LECTURE 1: Automatic Resulting Trusts

Distinction between Presumptive and Automatic resulting trusts:

Presumption that if A transfers property to B otherwise than for consideration, presumption of resulting trust back to A

Vandervell directed shares to be transferred to the royal college of surgeons Did not specify what the purpose of the trustee company holding the option

was Failed to identify who the beneficiary was of that trust held by the trustee

company, but for no beneficiary HELD: No beneficiary = held on resulting trust for Vandervell DISTINCTION: they operate in different ways. Presumptive: is one of

intention. Automatic: intention is irrelevant, and resulting trust takes effect by operation of law.

Automatic Resulting Trusts: Vandervell v IRC Failure to dispose of entire beneficial interest in the property Usually arises in charitable cases

(1) Trust does no refer to beneficial interesto eg Vandervell had created a trust of the option but failed to idenfity

who the beneficiary was. Three possible interpretations (Lord Upjohn):o (1) Trustee company was trustee for Vandervell’s children (separate

trust). Dismissed by court. o (2) Did it take option beneficially??? Transfer of option to purchase

shares to trustee company not enforceable as a matter of law. Vandervell could only express precatory wishes, but merely has a beneficial interest.

o (3) HELD: On trust for Vandervell??? Trustee company hold on trustee to hold on trust such that Vandervell of the trustee company declare any relevant trust. No beneficiary named, but would be at a later date. In the mean time Vandervell was trustee.

HELD: Option (3)

(2) Trust is unenforceable or voido Re Astor caseo Re Leeko Eg if son gets into QUT but not UQ? Can trust be paid towards QUT

fees if trust doesn’t provide for this? o No, this results back to the father. No charitable purpose trust because

it is for the son. No cy-pres-sheme available

(3) Surplus of property where purpose of trust has been fulfilled/is at an endo Re Gilingham Bus Disaster Fund

Pay for funeral, care for the disabled, and for ‘such worthy causes for the boys as the mayor could determine’

This third category was not wholly chaitable

Some people wrote cheques (with receipts) but a large part of the money was raised through tins. No record of who the donors were.

Either return money to donors Money to go to the crown bona vacantia Money could be applied cy-pres HELD: Harman J accepted that donor ids were unascertainable,

so money was just held at the courts indefinitely. Practically silly because identity of large number of donors unknown. But based on public policy

Doesn’t matter what form the

o CONTRAST TO: Re West Sussex Money from other police officers, money from legacies and,

money from donation boxes Money was supposed to go to the money of widows HELD per Gogh J: Donation boxes were ‘out and out’

donations legal and beneficial interest deprived of must go bona vacantia. More strict legal approach

Legacies were different. Intended to benefit widows, therefore there was a resulting trust in that instance.

o How to reconcile these two cases? What ought we do based on principle?

(4) Failure of the purpose of the trust (NB HARDEST CATEGORY) Barclays Bank v Quistclose:

o Rolls Razors declared 80% dividend (automatically classed as a debt)o No liquid resources to allow this dividend to be paid, so they were in

debt 400,000 pounds from Barclayso Barclays said they needed to first reduce debt.o 210,000 pounds given to Rolls from Quistclose with the purpose of

paying it to the shareholderso Quistclose told Barclays to make a new bank account “only to be used

to pay the dividend”o TWO QUESTIONS ARISED:o (1) did the arrangement between Q and R give rise to a trust in favour

of Q? IMPORTANT QUESTIONo (2) did Barclays have enough notice to make this enforceable? o HELD:

Letter made intnention VERY clear. Barclays, having notice of the trust, could not retain the money

as against Quistclose. Similarly, the liquidator of Rolls Razor could not claim title to

the money, as the assets did not form part the beneficial estate of Rolls Razor. To be used exclusively for dividend ayment.

Legal AND equitable rights could co-exist. Immaterial that the money was a loan (quistclose and RR contractual legal relationship).

Primary trust was to pay the dividend to shareholders Secondary resulting trust in favour of Quistclose.

Subsequet Cases after Quistclose:

Re Kayford (settlor’s identity is unknown):o Mail order company had financial difficulties, and

consequently creates separate account to pay customers.o ISSUE: has a trust arisen in favour of these customers such

that the money needs to go back to customers? o Or no trust? The money has simply come into Kayford

beneficially and customers are general creditors of Kayford in its insolvency.

o HELD: Megarry: in circumstances, trust had been created. Company had manifested a clear intention to create a trust. Purpose of separate account was to ensure money continued to belong to customers and it was on trust for them.

o Trust can be created without using the words ‘trust; or confidence’. Simply look to intention.

o Some public policy concerns with treating money this way. Money paid in advance for delivery of goods/services in the future. If it is paid into a trust, then even if company goes into liquidation, customers will get their money back!!

Is purpose for which trusts can be created limited to the payment of debts?

o Twinsectra: NO, even though this is common in earlier cases.o Money is sometimes lent for the purpose of new equipment

Is Quistclose an Express or Resulting trust?o Re Elizabethan Theatre Trusto Gifts were expressed to be unconditional even though they had

preferences as to where the money wento Purchases desposited into general operatibg accounto Was money held on trust? Or was it available to the creditors?o HELD per Gummow J: trust did not earmark donations,

nor put donations in a different account. Express trust analysis

Cf English position in Twinsectra v Yardley Yardley needed 1 million for purchase of land. Lecch wouldn’t lend

money. Twinsecrea gave money to Simms and Roper solicitors with sole purpose to be used for the purchase of land. Simms gave money to Leech who then spent according to Yardley’d instruction. Yardeley used money for other purposes.

Claim against Leech by Simms for dishonest use of money HELD: trust arose from outset for acquisition of property No primary and secondary trust in Quistclose 1 unitary trust throughout. Held that it was a resulting trust and

beneficial interest remains with the lender.

Millett still called it a resulting trust, though uses similar reasoning to Gummon in ETT.

This is the LEADING STATEMENT on the conceptual situation that arises from Quistclose.

If the trust failed, there was no NEW trust that arose. The power just no longer existed in the borrower and property was to be returned to the lender.

Some practical implications resulting from this outcome. Rolls Razor would have no rights to enforce anything because there is no resulting trust. (?)

LECTURE 2: Presumptive Resulting Trusts

What is a PRT?o 1st category in Vandervello Seems like there has just been a straightforward transfer! BUTo Held here that it a question of intention as to whether B is to take

beneficially on trust. If document is silent then there is said to be a resulting trust in favour of A. This is easily rebutted.

o A must transfer legal interest in property to B otherwise than for valuable consideration.

Two situations with the presumption (Calverley v Green* per Deane J) Classic case on PRT

(1) VOLUNTEER SITUATIONo Where a person buys entire property but causes for it to be transferred

to another or another jointly. Presumed to be held by transferee or transferees (sole owner in equity)

o As a matter of public policy, this is kind of weird.o S7(3) PLA o Where A and B purchase a house for 200,000 and B makes no

contribution to purchase moneyo

(2) UNEQUAL CONTRIBUTION OF PURCHASE MONEY SITUATIONS (per deane J)

o Logical extension of first situation: just both parties contributingo Two parties contribute money in unequal proportions. The party who

provides less money holds the excess on trust for the other party o Each party have a share in beneficial and equitable ownershipo A remains the lager owner in equity o The legal interest which is reflected by the registered proprietor is

different to the situation as equity o AT THE POINT OF TRANSFER

Calverley v Green per Mason and Brennan JJ C and G wer co-habiting in a house acquired as joint tenants (legal title)

Mr C told Mrs G that finance company required new property to be held in both names (for security and to rope in G)

Mr C was to make the repayments, though both were technically liable. They were registered as joint tenants.

Balkams Hill property: $27,250, Deposit paid by C is $9,250 $18,000 balance was paid for by the loan obtained by BOTH C and G Arrangement between them that C would pay for mortgage repayments Resulting trust is based upon the moment of acquisition of the property. In

what shares did they acquire AT THIS MOMENT??? At this stage, they were both legally liable, and deemed to have contributed $9,000.

QUESTION: given that there was a property registered in both names, was the beneficial interest different as a matter of equity due to presumptive trust analysis?

HCA held (specifically Gibbs J): (1) Presumption of resulting trust (2) Presumption of advancement as parties had both contributed purchase monies, they held the property on

trust proportional to those contributions. ESSENIAL FACT: G was treated as a contributor (half of the $18,000 or

$9000). Although at law, they owned as JT, in EQUITY because of the resulting trust arose, Mr Calverley had a beneficial interest worth $18,250.

67% for C and 37% for G

Exception to RT: Presumption of Advancemento In certain relationships, if the status of the parties is transferor and transferee is

the status of certain kinds of then the presumption ariseso Property NOT treated as resulting trusto Equoty presumes it to be a GIFTo Father Childo Husband wifeo Pike v Campbell (2012): NOT Father children of defacto partnero Modern times shows a much wider application

SEE Calverley v Green o De facto relationshipo Prima facie resulting trust proportional to purchase priceo Does this stand, in de facto relationship? Or did the presumption of

advancement apply such that Mr C presumed to gift property to Mrs G?o HELD: presumption of advancement DID NOT extend to a defacto

relationship. NO inference that they wanted right of survivorship, (even though they were JTs!!)

o Assumption that they wanted “independent control of money and property and to retain a testamentary power”

o THIS WOULD BE DECIDED DIFFERENTLY TODAY o Reference to Family Law Act 1975 s79 and s80 BUT NB: FLA has been

amended since theno FLA s90SM “alteration of Property Interests”o Now empowers court to make redistributions of property according to the act.

Specifically applies to De facto relationships

Nelson v Nelsono Presumption of advancement caseo Mrs Nelson (mother) paid purchase price of house. Placed into the names of

Son and daughter, so that she could buy another house with benefit of subsidy under the defence services home act 1917 (because she would not be eligible for this loan if she owned another house). She falsely declared that she didn’t have a financial interest in the other house. Unlawful scheme!!!!

o Son joins with mother to seek declaration that proceeds of sale belonged to mother. Daughter sought declaration that she had proceeds of the sale

o QUESTION: In transfer of property to children, did presumption of advancement arise such that it rebutted presumption of a resulting trust?

o HELD: applies in cases of gifts of mother childo This presumption was itself rebutted by the evidence of the mother’s

actual intention to hold beneficial interest for herself. o Even though it was an unlawful scheme, her actual intention showed that she

wanted the property to be hers. o Concerned, in equity, ith strictly construing the intention of the parties. o NOT CONCERNED with peripheral unlawful scheme issueo Fairly clear principleo Court will not allow illegality!!! What did it do?

o ‘Must be prepared to do equity’o Majority: Deane, McHugh, Gummow: Mother definitely held

beneficial interest in property BUT illegal purpose furthered by transfer meant that she should be denied the benefit. Could not retain the fruits of her unlawful scheme. She would have to have to repay the subsidy on the loan.

National Australia Bank v Mahero Questionable Presumption of advancement caseo Supreme court declines to apply wife husband (even though the reverse

applies)o Pre-dates Nelson v Nelson which extended category of presumption of

advancement to mother childo Questioned on basis that it doesn’t accord with Nelson

EVIDECE OF ACTUAL INTENTION

Calverley v Green per Mason and Brennano Presumption of advancement and resulting trust may be rebutted by actual

intentiono Evidentiary material includes acts and declarations BEFORE AND AT the

time or purchase, or immediately after as to constitute part of transactiono Assessing intention at the point of transfero Had evidence shown that C or D intended that, irrespective of the

contributions made to them, the property was intended to be solely Mr C’s, the presumption would have been rebutted

o However this was not made out on the evidence

*Muschinski v Dodds o De Facto couple purchased land (jointly and severably liable)o Mrs Muschinski paid purchase price of land from her own funds, as long as

Mr Dodds paid for pre-fabricated house and set up arts center.o Evidence of actual intention at the point of transfer:

o Legal advice sought said if this is intention, then property should be registered in both names as TIC not as JTs

o Mr Dodds specifically said that he wasn’t willing to enter into relationship unless registered as TIC

o Parties never even considered that relationship could break down and did not provide a contingency

o Effect: Mr Dodds’ beneficial interest was ‘immediate and unconditional’ rather than ‘acquired by stages as he contributed to the planned and joint endeavour’

o Land transferred as TIC in equal shareso Separated before house or cottage acquiredo Mrs M wanted full value of land. Actual intention rebutted presumed resulting

trust parties held their respective legal interest as TIC on trust, after payments of joint debts incurred in improvement of property to repay each her or his contribution as to the residue in equal shares

o BUT Mrs M contributed 90%!! Mr Dodds did nothing!!! Is this unfair????o Court fashions different remedies to alleviate injustice…o CUE Joint endeavor CONSTRUCTIVE TRUST

CONSTRUCTIVE TRUSTS

Baumgartner v Baumgartner (Mason, Wilson, Deane JJ) o Parties lived together and pooled earnings to pay mortgage (in man’s name)o Relationship failed: was woman entitled to an interest in the property?o Man held the house on trust for the parties in proportions to which they had

contributed, subject to the charge in the man’s favour for the net proceeds of the unit (equitable charge)

COMMON BASIS FOR ALL RESULTING TRUSTS

o Automatic and presumptiveo At a general level, they all share a proprietary basis (Macmillan)

Westdeustsche Landesbank v Islingtono Both give effect to common intention to parties.

Air Jamaicao Gives effect to intention unlike constructive trust o May arise where transferor wishes to depart frombeneficial interest

LECTURE 3: DUTIES AND POWERS (topic 2)

o NB get a Copy of the Trust Act 1973 o Duty is obligatory and a power is enabling

o SOURCES of Duties and Powerso (1) General Law (generally contains duties)

Law that exists apart from legislation (common law + equity)o (2) Statute

Trusts Act 1973 (Qld) S4(2) Endorses the fact that a trust instrument can enlarge

powers of trustee. Not restricted by legislation S4(3) Says that irrespective of the source of power, it will take

effect in a similar way S4(4) Upholds that terms of trust instrument are paramount

(unless otherwise provided), but read as a whole preserves certain provisions of the Trusts Act 1973 if the provisions in the act say that a relevant provision is to apply irrespective of what the set law says in drafting the trust. BUT there are some exceptions (you just have to read the act):

(i) Part 2 s10 (ii) Part 4 s31(1) Statutory provisions in Part 4 prevail

irrespective of subjective expression of set law in drafting the trust.

o Exception to the notion that trust instrument > trust act. Every trustee is to have these powers.

o Exception to the exception in some instanceso s57(1) power to carry on a business, “subject to

the provisions of any act” = EXCEPTION TO THE EXCEPTION excludes s31

o s32 every trustee may sell the property or any part of it. Can’t be excluded by the trust instrument thanks to s31!!!

(iii) Part 5 s60 also reverse general position if contrary position is evident. Very controversial. Can duties be cut down????

This is why, in determining which duties and powers are applicable, look at statutory provision first, THEN assess that against the terms of the trust instrument.

S32 Powers to sell/partition/lease trust property, S44 Trusts Act ‘power to compound’

o (3) Terms of the relevant trust instrument Usually takes the form of a deed of trust Trust instrument usually has the last say: ‘the particular

overrides the general’ HOWEVER, some powers in the trusts act cannot be overriden

Duty of Care and Skill/Exemption Clauses: Armitage v Nurse o Plaintiff became entitled in remainder to her mother’s life tenancy

o Settlement contained an incredibly broad trustee exception clause (clause 15): “no trustee shall be liable for any loss of damage which may happen to Paula’s fund at any time or from any cause unless caused by actual fraud”

o QUESTION: can this possibly be valid to exclude liability for gross negligence?

o HELD : per Millett J (Herst and Hutchinson JJ concurring): This clause was valid and able to exempt trustee from all forms of liability save fraud.

o P253-254 ‘there can be no question that this clause is repugnant to the trust’ given the irreducible core of obligations owed by the trustees to the beneficiaries.

o HOWEVER, Millet held that “these core obligations DO NOT include the duties of skill and care, prudence and diligence”. Minimum necessary to give substance to the trust is honesty and good faith.

o This is very controversial in England and elsewhere. Clarry doesn’t think it would be upheld again or in Australia as a matter of public policy.

o Trusts aren’t contracts. Clause 15 absolved trustee of liability.

o This is the position in England – what about Queensland? Duty of C & S?o There is a duty of care and skill in s22 of the Trusts Acto Terms of the trust instrument?o Does the trust instrument or statute prevail?o S22 is a MANDATORY rule and therefore prevails over the terms of

the trust instrumento

o S94 allows the court to enlarge the trustee’s powerso S95 authorises Court to vary a trust (SUPREME)

Duties Generallyo Cannot reduce wrong of breach of trust to a single concept (as with contract

and negligence).There are different kinds of breaches of trusto Evans classifies duties as ‘kinds of acts’. This produces a very long list

o Investo Access to financial records etc

o Other authors use abstract categories by kind of moral offenceo Cope says that there are 4x categorieso Carry out terms of the trsuto Management o Impartialityo Honestly and in good faith

o NZ Bank Case (Tipping J)o 3x categories. Darryn likes this form of categorization. o Preserve propertyo Fidelity and loyaltyo Care and skill

o No matter how these are categorized, duties are still much the same. o DARRYN’S WAY OF CATEGORISING:

o Duty to be loyal to their beneficiaries and not abuse their position to further their own personal interests (fiduciary obligations). This also encompasses duty of confidentiality.

o Duties of care and skill Broadly analogous to tort law duty of care

Duties of Administrationo (1)Trustee has to get control of the trust property (duty to ‘get in’)/Duty to

identify the trust property/Procure legal title to the trust propertyo (2) Trustee has to manage the trust assets per the purpose of the trust.

Charitable? At the very least, trustee has to maintain the value of the trust assets. They are still allowed to sell/trade etc.

o (3) That trustee has to abide by the terms of the trusto Darryn says be careful – don’t overestimate care and skill and

underestimate duty of administration. You will apply the wrong remedy!!!! Make sure you pick the correct duty!

o Eg trustee of deceased estate carelessly misreads the will and consequently pays the wrong beneficiary

o Mere presence of negligence doesn’t mean breach of duty of care and skill! The end result of this scenario is that wrong person is paid.

o Trustee has not performed th trust according o its terms this is a breach of duty of ADMINISTRATION. Strict liability.

o All unauthorized conduct = breach of DoA

“Getting In”o

INVESTMENTS

o DUTY vs POWER to INVEST

o Power to Invest (this is not obligatory) s21 Trusts Act Trustee may, unless expressly forbidden by trust instrument (a)

invest or (b) vary an investment Seems like everything is authorized (but see s23!!) Terms of the Trust Instrument will prevail! But they will not

always prevail over trusts Act 1973. If the trust instrument is silent, then s21 would be engaged.

o Duty to invest S22 Trusts Act (1)(a) If trustee’s profession involves investing money, then

they must exercise the care/diligence/skill a person in that line of employment would

(1)(b) If trustee’s profession DOESN’T include investing money for other persons, then they still must exercise care/diligence/skill a ‘prudent person of business would exercise.

Objective standards which take account of the subjective standards of trustee (in relation to level of skill)

o S23 Doesn’t create any new duties which affect trustee’s choice of

investment Reminds us of pre-existing duties which might be gleaned from

case law, which have effect of RESTRICTING trustee’s choice of investments

S23(2)(b) can’t be speculative or hazardous Eg shares prices dictated by peoples PERCEPTIONS of

a company. Not necessarily a business’s actual prospects of profitability. This can’t be predicted with any degree of accuracy.

Minimise risk through diversified share portfolio (invest in lots of shares in representative section of the market) Return will be average of the market as a whole.

Limitations: This strategy needs quite a lot of money, and can also fail is there is a GFC again and entire market slumps

Super annuation suited to this kind of strategy. Very long term and can ‘ride out the storm’. Can argue that this is therefore ‘not speculative or hazardous’

S23(2)(c) impartial towards beneficiaries Trustees must refrain from investments that are the

extremes See Re Mulligan

o Trustees had left funds invested in fixed term securities

o Invested all of trust funds here for many decadeso Shares were expressly allowed in the trust

instrumento Steady income for the life tenant but no capital

appreciation for remaining beneficiarieso This was not impartial!! breach

o S24 Sets out list of relevant considerations when investing Cowen v Scargill

o Pension scheme for British coal minerso Committee of management for the scheme o At the time, the coal industry was a nationalized industryo 5 x members appointed by Arthur Scargill (head of union of mine

workers)o Wanted scheme to be amended to eliminate competition (eg oil and

gas). They were arguing this with 5 other members of trust boardo The ‘other 5’ said they would only agree if the court made themo Trustees were seeking ‘directions’ from the courts (within supervisory

jurisdiction)

o QUESTION: Do the 5 trustees have to go along with Scargill’s suggestion? Or is this something they should resist?

o HELD: the fact that some jobs might be lost was not the primary concern. Megarry at p287: duty of trustees is to exercise power in best interests of beneficiaries. This is paramount, and must be understood in terms of what the trusts’ PURPOSE. What benefit is the trust supposed to provide?

o To provide a pension to the members of the fund/financial benefito This determines what is relevant to the best interests of the

beneficiarieso What will maximize financial return for the beneficiaries, whilst

keeping risks manageable?o Argument that protecting jobs in the coal industry was also in the best

interests of the beneficiaries. BUT some were already retired/were widows etc

o 2 x exceptions where financial gain is not the main purpose: if investment is unsafe because of political instability, is IS

appropriate to consider political situation where all beneficiaries are strictly opposed to something eg

alcohol, then its difficult to say investments in those industries are beneficial!

o Harries v Church Commissioners Variation of notion put forward by Cowen v Scargill

o 3x Types of Duties o (1) Administrationo (2) Loyalty and Confidenceo (3) Care and Skillo (4) To exercise proper in an appropriate way

Karger v Paul

o Conclusivity of trustee decision Making o Tempest v Lord Camoys

Courts are only concerned with “the honesty, integrity and fairness” with which the deliberation has been conducted.

NOT “the accuracy of the conclusion arrived at”o Re Beloved Wilkes’ Charity

o *Karger v Paul o Case in which there were serious consequences for remainder

beneficiary. Wrong decisions (in hindsight), but at the end of the day, if the process of coming to that decision was proper then there has been a proper exercise of the power and ‘that’s the end of the story’

o Testatrix left entire estate to husband (“absolute and unfettered discretion” “for his own use absolutely”)

o There was a power for husband to pay property to him. The husband, who was a trustee, paid the entire sum to himself

o The cousin (Karger), who was supposed to be the remainder man, brought action against executor and trustees of the will.

o QUESTION: had trustees acted wrongfully in paying estate to the husband, thus depriving Karger of the benefit?

o Has the trustee acted on information that should have been acted upon?o What is THE POINT of conferring such a power on trustees?o HELD: no breach of trust. Mr Paul had acted properly and asked

himself the right questions. McGarvie per p164 Test is that of good faith. “honest blundering and carelessness

do not of themselves amount to bad faith” Court examines whether the discretion was exercised but

court does NOT examine HOW that discretion was exercised

(1) general principle of non intervention unless fraud (2) Court won’t look at whether ‘right’ decision was made (3) Real and genuine consideration

Wilkinson v Clerical Administrative and related Employees Superannuationo Matter of constitutional lawo HELD: tribunal exercising power of Cth (not a chapter III court)o HELD per Heerey J: where a discretion is expressed to be absolute, it may be

that bad faith needs to be shown

s8 trusts Act: Application to court to review acts and decisionso Very broad discretion of the court o Under general law, trustees do not need to provide reasons for their decisions,

however under Trusts Act:o Court may require trustee to substantiate decisiono S8(1) Standing to review decisions made by trustees? Must have:

o Direct or indirect interest in trust property (beneficiary)o Or who has a right of due administration (eg a member of class of

objects for a discretionary trust)o Or who is aggrieved by act of trustee

o If you fall within and of these broad categories, apply to Supreme Court for review. Vey broad discretion of the court.

See case law regarding s8:

Re Whitehouseo Macrossan J HELD: s8 confers broad power, but the court will be reluctant to

interfere without very good reasons for doing soo Not for the court to second-guess the trustee about what is the right thing to do

Hennesseyo HELD: per White J: court should be reluctant to impugn, and will only do so

on the ground of bad faith, irrelevant considerations etc..o S8 doesn’t add t grounds on which exercise of power may be impugnedo Ford and Lee textbook also takes this view. S8 doesn’t enlarge jurisdiction;

merely creates a new procedure

o QLD law reform commissionoo Re Faulkner (1999)

o Applicant had a right of due administration of the trust

o Koczororowski o In will, MRs K bequeathed Veronica (daughter) a house at Herstono Before she died, Mrs K had ransferred house to trustees, who exercised

trust in favour of the mothero Mother left residue of estate to surviving children in equal shareso Veronica was only surviving child when mrs k died. V went to live

with her father. He was sick/had limited meanso He wanted money paid towards V’s education and maintenance. This

was refused by the trustees said he had ability to maintain hero Trustees sold house and put money in high interest accounto V applied for review of (1) refusal to pay father and (2) decision to sell

houseo HELD: Per Dunn: It was responsibility of father to sustain her

through primary school. He needed assistance when she reached high school.

o s8 should be exercised cautiously and guided by general principleso Trustees didn’t have to give reasons, but if given court has to

examine their validity

o Re Whitehouse o (1)Application for removal of trustee/appointment of another

trusteeo (2) Application for review of trustee’s decision under s8o Mr and Mrs W were trustees of son’s estateo Extensive hotel interests in Brisbane (Caxton street)o Mr W had a falling out between Mac and Wilson (the sons) o Mrs Whitehouse suffered a mental breakdown and they divorced. o Sons applied for removal of Father as trustee (s8) , and appointment of

themselves to replace the mothero Continuing trustee Mr W had appojnted Mr Orr as new trustee. Sons

couldn’t apply to remove him because he was a ‘man of integrity’ matter of strategy to appoint rather than remove.

Duty to have own discretion

Re Brockbanko General rule is against discretion against another person o Trustee resignedo Power to replace trusteeo Some trustees wanted bank (expensive trustee company), but existing trustees

resisted, Caved in and didn’t appoint tbanko Duty for trustee to make own decision! Acquiescing trustee breached duty!

S54 Power to employ agentso This is different to delegation o Eg taking advice from a stockbroker, then making an independent descisiono S54(1)

LECTURE 4: DUTIES & THE ADMINISTRATION OF TRUSTS

“Getting In” the Trust property:

Partridge v Equity Trustees Executors and Agency Co Ltd (1947)o Strict duty that gives rise to a breach of trusto Testator died and bequeathed all estate to D (a trustee company named

William Hartlett). o To pay estate to children, with remainder to grandchildren in equal shares. If

there were no grandchildren, was to go equally to all childreno Asked company not to be pressed for the debt. Grant company

reasonable time to repay the debt. This clause gave trustees power to decide when, and in what circumstances they would press for payment.

o S15 o D trustee company compromised the indebtedness (debtor and creditor agreed

suitable terms between them for a suitable settlement) Power to compromise debt in s44(f) Trusts Act.

o Trustee liable for failing to ‘get in’ in a suitable length of time. They should have pressed for payment despite broad request of testator.

o HELD: “the overriding duty was to get in the debt” … “He should only grant the company further time if he was satisfied after a proper investigation of its affairs that the company reasonably required further time to pay the debt”

o If pressing to hard for the debt causes the company to go insolvent, that can still amount to a breach of the duty

1. Maintaining the value of the Trust Property

Adamson v Reido Trustee owned and sold a block of land, without investing the money. Simply

held onto money for 6 months.o Breach of trust for failing to invest proceeds of sale to avoid inflationo Remedy: compensation calculated by rate of return had the money been

invested in government bondso Confirms nature of positive duty

o Puts trustee in position they would have been has it been duly invested “safe investment at a reasonable rate of return’ government bonds used as a suitable yardstick in ascertaining this

Elder’s Trsutee and Executor v Higginso Trustee under will had power to continue carrying on a grazing business,

which the testator had previously carried ono Children had not reached age of majority, so property couldn’t simply be paid

over to themo 2x parcels of land. 1 (The Brook) was owned by mr Higgins and was the

subject of the trust. 1 (Burnt Oak) Was owned by Higgins’ sisterso The grazing business needed BOTH parcels in order to be viable. Mr Higgins

had the option to purchase Burnt Oak within the period of the leaseo It lapsed and Mr Giggins had not bought the lando The Brook was worth less as it couldn’t be sold as a going concerno Breach for failing to burchase Burnt Oak. The Brook was worth far less now

that Burnt couldn’t be bought!!o HALD: The option was necessary to mainitain the value of the trust propertyo Duty to exercise an option and thus acquire property fro the trust.o Often arises where there is a trading trust: where trust is to carry on business

Trusts Act 1973 s47o Relevant to failing to insure

2. Carrying Out the Terms of The Trust

3. First duty = “Getting in” the Trust Propertyo Fairly important duty o Get property transferred into the trust so that it may be administeredo Eg debts

Ensuring Due administration of the Trust:1. Beneficiaries’ right to due administration of the Trust

McPhail v Doultono Distinction between mere and trust powero Court will intervene if power exercised capriciouslyo Court will exercise trust power if trustee doesn’t, according to presumed

intentiono By appointing new trustees/authorizing or directing representative persons of

the classes of beneficiaries2. Disclosure of Trust Information

Re Londonberry’s Settlemento Directed to hold shares until ‘appointors’ appointed in favour of same class of

persons (????? WOT)o Settlors daughter entitled under default clause to a share in the incomeo Sums were appointed by the trustees. Eventually determined to exercise power

to dispose of capital and bring trust to an end

o She was dissatisfied, and approached court for copies of meeting minutes. o Trsutees supplied copies of relevant documents but withheld some.o On appeal, HELD: beneficiaries have a proprietary right to some trust

documants, though there are exceptions. In this case not bound to disclose reasons for exercising power. Only things in writing should be disclosed to beneficiaries.

o No obligation to disclose private communication between trusteeso Unclear as to what proprietary rights beneficiaries have

Hartigan Nominees v Rydgeo Right of beneficiaries in trust documentso Trust was settled in 1971. Norman invited trustees to make payments to him.

Trustees refused. o Plaintiff (N’s grandson) pressed for disclosure of memorandum (which is

usually described as wishes/ kept confidential)o HELD: this is not a document requiring disclosure o Decision broadly follows proprietary approach in re Londonberry

Schmidt v Rosewoodo Schmidt object of discretionary power of appointmento HELD: per Lord Walker on application for disclosure, court must

considero (a) whether a discretionary objet or some other beneficiary with

remote interest should be granted relief at allo (b) what classes of documents be disclosedo (c) what safeguards to limit use of information disclosed

o Moved away from proprietary approach. Not property which beneficiaries prima facie entitled to posses!

o It is discretionary and a matter for the court to decide. This approach has been criticized and tried to defined to discretionary trusts.

o This decision has an unsettling effect on Hardigan’s proprietary approach o What is the best approach? Re Londonberry? Or Rosewood?o In NSW (a prominent trust jurisdiction)…

Avanes v Marshallo Gzell: Approach in Schmidt should be adopted in Australian Courts

McDonald v Elliso “respectfully disagrees” with Gzell’s idea that Schmidt be adopted

Silkman v Shakespeareo Propose to follow Schmidt approach in the absence of appellant guidanceo Let’s follow Schmidt!

Appointment, removal and Replacement of Trusteeso Trsust Acts s11

o Limits number of trustees to 4 irrespective of whet the trust instrument says

o Custodian trustee doesn’t count as a trustee (someone who has title but no active performance of administration)

o S12 Power of appointing new trusteeso S80 if it is expedient

Letterstedt v Broerso Per Lord Blacjburno Delicate jurisdiction to remove trusteeo No general rule to remove trustee will be set down o Don’t need to show breach/that trustee is bad before hey are removedo Ultimately, do what is in the best interests of the trust estateo Don’t need to make allegations before court’s jurisdiction is enlivened

See Miller v Camerono Endorses flexible jurisdiction of the court to remove trustee from officeo Removal allowed where “welfare of the beneficiaries is opposed to his

continued occupation of the office”o Largely discretionary

Koczorowskio Example of where trustee no successfully removed from office

Whitehouseo Example of where trustee successfully removed from office and

Unsuccessfully o Proposed trustee was appointed but brothers failed to appoint each other

LECTURE 5: Karen’s Stuff

LECTURE 6: (end of topic 4 and start of topic 5) The right to indemnity from beneficiaries

S72: Reimbursement of trustee out of trust propertyo For all expenses reasonably incurredo No recourse against beneficiary personally for s72o However, do have a narrower right of indemnity whch is personal can only

be sought once the trust property has been exhausted for its purposeso Beneficiaries would strongly resist such a case

Leading Case: Hardoon v Belliliaso Liability is to meet expenses that arise during course of administrationo That arises from the MERE FACT that the trust property includes trust

property (ownership)o FACTS: There was a call on a share o Don’t always have to pay shares from day 1 company reserves right to

‘call’ for the balance at a later date (when it actually needs the capital)o Can’t refuse to pay the call. This arises from the mere fact of ownership

o Another example of mere ownershipo Own a piece of land subject to local authority rates (tax) , or else

local authority can sell ito Have to pay this by reason of owning the land

o Lord Linley discusses 2x situations:o (1) Trustee doesn’t have to show that beneficiary requested him/her to

incur the liability. Beneficiary liable to indemnify so long as B is sui juris (full legal capacity)

o (2) Situation where trustee has had some discretion as to whether they incur the liability

Not a breach of trust For example, trust estate includes a house that will have to be

sold. Trustee decides to incur expenditure renovating the house (s33 allows this not a breach of trust). This is nevertheless a discretionary kind of expenditure

Trustee will not have a right to be indemnified unless sui juris AND has authorized or ratified the expenditure

Do all the beneficiaries have to authorize or ratify the expenditure?

o JW Groomhead Pty Ltd v JW Groomhead Pty Ltd

o McGarvie J held: if multiple, all have to be sui generis, and, if in category 2, ALL have to authorize expenditure.

o Even 1 insane trustee, no personal right to indemnity. Would be restricted to s32

o Discretionary Trusto If there is a discretionary trust, is there a right of indemnity against

class who haven’t received a distribution?o Weight o opinion says no right to indemnityo Depends on having a VESTED interest in trust propertyo Opinion in Ford and Lee textbook

DUTIES OF CARE AND SKILLo Has there been a breach of the duty of careo Has the trustee exercised the appropriate standard of care?o What has the trustee done/not done?

Duty of administrationo Have they complied with terms of trust instrument, and the duties

imposed o it by general law and statute lawo If the trustee fails to do that, then the trustee is in breach of that duty of

administration. 2x ways to breach this:o 1) Failure to “get in” the trust propertyo 2) Trust instruments define the limits of trustee powers, and trustee

doesn’t comply with theseo Eg Trust instrument says ‘may not invest in real estate’, but they invest

anyway

o Amounts to an unauthorized transaction breach of administrationo Situation where failing to rad instrument, trustee fails to meet standard

of careo ASK: What has the trustee done, and does it have the power to do what

it did?

o Often a lot easier to establish breach of administration that a breach of duty of care

o The way in which compensation is assessed can be an important way in deciding which way to claim (sometimes there is a breach of C&S AND administration

Standard of Care*Speight v Gaunt

o D (Mr G) was executor and trustee of estate of Mr Spadeo Beneficiaries were S’s children and the plaintiffso Estate contained loads of $$$$. Trustee consulted the beneficiarieso After consultation, Mr G decided to invest in shares . Can’t simply buy

shares for public company. Have to act through a stock broker or via an intermediary

o Stockbroker (Mr Cook) was reliable and competent so Mr G employed him., $250,000 pounds to invest in 3x different companies

o Mr G drew up cheques for Mr Cook, who then issued Mr G with a form. This acted as a receipt for the money

o Mr Cook ecame bankrupt and it turned out he had used all money for his own use. Beneficiaries alleged that Mr G had breached duty of care and skill (not administration because it was authorized)

o QUESTION: what was the appropriate standard of care?? o HELD:

Per Sir Jessel: trustee ought to conduct the business of the trust in the same manner that an ordinary prudent man of business would conduct his own

Court of appeal said: no breach of duty in terms of SELECTION of Mr C. BUT still had standard of care with respect to supervising the transaction

QUESTION: had anything happened that would have made an ordinary prudent businessperson suspicious?

The form given to Mr G showed some irregularities. Not the standard of an expert to see these, but an ordinary person.

Mr G had met this standard of care! Nothing that would have but an ordinary/prudent businessman on notice. He took as much care as could have been expected.

He was not liable for breach of duty of care and skill

Should a Higher standard of care be expected for an expert?

Bartlett v Barclays Banko BB advertised services and advertised themselves as expertise in trusts and

investments and financial matters

o Trust property was a majority shareholding in a company who’s original business was property management. However, the company decided to branch out to expand activity to include speculative property development (unknown by Barclays). A much riskier business

o One of the ventures was disastrous and the company lost a lot of money as a result. Became insolvent. Affected the share price.

o QUESTION: were Barclays liable to compensate beneficiaries for the loss? What is the appropriate standard of care for professional trustees?? Was there anything BB had/hadn’t done that amounted to a breach?

o Could/should the trustees have prevented this from happening?o HELD: per English HCA (Brightman J): trustees held a majority of the shares

in the company and therefore have control of the board. The trustees should have been keeping tabs on the company.

o A higher duty of care is plainly due o If you present yourself as having expertise/skill, then you should be

held to that levelo At the very lease, a sophisticated trustee would have known what they

could do with that majority of shareso They should have known, and could have prevented

How does statute modify this principle?See s22(1) Trusts Act

o Outlines what trustees are to do in exercising a power of investmento Modifies the law in a very subtle way o S22(1)(a) retains distinction between ordinary trustees and professional

trustees

Can the Duty of Care be excluded?o S42 Draft Trsust Bill

Failure to Insure Trust Propertyo S47 gives trustees a poer to insure trusy property. The is not DUTY to insure,

thougho HOWEVER there IS a duty to insure if failing to do so would amount to duty

of care and skillo What would an ordinary and prudent businessperson do?

Payten v Heyon (?)o Trust property included a house timber framed with fibro wallso The house burned down while it was rented to tenantso Clearly being used as a form of income/investment estateo QUESTION: would ordinary/prudent businessperson insure? The fact that it

was inhabitied hightens risk of house burning downo T had simply forgotten to renew insuranceo HELD per Cohen J: D was liable for breach of trust in failing to renew

the insurance.o Timber framed, fibro-walled house o Inhabited

o Should have insured the sources of incomeo If costs of insurance are disproportionate then it’s okay to not insureo Look at the specific facts

Remedies

o Remedy of equitable compensation. Available for: o Breach of an equitable obligationo Breach of fiduciary dutyo Breach of duty of administrationo Breach of duty of care and skill:

Is this a loss that would have occurred ‘but for’ the breach? (If yes, then this is insufficient at CL to make D liable)

Has there been an intervening act which breaks the chain of causation?

Was this a type of loss that was reasonably foreseeable? (Wagon Man test)

o If the quitable duty of care and skill is simply the equitable analogue as the CL duty, shouldn’t equitable compensation be assessed in exactly the same way that CL damages are assessed for negligence?

o Assumed that CL rules do don’t apply where there is a breach of the duty of skill and care.

o This view has been challenged and England and NZ

See Bristol and West Building Society v Mothew (?)o D (Mr M) was a solicitor for Lender (Bristol) AND the borrower\o Loan given n condition that there would be no second mortgageo Instructions that solicitor inform society about ANY proposals to create a

second mortgageo Borrowers DID tell Mr M that they intended to create a 2nd mortgage. Mr M

made a positive misrepresentation that there was no such intention.o Breach of solicitor’s duty of skill and care. No breach of duty of

administration. o Borrowers defaulted on loan and society exercised power of sale. BUT

property loan was big and in 1991 there was a property market crash. The property fetched only 53,000 pounds (loan was 59,000 pounds)

o Decided to sue Mr M for the loss o Society brought claims at common law (contract) AND claims in equity for

breach of trust, assuming that rules of remoteness (common law) wouldn’t apply in equity

o HELD: Millett J: Couldn’t prove that it would have withdrawn from transaction if it had known about 2nd mortgage. D has to establish that negligent statement CAUSED them to enter into contract

o Scope of liability (remoteness question ): P still has to show what part of loss is attributable to Defendant’s negligence. At common law, D wouldn’t be liable for all losses that were reasonably foreseeable, but only such part as was attributable to the inaccuracy of the information.

o If P would have suffered same loss, D wouldn’t be liable.

o On the facts, here they probably would have suffered exactly the same loss anyway. (specifically, having regard to the date of advance, some part at least may be attributable to the fall of property values)

o Couldn’t recover at Common Lawo Position at Equity? o No doubt that solicitor was a trusteeo This was not a case which involved a breach of duty of administration

(had paid over money at the right point in time)o Concerned with a breach of the equitable duty of care and skillo Equitable analogue to the common law negligenceo Do different rules of causation and remoteness apply??o HELD : although remedy for skill and care is equitable compensation,

rather than damages, this is a distinction without a difference. o Distinguish between breach of fiduciary duty and breach of duty

of administration. These are assessed differently because these duties are of a much stricter nature.

o This has yet to be adopted by the HCA

YouYang v Minter Ellison Morris Fletchero Doubtful that Aus will go down Mothew routeo Simply be aware of the English and New Zealand situations

LECTURE 7: Fiduciary Obligations of Loyalty and Confidence

o Fiduciary: person who owes the obligations of the fiduciary natureo Principal: used to refer to the person to whom those obligations are owedo All trustees of express trusts are ‘fiduciaries’. Trustee beneficiary

relationship is the classic fiduciary relationshipo Other classes exists, however. All analogous to trust situations. o ADMINISTRATION ; SKILL & CARE ; LOYALTY AND CONFIDENCEo

What lies at the heart of fiduciary obligations?o Must be a ‘duty to be loyal’o Bristol: principal entitled to single minded loyalty. Mere incompetence is not

enough, and will not give rise to a breach of fiduciary duty.o Liable for breach of contract simply to fail to do something. Not fiduciaryo Duty of administration also has nothing to do with loyaltyo Fiduciary duties are of a proscriptive nature

Breeno Woamn underwent breast surgery and developed complicationso Consulted dr Williams (D) who had not performed original surgery

o She performed remedial surgery but the complications continuedo She later became involved in a class action against manufacturers of breast

implantso She needed access to her medical records. Made a request to Dr Williams for

access to medical recordso He said would only release in return for release for any claim she maight have

against him o She brough proceedings against him for an order that he give her success to

the medical records. she based this claim on contract/property/fiduciary dutyo HELD (McHugh): Dr Williams owed her no fiduciary duty to give her

access to the records. Explicitly held that the obligation Breen would be contending for was positive and PREscriptive.

o Canada/US have accepted that fiduciary can be prescriptiveo In Australia, they remain prescriptiveo Reiterated in Hilmer v Duke Group Ltd. (?)

Fiduciary duties are prophylactico Prevantative or protective

Recognised categories of fiduciary relationshipso Partner and co-partnero Solicitor and cliento Agent-principalo Employee and employero Company and company director

Fiduciaries that arise from the facts of the caseo Harder to establish. What criteria do we use? THERE IS NONEo Courts have been very keen to stress this. No definitive statement.

Hospital Products v USSCo There was a contract stating that they were to be the chief distributors of

utosutureo Hospital product: ‘best efforts to promote throughout Australia”o Either party wa sfree to terminate at any timeo The contract didn’t require HP to purchase any specified product from USSC,

not did it require HP to sell any specific quantity of product throughout Austrealia

o HP developed its own product in competition with autosutureo Fulfilled orders with its own product instead of autosutureo USSC brought claims alleging breach of contract AND fiduciary dutyo HCA HELD: HP was in breach of contractual obligations to use ‘best efforts’o Divided on question of fiduciary obligation. Majority (Gibbs, Wilson,

Dawson) on the facts there was no fiduciary relationship. Minority (Mason and Deane) there was a fiduciary relationship

o However, the majority and minority both applied same legal principles: Mason said that critical features of a fiduciary relationship were:

o 1. Fiduciary has undertaken to act in interests of another (will almost always arise in conjunction with another obligation because the party is privy to a contracts)

o 2. Significant discretion in the performance of those positive obligations (eg powers of investment).

o 3. This power renders the principal vulnerable to the abuse of that power

Duke Group (?)o Tried to take over Western United Ltdo Offered $1.20 in WU shares plus 5 shares in KO for every 2 shares in WYo Uo Company making bid has to make a report stating that target offered to

shreholders is ‘fair and reasonable’ (rules of Aus Strock Exchamge)o Nels and Wheeler accountants engaged to prepare this reporto Stated that price offered by KO was ‘fair and reasonable’o Shareholder of target company accepted offer made by KO, who subsequently

took over WU in 2007o Stock market crash badly affected Kia ra went into liquidationo Liquidators said that KO had paid far too much for the shares, and brough an

action agains partners of Nels and Wheelero Ground: in providing report, they had acte din breach of their fiduciary

dutyo Basis of breach argued that breach because there was evidence of very

long standing, close business and personal connections between partners and directors or KO and WU

o Liquidators argued that because directors referred Nels and Wheeler, and they had an =interest in maintaining good tersm, N and W couldn’t be trusted to produce an independent report

o Unspoken expectation between N and W and Directors that they produce a desirable report in order to secure further work

o Nels and Wheeler thought that further work wouldn’t come their way if they didn’t produce a favourable report

o HELD: on the facts, there was no fiduciary relationship.

o If you make use of knowledge or opportunity that arises out of the relationship, then THAT amounts to a breach of NO PROFT rule

o Fiduciary mustn’t put itself in a position where private and

No conflict rule o Fiduciary may put itself in apposition where private interest conflicts with the

principal. o Don’t have to identify any overlap between scope of the private interest and

the scope of the positive duty to the principal o Ask: has the f made us eof an opportunity arising out of the fiduciary

relationship, and made a profit for itself?

o This is a simple factual question

*Regal Hastings v Gullivero RH wanted to acquire a further 2 cinemas in Hastingso Subsidiary company set up with 5000 shareso RH (the parent company) was fincnaially able to take up 2000 of 5000 shareso Problem was that cinamas owners refused to sell unless all 5000 was paid up o As a result, directors of RH and RH solicitor decided tp purchase remaining

3000 in their own names and in their own moneyo Deal went ahead. Cinemas purchased by subsidiary companyo Shares in subsidiary were sold for large profito RH brought action against directors. No doubt that there was a fiduciary

relationshipo Defended on basis that RH didn’t have sufficient funds to take tp shares

themselves. Argument that company wasn’t interested in this transaction. Director said they weren’t required to carry out transaction on RH’s behalf?

o They were allowed to buy the shares themselves no breach of the no conflict rule. No area of overlap

o HELD: this argument was correct. No breach of the no conflict rule. Still a breach of the non profit rule. Have the directors of regal acquired a benefit for themselves by reason o their position? YES. They were in a position where they could acquire and sell BECAUSE they were directors of regal. Profit by virtue of their fiduciary position.

o P144 in no way depends on fraud or questions as to whether profit should have gone to plaintiff or …… LOOK THIS STATEMENT UP = IMPORTANT.

o This is a very strict obligation. Any opportunity will amount to breach of non profit rule.

Boardman v Phipps

o Occupied a fiduciary position. Trust property included a 27% share holding in a private company which was performing badly

o Phipps attended AGM of company as representatives of the trust estate. In their capacity as representatives, they obtained information about the company wwhich indicated that, althought it wa sperformian badly, it had potential to perform well

o They sought to obtain majority shares. Couldn’t do this through the trust company

o Limitations of their powers of investment in the trust instrumento In orde to acquire additional shares they would require the leave of th

eourto Mr Boardmann decided to acquire additional shares personally insteado Got consent form consent from 2 trustees but not the 3rd (because of

dementia)o Mr Boardmann also sought consent of beneficiaries. Held that he

didn’t disclose sufficient information such that consent was informed. o Got shares and company became very profitable

o Action for breach of fiduciary duty. Trust hadn’t suffered any loss. Trust had benefitted considerably!!

LECTURE 8: Obligations of Loyalty II

DPP Estateso Mr Walton was a solicitor and had a property development business on

the sideo Business was conducted via a company called DPP estates. He owned

and controlled company.o DPP Estates was the P. Engaged in property development businesso Mr Walton employed someone as manager to carry on business (Mr

Gray), acquire knowledge of the market and to give advice to mr Walton

o Mr Gray’s duties extended to making a report and recommendations to Mr Walton in relation to properties. High degree of vulnerability on Mr Walton’s/DPP Estates’ part

o No Doubt that there was a fiduciary relationshipo Mr Close employed by Mr Walton in his legal practice as an article

clerko Close had his own property development business(Consult

Development)o Mr Close and Mr Gray knew each othero 1977 group of properties became available. Gray informed Walton

about properties. Produced a report on the properties. Mr Walton instructed Mr Gray that if he made an offer to purchase on behalp of DPP estates. Considerably below the maximum price that he was really prepared to pay. Mr Grayw knew Mr Walton would pay more.

o SIGNIFICANT: mr Walton specifically told Gray NOT to let the purchase of the property fall through

o Mr Gray told Mr Close about these properties, and suggested that mr Close buy the properties in questions

o Told C that W’s offer was grossly inadequate. Showed him the reporto G and C entered into arrangement. If C bought and developed, Mr G

would get a share of any profits made upon sale.o Mr Close made a higher offer than W’s offer, which was accepted by

the vendor. Consult Properties ended up acquiring the properties. o Allegations that there was a breach of the non conflict rule. o Personal interest vs Business interesto Private interest within scope of professional obligations that could

potentially stop him from performing the best for DPP estates?o He had duties to further the interests of DPP estates. Positive

obligation to do his best to negotiate price of properties on behalf of Mr Walton

o Had been SPECIFICALLY instructed sale not to fall through. o What were mr Gray’s personal interests? To ensure Mr Close actually

purchades and developed at a profut (due to the agreement they enetered)

o

Boardman v Phipps

Mr Boardman wouldn’t have been able to give unbiased advice Cohen: Possibility of conflict between interest and Duty Hudson: no doubt but a remote possibility that he would be asked about

possibility of application to the court Rule of equity applies even to a mere possibility. Remoteness not an issue. Dissenters: no breach of no profit or conflict rules

QLD Mines Ltd v Hudson (privy council decision) Mr Hudson (D) was managing director of QLD mines. Company had been

intestigating possibility of mining iron ore Had obtained licenced from Tas to do so He retired and exploited licences for himself. Sold them to an American

company, and received reoyalties from the ore that was mined Argued that he should account for the profits that he made Adopted Lord Upjon’s fdissent ormulation: yes, A REAL SENSIBLE

POSSIBILITY OF CONFLICT is what is required. Considered again in HCA (Zachariah case)

Deane he;d: significan possibility of conflict is was is required.

Hilmer v Duke group Court considered question of whether there was a breach of no conflict rule Majortiy adopted formulation: an actual conflice or a real or substantial

possibiliuty of confluct Nels v Wheeler had expectation that if they didn’t produce favourable report

then they wouldn’t get more work Majority suggested that even if there HAD been a fiduciary relationship, facts

fell short of demonstating that there was real or substantial possibility

Specific Types of Relationships

Trustee - Beneficiary Trustee purchases trust property

o Legal ownership is vested in trustee. Trustee acting a sboth buyer and seller.

o Trsutee seeking to buy beneficial title “Self dealing rule”o Probem that duty is to get best possible price. Conflicts with personal

interest as buyer to purchase at lowest possible price. o ABSOLUTE RULE: beneficiary can have the sale set aside as a right. This

is the case even if the sale is absolutely fair, and trustee pays full market value

o Ex Parte James . Long established Rule (1800s)

o Lord Eldon: self delaing rule statds upoin general principle that any other case. Purchas enot permitted in ANY case. Genereal interest of justice require it to be destrpyed in EVERY instance

o 1926 – Wright v Morgan. Even where T purchases at public auction, sale can still be set aside.

Where trustee purchases beneficial interest fron beneficiaries As legal owner of trust property, trustee has opportunity to obtain info about

property in question Places T at an advantage whan negotiating to purchase beneficial interest in

the property Can very easily profit from position as trustee Unlike self dealing, trustee is NOT both buyer and seller (Contract is between

beneficiary and trustee). Rule is different!! Contract isn’t set aside as a right. Set aside UNLESS TRUSTEE can show

that they took no advantage of their position as trustee Coles v dracothic : Trsutee may buy from b provided tht there is a distinct

contract afer scrupulous examination of all the consequences. Ther emust be no advantage, fraud, concealment via trustee Burden of proof is on the TRUSTEE to prove that all relevant information was

laid before the beneficiary (Thomason v Eastwood)

Fiduciaries renewing LeasesKeich v Sandford

Trustee held a lease of the profits of a marke on trust for an infant Before term expired, trustee applied to lessor to get renewal for the benefit of

the infant under the trust Lessor refused on the grounds that he wouldn’t have an adequate remedy

against the infant <essor said he was perfectly happy to grant a new lease to the trustee

personally Breach: should hold on constrctive trust for infant and account for all profits.

This is a long established principles

Chan v Zachariah (1984) P and D were doctors and co-partners in a medical practice Taken out a leas eon the practice premises for 3 years Lease ran from January 1979 with option to renew for a further 2 years Had to be exercised by September 1971 Z and C fell out and in may 1981, C gave notice to dissolve partnership and

declined to exercise option to renew the lease. Affairs of the partnership hadvt been wound up November: owner agreed to lease to C in his own name. Option to renew

expired in September (so option had already expired) Dr Z brought proceedings against C for breach of fiduciary duty. (presumed

relationship gven they were partners0 Gibbs HELD: ; where F hold lease in capacity, and subsequenty renews for

personal benefit, there is presumption thatthey used position ad fiduciary to obtain lease.

No doubt, that had agreement to grant C lease, he would have held lease on constructive trut for the partnership. New leas ewa sobtained after the partnership had been dissolved, but BEFORE affairs had been wound up

Didn’t matte rbecause after decision mad eto dissolve, fiduciary obligations extent to all matter realeted to winding up until partnership actually wound up. In renewing elas ein his own name, dr C hAD ACTED IN BREACH OF FIDUCITARY DUTY

On this basis, applying Keivh v Sandford, C held the leas eon constructive trust

BUT this is a PRESUMPTION and can be rebutted if there is evidence that fiduciary obtained lease by some other means.

Employees Receive bribes or Secret Commissions (MOST DIFFICULT CATEGORY)

PRESUMED EMPLOYEE-EMPLOYER ficudciary relationship Employees often entrusted with task of negotiation and contracting on behalf

of their employer. Stubbs

o Employer Manufactured stuff. Need to purchase raw materials tc, and had a employee who wa sin charge of this.

o Contract of employment with a duty on employee ot obtain the best possible deal of ht employer

o What if they’re bribed by supplier to purchase materials!!!?? Rsik that employee will be putting duty to employer first!!!

o There would also be a breach of the non profit rule

Lister v Stubbs Mr Stubbs Received large sums of money from Company Undisclosed, unauthorise dprofit Money used to buy land in Yorkshire Brought a cliam fro breach of fiduciary duty Definitely breach of mo profit rule REMEDY presumptive is an account of profits Exciting area of law!!!!!!!! Disgorgement remedy. Not the ony one. In a sitation wher eprinci[al’s loss is grater than the profit made, principle may

be left to receive equitable compensation Both of these are personal remedies and long established in case law. Can you get a proprietary remedy in this context? P (company) didn’t just want an account of profits. They contended that there

wasn’t just a constructive trust. Wanted proprietary claim. MOST VEXED ISSUE!!!

Advantages of proprietary remedy:o Situation where worngdoing fiduciary becomes insolvent: a proprietary

interest gives you priority over creditorso Property that increases in value: p. remedy captures that appreciation

in value CoA rejected claim for constructive trust. Held that money received wasn’t

held on constructive trust. To award this would be to confound ownership with obligation. 2x different things.

Result in principlal obtaining priority over creditors

Courts are reluctant to award C trusts for 2 x reasons (1)

o If the trustees take the property form the trust and convert it into something else, there is no problem in construing trust

o Fiduciary has no prior obligation to acquire for the principal. This is outside scope of duties and means that there is no pre existin gproprietary right

o A Lister v Stubbs situation, if there is a C trust, then the court would be essentially creating property rights where none existed JUST to provide P with better remedy than it otherwise would have had.

o This is not itse;f a reasons for not giving this remedyo Coyurts are just more careful

(2)o Effect is to give P advantages over other potentialplaintiffso Why should P ifor breach of fiduciary duty get priority over P with a

claim on contract or tort??

Lister revisited by Privy OCuncil 1994 Att General fr Hong Kong v reid

o D (reid) was solicitor and NZ nationalo Employed by legal service. He was acting director of public

prosecutionso Transpired that he had been accepting bribes to exploit official position

by obstructing prosecution of criminalso 12.4 million hng king dollars in bribeso No doubt as to F obligation and Breach of ob.o He has used bribes to purchase properties in NZ which had appreciated

in valueo Claim in HC of NZ on basis that properties held on constructive trust

for the crowno CoA HELD: no constructive trust in favour of the crown because NZ

courts were bound by decision of lister v Stubbso PC held that they were!!!o Lord Templemen: only was to ensure that F didn’t benefit from breach

of duty was to make an account for the brivbe AND the increase in value of the land

o Unless ed held land on constructive trust he wouldn’t be forced to give up the full benefit he received as result of breachTemplement was critical of the decision in Lister v Stubbs.Helf that it wasn’t consistednt with principal that F shouldn’t be allowed to benefit from the breach of his F duty.

o P331: the false fiduciary who received bribe must pay account to the person to whom the duty is owed.

o That duty applies as soon as the brive is received . HSoul dhave been transferred to the person who suffered from breach of duty.

o PROBLEMATIC REASONING: equity considers done that which ought to be done. As soon as received, whether in cash or kind, false fiduciary held bribe on trust for person injured.

o Deparure from Lister v Stubbs.o Look at whether F could only have made as result of receiving the

bribe. o Is this decision to confound ownership with obligation?o Technically, this case is only binding in NZo Not binding in England and Australia (Daley v Sydney Stick

Exchange)o In English law, considered by Sinclair v Versailles Trade Finance

Didn’t follow Att G v Reid This case didn’t concern bribes Mr Carlton was director and principal shareholder of Versailles

as well as trading Partners Ltd. This case was all about a scam. In breach of fid duty, Mr

Coarlton made it lookas if V Company was in a better position than it was. Very complicated set of facts.

As a result of breach of ficud=ciary duty, he made 29 million pounds by selling his shares in V finance

Direct result of the scam. Lord Neuberger suggested that the decision might be unsound

in Reid. Made distinction between cases in which breach of F duty coniststs of F acquiring something which SHOULD have been acquired for the principal, and OTHE breaches where breach donent consiste of F acquiring something

Somewhat considered in Australian Law Ramaldi v Schemillian Mining

o Federal court described Sinclair reasoning as ‘unconvincing’o This was a bribery case.o Deterrent effect of a constructive trust was needed. Fiduciaries needed

to be drprived of their gain, otherwise remedies wouldn’t operate as a sufficient deterrent.

o Should deterrents have a role to play in the private law? The Federal Court seems to think so.

o This DON’T mean that Hing Kong v Reid position is the lawo Made ure to differentiate between this case and Reid. Para 582 says

Reid has the constructive trust arising at the moment the bribe receivedo In Australia constructive trust is a DISCRETIONARY

remedy, and doesn’t arise automaticallyo Depends on whether alternative remedies to practical justice (very

vague) and whether there are third party issues

FHR EUrpoean Adventures v Cedar Caputal Partners (READ THIS CASE!!) FHR (claimant) Purchased Monte Carlo Grand hotel for 211.5 million euros

Cedar Capital Partners (claimant) had acted as agent inpurchasing th ehoted. Ds had entered into agreement with Grand Hotel that they would pay D 10,000,000 brokerage fee.

No doubt that there was a QUESTION: could constructive trust be imposed? HALD: no proprietary remedy (bound by Sinclair) HELD by Supreme Court: NB look at Karen’s list of academic articles Claimant argued that this rule of constructive tust being applied, applied to

ALL benefits received due to the breach Benefit shoulk dbe treated as the property of the principal A sthe F received the benefit as a result of abuse, equity should reate it as if it

had been acquired for the principal Neuberger said there was a distinction! D argued that because proprietary principal, should not be applied to assets no

to do with principal HE:D: bribe received is held of trust for principal. Accepted that previous case

law wasn’t consistent, BT there are important considerations (practicality and principal) that supported case.

It would prejudice unsecure creditors. This has considerable force in some ocntexts. In the first place, proceeds of bribe … LISTEN TO LECTURE

Bribe will often have reduced th ebenefit from th erelevan ttransaction

WEEK 9: Fiduciaires Ctd and THE OBLIGATION OF CONFIDENCE

Breen v Williams HELD: this obligation would have einvolved a prescriptive (positive)

obligations They are necessarily proscriptive

Doctor – Patient Relationship Contractual duty to treat with reasonable skill and care Common law tort of negligence Breen argued that fiduciary obligations were superimposed on those. He owed

her a fiduciary duty to act in her best interests. This encompassed requirement that he provide access to medical records.

Accepted that D P relationship COULD be fiduciary, even though it is not a presumed relationship.

Gaudron and McHugh: some aspects exhibit characteristics the courts have used to find a F relationship

o Dependent on advice and treatment

o Confiding of intimate, personal and confidential detailso Delegates control to the doctor

Fiduciary obligations have a completely different function to contracto Eg doctor who has an interest in a hospital. Situation where they could

be tempted to refer patient to particular hospital, and act in a way that is potentially not in patient’s best interest.

o Simply concerned with the POTENTIAL conflict. Do not need to consider whether it is actually the right place.

HELD: providing Breen with records was not part of her fiduciary relations Saing that the D has a fiduciary obligations is inconsistent with the central

idea with fiduciary obligation P97 they have a contractual obligation to act in patient’s best interests TO say that the patient has a right to those records is a completely different

thing. Reposing trust in the judgment of the doctor. To say that there is a right to

those records is to deny confidence. Dawson and Toohey: it is an aspect of people’s engagement with doctors to let

the doctor decide that is is better to give the patient more or less information. This shows the fiduciary relationship.

CANNOT say that the doctor must disclose everything demanded by the patient.

Gummow: F relationshs are NOT a quasi tortious duty to act solely in the best interests of the principal;

Obligations to act, but these duties were covered by common law duties

Defence: Fully informed concent Boardman v Phipps Mr B had sought consent of all 3x trustees and the beneficiaries He wouk dhav escaped liabik=lity if he hsd ibtained consent of all trustees (1

had demential and lacked capacity) Was not full yinformed consent

Pilmer v Duke Group Ltd Mahority held no f relationship or breach Kirby J found that there was a breach (but he was in dissent). Breach of fid futy was based on alleged relationships.

QLD Mines v Hudson Uranium mining. Mr Hudson was managing director. He owed fiduciary

duties to the company. Mr Corman negotiated with Tas Gvt for iron ore deposits. New companywas

to be formed to exploit these mines. N;y reason they entettained licences was because mr Hudson came to them in capacity as director of QLD Mined.

He uses the name and reputation to gain an opportunity (licences) by reason of hi sposition .

No breach of non conflict rule. Iron Ore v Uranium mining. Mr Hudson decided to resign to devote time to cause Ful disclosure. When the company sued Mr H, found that they had full

knowledge of the facts and mr H’s intentioms and allowed him to act that way. HELD: Mr H couldn’t be liable for breach of fiduciary duty

Duty of Confidence

All about preventing the fiduciary from making an unauthorized profit Conflict between private interest andinterest of the principal All about ensuring that anyone who received information (conficdential) in

citcumstances that indicate it was to be confidencail, do not make unauthorized use of that information.

Degree of overlap with factual scenarios with confidence and fiduciary Types of relationships with fiduciaries often have access to personal affairs. F relationships are much roader in scope Equitable duty of confidence is broader in the sense that it is not restricted to

people ein fiduciary relationships Equitabel duty can apply yo anybody in the right type of circumstances

Coco v AN Clark (engineers) per Megarry J: 3x elements1. Information must have necessary quality of confidence2. Information must have been imparted in circumstances implying an obligation

of confidence3. Unauthorised use or disclosure of information

Necessary Quality? Information in the public domain wont have this quality BUT it doesn’t have to be absolutely secret to be confidential. Secrecy in this

context is relative Is the information available to the relevant public? People interested in or

belonging to the relevant trade. If published on a non confidential basis, non confidential Published to a small group of recipients will not destroy confidential nature For example,

-Personal informationo Private etchings (Prince Alberbt v Strange)o Details of marital behavior communicated within marriage o Details of sexual preference (Stephens v Avery)o Personal diaries (Prince of Wales v Associated Newspapers)o Medical Information (Campbell)

-Commercial information Recipes (Crowder v Hilton) Results of experiments (Smith Kline & french Laboratories v Secretary) Ideas for TV shows (Fraser v Thames)

o Must be more than a mere idea that something can be doneo Must be sufficiently developed in enough details that it can convey a

means of doing that thingo Must provide a ‘springbpard’ ‘springboard doctrine’. Gives a head-

start over everyone else in the world bu virtue of having that information (ref Ansell)

Chemical formulae Designs for machinery (Ansell Rubber Co v Allied Rubber Industries)

o Machine built for making rubber gloves.

o 2x employees (Griggs and Ashcroft) had information about the construction of this machine

o Left Ansell to allied rubber industries. using same machineo Sued for breach of confidence, claimed that they had used the

information obtained in the course of their employmento Argued that lots of people ehad seen the machine in operation, and

knew details about ito HELD: he information needed to reproduce the machine was not well-

known. That was only available to a select group of employees of the Ansell employees

o Though it was POSSIBLE to reproduce the machine, this would have been extremely difficult to do. Needed something more than the publicly available information. On that basis, the information used to build the machine was protected by a duty of confidence.

o The information gave them a ‘springboard’o Breach of confidence claim was successful.

-Government Information Attorney General UK v Heinemann Publishers Pty Ltd No confidential clause so had to rely on duty of confidence He wanted to publish a book about his time in MI5 Gvt information is prima facie capable of being protected, especially about

sensitive things like national security Treat governemtn information differently to information about private

citizens. McHugh: Private citizens are entitled to protect their own interests. Legitimate

concerns about the public interest. Overnments exist for the public interest. Where they seek to restrain, thy have

to positively shpw that it is in the public interest to even treat as confidential. Have to get over this additional hurdle. Onus of proof is different based on

private or government information. Where dealing with a case of government info., onus on Gvt to keep it

confidential in the public interest The relevant public interest was the public interest f the United Kingdom

government. McHugh decided that it wasn’t appropriate for an Australian court to decide what was in the public interest of the UK

Non justiciable.

Circumstances that Imply an Obligation of Confidence: Test is an objective one Any reasonable man standing in the shoes of the recipient would realize that

information was intended to be given in confidence or for a limited purpose. Seiger v Copydecks

o Seiger had invented a new type of crpet gripo Wanted to have someone else to market the product for himo Entered into negotiations with a view where Copydecks would sell and

manufacture, and Seiger would receive royalties. o Copydecks needed to see details of invention to see whether there was

a market for the invention.

o Entered into negotiations. Seiger heard nothing from themo Copydecks were manufacturing a very similar carpet grip. He

successfully sued for breach of confidence.o Denning HELD: information disclosed for a limited purposes of the

negotiations. Purely so Copydecks could make a decision about whether it was in their best interests to start a relationship. The other purpose was a breach of confidence.

Unauthorised use or Disclosure

Elliott v Ivey Limited to the purpose for which the information was provided

Defences? Public Interest defense D who has, in breach, disclose private information. Can they escape liability

buy arguing that it is in the public interest that it is disclosed?

Line Laboratories v Evans Breathalyzers for roadside breath tests approved for use by the police 2 former employees disclosed copies of internal correspondence revealing that

there were problems with the brethalyser and it didn’t have accurate readings HELD: there was a breach. However, they were protected by the public

interest defence. It concerned commercial (not gvt) information. Public interest: that nobody was wrongly convicted for a serious offence.

Enforcement of the ALw

Francome v mirror Newspapers Went the other way Daily mirror had made recordings of illegally taped phone conversations Very well known horse racing figure. Evidece that he had breached jockey

club regulations and had committed criminal acts Mr Frankem sought an injunction HELD: there was a public interest aspect (enforcement of the law; someone

committed serious offences). HOWEVER, publishing the information in a newspaper was not the only was the public interest could be advanced. Not even the best way it could be advanced.

Why not give the tapes to the police or jockey club?

Is there a broad defence in Australian ALwCorrs Pavey Whiting & Byrne v Collector of Customs

Doubts whether these is such a broad defence. Favours the iniquity defence. Law isn’t entirely clear on this. No HCA authority yet. Defenc eis somewhat narrower.

Remedies Injunction Account of profits Equitable compensations

P has a right of election between account of profits and equitable compensation.

WEEK 10/11: PERSONAL AND PROPRIETARY CLAIMS

Usually only applies to misappropriation of trust property (breach of duty of administration)

Must trace the trust property intp the hands of the defendant Process applies whether it is in the hands of the trustee themselves, If money paid to B is given as a gift to C, it is possible to trace

o Not a remedy in its own right. Merely a process.o Defined by Lord Millett in Foskett v McKeowno A right to an asset, not a dollar value. Eg cant bring a proprietary claim

if money is spent on a lavish holidayo FACTS: mr murphy, a real estate agent, was selling property in

Portugalo He persuaded 200 people to put down deposits. He was a trustee

because money was paid into his trust accounto Depositys held by him on trus to be applied in the transacionso In the meantime ehe purchased an expensive life insurance policy with

5 premiums. 2 of the premiums were pad for using the trust money (misappropriation of trust money)

o He then committed suicide. There was an enormous payout from the company. Said that they were entitled to a 2/5 share of the payout.

o HELD: this was correct. Clear agreement that the money was a new asset. The 2/5 represented property of prospective purchasers.

o Read Wilkinson and hoffman’s judgements (p111 simply divide policy money according to contributions)

o Conceptually a difficult case. Very clear evidence of where the money had come from

Re Hallet’s Estateo Rule of proportionalityo Applicable to situation with innocent beneficiaries.o Presumed that the dissipate their own money first o Beneficiary entitled to a charge over fund or property purchased using

the fund to the extent that it represents trust funds. Brady v Stapelton

o Rule in Re Hallet applie more broadly than just to money in a bank accounts

o All assetso Shared in a company held on trusto Trsutee had identical shares in the shame company.o Proceeded o make a gift to some of those shares to a third partyo HELD: re hallet’s estate still applies to this situation.

Re Oakway

o Allows beneficiaries to ‘cherry pick’ if there is a good investment and shares increase in value, beneficiaries money will be deemed to have been spent first

Asic v Enterprise Solutionso Only apply first in first out rule where it is absolutely impracticalo APPLY PARRY PASSY in an exam

Cannot trace into the funds of BFPWON Court of Appeal said, where money misappropriated by trust who isn’t a

volunteer, and that innocent person mixes trust money with their own money, the general rule is that that person will have to recognise the claim of the prior equitable owner (ie the beneficiaries)

Claims of prioer owner and 3rd parties have proportional share of what represents the trust property according to their own contributions (parry passou)