: o Lack of explicit trust language (e.g. no ‘as trustee’, ‘on trust for’, ‘the trust deed’, meaning it is unclear whether it is a trust, a gift, or a gift with a condition) o Precatory language (e.g. ‘on the condition that, hoping that, trusting that, provided that’) o Issues with immediacy (e.g. to commence in 5 years time) - TEST: In order for the clause to be valid, the settlor must have manifested an irrevocable and immediate intention to depart with their beneficial interest in the trust property (Harpur). Intention is to be determined objectively (Byrnes).

A. Is the intention immediate? - A trust cannot be created to commence in the future unless it is supported by valuable consideration (c.f. a trust where legal title is to vest in the future) (Harpur)

HARPUR V LEVY FACTS ® Document said a trust was to begin on 1 October; settlor died prior to this HELD o No trust had been created – there must be clear intent to create an immediately operative trust; settlor retained legal and beneficial ownership o Neave JA: equity will not assist a volunteer by enforcing an intent to create a future trust o Maxwell P: if intention immediate but transfer later, this is fine o If consideration has been provided a trust may become operative later

B. Is there an intention to create a trust? - Objective test: whether “in the circumstances of the case and on the true construction of what was said and written, a sufficient intention to create a true trust has been manifested” (Megarry VC in Tito v Waddell) i. Has explicit trust language been used?

Here [S] has used explicit words of [WORDS] in [DOCUMENT]. The court will examine the objective intention manifested by these words alone (Brynes v Kendle)

- Where there is an unambiguous and explicit declaration of a trust, no more work needs to be done to determine the intention of the settlor (French CJ in Byrnes) - Words such as ‘provided that’, ‘on condition that’ and ‘on trust’ point towards obligations. - Eg. ‘on trust’, ‘as trustee’, ‘as beneficiary’.

BYRNES V KENDLE FACTS ® Husband purchased wife and declared a trust in favour of his wife. ® Executed a deed which said “trust” and used trust language. ® H argued he hadn’t actually subjectively intended to create a trust. HELD ® If you have explicit written words, only look at the words (judged according to how the parties would have understood them). ® If there are unclear or ambiguous words, or oral creation, must look to the surrounding circumstances of the case. ® On the facts, clearly objectively intended to create a trust. a. Precatory vs Obligatory Words

- Words which express hope or confidence, not imperative language. - Usually found in a will and qualify an otherwise absolute gift: o e.g. I leave my house to B trusting that she will pay for the children’s education. o e.g. I leave my antiques collection to Y on condition that she pay $50,000 to Z. o e.g. I leave my house to X in full confidence that she will look after my dog Fido. - No obligation if only “words of prayer, entreaty, recommendation, desire or hope” o ‘fullest confidence’ = precatory (Re William)

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TOPIC 4: CHARITABLE PURPOSE TRUSTS - RED FLAGS: o Language that indicates the trust is for a purpose, not a person o However, can be a trust for a purpose and a person (e.g. Victorian families in need) o References to the Pemsel heads (education, religion, poverty, general societal benefit) (e.g. the establishment of a social justice scholarship in law) - Go through certainty of intention and certainty of subject matter, replace certainty of object with charitable purpose discussion

Trusts for a purpose are prima facie invalid (Morice). However, a trust for a charitable purpose may be valid if it benefits the public and falls under one of the four Pemsel heads.

Because of the public nature of charitable trusts, the only person that has standing to enforce them is the Attorney-General (Latimer v Inland Revenue).

On the facts, [S] has likely created a trust to benefit [purpose]. Trusts for purposes, rather than identifiable beneficiaries, will only be valid where they are for a charitable purpose and in the public benefit.

1. Public Benefit To be a valid charitable trust, [X] must prove that the trust is established to benefit the public or a section of the public.

- Conclusive presumption of PB: o If trust is for the relief of poverty, conclusively presumed to benefit the public. Therefore also allowed to benefit a small group of people. - Rebuttable presumption of PB: o If trust is for the advancement of education or religion, there is a rebuttable presumption that the trust is for public benefit.

a. Section of the public

[Y] will argue that the trust benefits only [group] and that this cannot be classed as a section of the public. Whether or not a group is a section of the public is a question of fact.

- Where the class is defined by reference to a relationship to a particular person it will not be a section of the public: Re Compton. Extends to relationship to a company: Oppenheim. o Except where relieving poverty: Dingle v Turner (poor former employees).

- People linked by a common denominator of faith, calling or residence. o Roman Catholics.

19 o Residents of [X] - Persons by common experience – victims of cyclone. - Callings or profession or membership to a group, so long as there are not bars attaching to joining (Unions are not sections of public because of bars to joining: Latimer). o Richmond Football Club members – not a section of the public because of membership fees and special rules imposed on membership. - Oppenheim: BAT set up a trust to advance the education of children of their employees. Not a section of the public despite this covering potentially hundreds of thousands of people. o Reasoning: only way to get benefit is via personal relationship with company. Further, public policy reasons à was essentially setting up a fringe benefits scheme with positive tax treatment. - Dingle v Turner: trust set up to relieve poverty of former employees. This is a section of the public because the relief of poverty of any group is good for the public as a whole. - Re Segelman: trust to relieve poverty for family members à likely ok although it was noted that there would be a time when there are so few poor family members (i.e. one or two or three) that it starts to look like an express trust for people c.f. purposes.

2. Charitable Purpose

[X] must also prove that there is a charitable purpose for the trust. A charitable purpose is one which falls within the spirit and intendment of the preamble to the Statute of Charitable Uses 1601 (UK) and Lord McNaughton’s four heads of charity (Pemsel). Spirit and intendment is to be interpreted according to current conditions and societal understandings (Bathurst CC).

[X] will likely argue [purpose] applies here.

- The Charities Act 2013 (Cth) also includes other charitable purposes. Per s 13, these include advancing culture, promoting reconciliation, promoting tolerance, and protecting human rights. The effect of this Act on the common law and state law is yet to be seen.

a. Head 1: Relief of Poverty [X] will argue that the trust is for the relief of poverty.

- Poverty is a relative concept and requires a sense of assisting those in need: Downing v FCT. Also no need for the words “poverty” or “poor” to be used. o Relative concept à i.e. does not need absolute destitution in Australia. Mere assistance ok. o e.g. the elderly, ill/afflicted, a household in need (Clarence Valley Council) o Subject to a degree of financial necessity (Downing); - Poverty trusts conclusively presumed to be of public benefit (Dingle v Turner).

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TOPIC 9: DEFENCES & LIMITATIONS ON LIABILITY [T] will argue that they are not liable for [breach of trust] or that their liability is limited because of [relevant defences]. Defences stem from the trust instrument itself, from the statute, and from equity.

1. Investment Defences

i. s12C – Factors considered for reducing liability - RED FLAG: Should be raised most of the time investment BoT’s arise, but particularly where you believe trustee’s complied with s8 factors, if they sought good advice, if they had a good investment strategy– rarely made out

- [T] may argue that the Court should not find him/her liable for a breach of trust because of s 12C. - S 12C allows the Court to consider: o (a): nature and purpose of the trust; o (b): whether [T] had regard to relevant s.8 matters; o (c): whether [T] acted pursuant to a properly formulated investment strategy; and o (d): whether [T] was acting on independent & impartial advice of an apparently competent person.

- No positive duty to have an investment strategy but definitely should. o NB: superannuation trustees under positive duty to have an IS. - IS essentially a brief plan about how you will invest. E.g. need to keep some cash to pay expenses but rest can be V-X% in A and Y-Z% in B and so forth.

ii. s12D – Set off

- RED FLAG: Any time there are gains and losses to trust investments that can potentially be balanced to lower the trustee’s liability (e.g. X gains $30,000 whereas Y loses $40,000)

- [T] may argue that, despite causing loss [loss] from his breach of trust, this may be set off against gains [gain] from other investments, whether or not they were breaches (s 12D). o Happened in Bartlett: Court let trustees set off gains they made on 1st speculative investment against losses in 2nd speculative investment. o Further support for MPT – loss on average.

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2. General Defences

i. Exclusion clauses - RED FLAG: A clause in the deed attempting to exempt liability of a trustee for BoT

Here [T] will point to [Clause #] of the trust instrument as exculpating him/her from liability for breach.

These clauses are generally not against public policy and are construed strictly according to the natural meaning of its terms and any ambiguities shall be interpreted contra proferentum (in favour of the beneficiary): Armitage v Nurse.

Recall – types of fraud: - Actual fraud = acting dishonestly and knowing or being recklessly indifferent to effect on beneficiaries. - Constructive fraud = acting in a way that a reasonable person would have thought was dishonest. - Equitable fraud = definitely includes breach of fiduciary duty and exercising powers contrary to their terms. May include mere negligence or inadvertence.

Step 1. Analyse wording of clauses and compare to cases - READ THE CLAUSE CAREFULLY!! - Armitage v Nurse: no trustee shall be liable for any loss or damage… unless it is “caused by his own actual fraud”. o ‘Loss or Damage’: ® Lord Millett: “loss or damage” means exclusion won’t apply for breach of profits rule (account of profits), the self-dealing rule (rescission) and requests for removal of trustee for failure to invest or comply with trust deed. o The clause is construed to exempt the trustee from constructive or equitable fraud (eg. breach of fiduciary duties). o ‘Actual Fraud’ ® 'Actual fraud' is taken to refer to actual or real dishonesty, which would include the trustee (a) performing actions he/she knows to be contrary to the beneficiary's interest, (b) being recklessly indifferent to the beneficiary's interest, or (c) acting in their own interests. o However, if the trustee was acting in good faith and in the honest belief their actions would benefit the beneficiary, the breach will not be fraudulent - acting indolently, imprudently (eg. not taking care when making

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