Equity Lecture Week 1

1. Development of Equity; the Nature of Equitable Interests

(a) Development of Equity

In England in 11th century, there was a system of CL courts and it was in its own way a complete legal system. However, 2 things that were wrong with that system – 1) Remedies granted by CL courts were of a limited range. 2) System although complete was very unjust in some cases because it did not act on the D’s conscience.

Equity then stepped in to supplement range of CL remedies and corrected injustices of CL systemE.g. of equity supplementing remedies of CL – Remedy of specific performance which is equitable. At CL if breach of contract for the sale of land, CL could only give innocent party damages but equity could order SP against guilty party.

Also as e.g. of correction of injustices at CL is an equitable invention called a trust. If someone had accepted property on behalf of another person, CL would only look at legal title and ignore equitable title. Equity would say that the CL owner must pursuant to the trust hold property for benefit of beneficiary of the trust. Also equity courts issued injunctions against P who had succeeded at CL if equity courts thought that P should not have succeeded in the action.

HAD 2 SYSTEMS OF COURTS – CL AND EQUITY COURTS. Equity courts interfered with CL courts. CL courts were distressed by constant interference. In 1615, in the Earl of Oxford’s case, Lord Ellesmere(Lord Chancellor) granted an injunction forbidding a CL plaintiff from enforcing his action in ejectment. Edward Coke, CJ of King’s Bench had dispute with LC. King James the 1st decided in 1616 that when equity and CL conflicted, equity would always prevail. Supremacy of equity over CL was embodied in s5 (11) Judicature Act 1876 (Qld). Has now been re-enacted in s249 of Supreme Court Act 1995 (Qld).

If 2 persons were to guarantee a debt, CL would say that person called upon to pay up must first pay more than his share of debt before he can call upon co-surety for contribution. Equity said that this was unjust and as soon as one co-surety was called upon to pay debt, could join the other co-surety in action and claim contribution from that person - Wolmershausen v Gullick (1893) 2 Ch 514

There are 3 categories of equitable jurisdiction – exclusive, concurrent and auxiliary jurisdictions.

o Exclusive jurisdiction – exercised when rights in question are recognised in equity only. Excludes CL altogether. Notion of a trust is an exclusively equitable concept. CL does not know of anything called a trust. When equity enforces a trust, it is exercising its exclusive jurisdiction. Whenever there is a breach of fiduciary duty and equity intervenes, it is exercising its exclusive jurisdiction. Concept of fiduciary duty is an entirely equitable concept and CL does not know of anything called a fiduciary relationship.

o Concurrent jurisdiction – Right in question is recognised by both equity and CL. A good example of a case where there is concurrent jurisdiction is a case of a breach of contract for the sale of land. Assume that the vendor has breached a contract for the sale of land. CL would say breach of contract and award damages to purchaser. Equity will say to purchaser (innocent party) that damages would not be enough because you agreed to purchase a specific parcel of land and to give damages is not to give land for which you have bargained to acquire. Equity will force the vendor to transfer the land to purchaser. Give purchaser SP of contract. If vendor defies order for SP, will be guilty of contempt of court.

o Auxiliary jurisdiction – Equity will come in to give better protection for the infringement of a purely CL right and this will happen where equity orders discovery of documents. If debtor denies that there is debt, creditor can have discovery of documents. Debtor can also say that creditor did not give enough documents. Although discovery of documents is now enshrined in rules of court, origins were equitable.

Equitable Damages There is a concept of equitable damages which some people confuse with the concept of equitable

compensation. Equitable compensation is payable for any loss caused by the breach of an equitable duty, almost invariably a fiduciary duty. Equitable damages were not payable until the enactment of s2 of Lord Cairns’ Act. The Act is more correctly called the Chancery Amendment Act 1858 (UK). This Act allowed a court of equity to award damages as distinct from equitable compensation either in addition to or in substitution for an order for SP or an injunction. Reason for enactment of Act is clear. Courts of equity could issue injunctions, order SP and could award equitable compensation for breach of an equitable duty. But could not award damages either in addition to or in substitution for an injunction or SP. In Qld, Act was adopted by s62 of Equity Act 1867 (Qld). Has been repealed. S62 is now s2 (4) of the Statute Law Revision Act 1908 (Qld). Equitable compensation was awarded for breach of an equitable duty, almost invariably a fiduciary duty – Nocton v Lord Ashburton 1914 Ap C 932.

Barbagallo v Catelan Pty Ltd (1986) 1 Qld R 245 – McPherson J very carefully explained the effect of s62 Equity Act (Qld). McPherson J in Barbagallo’s case laid down 4 propositions in respect of equitable damages as distinct from equitable compensation.

Distinguish Equitable Damages from Equitable Compensation1) If a P applied for an injunction or SP and did not ask specifically for equitable damages, the court would still in its discretion grant equitable damages. Equitable damages under Lord Cairns’ Act does not have to be specifically claimed as distinct from equitable compensation for breach of an equitable duty, which has to be specifically claimed. Remoteness of damage under Hedley v Baxendale. When talking about equitable compensation, do not apply CL rule of remoteness of damage. When talking about equitable damages under Lord Cairns’ Act, do have to take into account remoteness of damage.

2) The court has jurisdiction to award damages if it has jurisdiction to entertain an application for injunction or for SP. If at the end of the court hearing, the court can no longer grant SP or injunction, it would not deprive the court of the power to grant damages in lieu because the time at which jurisdiction of court is tested is time of commencement of action. Time to test jurisdiction is time of commencement of action.

3) If the equitable remedy of SP or an injunction is refused on discretionary grounds (e.g. P guilty of acquiescence), the court would still have jurisdiction to grant damages in lieu of the equitable remedy refused. In order to get equitable damages under Lord Cairns’ Act, P does not have to show that he is entitled to an injunction or SP. All P must show is that the court has power at commencement of the action to give him damages.

4) At CL, can only get damages if suffer damage. Damages are designed to compensate P for damage incurred. At CL, cannot get damages for damage that is merely apprehended but which has not occurred. In equity, there is such a thing as a quia timet injunction (because he fears). Equity Act allows court to grant damages in lieu of an injunction or SP. Leeds Industrial Co-operative Society v Slack (1924) – HL had to decide whether a court under LC Act could grant damages in substitution for a quia timet injunction. Could the court grant equitable damages for damage that has not yet occurred? HL by majority said that statute allows a court to substitute damages for an injunction, including a quia timet injunction. Therefore, even though at CL there could not be damages for damage that has not occurred, in equity under LC Act, one can have damages for damage which has not yet occurred. Sanctioned by statute and HL in Leeds case.

Leeds’ case followed in Qld by McPherson J in Barbagallo – Before the enactment of Judicature Acts 1873 and 1875 in UK, one had 2 systems of courts – CL and equity courts. Main equity court

was Court of Chancery. Possible for a P to go to the wrong court. This dichotomy in administration of justice was very inconvenient. Judicature Acts were enacted to fuse administration of 2 jurisdictions. Did not fuse equity with CL. Gave judges power to administer both CL and equity so that a P would not be sent away for commencing action in the wrong court. Judicature Acts in UK were followed by Judicature Act 1876 (Qld). Act has been re-enacted in Part 13 of Supreme Court Act 1995 (Qld). Example of P suing in wrong court is Castlereagh Motels Ltd v Davies-Roe (1966) 2 NSW R 79. P sued a co director for breach of fiduciary duty. Sued in CL court. Action failed because should have sued in equity division. In NSW, administration of law and equity not fused until 1972. That’s why principles of equity have been so refined in NSW. Tardiness of NSW legislature has unexpected benefit which was that lawyers examined the equitable principles in greater detail than they otherwise would have done. Australia as a whole benefited.

The Fusion Fallacy Fusion of jurisdictions in Qld was carried out by s4 Judicature Act 1876 (Qld) which is now s244

Supreme Court Act 1995 (Qld) – s4 provided that the SC and every judge thereof shall administer law and equity by recognising all legal and equitable estates, titles, rights, duties and liabilities in every civil cause or matter commenced in the court as from 1st January 1877. S5 (11) now s249 SC Act said that whenever there was a conflict between equity and law, rules of equity shall prevail. Authority for proposition that what was done was to fuse administration of law and equity and not law and equity themselves was the observation of Sir George Jessel MR in Salt v Cooper (1880) 16 Ch 545.

Fusion fallacy is that fusion was not merely of administration of law and equity but was in fact a fusion of greater impact, which combined law and equity into a single system of law. Under that view, for every violation of a CL right, could get equitable remedy and vice versa. Fusion of law and equity has been largely been avoided in Australia.

In England, law and equity appears to have been confused in Seager v Copydex Ltd (1967) 2 All ER 415. P invented and manufactured a carpet grip and wanted D to market the carpet grip for it. Negotiations failed. In the course of discussions, P disclosed confidentially to D that it had another type of carpet grip. After negotiations broke off, D started manufacturing CG based on confidential information which it was not entitled to use. P discovered D abused confidential information and that D was making profits from breach of duty of confidence. Duty of confidence is an equitable duty. D infringed P equitable right. P sought a number of remedies from court and all were refused with the court giving P a remedy which it had not sought.

In Ong’s view, P logically applied for an injunction to stop D from continuing to manufacture carpet grip by breaching its duty of confidence. P also applied for damages caused to it by D breach of duty of confidence and court refused damages for breach of duty of confidence. P also asked for an account of profits against D for having made profits based on its breach of duty to P, which was refused.

Instead, the court gave P CL damages for breach of the equitable duty of confidence. Court did not give P equitable damages under LC Act. Gave P CL damages - First difficulty. Second difficulty was that the measure of CL damages was not based on losses incurred by P. Damages were assessed by reference to compensation for D unauthorised use of confidential information given to it by P. CL damages were awarded not on the basis of the loss caused to P but on the basis of the profits made by D. More orthodox to give P account of profits which courts refused to do. Even in England, Seager’s case is not understood.

In English v Dedham Vale Properties Ltd, Leigh J said only way in which could construe Seager’s case was to say that court in Seager’s case awarded equitable damages under LC Act.

(b) Nature of Equitable Interests and Rights

What is An Equitable Proprietary Interest in Specific Property?Most important institution of equity is the trust. In Hardoon v Belilios (p4 TLA), Lord Lindley said that the trust was simple to establish. When legal title to property is vested in one person (trustee) and the equitable

title vested in another person (beneficiary), have a trust. The division of legal from equitable title creates a trust - Hardoon v Belilios. In Baker v Archer-Shee book (p6-7 TLA), HL held that a beneficiary under a trust had more than a chose in action against the trustee. HL - Beneficiary was beneficial owner of property held in trust for him or her. Decision followed by HC in Charles v Federal Commissioner of Taxation. Does not matter whether trust has one or multiple beneficiaries – NZ Insurance Co v Commissioner of Probate Duties. Court said a beneficiary owned a chose in action against trustees to compel them to execute the trust and a proprietary interest in trust assets. 2 items could be situated in different locations.

If someone who was a beneficiary under a trust were to declare himself a trustee of that equitable interest for another person - If that was done, the original equitable owner would be known as the sub-trustee and the ultimate equitable owner would be known as the sub-beneficiary – Gilbert v Overton. Original trustee would be known as the head trustee.

Someone may have an equitable interest in property without being a beneficiary under a trust – Commissioner of Stamp Duties (Qld) v Livingston. Can be equitable proprietary interests in property, which fall short of equitable ownership of that property.

o A mortgagor has an equity of redemption in the mortgaged property. Equity of redemption is not the same as equitable ownership. It is less than equitable ownership because must redeem property before acquiring full equitable and legal ownership of property.

o A person who has a charge on property has an equitable proprietary interest in the property. That charge, being a mere security is not equitable ownership of property. There can be equitable proprietary interests in property falling short of full equitable ownership.

As a matter of convenience, can say that a person who owns book absolutely is the owner of the book both at law and in equity. CL and equity would recognise him as the owner of the book. Technically, this convenient expression is wrong because no one can be a trustee of property solely for himself. If so, one can sue one self to enforce trust against oneself. Expression only used for convenience’s sake.

There are authorities saying that an absolute owner owns a property absolutely and does not own separate legal and equitable estates in that property – Hope J in DKLR Holdings Pty Ltd v Commissioner of Stamp Duty (1980) 1 NSWLR 10 at 519. The other person was Aickin J (HC) who said this in 1982 149 CLR 431 at 463 - An absolute owner of property had an entire and unqualified legal interest in the property. Unqualified by any trust in favour of another person.

Is An Executor A Trustee? Equity is concerned with fiduciary duties which are peculiar to equity and unknown at CL. Every

trustee is a fiduciary but not every fiduciary is a trustee. An executor is not a trustee - Commissioner of Stamp Duties (Qld) v Livingston – (p36-43 TLA) – Mrs Coulson died domiciled in NSW. Had assets of deceased estate. One of assets was 1/3 interest in residue of unadministered estate of first husband, Mr Livingston. A residuary estate is that part of a deceased estate that remains after payment of testator’s debts, funeral and testamentary expenses and specific bequests and devices. Residuary estate is to be contrasted with a specific bequest and a specific device. An unadministered deceased estate is an estate where the assets have not yet been completely distributed. Issue in case was if she died owning either real or personal property in Qld. If so, her estate would have been liable to succession duty, which has since been abolished. Livingston’s unadministered deceased estate comprised real and personal property in NSW and Qld. Did Mrs Colson’s interest in her first husband’s deceased estate give her beneficial/equitable title to the assets in Qld?

o PC speaking through Viscount Radcliffe said Mrs Colson did not have any equitable title to the assets in the residue of her husband’s unadministered estate. An executor was not a trustee. An executor of deceased estate is full owner of property, subject only to the duties of administering that estate. No division of legal and equitable title in an executor as distinct from a trustee. Gave a very clear explanation as to why an executor cannot be a trustee. Said that in order for there to be a trust, must have trust property. Cannot have a

trust without trust property. Why can you not have trust property when the estate is unadministered? - Answer is in the administration of a deceased estate, certain assets of deceased may have to be sold to pay off debts and expenses.

When estate is unadministered, cannot be any trust of any of assets of deceased by the executor because assets may have to be sold. In many wills, someone appointed as both executor and trustee. Those offices are consecutive, not concurrent. Must distinguish between a beneficiary under a will where the estate is unadministered (Livingston) from a beneficiary under a trust (Baker v Archer-Shee). In respect of specific property, X will not be able to claim that he was a beneficiary. However, cannot say that it need not concern X. Although X does not have a beneficial interest, does have interest in respect of the relevant asset. This right in respect of the asset as distinct from a right in the asset is in itself a chose in action, namely a right to bring an action against the executor to compel him to administer the deceased estate. This right is itself an item of property and a chose in action. Although Mrs Colson had no interest in the assets of deceased, she did have a chose in action. Where was this chose in action situated? – If Qld, Colson’s estate would have been liable for succession duty. PC held that chose in action was located in NSW because L had died domiciled in NSW and the executors of estate resided in NSW. Estate did not have to pay Qld succession duty. Same principle in residuary request applies even in specific request or device – Official Receiver in Bankruptcy v Schultz – (p39-40 TLA). A bankrupt person had received a house and all of its contents. Estate was unadministered and bankrupt beneficiary had an equitable chose in action. Because bankrupt, chose in action vested in Official Receiver in bankruptcy and was distributable amongst creditors under s116 (1) Bankruptcy Act 1966 Cth. When combining Schultz and Livingston, with respect to all unadministered deceased estates, the beneficiary simply has a chose in action but has no equitable entitlement in any asset of the deceased. This chose in action can be transferred inter vivos or transmitted by will.

Classification – 4 categories which must be carefully distinguished. A mere equity in specific property. An equitable proprietary interest in specific property. An equitable proprietary interest in respect of specific property. A personal equity.

Mere Equity – Right which must be enforced in order to acquire an equitable proprietary interest in specific property. If enforce right 1 in mere equity, the fruit of action would be an equitable proprietary interest in specific property. Example of mere equity in specific property is the right to set aside a transfer of property where the transfer was tainted with fraud on the part of transferee.

Equitable PI – E.g. Owner of equity of redemption or equitable ownership of a beneficiary under a trust.

In respect of specific property (also known as a floating equity but Ong does not like it) – E.g. Interest of a beneficiary under a will where the deceased estate is unadministered – Mrs Colson’s position. If a beneficiary enforces a chose in action, chose in action simply compels executor to do his duty. If estate is bankrupt, chose in action will not yield any asset to a beneficiary under the will. An equitable proprietary interest in respect of specific property may or may not yield an equitable proprietary interest to person enforcing action.

Personal Equity – A personal equity is a right to bring action in equity. Purely personal and is not binding on a third party. Weakest form of equitable right. If someone has notice of personal equity, person can ignore notice as he is not bound by it.

National Provincial Bank v Ainsworth (1965) – Lord Wilberforce said that there were 4 criteria for identifying a proprietary interest.

Right must be definable. Right must be identifiable by third parties. Must be capable of binding third parties. Right must be capable in its nature of assumption by third parties. Must be capable in its nature of

being assigned. Must be assignable.

Interest must have some degree of permanence or stability. In one case where there was a licence issued to a person to graze stock on Crown land, licence was not regarded as property because licence was revocable by Minister upon giving 3 months notice to the licensee. – R v Toohey ex parte Meneling Station.

Of the 4 categories of equitable rights, 3 of them would satisfy these 4 criteria. Only one which would not satisfy criteria is the purely personal equity.

Mere Equity in Specific Property

Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 - Hotel owner Terrigal who gave a registered mortgage to Latec. T could not pay its debt to L, so L sold property. Problem was that L behaved fraudulently and sold the property to a subsidiary called Southern Hotels who gave floating charge which subsequently crystallised (became a fixed charge) to MLC Nominees. Kitto J explained position as follows – Said that because the sale by Latec to its subsidiary was fraudulent, Terrigal as mortgagor could have set aside the sale. The problem arose because Southern Hotels, the fraudulent purchaser had given a charge to MLC and so the real competition was between Terrigal (defrauded mortgagor) and MLC (innocent chargee who had acquired charge for value and without notice of fraud by Latec). Kitto J said a mere equity must be distinguished from an equitable proprietary interest.

‘The mere equity is logically antecedent to the equitable interest so that the mere equity must be enforced in order to acquire the equitable proprietary interest.’ Terrigal had a mere equity to set aside sale. Before it enforced mere equity to set aside sale, MLC had acquired a charge (an equitable proprietary interest). In this competition, Kitto J said that if the superior interest had been acquired for value and without notice of earlier equity, then the equitable proprietary interest would prevail over that mere equity. Person taking equitable proprietary interest would take free of mere equity of which it had no notice – Kitto J accepted the view of Lord Westbury in Phillips v Phillips (1862) 45 ER 1164. Kitto J quoted a maxim – ‘Where the equities are equal, the first in time prevails’. Said in this case that the equities were not equal because T had a mere equity while MLC had an equitable proprietary interest. Don’t apply maxim but apply defence of bona fide purchaser of equitable interest for value without notice.

If have competition between 2 equitable proprietary interests, then the first equitable proprietary interest will prevail – Rice v Rice. Cave v Cave. This itself is to be qualified by another rule that if have competition between 2 equitable proprietary interests, first in time will not prevail if first in time has misled the later equitable proprietary interest owner into believing that the earlier interest did not exist – Rice v Rice. Taylor J said Terrigal had an equitable interest, not a mere equity but it was an equitable interest subject to an impediment, being the sale to Latec. There is a conflict in Australia between 2 cases. In Latec’s case, the fraudulent purchaser had become registered and title was defeasible because of fraud. What about a situation where have fraudulent purchaser who is not registered, namely a fraudulent purchaser in a weaker position that the registered fraudulent purchaser in Latec. In Ong’s personal view, the defrauded mortgagor has an equity of redemption not a mere equity. Subject to misleading conduct, the defrauded mortgagor having an equitable proprietary interest, namely the equity of redemption would prevail even over an innocent purchaser. Where the equities are equal, the first in time prevails.

There is a dispute in Australia as to whether or not, where there is no registration by the purchaser, the mortgagor retains equity of redemption or a mere equity – Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd (1994) 1 VR 672 says that even before the purchaser is registered, the mortgagor has a mere equity.

In Re McKean’s Caveat, Ryan J said where the purchaser is not yet registered, the defrauded mortgagor has a caveatable equitable proprietary interest. Position in Qld is unclear because of McKean v Maloney (1988) 1 Qd R 628 at 635 per McPherson J. Comments were made obiter. The situation contemplated in this problem – Have a mortgagee selling in bad faith. Have a purchaser buying in good faith. Purchaser is not yet registered. Indefeasibility is not available to the purchaser. In that case who has priority – the defrauded mortgagor or the innocent purchaser who is unregistered. In McKean v Maloney, McPherson J left the

position open. He said assume bad faith on the part of the mortgagee. He said it was arguable whether the defrauded mortgagor had to show that the purchaser was also fraudulent. Uncertain whether defrauded mortgagor had a mere equity or an equitable proprietary interest, namely an equity of redemption. If defrauded mortgagor had an equity of redemption (full equitable proprietary interest), because his interest is earlier in time than that of the purchaser, he would not need to show that the purchaser was fraudulent. Would prevail even against an innocent unregistered purchaser. If defrauded mortgagor had only a mere equity, then if purchaser although unregistered was innocent, the purchaser would prevail because of Latec. In that case, the mortgagor, who would only have a mere equity, would have to show bad faith or fraud on the part of the purchaser in order to prevail over the purchaser. Arguable whether or not mortgagor needs to show purchaser was himself fraudulent. McPherson was saying that he was uncertain that where purchaser was unregistered, the mortgagor had a mere equity or an equitable proprietary interest. Position in Qld is uncertain.

McPherson J was in a very difficult position because of this case called Forsyth v Blundell (1973) 129 CLR 477 at 497 and 498 per Walsh J – Walsh had implied that the mortgagor had a mere equity then said that the mortgagor had an equitable proprietary interest. That was why McPherson J had to say that he did not know what the answer was due to the fact that Walsh J was a HC judge. Ong does not know what the answer is either.

Equity Lecture Week 2

2. (a) Trusts distinguished from other similar conceptsTLA Ch. 2

Although the trust has been with us for 9 centuries, there is no universally acceptable definition of a trust. There are basically 2 types of trusts – 1) Trusts for the benefit of individuals and 2) Trusts for the promotion of charitable purposes and these trusts are called charitable trusts. Cannot have a trust for the promotion of non-charitable purposes.

Ong’s definition of a trust comprises 2 limbs because can create a trust by transferring property to a trustee or by declaring oneself a trustee.

Regarding the first limb known as a settlement – A trust arises whenever title to property is transferred to one or more persons called the trustees so as to impose upon the trustees an obligation enforceable in equity to hold the property for the benefit of another person or for the benefit of several persons which may include the trustee or trustees or for charitable purposes. It is possible to transfer property to A to be held in trust for A and B. Trustee himself may be a beneficiary even though he does not have to be so. Cannot transfer property to A for the benefit of A only and thereby create a trust. If do that, although may purport to create a trust, only transferring to A the absolute title to the property. A trust may also arise where the owner of property declares himself or herself a trustee of the property for the benefit of other persons.

There are concepts similar to the trust but they are ultimately different from the trust

Bailment Where a personal chattel is delivered by one person to another with the common intention that the

latter shall be obligated to return t, either in its original or altered form to the former either upon demand by the former or upon the occurrence of a mutually agreed event, the transaction is a bailment – South Australian Insurance Co v Randell.

A bailment involves a transfer of possession from the bailor to the bailee. In a bailment, neither legal nor equitable title to property is conferred on the bailee – The Odessa. Bailee gets possession of the chattel. In the case of an express trust, there would be a transfer of title to a person as trustee or there would be a declaration of trust over the title to the property by the owner of the property – Hardoon v Belilios.

In other words, in the case of a trust, an equitable title to property is created. In the case of a bailment, no title to property is created and only possession is transferred. In the case of a bailment, the subject matter is confined to a personal chattel. The subject matter of a trust is

virtually any property. Can have a trust of a chose in action but cannot have a bailment of a chose in action.

A bailee is under an obligation to re-deliver the personal chattel to the bailor or to the bailor’s nominee upon termination of the bailment. In the case of a trust, there is no obligation to deliver possession of any personal chattel. The beneficiary of a trust may terminate trust by asking trustee to deliver title to the chattel.

One can deliver title of a chattel by delivery or by deed under seal. Even in the case of the passing of title, there is no need for delivery of possession. Bailment is a CL concept and the trust is an equitable concept – Joseph v Lyons. A bailment may be enforced either by the bailor or bailee. A trust is only enforceable by its beneficiaries. The settlor (person who creates the trust) cannot enforce the trust unless in creating the trust, he reserves the power to enforce the trust.

The bailment and the trust have one thing in common – either may be created gratuitously or may be created for value. The bailee then comes under an obligation to take reasonable care of the chattel during bailment. If someone is paid to create a trust, then the trust would have been created for value.

Debt

A debt is a CL concept and is created when the debtor comes under a CL obligation to pay the creditor a specific sum of money. This obligation is purely personal and the debtor does not hold any property in trust for the creditor. Relationship between banker and customer is that of debtor and creditor, not that of trustee and beneficiary – Foley v Hill.

In the case of someone’s bankruptcy, the person claiming the money would prefer to be a beneficiary under a trust than to be a mere creditor. In the case of a debt, no property is held in trust for the creditor and the creditor if unsecured will not get any money if debtor is unable to pay money.

If a debtor becomes bankrupt, then s108 of the Bankruptcy Act 1966 provides that his creditors will only be able to claim from his estate a rateable proportion of what is owed to them by the debtor unless those debts are secured.

If there is a trust (practically important), people will say that the bankrupt held property in trust for them so that the bankruptcy will not prejudice them. This is by virtue of s116 (2)(a) Bankruptcy Act 1966 (Cth) – TLA p486. Provides that property held in trust by a bankrupt is not divisible amongst its creditors.

[Note that a beneficiary’s property is, in the event of the trustee’s bankruptcy, protected under Bankruptcy Act 1966 (Cth), section 116 (2) (a)

The real issue is whether a relationship is one of debtor and creditor or one of trustee and beneficiary.

Determined by intention of the parties – Dixon J in Cohen v Cohen held that husband who sold wife’s furniture as agent had been intended to account specifically for proceeds of sale because not authorised to mix proceeds with own money.

A very good example of a trust being set up for the protection of other people is: Re Kayford Ltd [1975] 1 All E.R. 604 (TLA pp. 23-26) – Relevant co was an honest co and it

feared that it might become insolvent. Was very solicitous of welfare of customers and opened a customers’ trust deposit account. When received orders from customers, paid money into the trust deposit account. Would only withdraw from account when had dispatched goods to customers. Liquidator of co claimed that the money in account was co’s money so that it could be distributed to creditors. Megarry J said that the claim of the liquidator was totally misconceived. Corps Law is of no relevance here because it was assuming that the property was initially the co’s property and the co used the money improperly to cheat its creditors of what they were entitled to. English equivalent of Corps law had no application here because the equitable title to the money never vested in the co. Could not have been any voidable transactions with respect to the money because the money in equity never belonged to the co. Why did the co never acquire equitable title to the money? - Co intended to receive the money as trustee. Did not take equitable title to it. When co became insolvent, customers being beneficiaries under the trust were protected.

Must distinguish between a situation where a co acquires property first and then declares a trust over that property. That could be a voidable transaction. In a situation where the co never acquires equitable title to property, cannot be an issue of a voidable transaction. Co cannot transact in such a way as to involve the property of another. Can only transact with own property.

Agency In the case of an agency, have a principal and an agent. Principal authorises the agent to act on

behalf of him. In the case of a trust, the trustee is not an agent but is the principal. The trustee is the principal because the trustee is in law the owner of the property. Only not the owner of property with respect to beneficiaries of the trust.

There is a very difficult question where the agent is given money by the principal. When the agent is given money by the principal or where the agent receives money in the course of the agency, the critical question is does the agent receive the money on behalf of the principal as agent for the principal so that the agent would simply account to the principal as a debtor or whether the agent receives the money as trustee for the principal. If agent receives money as trustee for the principal, then the agent’s bankruptcy will not prejudice the principal.

Walker v Corboy (1990) 19 N.S.W.L.R. 382 (TLA pp. 7-9) – An issue arose as to whether the agent received money as a debtor (taking title to the money) or merely as a trustee (not taking title to the money). NSW CA held that the agent was intended to account as a debtor only. Agent was an agent to a large number of principals and those principals were people who sold farm produce through the agent. If the agent had to keep all receipts in separate bank accounts, would have been very inconvenient. Court said that as a matter of commercial convenience the parties must have intended the agent to account as a debtor only so that could use receipts for own benefit.

Re Brockbank TLA p51 –A principal can give directions to his agent with respect to the conduct of the agency. Beneficiaries under a trust cannot give directions to the trustee with respect to the administration of the trust. In the case of an agency, agency is terminated by the death of either principal or agent. In the case of a trust, the death of a trustee is of no importance because a trust never fails for want of a trustee. A trust is an equitable concept; an agency is a CL concept.

Contract

Difference between a trust and a contract is so obvious that there is not much that one can say about that distinction. A contract is a binding agreement made between 2 or more parties which is either supported by sufficient consideration or made under seal. The parties do not become trustees or beneficiaries for one another. Distinction is very clear. Contract is a CL concept; The trust is an equitable concept. Do overlap in one context. It has been held that the benefit of a contract as distinct from the burden of a contract may be held in trust. That contractual right may be held in trust for a third person.

Lloyd’s v Harper (1880) 16 Ch. D. 290 (TLA pp. 170-171) – The benefit of a contract may be held in trust. Courts are reluctant to find such an intention and will look very hard before they see such an intention. Although a trust of the benefit of a contract is possible, court will ask for evidence that such a trust was intended. Equity will recognise CL concepts but CL will not recognise equitable concepts.

Distinguish between: Fixed interest trusts or fixed trusts – Are trusts where the interests of the beneficiaries as well

as the identities of the beneficiaries are specified. Can have fixed trust for XYZ in equal shares.

Trust powers (Discretionary trusts) – Ong’s view is that no distinction between a trust power and a discretionary trust. The trust power unlike the mere power can only be given to a trustee of property. Because it is a trust power, there is an obligation on trustee to exercise the power. The power is a power to select among a class of beneficiaries. Sometimes there is also a power to determine the shares to be given to the persons selected. Essential to a trust power that there is an obligation to select amongst a class of potential beneficiaries. Although the trustee may be further given the power to determine the quantum of shares to be given to beneficiaries, the additional power is not essential. If a trustee fails to exercise a trust power, the court can exercise

power in place of trustee or court can replace delinquent trustee with another trustee or court can ask new trustees to come up with a scheme which court may approve or not approve – Lord Wilberforce in McPhail V Doulton. The difference between trust power and mere power was emphasised in Re Gulbenkian’s Settlements per Lord Upjohn - In the case of a mere power, if it is not exercised, then if there be persons nominated to take in default, those persons will take in default. The presence of a gift over means that the power is a mere power. Presence of a gift over is inconsistent with the power being a trust power because if power is trust power, there cannot be a gift over because no discretion not to exercise power. Difficulty arises where there is no gift over, the power may be a mere power or trust power depending on the terminology and circumstances surrounding its creation.

Mere power or a power collateral or a bare power – Power to appoint property to another person where the power does not have to be exercised. Person who has been given mere power may decide not to exercise the power. Person who confers power is called the donor of the power and person who is given power is called donee of the power. Donee of a mere power may either be a trustee or may not be a trustee. Appears to be a difference in consequences. If have a mere power and that power is given to a person who is not a trustee, then person can say that there is no fiduciary obligation to exercise power. In the case of a mere power being given to a trustee, even though trustee does not have to exercise power, trustee cannot just put it aside. Mere power is given to trustee in his fiduciary capacity and some reliance is being placed on the circumstance that he is a trustee. Expected to look at the power very carefully to see whether it can be exercised and when he does exercise the power he must do so upon a proper evaluation of the objects of the power.

Authority for this distinction is Lord Reid’s speech in Re Gulbenkian’s Settlements [1970] A.C. 508 at 518 (TLA pp. 69-70)

Horan v James – Trustees given a mere power or a trust power are impliedly excluded from the class.

Powers of appointment are divided into 3 categories – general, special and hybrid powers. There is another division that cuts across all3 of these and that division is between testamentary powers (powers conferred by will) and powers conferred inter vivos (between the living):

General Powers –When have a general power of appointment, that is a power to appoint anyone in the world, including the donee of power. A general power is always a mere power because there is no fiduciary element involved. A general power is given to someone who is trusted by the donor of the power enough to appoint power to himself. Because of the generality of the general power, it is sometimes said that the conferment on a person of a general power is equivalent to giving him property. If have someone given a general power, that person is under no obligation to exercise that power. If that person although entitled to appoint all property to himself, does not do so either inter vivos or by will then upon his death the power will automatically lapse. In that situation, a general power can be distinguished from the conferment of ownership.

Special Powers – A special power is a power to appoint property to one or more persons from the class of person designated by the donor of the power. Unlike a general power which can only be a mere power, a special power can either be a mere power or a trust power. Ong – No problem with appointment to one person.

Hybrid (or Intermediate) Powers – Power to appoint property to anyone in the world except to particular persons or a class of persons. Called a hybrid power because it is said to resemble both a general power (no defined class of potential beneficiaries) and a special power (certain persons cannot be made objects of appointment). Really conceptually unnecessary but is now entrenched. Was a time when a very logical view said that a hybrid power was actually a special power. This view has not been accepted. A hybrid power can also be a mere power or a trust power.

Re Manisty’s Settlement [1974] Ch. 17 (TLA p. 75) – Eg of hybrid mere power given inter vivos. Horan v James [1982] 2 NSWLR 376 (TLA pp. 80 and 82) – Eg of hybrid trust power conferred by will

(b) The Three Certainties Required for the Creation of an Express TrustTLA Ch. 3

An express trust is a trust created by the express intention of the person creating the trust. An implied trust (resulting trust) is a trust created by the implied intention of the person creating

the trust. Requirement of certainty of objects and of subject matter. Also requirement for certainty of implied intention. May be automatic resulting trust where do not need intention.

A constructive trust is a trust not created by the virtue of intention at all but is imposed by the court to prevent an unconscionable result. Must be certainty of objects and of subject matter. Do not have requirement of certainty of intention because intention does not create a constructive trust.

3 certainties required for the creation of an express trust were laid down by Lord Langdale MR in Knight v Knight – p61 TLA

(i) Certainty of Intention to Create the Trust (TLA pp. 61-65) Lambe v Eames (1871) L.R. 6 Ch. 597 (TLA p. 64) – Court held that there was no certainty of

intention to create a trust. The testator who gave the estate to his widow said that the estate was ‘to be at her disposal in any way she may think best for the benefit of herself and her family.’ Intention of the testator was not to impose an obligation on the widow to hold property on trust. Simply something given to her absolutely to benefit herself and members of her family. Held that language was not imperative therefore no intention to create trust of or for widow to hold property on trust.

In 19th century, had category called precatory trusts – Courts held if used words of precation (earnest request), if context indicates that meant words to be imperative even though in form were words of request, courts would say that words were imperative and there was an intention to create a trust. Courts are now very reluctant to discover in words of request the obligations of trusteeship. Current position is that words of request do not normally create a trust.

Re Williams [1897] 2 Ch. 12 – Testator bequeathed residue of estate to widow ‘in the fullest confidence that she will carry out my wishes in the following particulars.’ Words were not imperative in form. No intention to create a trust.

Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 C.L.R. 178 (TLA pp. 61-62) – A husband opened a trust account and said that he held account in trust for his wife. Was a purported declaration of trust made in writing so that the form of account was quite clear. Wife died and commissioner sought to exact duty from wife’s deceased estate on the basis that money in account was in equity his wife’s property. Jolliffe said that although in name held money in trust for wife, never intended wife to have any beneficial interest in the account. Was representing wife’s deceased estate and he was the administrator. Could be no estoppel raised against him because not saying in personal capacity. The HC by majority – Knox CJ, Duffy J – We know of no authority, and none was cited, which would justify us in deciding that by using any form of words a trust can be created contrary to the real intention of the person alleged to have created it. Isaacs J gave a long dissent based on estoppel. That argument is fundamentally misconceived because J was acting in his capacity as administrator of his wife’s estate.

In Kauter v Hilton, HC held that bank accounts opened by deceased in trust for plaintiff did reflect the real intention of the deceased even though he had retained the power to withdaw interest for his own benefit during his lifetime.

Mussoorie Bank v. Raynor (1882) 7 App. Cas. 321 (TLA pp. 63-65) –Last word on precatory trusts. The court said that as far as it was concerned, precatory words would not create a trust. The intention must be real, not merely apparent.

(ii) Certainty of Subject Matter of the Trust (TLA pp. 66-68) - Trust property must be identified or identifiable.

Palmer v Simmonds (1854) 61 E.R. 704 (TLA p. 66) – Court held that the phrase ‘the bulk of my said residuary estate’ was uncertain and therefore the trust failed for uncertainty of subject matter. It was uncertain because the bulk merely meant the greater part.

Re Golay’s Will Trusts – The phrase ‘a reasonable income from any other properties’ described subject matter with sufficient certainty because court was in a position to determine objectively what constituted such reasonable income.

Sprange v Barnard (1789) 29 E.R. 320 – Testators gave property to a widower ‘for his sole use’ provided that at his death the remainder be divided between several persons. Again the court held that there was no certainty of subject matter because remainder was uncertain. Courts are moving towards a common sense view.

Hunter v Moss [1994] 1 W.L.R. 452 (TLA p. 66-67) – Illustrates common sense view. D owned 950 shares out of 1000 identical shares. Declared himself a trustee for plaintiff of 5% of 1000 shares. 5% of 1000 shares was supposed to be the subject matter of the trust. D later changed his mind and said no trust because did not specify which 50 of 950 was to be held in trust and there was uncertainty of subject matter. CA said that this was too technical and they would just take 50 shares and regard those as trust property. If D had said here are 950 shares, court would not be able identify the 50 shares held on trust.

(iii) Certainty of Objects (TLA pp. 68-84) – In a case of a trust for individuals, must know who the beneficiaries are. Except for charitable trusts where purpose enforced by AG on behalf of the Crown – Leahy v A-G for NSW, there must be certainty of objects.

Morice v Bishop of Durham (1805) 32 E.R. 656 (TLA pp. 68-69) – The testatrix gave residue of estate ‘to such objects of benevolence and liberality as the bishop in his own discretion shall most approve of.’ Court said trust was void because don’t know what objects are. Court also said that objects of benevolence and liberality are not exclusively charitable. If knew that charitable trust, could have upheld it as a purpose trust. No individual beneficiaries and trust was void for uncertainty of objects.

[See now Trusts Act 1973 (Qld), section 104] – Such a gift would be valid. If an expression comprises both charitable and non-charitable purposes, then the non-charitable purposes would be severed and one would be left with the charitable purposes.

In the case of mere powers, trust powers and fixed trusts, there are 2 competing tests of certainty. Given that the objects of a trust have to be certain, the question arises what do you mean by certainty?

The List Certainty test - List certainty test becoming obsolete. List certainty test says that unless can compile a complete list of beneficiaries, don’t have certainty of objects.

The Criterion Certainty test – Don’t have to draw up a complete list of objects or ascertain every member of a class – Lord Upjohn in Gulbenkian’s case. All you need to do is to be able to say with certainty of any postulant for membership of the class whether he or she is or is not a member of the class. Sometimes known as the in-out test and the yes-no test. Whether applying either test, time at which the test must be satisfied is the time at which instrument takes effect.

To satisfy the certainty of objects test in a fixed interest trust, the list certainty test applies as the trustees must be able to compile a complete list of all the objects of the trust – Morice v Bishop of Durham. If all of the beneficiaries are not ascertainable, the court will not be able to execute the trust.

West v Weston – Apply criterion certainty test to a fixed interest trust. Re Gulbenkian’s Settlements [1970] A.C. 508 (TLA pp. 69-70) – With respect to mere powers,

apply the criterion certainty test and not the list certainty test. McPhail v Doulton (or Re Baden’s Deed Trusts) [1971] A.C. 424 (TLA pp. 72-80) – In the case

of trust powers, would apply criterion certainty test to a trust power as well. With respect to mere powers and trust powers, the list certainty test is obsolete. Lord Wilberforce overruled Inland Revenue Commissioners v Broadway Cottages Trust and said that it was wrong in saying that one needed to satisfy the list certainty test in order for a trust power to be valid. Emphasised that there would be distinctions remaining between mere powers and trust powers –p74. In the case of a mere power, the court will not compel the trustees to exercise the power but will execute a trust power if trustees do not do so notwithstanding certainty tests for mere powers and trust powers are now the same. Said that the court may execute a trust power by 1) appointing

new trustees 2) by asking the representatives of the classes of beneficiaries to prepare a scheme of distribution for the court’s approval 3) by directing the existing trustees to distribute on what the court considers to be a proper basis. Lord Wilberforce said that in the case of a trust power, survey of the objects must be wider than in the case of a mere power. On the question of certainty, unresolved linguistic or semantic uncertainty would render the gift void. On the question of certainty, evidential uncertainty as to the existence of whereabouts of members of the class does not render the gift void because trustees can apply to the court for directions. Saying that evidential uncertainty is not fatal in a case where the court can give directions to remove evidential uncertainty. He said that could have a definition that was clear but the beneficiaries could be so hopelessly wide as to make it administratively unworkable - ‘All the residents of greater London’. However, Ong thinks that in Australia where hybrid trust power is recognised (Horan v James, Re Manisty’s Settlements), that class of persons recognised would be more numerous that the residents of greater London. In Ong’s view, would satisfy criterion certainty test.

I.R.C. v Broadway Cottages Trust [1955] Ch. 20 (TLA p. 73) Horan v James [1982] 2 N.S.W.L.R. 376 (TLA pp. 80 and 82) – NSW CA said that in principle

can have a hybrid trust power if it was made inter vivos. Must have the capacity to draw up a complete list in NSW. Said that Wilberforce was right but other 2 judges did not comment. Trustees given a mere power or a trust power are impliedly excluded from the class. Court did not like rule but felt bound by Tatham v Huxtable.

Rule against perpetuity. Property must vest within perpetuity period. Period at CL – Life or life in being + 21 years. S209 PLA – A testator is allowed to specify a perpetuity period in lieu of CL period not exceeding 80 years.

If an expression is uncertain (linguistic uncertainty), there may be a special dictionary meaning. Testator may have said things to other people which would make certain words which are uncertain certain. – Per Lord Upjohn in Gulbenkian’s case. If had a phrase ‘My old friends’, that would prima facie be void because imprecise as objects of a trust. If have evidence that would make that phrase certain, then that phrase can be rendered certain. Can have a special dictionary meaning, while clarifying to some degree an ambiguous phrase, would not be enough to make the phrase certain.

West v Weston – 1998 44 NSWLR 657 – There was a clause which read – ‘Property was to be divided equally amongst such of the issue living at my death of my four grandparents as attain the age of 21 years’ – Clearly a fixed interest trust because of word equally. One would have thought that for there to be an equal division, must have a list certainty test. Young J was reluctant to condemn gift and acknowledged that judicial authority and academic opinion was against him but stated clearly that wanted to uphold trust. P664 of report – Test of certainty of objects for fixed trusts ‘will be satisfied if, within a reasonable time after the gift comes into effect, the court can be satisfied on the balance of probabilities that the substantial majority of the beneficiaries have been ascertained and that no reasonable inquiries could be made which would improve the situation.’ One grave defect of reasoning is how can one possibly know that substantial majority of beneficiaries have been ascertained if don’t know how many beneficiaries there are. Young was influenced by many factors including fact that if the trust failed, property would go to Crown as bona because deceased did not have any statutory next of kin.

Application of the Criterion Certainty Test Re Baden’s Deed Trusts (No. 2) [1973] Ch. 9 (TLA pp. 76-80) – Issue was whether the word

relatives satisfied the criterion certainty test. In England, relatives mean persons who can trace legal descent from a common ancestor. In Qld, delete word legal because s3 Status of Children Act 1978 says that there must be no discrimination against persons born out of wedlock. Taken from judgment of Sachs and Megaw LJ. Counsel for the executors had argued that word relatives was uncertain. Not possible to say with certainty whether a person without evidence is or is not a relative. Argument was rejected by all 3 members of CA.

o Sachs LJ (p78) said that argument was misconceived. If someone comes forward and is not able to prove that was a relative, then will be assumed not to be a relative. Doesn’t

really answer argument because if he is rejected on ground that cannot prove that he is a relative, then one is still not able to say with certainty that he is not a relative.

o Megaw LJ (77-79) said that argument of counsel was wrong because if was right, then HL would have achieved nothing. Overlooked that in the case of relatives no distinction between list and criterion certainty test because cannot say with certainty unless have the capacity to draw up a complete list. Megaw LJ said that test had been satisfied if can say with certainty of at least a substantial number of persons that they are within the class. Megaw LJ changed wording of HL in Baden No 1 and said that what is a substantial number is a matter of common sense.

o Stamp LJ – Said that counsel was right is relatives means descendants from a common ancestor. However, in his view, relatives meant nearest blood relations. In his view, since relatives meant nearest blood relations, it was possible to compile a complete list. All 3 judges used different lines of reasoning even though rejected counsel’s argument and no ratio decidendi.

Abolition in Queensland of the Rule against Delegation of Testamentary Power Succession Act 1981 (Qld), section 64 – If a trust power, mere power or fixed trust is sufficiently

certain if made inter vivos, it will be regarded as sufficiently certain if made by will. Re Beatty’s Will Trusts [1990] 3 All E.R. 844 (TLA p. 80) – Abolished rule against delegation of

testamentary power. Tatham v Huxtable (1950) 81 C.L.R. 639 (TLA pp. 80-82), Horan v James – That rule remains law

in NSW

Discretionary TrustsHartigan Nominees v Rydge (1992) 29 N.S.W.L.R. 405 (TLA p. 196) – Beneficiaries of a

discretionary trust did not have the right to inspect trust documents or require the trustee to disclose the matters to which the trustee has regard in making the distribution of trust property under the discretionary trust. It is possible for someone who is a settlor to give a memorandum of wishes but that is not a document the beneficiaries can read.

3. The Constitution or Creation of a Voluntary TrustTLA Ch. 5

Contrast a voluntary trust with a trust created by the giving of valuable consideration: A voluntary trust is a trust created without the giving of valuable consideration to the

settlor by the beneficiaries under the trust. If A transfers property to B to be held in trust for XYZ, and XYZ have given no consideration to A, then the trust will be a voluntary trust. However, a voluntary trust, once completed, is an enforceable trust. A voluntary trust, once completed, is not inferior to a trust created for valuable consideration. Sometimes will come across the expression ‘Equity does not assist a volunteer’ – Simply means that equity will not assist a volunteer to complete a gift that is incomplete. Does not mean that if a trust is completed and the beneficiaries have given no value, equity will not force the rights of the beneficiaries. Difference between a volunteer and someone who has given valuable consideration for the creation of a trust where the trust is not complete – The volunteer cannot compel the intending settlor to complete the gift whilst the person who has given valuable consideration can compel the settlor to complete the gift. The difference lies in the period before the completion of the gift or trust.

Digress slightly to deal with the case of a trust created pursuant to a contract. Where there is a contract to transfer title to property, e.g. a contract for the sale of land or

for the sale of a unique personal chattel where damages would be inadequate, then upon the formation of the contract there would be a constructive trust of the property in favour of the purchaser. This constructive trust is conditional because if the balance of the purchase price

is not paid by the purchaser, then the constructive trust in favour of the purchaser will be defeated by condition subsequent (failure of the purchaser to pay the seller). If there is a contract for the sale of land or for a unique chattel, then at the time of formation of the contract, there arises in favour of the purchaser a constructive trust sub modo. Sub modo literally means ‘under condition.’ In the case of an agreement to transfer land or a unique chattel, there would be this constructive trust sub modo.

Details of the rights and duties of a vendor and purchaser of land are examined in:Chang v Registrar of Titles (1976) 137 C.L.R. 177 (TLA p. 482)

When we talk about the giving of valuable consideration in equity, must remember that valuable consideration in equity is not the same as sufficient consideration in the law of contract. Equity will not grant a remedy for the breach of a contract. Can dispense at CL with consideration if the contract is made under seal. In equity, the requirement of valuable consideration cannot be replaced by a seal. If there is a contract to transfer title to a house for nothing, equity will say that this is merely a promise to transfer the house and will not be binding in equity on owner of the house. Equity will regard this contract with a seal but without valuable consideration as a mere voluntary promise. The word voluntary means in equity – ‘without consideration.’ Authority for proposition that valuable consideration in equity cannot be dispensed with by sealing the contract is: Norman v F.C.T. (1963) 109 C.L.R. 9 (TLA p. 152-162) per Windeyer J

Voluntary TrustsPaul v Paul (1882) 20 Ch. D 742 – A beneficiary under a voluntary trust may enforce the trust.

In the case of a voluntary trust, the settlor has no power to revoke the trust. The settlor can only revoke the trust if in creating the trust he has reserved to himself a power of revocation. If he just declares himself a trustee, then he cannot revoke the trust:

Mallott v Wilson [1903] 2 Ch. 4941 – Authority for another proposition that a trust never fails for lack of a trustee. Was a situation where the settlor had transferred land to a trustee to be held in trust. The trustee did not wish to act as trustee so the trustee disclaimed trust by deed. He transferred the land back to the settlor. Settlor said an ideal opportunity to change mind. Wanted to revoke trust by deed. Settlor had not reserved to himself a power of revocation. Court said no. When the trustee disclaimed the trust by deed, the title to the land reverted to the settlor as a resulting trustee. As a trustee, he could not revoke the trust.

A further point is that a trust can be constituted without informing the beneficiaries: Middleton v Pollock (1876) 2 Ch. D. 104

A settlor must do everything which only he can do. The remaining acts may be performed by another or by others.

The intended donee cannot compel the intending donor to complete the gift. Very important for the intending donor to complete the gift. If the gift is incomplete, intending donor can say that there is no gift.

Milroy v Lord (1862) 45 E.R. 1185 (TLA pp. 134-138) – Clear decision but has been modified and modification has caused problems for decades. Established principle that if someone wishes to make a gift, every step needed to complete the gift must have been taken. If there was one step short of completing the gift, the intending donor could still change his mind. Modified by later authority. New law is that the intending donor must do all that which only he can do to complete the gift. Once he has done that, the gift is complete even though further steps are needed to complete the gift provided those further acts can be done by people other than the intending donor. Had an intending settlor called Medley. Intended trust property comprising 50 bank shares. Intended trustee called Lord. Intended beneficiary being Mrs Milroy who was plaintiff in case. Medley needed to transfer 50 shares to trustee Lord to be held in trust for intended beneficiary Milroy. Even though it was simple, Medley managed to make a mistake. M purported to transfer the legal title to the shares to Lord by way of a deed. Method of transfer by deed was ineffectual because shares were shares in a co and method of transfer was for a memorandum of transfer to be executed by M in prescribed form and to be registered by co and this would have transferred

shares to Lord. CA in Chancery said trust of the shares was not completely constituted because intended trustee had not been given the intended trust property. Furthermore, Milroy could not compel Medley to complete trust because Milroy was a volunteer. Lord, the intended trustee had been given a power of attorney that empowered him to transfer the shares to himself for purposes authorised by M. The transfer of shares to Lord was not such an authorised purpose so can forget about power of attorney. Intention of M was to create trust by transferring shares to Lord. Not the intention of Medley to declare himself a trustee of the bank shares for Milroy. This trust failed because it had no subject matter and cannot have trust with no subject matter. Medley thought that a trust had been created in favour of M and so whenever received dividends on shares he gave them to M. CA held that although the trust of the shares was void, gift of dividends was valid. Court did not say why gift of dividends was valid but Ong’s inference is that dividends comprised money given by M to Milroy. Bank notes given were personal chattels and title to personal chattels apart from sale can be passed by delivery to transferee with the intention of passing title to the transferee and by way of an execution and delivery of a deed of gift in favour of the transferee.

Case that supports these 2 alternative methods of transferring title to personal chattels: Cochrane v Moore (1890) 25 Q.B.D. 57 (TLA p. 164) – Impliedly approved by HC in Anning v

Anning –164. Can say that C v M is law in Australia by virtue of Anning v Anning (Griffith CJ said that would be complete after everything necessary to be done by the donor had been done) and later cases. In Milroy v Lord (TLA 134), Turner LJ said ‘There is no equity in this Court to perfect an imperfect gift.’ Compelling logic – Cannot compel someone to make a gift. Turner LJ explained that there were 3 methods of making a gift. Whichever one is used, the settlor must have done everything, which according to the nature of the property was necessary to be done in order to make a gift of it (136-137). Modified to mean those things that only intending settlor can do. 3 ways of making a gift:

By transferring title to property to donee Transferring title to property to a trustee for the purposes of a settlement By owner of property declaring himself trustee of property for purposes of a settlement.

Difference is if use first method, this operates as an assignment and no trust is created. If use second and third methods, a trust is created. Turner LJ ‘If it is clear that intending settlor intended to use one method and did not succeed in transferring the property, then the court will not contradict his intention by imputing an intention to make a gift by way of another method.’ Turner LJ was not saying that if a set of facts cannot be construed as one method, then cannot be construed at all. Was saying that if intended one method that failed, cannot change his intention. Very difficult to decide whether or not the intending settlor intended a trust or a straightforward assignment. Example is:

Jones v Lock (1865) 1 Ch. App. 25 – A father had a cheque of 900 dollars and was payee of cheque. Wanted to make gift of cheque to infant son. In presence of wife and nurse – ‘Look you here, I give this to baby’. Later retrieved cheque and put it into a safe. Died and executor assumed cheque was his and cashed cheque for the estate. Issue was whether father had made a complete gift to the son. Lord Cranworth very persuasively said father had no intention of transferring title to the son because there was no endorsement on the cheque. Then said that there was no declaration of trust in favour of the son. 2 ways in which father could have made gift – by endorsing it in favour of the son or by declaring himself as trustee of cheque for the son. Ong - Words capable of being construed as a declaration of trust because father clearly intended to make a gift of the cheque to his son and only question was whether intended to do so by transfer or by way of declaration of trust. LC said that no intention to transfer and words had no legal effect. In the 19 th

century, judges were more stringent and in the 20th century they are more liberal.

Another case that indicated stringency of approach of courts - Richards v Delbridge (1874) L.R. 18 Eq. 11 - John Delbridge intended to transfer lease of his business premises and stock in trade to grandson, Edward Richards. D, the intending settlor failed to use appropriate method of transfer both in relation to the lease and stock in trade. Purported to transfer lease (land) and stock in trade (personal chattels) by an unorthodox method. Took deed of lease and wrote on the back the following words ‘ This deed and all thereto belonging I give to E with all the stock in trade.’ D died and R filed a bill in equity claiming that D had declared himself a trustee for him. R, the intended donee knew transfer was ineffectual. Argued that

although lease and stock in trade not transferred, there was a declaration of trust. Sir George Jessel cited judgment of LJ Turner in Milroy that if intending settlor intended to use one method, court will not use another method if that intended method fails. In this case, there was an intention to transfer lease and stock in trade, which failed. Court would not save the gift by imputing to the intending donor a declaration of trust. D failed in transferring assets to grandson and had no intention of making himself a trustee. Therefore, there could be no declaration of trust. Jessel made a very famous remark ‘It is true he need not use the words I declare myself a trustee, but he must do something which is equivalent to it and use expressions which have that meaning’. Because a trust can be created without using the word ‘trust’ or ‘trustee’, sometimes arguable whether intending donor intended a trust or assignment.

A liberal approach was taken in Paul v Constance [1977] 1 W.L.R. 527 (TLA p. 65) – There was a Mr Constance and Mrs Paul who had lived together as de facto husband and wife until death of Mr Constance in 1974. In 1973, C had received 950 pounds in compensation for injury at work. C and P went to the bank and used cheque to open an account in his name only although he did give P written authority to make withdrawals from the account. Evidence that sum later withdrawn of 150 pounds was treated by both parties as if it was jointly owned by them. On several occasions, C had said ‘ This money is as much yours as mine’. Eng CA held this was a sufficient declaration of trust. Court anomalously held that although an express trust, could not find a commencement date. Ong - Trust was created on first occasion on which C said to P that this money is as much yours as mine. Finding of primary judge was also not very precise. Judge did not make it clear whether owned money as joint tenants or as tenants in common. CA decided that tenancy in common in equal shares and P entitled to half of money in account. Court did not explain why phrase created tenancy in common instead of joint tenancy.

Corin v Patton (1990) 169 C.L.R. 540 (TLA pp. 142-148) [the definitive case regarding completion of gifts] – A dying woman, Mrs Patton was registered with her husband as joint tenants of a block of land in NSW. Mrs P did not want her husband to have a right of survivorship upon her death. Can prevent someone from having a right of survivorship if sever joint tenancy and make it into a tenancy in common. Mrs P tried to transfer her share in JT to brother Corin in an attempt to sever JT. Question was whether P succeeded in severing the JT in equity. If not, her husband would enjoy the right of survivorship in equity. One element of uncertainty was status of solicitor who handled the legal documentation. Court said uncertain whether solicitor acted for Mrs P or C. Mrs P tried to transfer her interest to C as a trustee for her. Mrs P executed 3 documents:

1) Memorandum of transfer to the land in favour of C – Memorandum was never registered. Transfer was not made for value. Memorandum of transfer was expressed to be subject to a mortgage to the bank.

2) A deed which was jointly executed by C and Mrs P. In the deed, C declared that held interest in land as a tenant in common with Mr P in trust for Mrs P.

3) Mrs Patton’s will where she left her estate to children in equal shares – Following her death, both C and Mr P lodged caveats on title claiming respective and mutually inconsistent interests in land. Issue was whether P was correct as saying that he took as survivor or whether C was correct in saying JT had been severed. Legal title was not in dispute because memorandum of transfer had not been registered or lodged for registration but what was in dispute was whether C had obtained equitable title to land by destroying the JT:

Real question was what are the requirements for completing a gift of Torrens Title land in equity? Mason CJ and McHugh J (TLA 142-144) – Started by rejecting the view expressed by Dixon J in Brunker v Perpetual Trustee Co Ltd (1937) 57 C.L.R. 555 (TLA pp. 140-141). This view was that if the ownership of a registrable memorandum of transfer was given to the person named as the transferee, then as against the intending donor, the intended donee obtains a statutory right to be registered although this right will not confer on the intended donee any equitable interest in the land. After an examination of relevant authorities, Mason and McHugh said if an intending donor of property has done everything necessary for him to have done to effect a transfer of the legal title, then equity will recognise that gift as complete so long as the donee has been equipped by the donor to obtain legal ownership of the property. Pending transfer of legal title to donee, the donor will hold legal title as a constructive trustee for the donee. They were formulating a test for the completeness of making a gift in equity generally. Must apply that general proposition to more specific requirements of completing a gift of TT land in equity.

Mason and McHugh said that a gift of TT land could not be complete unless the intending donor had authorised the production of the certificates of title to enable the donee to be registered. The donee does not have to be given authority to use memorandum of transfer.

Ong - A gift will be complete if intending donor authorises another person to produce CT to Registrar to enable instrument of transfer to be registered. A gift of Torrens system land will be complete in equity if the intending donor gives to the intended donee the ownership of memorandum of transfer and authority to use CT for the purpose of registering memorandum of transfer. No need to give to intended donee ownership of CT. Once this has been done, intending donor has done all that which only he can do and gift will be complete. ‘Mrs P had given no authority to the mortgagee bank that held the CT to release the CT to C to enable him to register the memorandum of transfer. If authority had been given, that would have been enough.

A later case appears to suggest that such authority would not be sufficient. By failing to authorise mortgagee bank to give CT to C, Mrs P had failed to equip C to obtain legal title to the land and had not done all that was required of her to complete legal transfer of land. Failed to sever JT and husband was able to enjoy right of survivorship.

It was unclear whether the memorandum of transfer had been given to the solicitor as Mrs P’s agent or as C’s agent. Court said not necessary to decide point about ownership of memorandum of transfer because CT had remained with bank, which had not been authorised to release it to C. If bank had been authorised, then Mason and McHugh would have to decide issue. In order for gift to be complete, Mrs P needed to have authorised bank to release CT to Corin and solicitor must have received memorandum of transfer on behalf of Corin. In Qld, memorandum of transfer called instrument of transfer - s60 (1) LTA. S62 (1) LTA provides that upon the registration of an instrument of transfer, all the rights, powers, privileges and liabilities of the transferor in relation to the lot rest in the transferee. Similar effect is s182 LTA. These sections are concerned with the transfer of legal title, not equitable title.

S42 (1) LTA provides that the registrar must issue a CT if asked in writing to do so by the registered owner. S42 (2) LTA provides that if the lot is subject to a registered mortgage, then the registrar may issue CT only if mortgagee consents.

Brennan J’s judgment is not very important. He supported Dixon’s view in Brunker about the statutory right to be registered.

Deane J (TLA 145) generally agreed with Mason and McHugh and said that Mrs P had failed to authorise mortgagee bank to release CT to C. Majority of the court necessarily implied that if there was authority given to mortgagee to release CT, would have been enough as far as authority was concerned. Deane said (146) that if gift to C was to be regarded as complete in equity, then Mrs P would be holding her interest in trust for Corin. Deane J said that this was a legal impossibility. Said that even if C had registered memorandum of transfer, C would still have been only a trustee for Mrs P. Deane said that ‘the test of whether or not the gift is complete is whether or not the intending donor could recall the gift.’ Mason and McHugh said that this was not important – therefore could not use this as a test – the real test was the test of completeness.

Toohey (TLA 147) – Not very important judgment. Majority view encapsulated in judgments of Mason, McHugh and Deane.

Cope v Keene (1968) 118 C.L.R 1 (TLA p. 141) – HC affirmed proposition that in a gift of TT land the delivery to the intended donee of the memorandum of transfer with the intention of vesting in him the ownership of that memorandum was a necessary condition to complete a gift of the land in equity.

Land Title Act 1994 (Qld) sections 60 (1), 62 (1), 181 and 182 Anning v Anning (1907) 4 C.L.R. 1049 (TLA pp. 138-140)Re Rose [1952] Ch. 499 (TLA pp. 149-151)

Costin v Costin (1997) NSW ConvR 55-811 (TLA p. 148) – Father and one of his sons, son A had been registered as joint tenants of TT land. Father decided to transfer interest in land by way of gift to son B. Father executed a memorandum of transfer in favour of B and gave it to B’s solicitor for registration. By giving memorandum of transfer to B’s solicitor, the father was giving ownership of memorandum to B himself. There was a problem with CT. CT was held by a firm of solicitors who were not B’s solicitors. Father purported to give a written direction to the firm of solicitors to produce the CT to Land Titles office on B’s behalf to enable registration of memorandum. Solicitors refused to comply with the purported directions by the father because the directions had not been jointly signed by the father and son A. Court could have stopped there and said that the directions to release the CT was invalid, being signed by only one out of 2 joint tenants. Father later changed mind and transferred interest to son A by way of gift. Son A became registered as the sole proprietor. Court could have stopped there and said indefeasibility would belong to a volunteer under s180 LTA and B’s gift would be extinguished by A’s registration. NSW CA said that the purported gift made by father to B was incomplete in equity because the solicitors had not acted on the directions. Sheller J said that until CT had been actually released for purpose of registration, the father could revoke the directions to the solicitors. Difficult to reconcile with Corin v Patton because in Corin 3 judges implied that all that needed to be done with respect to CT was to authorise its release for the purpose of registration. Judges in Costin in direct conflict with Corin said that the mere authorisation was not enough. Authorisation had to be acted upon before CT could be used by the intended donee. Statements were made obiter. Sheller J said that there was another reason why purported gift failed. The direction had not been made jointly and the direction was invalid. Sheller emphasised that before an authority is acted upon, it may be revoked. Costin v Costin is inconsistent with s200 PLA.

Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 (TLA p. 148) -

Similar to Costin v Costin. A purported gift of TT land was incomplete because the intending donor had not even purported to direct the mortgagee to

Property Law Act 1974 (Qld), section 200 – A voluntary assignment of property shall in equity be effective and complete when and as soon as the assignor has done everything to be done by him that is necessary in order to transfer the property to the assignee, provided that anything remaining to be done may be done without intervention of or assistance from the assignor. S200 is entirely consistent with Corin v Patton. In Corin, court said that mere authorisation was enough. S200 deals with the general requirements for an assignment of property in equity. It does not prescribe the particular steps to be taken in respect of the assignment or transfer of particular types of property. When talking about the transfer of title by way of gift of TT land, will still need to look at Corin v Patton to discover what those requirements are.

What is meant by present property?One can only make a gift of present property, namely property in existence at the time of the gift. One cannot make a gift of future property, namely property which is not in existence. Future property is a mere expectancy. Future property should not be confused with future interests. Future interests, whether vested or contingent interests are regarded as present property. Because future property does not exist, it is impossible to make a gift of future property.

In Williams v Commissioner of Inland Revenue [1965] NZLR 395 (TLA pp. 161-162) - Williams was a life tenant under a trust. So he had a life interest in the trust. He was entitled to all of the trust income during his lifetime. He purported to make an assignment by way of gift for a period of 4 years the first 500 pounds of the income from each of those 4 years. In doing so he made a mistake because in any one of those 4 years there could have been no income. It was held that this assignment was ineffectual and that income remained Williams. The assignment was ineffectual because it dealt with future property. In future years there may not be any income, so the income was future property and it could not be assigned immediately without valuable consideration (voluntary). William’s right to the income (beneficial interest) was present property and he could have assigned the whole or part of that right (which was present property). However the court observed that Williams did neither – instead he had purported to assign part of his future income, which was a mere expectancy, which could not be assigned voluntarily. Per Justices North & Turner (TLA 162) ‘He did not assign part of his right to income, he assigned a right to a part of the income, a different

thing’. It is necessary to distinguish between a right to the future income and the future income itself. Future income is a mere expectancy, it has no existence as property and it cannot be assigned immediately. You can assign a part of your present right to future income – but cannot assign part of the future income. In this case the assignment was voluntarily (means without the provision of valuable consideration). A voluntary assignment must be distinguished from a purported assignment for value. Not that you can assign an expectancy for value but because the assignor has received value – equity will regard the assignee as receiving the subject matter of the assignment as soon as that subject matter comes into existence – in the next case ie : Norman

In Norman v F.C.T. (1963) 109 C.L.R. 9 (TLA pp. 152-162) - Windeyer J said that technically it is wrong to say that even for value a mere expectancy (future property) can be assigned. What happens is that when value is given, equity will vest that expectancy in the assignee as soon as the expectancy materializes. Authority for this was not based on doctrine of specific performance: Tailby v Official Receiver (1888) 13 APP. CAS. 523 (TLA pp. 159-160) and Re Lind [1915] 2 Ch. 345 (TLA pp. 159-160).

(Williams should be compared with Shepherd )In Shepherd v F.C.T. (1965) 113 C.L.R. 385 (TLA 162-164) - Shepherd was the owner of patents on castors,( intellectual property) he gave a license to Cowan and retained a contractual right (chose in action) for the payment of royalties.(Shepherd gained a contractual right to Royalty against Shepherd). Shepherd then assigned for a period of three years 90% of the right to the royalty income. (as distinct from 90% of the royalties themselves because this would have been mere expectancy). The majority of the H.C. said that Shepherd could not be taxed in respect of that amount of the income which he had assigned because it was no longer his income. When the income materialised it automatically vested in the assignees and not Shepherd. H.C. said the F.C.T. had confused Shepherd’s right to the royalties (which were present property) and the royalties themselves (the actual income) which was a mere expectancy. He could assign a part of his right to the royalties, but not the income itself. Kitto J said (TLA p164) ‘the tree, though not the fruit, existed at the date of the assignment as a proprietary right of the appellant, of which he was competent to dispose when he disposed of 90% of the tree’. (If Shepherd had assigned 90% of the fruit – then this would be ineffectual however he had assign part of his right – so this was O.K)

In Norman v F.C.T. (1963) 109 C.L.R. 9 (TLA p. 152-162) - the H.C. held the voluntary assignment of future dividends was ineffectual because the dividends might never be declared and were future property. This only applies if the assignment was made without value (voluntarily). If it were made for value the position would be different. H.C. also held that the future interest on the loan when it was repayable without notice was also future property and could not be assigned.

Company shares are not assignable by having recourse to section 199 of the Property Law Act 1974 (Qld). Section 199 PLA enables legal and equitable choses in action to be assigned provided that 4 conditions are satisfied: (legal choses in action are also referred to as common law chose in action)

1. There must be an absolute assignment of the chose in action which must not purport to be by way of charge only although an assignment by way of mortgage is regarded as absolute - Tancred v. Delagoa Bay and East Africa Railway (1889)

2. The absolute assignment must be of the entire chose in action and not be of merely a part of the chose in action - Re Steel Wing Co Ltd. (TLA p156-157). So if you want to assign an entire chose in action you must use s199. But a part of a chose in action cannot be assigned under s199 because it does not apply to such an assignment. The section is not saying that a part of a chose in action cannot be assigned, merely that s199 does not apply to it.

3. The absolute assignment must be in writing and signed by the assignor.

4. Express written notice of the written assignment must be given to the debtor or other person who is liable under the chose in action, although such written notice may be given by either the assignor or the assignee and the assignment takes effect only from the date of the giving of such notice. Notice need not be given to the assignee - Gray v Australian Motorist and General Insurance Co. Pty Ltd (TLA

p154). In Brice v Bannister (1878) 3 Q.B.D. 4569 (TLA p. 154), it was held that as soon as a debtor receives notice of the assignment he must regard the assignee as the new debtor and if he pays the assignor after receiving written notice the assignee is not bound by those payments and may demand them from the debtor.

Three important points are that:1. An entire C.L. chose in action cannot be orally assigned either at law or in equity without valuable

consideration. Olsson v Dyson (1969) 120 C.L.R. 365 (TLA p. 153-155)

2. A part of a CL chose in action may be assigned orally and without valuable consideration in equity. Norman v F.C.T. (1963) 109 C.L.R. 9 (TLA p.157 per Windeyer J and Shepherd v FCT as per Kitto J p.157)

3. An assignment under s199 takes effect subject to equities having priority over the right of the assignee. This means that the defence of bona fide purchaser of the legal estate for value without notice is not available to an assignee even for value under s199. In F.C.T. v Everett (1980) 143 C.L.R. 440 (TLA pp. 121-123 and pp. 155-156) HC observed obiter that s199 applied even to the assignment of equitable choses in action as well as to common law choses in action.

Equitable choses in action can be assigned even without s199 – however a common law chose in action was not assignable in its entirety at common law before the enactment of the s199 – therefore apart from other legislation an entire common law chose in action must be assigned in accordance with s199 in order to be legally effective. In the light of Olsson v Dyson, one cannot today in equity assign an entire common law chose in action without value and without complying with s199.

Corporations LawCompany shares are CL choses in action. However, company shares, whilst choses in action, cannot be assigned under s199 - Colonial Bank v Whinney (1886) 11 App. Cas. 426. Company shares (ie: the legal transfer) are transferred according to the Co’s constitution not in accordance with s199.

In relation to company shares s1091 (1) of the Corporations Law provides that, notwithstanding anything in its constitution, a company shall not register a transfer of shares unless a proper instrument of transfer has been delivered to the company.

s1085 (2)(b) of Corps Law – states that : subject to the company’s constitution equitable interests in shares as distinct from the legal title to them may be created, dealt with, or enforced in the same way as other personal property.

Exceptions to the Complete Constitution RuleThere are two exceptions to the rule that a gift must be property constituted:1. The Rule in Strong v Bird (1874) L.R. 18 Eq. 315 (TLA pp. 164-165) the four conditions that must be

satisfied for Strong v Bird to apply are:1. The testator in his lifetime purported to make an immediate gift of specific property to another

person.2. Owing to a failure to comply with the formalities required for the making of the gift the purported

gift did not take effect during the testator’s lifetime.3. Until the time of his death the testator continued to treat the gift as having been effectively made at

the time when he purported to make it.4. The testator appointed the intended donee as the sole executor or as one of the executors of his

deceased estate. In this case the gift to the donee would be regarded as complete and effectual.

These four conditions were enunciated by Kitto J. in Cope v. Keene (1968) 118 CLR 1 at 8 (TLA p164). Furthermore, it is uncertain whether the rule applies to purported gifts of land (see again Cope v. Keene). Ong thinks arguably this uncertainty has been removed at least in NSW because of Benjamin v Leicher. Cohen J held that the principle in Strong v Bird applied not only to pure personalty but also to land.

2. Donatio Mortis Causa, the three conditions which must be satisfied in Australia in order for a gift to be made Donatio Mortis Causa are as follows:

1. The gift must be made in contemplation of the donor’s death. 2. The gift must be conditional on the donor’s death.3. There must be actual or constructive delivery of the subject matter of the gift.

In Australia, by virtue of the case - Bayliss v. Public Trustee 1988 12 NSWLR 540, the rule of Donatio Mortis Cause does not apply to land. In England the rule still applies because of the case of Sen v Headley [1991] Ch. 425 (TLA p. 172). The reason for excluding land from the ambit of this type of gift appears to be based on the view that land, as distinct from chattels cannot be delivered. (This is reasoning is unconvincing because choses in action cannot be delivered either and yet they are within the principle of Donatio Mortis Causa.) To Ong the English position is more logical.

The Rule in Dearle v HallThe Rule in Dearle v Hall (1823) 38 E.R. 475 (TLA pp. 172-173) - the general rule is that in a competition between equitable interests the interest that was first created prevails over any interest or interests created later, authority is Rice v Rice (1854) 61 ER 646 - to this general rule there is an important exception - namely the rule in Dearle v. Hall - that rule proscribes that a later equitable assignment will have priority over an earlier equitable assignment of pure personality provided three conditions are satisfied -

1. The later assignee gave value for his assignment. ( Not important whether or not the earlier assignee has given value – what is important is whether the later assignee had given value).

2. The later assignee gave notice of his assignment to the trustee or debtor or fund holder at a time when the earlier assignee had not given notice of his earlier assignment. (This notice unlike the s199 notice – does not have to be in writing.)

3. When the later assignee paid the consideration for his assignment he had no notice of the earlier equitable assignment.

Ward v Duncombe – supports the confined the rule to equitable assignments of pure personalty – The Rule in Dearle does not apply to land

NOTE: that the rule applies to both types of equitable assignments -

1. Assignments that are equitable because only the equitable interest is assigned and also assignments that are equitable because they are assignments in equity of legal choses in action.

The authority for the proposition that the rule in Dearle v. Hall applies to both types of equitable assignments is Marchant v. Morton Down & CO.

4. The Writing Requirements for the Creation and Disposition of Certain Proprietary InterestsTLA Ch. 4

The writing requirements for certain transactions was introduced by the Statute of Frauds 1677 which commenced on the 24th of June, 1677. It was introduced to prevent fraud, particularly regarding transactions relating to land. Statute enacted with two objects:

1. To prevent people who had entered into contracts from denying that they had entered into these contracts by claiming that there was no evidence in writing.

2. Second object was to prevent people from making false claims that interests had been created or disposed of orally, when such transactions had not occurred.

In Qld the P.L.A. 1974 contains provisions which re-enact the relevant provisions of the Statute of Frauds. S10, 11, 12 & 59 of the P.L.A. specify the writing requirements for the creation and disposition of certain proprietary interests. The most critical sections for our purposes is s11.

Section 9Deals with the making of wills.

Section 10Deals with legal interests in land (it has nothing to do with equitable interests in land or anything else). S10(1) provides that no assurance shall be valid to pass an interest at law unless it is made by deed or in writing signed by the person making the assurance. S10(2) contains exceptions not presently relevant. S176 of the Land Title Act 1994 (Qld) provides that a registered instrument operates as a deed so that a registered instrument will comply with S10 (1) of the PLA in that it will be deemed to be a deed.

The term land, even though not defined in the PLA. comprises of realty and leases. Any form of property which is not land is pure personalty, which comprises of personal chattels and choses in action.

Section 11S11(1) contains three sub-paragraphs (a),(b) and (c). These three subsections of s11(1) linguistically overlap, but they cannot be applied concurrently because the writing requirements are different with respect to some of the paragraphs. E.g. some transactions may fall into two or more of these paragraphs, yet only one applies. In Qld paragraph (a) requires transactions be made in writing, while (b) & (c) requires that the transaction is merely evidenced in writing. In other states, (a) & (b) are the same their counterparts in Qld, but (c) requires the relevant transaction to be made in writing.

If something is made in writing it will be evidenced in writing, but if something is created orally it can be subsequently evidenced in writing, so the two requirements are not the same.

Section 11 (1) (a)Section 11(1)(a) is derived from section 3 of the Statute of Frauds 1677. It provides that no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same or by the persons agent lawfully authorised in writing or by will, or by operation of law.

Points to note about section 11(1)(a) of the PLA:1. It applies only to interests in land. It does not apply to pure personalty2. The interest must be created or disposed of by writing and it is not sufficient merely to evidence the

creation or disposition in writing. There is a conflict between paragraphs (a) and (c) regarding some transactions. Where a transaction falls literally into both paragraph (a) and (c), paragraph (c) should be applied in exclusion of paragraph (a) to avoid the impossible situation where the transaction must be in writing, but can also be evidenced in writing (this is in anticipation of possible precedent). The contradiction must resolved and Denis suggests that it should be resolved in favour of (c). This problem can only arise in Qld.

3. The instrument creating or disposing of the interest in land must be signed by the person creating or disposing of the interest or by his lawfully authorised agent. If neither of this is done under para (a) the disposition can only be disposed of by Will or operation of law.

4. The agent must be authorised in writing. An oral authorisation to the Agent will not suffice.5. (a) applies to the creation and disposition of legal as well as equitable interests in land. Unlike s10,

which applies only to legal interests in land, s11(1)(a) applies also to equitable interests in land.6. s12 (1) of the PLA provides that a failure to comply with the writing requirements of 11(1)(a) will

result in the interest attempting to be created being treated as an interest at will only. An interest at will may be terminated by the giving of reasonable notice. Also, the termination of an interest at will can be made expressly or by conduct inconsistent with the continuance of that interest.

Section 11 (1) (b)Section 11(1)(b) of the PLA is derived from section 7 of the Statute of Frauds 1677.

It provides that a declaration of trust respecting any land must be manifested and proved by some writing signed by the person who is able to declare such trust or by the persons will.

Points to note about section 11(1)(b) of the PLA:-1. It applies only to declarations of trust respecting land, it does not apply to declarations of trust

respecting pure personalty. It also does not apply to declarations of trust respecting equitable interests in pure personalty. Declarations of trust respecting pure personalty are totally outside the provisions of (b)

2. It does not require the trust to be declared in writing, it requires that the trust merely be evidenced in writing. This section merely requires the trust to be evidenced in writing. This means that an oral declaration of trust respecting land may be made on day 1 and the evidence in writing say on day 2. The trust takes affect on day 1 not on day 2, although the written evidence occurs on day 2. If a trust is made in writing, then of course it is evidenced in writing, but a trust may be evidenced in writing although not made in writing (important).

3. The written evidence of the declaration of trust must be signed by the person able to declare the trust or the written evidence must appear in the persons will. Unlike paragraph (a) an agent cannot sign on behalf of the owner of the property. The written evidence under s11 (1)(b) cannot be signed by an agent of that person whether or not that agent is purportedly authorised in writing or not. In this respect s. 11(1)(b) is more stringent than s11 (1)(a) which allows a person to authorise another person, namely an agent in writing, to create the interest.

4. Para (b) applies to declarations of trust respecting legal interests in land as well as declarations of trust in respect of equitable interests in land. So declaration of a sub-trust over an interest in land must be evidenced in writing.

Section 11 (1) (c)The problem in (c) is in identifying the scope of the word ‘disposition’, particularly in relation to paragraph (b). The PLA s3 provides certain definitions of disposition, assurance and conveyance, but some of the definitions suffer circularity makes them useless to the extent of that circularity.

Section 11(1)(c) is derived from but is wider than section 9 of the Statute of Frauds 1677 (however it is wider in scope than s9 of the Statute of Frauds). It provides that a disposition of a subsisting [namely of an existing equitable interest] equitable interest must be manifested and proved by some writing signed by the person disposing of the same or by the persons agent lawfully authorised in writing, or the written evidence must be found in the persons will. (if concerned with a testamentary disposition.)

Points to note about section 11(1)(c) of the PLA:1. Unlike sections 11(1)(a) and 11(1)(b) (only land) - section 11(1)(c) is not confined to land, it applies

to land and pure personalty. 2. It only applies to dispositions of existing equitable interests whether in land or in personalty. (c)

does not apply to the creation or disposition of legal interests, whether in land or pure personalty.3. [extremely important point] It is quite unlike its counterparts in the other States in that it merely

requires the disposition to be evidenced in writing not to be made in writing. IMPORTANT NOTE: there may appear in some materials reference to section 23C (1)(c) of the Conveyancing Act 1919 (NSW).( Here will find that the law says that the disposition must be made in writing- however in Qld this is not the case). For QLD purposes do not rely on that wording because that is NSW and that provision requires the disposition to be made in writing not merely evidenced in writing.

4. The document containing the written evidence must be signed by the person with the power to dispose of the interest or by his agent with written authority to do so or written evidence found in the persons will. A purported oral authorisation of a person as agent will not suffice for (c).

5. It is wider than the section from which it is ultimately derived - section 9 of the Statute of Frauds 1677. Section 9 dealt only with grants and assignments of existing equitable interest. The word disposition is used instead in (c) - this is wider than Grants and assignments used in s9. The term in (c) is not grants and assignments which is wider than the phrase grants and assignments. Authority for this is Grey v I.R.C.[1960] A.C.I. (TLA pp. 105-110). Definition of ‘Dispositions’ contained in s3 of P.L.A. (definition is less than useful because it is inconclusive rather than exclusive) “includes a conveyance, vesting instrument, declaration of trust, disclaimer, release and every other assurance of property by an instrument except a will. And also a release, devise, bequest, or an appointment of property contained in a will”. It is only N.S.W. and Qld which include in the definition the phrase

‘declaration of trust’. The PLA has been amended ie: Dec 1999 – therefore the definition section has been altered – s3 is still the definition section but now there is a schedule 6 which receives its authority by s3 of the PLA. Section 6 is called the dictionary – but the definition of disposition has not been changed – schedule 6 gives an inclusive rather than exclusive definition. Now there is de facto relationships in Qld – new part 19 of the PLA ( We will not be dealing with this).

A ‘release’ involves a trustee (legal owner) and beneficiary (equitable owner). If the beneficiary wishes to give his interest to another person, then he transfers or assigns the interest. But he cannot assign his interest to his trustee because of the ‘doctrine of the merger of estates’. Therefore he must release his interest to the trustee rather than assign it. A release is in every respect an assignment, except that a release would create a merger of estates.

Section 11 (2)Section 11(2) of the PLA is derived from section 8 of the Statute of Frauds 1677. It provides that section 11 does not apply to resulting, implied or constructive trusts. So that these trusts do not have to be evidenced in writing and therefore they bypass section 11(1).

Section 59Section 59 PLA provides that a contract for the sale or other disposition of land must be in or evidenced in writing, signed by the party to be charged or by some person lawfully authorised. (s59 does not apply to voluntary dispositions).

Points to note about section 59 of the PLA:1. It only applies to contracts for the sale or other disposition of land. It does not apply to actual

dispositions of land.2. The party to be charged may authorise an agent to sign on his behalf. An agent may sign if he is

authorised to do so, but the agent does not have to be authorised in writing. An oral authorisation to sign will suffice for section 59. REMEMBER an oral authorisation will not suffice for section 11(1)(a) and 11(1)(c) so this section is less stringent then those sections (because the authority in (a) and (c) must be in writing while in s59 doesn’t have to be).

3. Unlike section 11(1)(a), (b) & (c) (which will void the purported disposition), failure to comply with section 59 simply makes the contract unenforceable it does not make the disposition void. Whereas failure to comply with sections 11(1)(a), (b) & (c) does make the transaction void. This means if the land is transferred pursuant to an unenforceable contract the transfer is valid, because it has been done under a valid, albeit unenforceable contract.

Section 6(d) of the PLAThis provision states that nothing in section 11, 12 or 59 affects the law relating to part performance. This means that the doctrine of part performance is not affected by the writing requirements. The doctrine provides that where there is an oral contract for the sale or other disposition of land and it is not evidenced in writing, it will be enforced in equity if the party seeking to enforce it has done some act which is unequivocally referable to some such contract as that alleged (the alleged oral contract) authority is McBride v Sandland (1918) 25 C.L.R. 69 (TLA pp. 125-126).

An example of part performance ( the contract is oral and not evidenced in writing) is the purchaser moving into possession of the land, if they take possession it is regarded as part performance.

Section 12(2) of the PLA ( applies to validate only an oral lease which takes effect in possession.)This provides that nothing in the Act shall affect the oral creation of any lease taking effect in possession for a term not exceeding 3 years. If a lease is created for a period of no longer then three years it is not required to be in writing. It includes oral leases taking effect in possession which contain a right to renew provided that the aggregate of the original and subsequence terms does not exceed 3 years. Then the writing requirement is not effective. Note that it only applies to leases which take effect in possession.

Complex but important Case - Adamson v Hayes (1973) 130 C.L.R. 276 (TLA pp. 126-132)

This case was concerned with s34 of the P.L.A. 1969 W.A., which is equivalent to S11 PLA 1974 Qld. In

that case there was three persons, Adamson, Hayes and Freebairn and each acquired several mineral claims,

the mineral claims were held to be land. Each one of them was trustee of his various mineral claims for

himself and other beneficiaries. Some claims were held absolutely and others were held in trust. All of

these persons, namely the three trustees and all of their respective beneficiaries, including themselves in

their capacity as beneficiaries, entered into an oral agreement between themselves (here was the problem).

Issues : oral agreement was not in writing and the interest were in land. That oral agreement provided for

two matters (The oral agreement was not evidenced in writing) : it purported to do two things -

1. The total of all the mineral claims were to be pooled beneficially and then divided:

(a) 44% for Hayes and Freebairn.(b) 56% for Adamson and all of the other original beneficiaries (except for Hayes and Freebairn)-

remember that Adamson was himself a beneficiary. This was called the pooling arrangement because it purported to divide the beneficial interests in the specified percentages, it did not purport to be a mere agreement to do something in the future.

2 The second matter which the oral agreement provided for was :-

(a) Adamson and the other beneficiaries (who assumed the 56% was valid) granted to Hayes and Freebairn options or a company nominated by the latter two persons options to purchase their legal and equitable interest in the mineral claims. This was called the ‘options agreement’. ( The options agreement validity depended upon the validity of the pooling arrangement). If the pooling agreement was ineffective, then the options agreement could not be exercised because there would be no property created by the pooling arrangement. However, when a company was eventually so nominated, Adamson and his other beneficiaries refused to transfer their interests pursuant to that oral agreement.

(b) It is important to note that the entire agreement was oral and was not subsequently evidenced in writing; and the H.C. found that the mineral claims were interests in land within the meaning of the P.L.A. W.A.

High Court held that the oral agreement was ineffective for failure to comply with section 34 of the Property Law Act 1969 (WA) which is the counterpart of section 11 of the PLA 1974 (Qld).

The second part of the agreement was the options agreement and the first part was the pooling agreement (distinguish between these two agreements). If the pooling arrangement was ineffective then the options agreement to purchase the interests created by the pooling arrangement would necessarily also have been ineffective, because there would have been no interest to purchase. The options agreement was to purchase the interests created by the pooling arrangement, so if the pooling arrangement was ineffectual to create the interests there would be no subject matter for the options agreement to operate on.

Barwick CJ. (dissenting) - In his view the oral agreement did not purport to change the original trusts, because these trusts had not been intended to be changed until Hayes and Freebairn had found a partner and formed a mining partnership and no such partnership had yet been formed. (not important for our purposes). Also took view that mineral claims were not land. There was no intention of the parties to have an immediate division. He also took the view that the mineral claims were not land, he therefore had nothing to say about s11 P.L.A. Qld.

Menzies J - said that paragraph (a) was applicable only to the creation and disposition of legal interests in land. He said that if (a) applied to the creation and disposition of equitable interests in land ( a view which he rejects) then (b) and (c) would be superfluous because (a) would cover everything, it would cover the creation and disposition of legal and equitable interests in land. This may be persuasive but it is not law

because it is a minority view.

Also had further view that (c) is confined to subsisting equitable interests in land, in confining (c) to land he would find no scope for either (b) or (c) if (a) applied to the creation and disposition of equitable interests in land. So his view, based on the superfluity of (c), is dependant on (c) being confined to land.

As three other members of the court did not agree with Menzies J., The view of Menzies J. is wrong in two respects (these views have been rejected in Adamson v Hayes and also PT Ltd v Maradona Pty Ltd (1992) 27 N.S.W.L.R. 241 (TLA pp. 119 and 128) the view in Adamson v Hayes is also supported by the HL in Grey v I.R.C. [1960] A.C.I. (TLA pp. 105-110)

1. he was wrong to suggest that paragraph (a) was confined to legal interests in land, the current view is that that paragraph applies to both legal and equitable interest in land.

2. he was also wrong to suggest that paragraph (c) was confined to equitable interests in land, because that paragraph applies to equitable interests in land as well as equitable interests in personalty.

Having stated the law, Menzies J. then analysed the pooling arrangement. He noted that all the mineral claims were held in trust, there were therefore beneficial interests in existence with respect to these claims. The pooling arrangement in his view purported altered these pre-existing beneficial interests in land. This purported alteration of the pre-existing beneficial interests, in his view, could have been achieved in one of two ways.

1. By declarations of trust which complied with section 34(1)(b) and not having so complied, because they were not evidenced in writing, the declarations were ineffective for this failure since the mineral claims were interests in land. (his preferred view).

2. However, he did say in the alternative, that if no new trust had been declared then there would have been dispositions of the existing equitable interests from the old beneficiaries to the new beneficiaries such as to attract section 34(1)(c). Since the dispositions had not been made in writing they were ineffective. The pooling arrangements were ineffective, therefore the options agreement was also ineffective.

For Queensland there is a change of phraseology because section 34(1)(c) in WA requires dispositions to be made in writing and not to be merely evidenced in writing, as is the case with section 11(1)(c) of the PLA (QLD). - namely, being evidenced in writing. (In Queensland it would ultimately be the same as the oral agreement was not even evidenced in writing).

Since the pooling arrangement was ineffective it followed that the options to purchase some of the interests in that arrangement were also ineffective - there being nothing to purchase.

Walsh J - took the view that section 34(1)(a) applies to both legal and equitable interests in land. He thought that the pooling arrangement being an agreement to alter the original beneficial interests. This was not an agreement to do something in the future, it was an agreement to effectuate an immediate change in the beneficial ownership. Because the agreement purported to change the immediate ownership it was the creation and the disposition of existing rights in the land. It was made orally and not in writing, therefore the was a failure to comply with paragraph 34(1)(a). This is not a very precise judgement. Did not tell us which part concerned the creation of equitable rights and which part was disposition of equitable rights. He based his decision solely on para (a) and did not base his decision on para (c) or (d).

Gibbs J. in Adamson v Hayes made two preliminary points:1. Paragraph (c) was not confined to dispositions of equitable interests in land but extended to

dispositions of equitable interests in pure personalty. Unlike (a) and (b), (c) extends to pure

personalty, namely it applies to land and to pure personalty. This is now law.2. Paragraph (a) was not confined to the creation and disposition of legal interests in land, but extended

to the creation and disposition of equitable interests in land. This view is supported by the fact that the word ‘interest’ as it appears in (a) is not qualified by the word ‘legal’. There was no warrant for confining the word interest to legal interest.

Having made those 2 preliminary points, Gibbs J held that the pooling arrangement (Logically, if the pooling arrangement was void, there would have been nothing for the options agreement to operate on and it would also have been void) was a declaration of trust and was not a disposition of an existing equitable interest. He said that the pooling arrangement was not a disposition of an existing equitable interest because the equitable interests did not exist until the pooling arrangement created them. He said that this was a case of a declaration of trust and it was a declaration of trust over interests in land. He held that paragraph (b) applied to these declarations of trust but paragraph (c) did not apply to these declarations of trust. He said that the pooling arrangement was ineffective because the declarations of trust over land had been made orally and had not been evidenced in writing and therefore they had failed to comply with paragraph (b). So, there was no pooling arrangement because it was ineffectual.

Although it was not necessary for him to discuss the options agreement, he did by way of obiter dicta make the following points regarding the options agreement:

He said that the options agreement created rights, but those rights were not declarations of trust. Therefore, the options fell outside paragraph (b) because they were not declarations of trust. However, he said that the options created interests and they were not dispositions of existing interests and for that reason the options fell outside paragraph (c). Therefore, he said that the options agreement created equitable interests in land outside (b) and (c). So, the options purported to create interests in land within para (a) and the options were ineffectual because they had not been granted in writing.

Stephen J. made the following points:

1) He said that the pooling arrangement declared trusts over land. He said that such declarations of trust created interests in land so that they came within both section 34(1)(a) & (b). He said that a declaration of trust over land came within (a) because a declaration of trust created interests in land. He held that the declarations of trust came within (b) because they were declarations of trust respecting land. This view did create problems, namely to say that declarations of trust respecting land fell within (a) and (b). It created a big problem because (a) and (b) have different writing requirements. (a) requires the creation of an interest to be made in writing. (b) on the other hand merely requires the declaration of trust to be evidenced in writing. However, this problem was solved in a later case.

2) He said that if the pooling arrangement had not only created interests in land but had also disposed of existing equitable interests in land, then the pooling arrangement would have attracted para (a) because there were dispositions of existing equitable interests in land. However, Ong’s query is this: If para (a) applied to the pooling arrangement, why did para (c) not apply? Stephen J said para (a) applied but he gave no explanation as to why para (c), which also deals with dispositions of existing equitable interests did not apply. So, the judgement of Stephen J is by no means satisfactory. In Qld, if both para (a) and (c) applied to a disposition, then there would be a problem because para (a) and (c) in Qld have different writing requirements. Ong thinks that the problem is soluble.

3) Stephen J held that the pooling arrangement was ineffectual because it had failed to comply with either para (a) or (b). Stephen J did not address the question of what would have happened if the pooling arrangement had complied with (b)(namely made orally but later evidenced in writing) but not with (a). So, it was not necessary for Stephen J to deal with the options agreement because the original pooling arrangement was not valid.

Summary of views of the Judges in Adamson v. HayesParagraph (a):-Two of the five judges, Walsh & Stephen JJ, held that section paragraph (a) applied to the pooling arrangement. That is not a majority. Three of the five judges, Barwick CJ, Menzies & Gibbs JJ, although each one had a different reason for doing so, held that paragraph (a) did not apply to the pooling arrangement. The applicability of (a) is not part of ratio decidendi of the court.

Paragraph (b) -Three of the five judges, namely a majority of Menzies, Gibbs & Stephens, held that section 34(1)(b) applied to the pooling arrangement. A majority of the court held that the pooling arrangement was comprised of purported declarations of trust respecting land. Ratio was that paragraph 34(1)(b) did apply to the pooling arrangement but not paragraphs (a) or (c).

The view that para (b) applied was for different reasons not supported by Barwick and Walsh but they were in a minority. The applicability of para (b) would be the ratio.

Section 34(1)(c) -Only one of the five judges, Menzies J., applied section 34(1)(c) to the pooling arrangement. Menzies made it clear that he preferred to apply the view that there was a declaration of trust. He preferred to apply para (b) to para (c). The majority of the court rejected the applicability of section 34(1)(c) to the pooling arrangement.

We did identify in the judgment of Stephen J a difficulty concerning declarations of trust respecting land because he said that those declarations fell within both (a) and (b) even though (a) and (b) have different writing requirements. Those problems were resolved in:

Secretary, Department of Social Security v James (1990) 95 A.L.R. 615 (TLA pp. 96-98) – Lee J held that a declaration of trust respecting land came within paragraph (b) and not within para (a). So, he disagreed with Stephen J without mentioning Stephen. A declaration of trust respecting land needs to be evidenced in writing only and does not have to be made in writing. So, (a) is out and so is the view of Stephen regarding the applicability of (a) to declarations of trust respecting land. Lee J was dealing with s34 (1) PLA (WA), but that is the same as s11 (1) PLA (Qld), except that para (c) in Qld is different worded.

Lee J said that para (b) must apply in relation to declarations of trust respecting land to the exclusion of para (a), otherwise (b) would be superfluous. That is quite true because what is the use of para (b) if compliance with (b) would still render the declaration of trust void.

The second point made by Lee J. was that the evidence required to satisfy (b) did not have to come from one document, but could be based on a combination of documents capable of being read together.

Ong makes a third point - In Qld, by analogy with the reasoning of Lee J in James, where there is a disposition of an existing equitable interest in land, then such a disposition would literally fall within both (a) and (c). In the other states, this does not create a problem because (a) and (c) have the same writing requirements. In Qld, it would create a problem because (c) requires evidence in writing while (a) requires a disposition to be made in writing. To avoid making (c) superfluous with respect to dispositions of existing equitable interests in land, one would have to say that when you have a disposition of existing equitable interests in land, apply (c) instead of (a) by analogy with the reasoning of Lee J in James.

It seems that with respect to S11:Where there are two provisions and one is more stringent than the other, and they both apply literally to one transaction, the less stringent provision should be applied if to do so would not make the more stringent requirement superfluous.

Grey v. IRC (TLA p105) – Deals with the English equivalent of section11 (1) © (Qld)Suppose there is a trust and there is a trustee and beneficiary. Although in Grey v IRC the trust had only

one beneficiary, the reasoning in Grey v IRC can also apply where there is more than one beneficiary. Suppose that this sole beneficiary directs the trustee to immediately hold his entire beneficial interest for another person. So the questions are:1. What is the nature of this direction given to the trustee?2. Does such a direction come within (c) even if the property is not land, but is pure personalty?

The answer to the first question is that such a direction constitutes a disposition of an existing equitable interest. HL said that such a direction was a disposition but did not explain why it was a disposition. Just said that the natural meaning of disposition would include such a direction.

The answer to the second question is that such a direction, because it constitutes such a disposition fall within (c) even though the property disposed of was pure personalty.

Before, Grey’s case, a lot of people assumed that © applied to land only. After Grey’s case, people accepted that © applied to pure personalty as well.

In Grey, the sole beneficiary was called Hunter. He was the sole beneficiary of 18,000 shares in a company. Grey was one of trustees of those shares. The whole exercise was aimed at avoiding stamp duty which at that time was payable on instruments only. This explains why Hunter did not directly assign his equitable interest because if he had directly assigned his equitable interest it would have been obvious that the document would have to be in writing and would have been dutiable. Hunter orally directed his trustees to hold his entire beneficial interest in the shares in equal parts for the benefit of the beneficiaries of six existing settlements (trusts). He was hoping that this oral direction would not be an instrument and would not be dutiable. Following this oral direction, the trustees purported to execute written declarations of trust, which referred to the oral directions and stated the acceptance of the new trusts set up by the oral direction. Hunter signed these purported written declarations of trust to confirm that he had given the oral direction earlier. This was done in an attempt to avoid the payment of stamp duty. The Inland Revenue Commissioner assessed the written declarations of trust to stamp duty. They said that the earlier oral direction was invalid and therefore Hunter had disposed of equitable interests by means of the written declarations of trust. Therefore, the IRC said the written declarations of trust, being instruments of disposition, would be liable to stamp duty. The issue in Grey was whether the oral direction given by Hunter to the trustees was or was not a disposition within the meaning of s 53 (1)© of the Law of Property Act 1925 (UK) [counterpart being s11 (1)© PLA (Qld) - requires evidence in writing but not registration made in writing]. Was the oral direction given by Hunter a disposition? If so, not having been made in writing, it would have been ineffectual so that the real disposition occurred when the declarations of trust were signed by Hunter, making those declarations dispositions and therefore dutiable instruments.

Hunter’s trustees (who wished to avoid stamp duty) argued that s. 53(1)(c) was derived from section 9 of the Statute of Frauds 1677. They said that the statute was a consolidating statute and that para © was simply meant to restate the requirements of s9 Statute of Frauds. The trustees who were opposing the IRC said s9 had used the words ‘grants and assignments’, and they argued that the direction given by Hunter to his trustees was neither a grant nor an assignment. They said in their view, disposition in para (c) should be confined to grants and assignments only. The direction given by Hunter was not a grant nor an assignment and therefore there was no writing requirement applicable to that direction. The HL rejected the trustees’ argument and upheld Commissioners’ argument.

The House of Lords held that the word ‘disposition’ in para © should be given its ordinary meaning and not be restricted to grants and assignments. If gave word disposition its ordinary meaning, it would apply to Hunter’s directions. They said that disposition would include an oral direction whereby a beneficiary directed his trustees immediately to hold his beneficial interest for other persons. They did not define disposition.

No one really knew what the true nature of the direction was.Ong’s answer to the question is that this direction had to be a release because it was not an assignment. HL accepted that it was not an assignment because there was no transfer from Hunter directly to the beneficiaries. In Ong’s view, it was a release of the beneficial interest by Hunter to the trustees on the terms of the new trust. As a release, it fell within the definition of disposition in s3, schedule 6 PLA. Hunter’s

direction was not an order or a command because it was dispositive and therefore it was a release and not having been made in writing in England, it was void.

S3 (Schedule 6) of the PLA. defines a disposition to include a declaration of trust. Even if s3 had not defined a disposition to include a declaration of trust, a declaration of trust would have been included in the term ‘disposition.’ Although only NSW and Qld define a disposition to include a declaration of trust, Ong’s view is that in the other states a disposition would normally include a declaration of trust unless the context would otherwise require. The inclusion of a declaration of trust in a disposition creates a problem. There is one view supported by everyone except Evans and then there would be a view supported by Evans only.

The issue is ‘does a declaration of trust over an equitable interest in pure personalty fall within para ©?’ Evans view: Disposition includes a declaration of trust. Therefore, if read phrase in ©, ‘a disposition of a subsisting equitable interest’ and you construe disposition to include a declaration of trust, then it would read ‘ a declaration of trust over a subsisting equitable interest.’ He says that he has proven his case. Therefore, a declaration of trust over a subsisting equitable interest, whether in land or pure personalty would have to be in writing in NSW and evidenced in writing in Qld.

The view against that is that para (b) confines the written evidence requirement to declarations of trust respecting land so that by implication, para (b) is saying that declarations of trust respecting pure personalty do not have to be evidenced in writing. To read para (b) and (c) consistently, (c) would have to be excluded from declarations of trust over equitable interests in pure personalty. Because para (c) does not distinguish between pure personalty and land, if one was to exclude para (c) from declarations of trust over pure personalty, one would also have to exclude (c) from declarations of trust over equitable interests in land. Ong’s view is that (b) confines the written evidence requirement to declarations of trust over land, so that (c) should be construed harmoniously with (b) so as not to include declarations of trust over equitable interests in pure personalty.

ONG’S ARGUMENT – Why Evans is wrong.In para (b), an agent cannot sign on behalf of the declarant of the trust. Even if the agent is authorised in writing, the agent cannot sign. Under para (c), the agent is able to sign if authorised to do so in writing. Suppose you have a beneficiary under a trust of land. The beneficiary would own an equitable interest in land. The beneficiary declares a trust over his beneficial interest, namely he declares a sub trust of his beneficial interest in the land and he does so orally. If Evans is correct and (c) applies to a declaration of trust over an equitable interest, whether in land or in pure personalty, then we have a huge problem in Qld.

A beneficial owner of land declares himself a trustee of his beneficial interest, namely he declares a sub trust and he does so orally. Because he does so orally, it will not comply with (b) and (c), both of which require evidence in writing in Qld. Then he authorises someone in writing, to give written authority to another person to acknowledge the oral declaration of trust, namely to evidence it in writing. That creates a problem because this oral declaration of trust over a beneficial interest in land would comply with (c), assuming that this agent lawfully authorised in writing evidences in writing the oral declaration of trust. Para (c) would say declaration of trust is valid. Para (b) would say no, it is not valid. So what do we do – Nothing we can do because (b) and (c) would conflict.

Ong’s view given that (b) and (c) would conflict – The only way out is to say that (c) does not apply to a declaration of trust over an equitable interest, whether in land or in pure personalty. Notwithstanding that s3 defines a disposition to include a declaration of trust because s 3 is a general section. This argument avoids an irreconcilable conflict between (b) and (c). This argument has never been used by any court or any writer.

Return to Grey v IRC – Lord Radcliffe said that (p107 of TLA) a declaration of trust over an equitable interest (namely a declaration of a sub-trust) will also constitute an assignment. The view of Lord Radcliffe that a declaration of a sub-trust may amount to an assignment is inconsistent with view of Dixon J in Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 C.L.R. 614 (TLA pp. 108-109) where Dixon said that in a declaration of a sub-trust, the declarant retains his equitable interest and holds it in trust for the sub-beneficiary.

It should be noted that under s9 Statute of Frauds, the phrase grants and assignments did not include a release - Crichton v Crichton (1930) 43 C.L.R. 536 (TLA p. 104). However, the current phrase is ‘disposition’ and s3, schedule 6 defines a disposition to include a release. No problem because no conflict with other provisions of PLA.

Distinguish between a “direction” to transfer (the “Grey” direction) and a mere revocable mandate to transfer (the “Vandervell” direction):

The directions given in the Grey case must be emphatically distinguished from a revocable mandate given by a beneficiary to his trustees because a mandate merely empowers the trustees to hold the beneficiary’s interests for another person and does not make the last mentioned person a beneficiary until the trustees carry out the mandate. This revocable mandate would fall outside © because it is not a disposition. Once it is acted upon, then it becomes a disposition

A revocable mandate may be revoked by definition before it is carried out see Howard Smith (TLA p108-109). A mandate to make a disposition under © must be given in writing. In Qld, Grey would have been decided differently because (c) merely requires a disposition to be evidenced in writing. Hunter’s oral direction would have been effective in Qld because the later declaration of trust was evidence in writing of the oral direction.

Oughtred v I.R.C. [1960] A.C. 206 (TLA p. 111-117) Suppose someone owned a subsisting equitable interest in property because he is a beneficiary under a trust. He enters into a specifically enforceable contract to sell his equitable interest to another person. This specifically enforceable contract of sale will entail that the owner of the equitable interest will hold that equitable interest on a sub-trust (technically a constructive sub-trust sub-modo for the intended purchaser of his equitable interest). It is sub modo because it is under condition in the sense that the purchaser must pay the balance of the purchase price so as to make it a constructive sub trust simpliciter and not sub modo. The question that arises is, given that the interest agreed to be sold is an equitable interest, not a legal interest, and given that this equitable interest is by virtue of a contract of sale held on a constructive sub-trust sub-modo for the purchaser, does this constructive sub-trust entail that the intending seller of the equitable interest has by virtue of the creation of the constructive sub-trust made a disposition of his subsisting equitable interest within the meaning of para (c). If this person who has a beneficial interest under a trust, he sells this beneficial interest under a specifically enforceable contract, pending payment of the balance of the purchase price, there would be a constructive sub trust sub modo in favour of the purchaser. Does the creation of this constructive sub trust make the transaction a disposition of a subsisting equitable interest?

The answer should be in the negative, because the constructive sub-trust means that the intending seller has retained his equitable interest and is holding it on a sub-trust for the intended purchaser, so the creation of this sub trust is made by operation of law, not by the intention of the parties and it is not a disposition made by the intending seller. However, the views of the 5 Law Lords in this case are not very instructive on this issue.

In Oughtred, there was a trust of 200,000 company shares. The trust had 2 beneficiaries, Mrs Oughtred and Peter Oughtred. Mrs Oughtred held a beneficial life interest in the shares and her son Peter held the beneficial interest in remainder. Apart from the shares, Mrs Oughtred was the absolute owner of another 72,700 shares in the same co. Mrs Oughtred and Peter entered into an oral agreement (to avoid paying stamp duty) that provided she would transfer to him her 72,700 shares in consideration of his making her the absolute beneficial owner of the 200,000 shares. (Basically he would get the 72,700 shares from his mother, and he would give to his mother the remainder of his interest in the 200,000 shares, thus expanding his mother’s life interest to absolute beneficial ownership). The oral agreement included the date on which it was to be performed. On the agreed date, three documents were executed to avoid stamp duty:

1. A deed of release which declared that the 200,000 shares were then held in trust for Mrs Oughtred absolutely and that it was intended to transfer to her the legal title to those shares. Ong’s view is that

because Peter and his mother were both equitable owners, Peter could only release and not assign his interest to his mother because the release would enlarge the mother’s interest so that it would take effect by release and not by assignment.

2. An instrument of transfer from Mrs Oughtred to Peter’s nominees of her 72,700 shares for an express but nominal consideration of 10 shillings.

3. An instrument of transfer from the trustees to Mrs Oughtred of the 200,000 shares for an express but nominal consideration of 10 shillings.

It was this third document, namely the instrument of transfer to Mrs Oughtred that was argued by the IRC to be a conveyance or transfer on sale under the relevant taxing statute, namely the Stamp Act 1891 (UK). Such a conveyance was one on which stamp duty was payable. The issue was whether the instrument of transfer was such a conveyance, in which case it would have been dutiable. The Commissioners argued that Peter’s equitable interest in remainder was a subsisting equitable interest, which could only be disposed of in writing under para ©. The Commissioners argued that the oral agreement between Peter and his mother was not a written disposition, therefore it did not satisfy para © and did not dispose of Peter’s interest. The Commissioners argued that as the oral agreement did not dispose of Peter’s interest, that interest was disposed of under the instrument of transfer, thereby making that instrument a conveyance or transfer on sale, which would be dutiable ad valorem (according to value).

By a majority of 3-2, the Law Lords held the instrument of transfer to be a conveyance or transfer on sale and therefore held that it was dutiable. This is a case where there was no ratio decidendi, so that it is not a very instructive case even though it is an important case. The majority, although for different reasons, held that the instrument was a transfer on sale and therefore dutiable. None of the 3 documents made any reference to the oral agreement, so that the agreement was never evidenced in writing. So unlike Grey, Oughtred would have been decided the same way even in Qld because there was no evidence in writing.

The oral agreement was not an agreement to sell land, therefore the oral agreement did not have to satisfy the English equivalent of s59 of the PLA (Qld). That agreement did not have to be made or evidenced in writing because it was an agreement to sell a beneficial interest in co shares, not an agreement to sell land The agreement was specifically enforceable even though it was not an agreement to sell land because the shares were shares in a private company and could not have been purchased on the stock exchange. Damages would have been an inadequate remedy for the breach, therefore the agreement was specifically enforceable because the shares could not be acquired on the open market. Because the agreement was specifically enforceable, Peter held his equitable interest on a constructive sub trust sub modo for his mother. This was so because the trust of an equitable interest creates a sub trust. The authority is Howard Smith per Dixon J (TLA 109). This constructive sub trust, being a constructive trust did not have to be evidenced in writing because of s11 (2) Qld and what in England is s53 (2) Law of Property Act 1925. The oral agreement as well as the resulting constructive sub trust did not have to be evidenced in writing.

In Neville v Wilson [1997] Ch. 144 (TLA pp. 117), the English CA held that the persons there in the same positions as Peter were constructive sub-trustees. CA held that those constructive sub trusts were not subject to any writing requirements because of the UK equivalent of s11 (2). In Oughtred’s case, Mrs Oughtred’s interest under the oral agreement was exempted from the writing requirements of what in Qld would be s11 (2). S11 (2) only applies to exempt the constructive sub trust from any written evidence requirement. S11 (2) did not apply to a disposition of Peter’s own interests, which he retained on a constructive sub trust for his mother. Peter’s own interests had been created by an express trust so the constructive sub trust did not have to be evidenced in writing but when the time came for Peter to release his interest to his mother, that release would have to comply with para © in Ong’s view. In Ong’s view, there was some confusion between the constructive sub trust and the actual release of the equitable interest by Peter to his mother. The oral agreement did not dispose of Peter’s interest because the oral agreement was an agreement to sell his interest in the future and not a purported immediate sale of that interest. Even if the agreement had purported to be an immediate sale, it would have been ineffectual because not being in writing it would have failed to satisfy para ©. In Ong’s view, Peter’s interest was disposed of at the time of the execution of the instrument of transfer of the 200, 000 shares, thus making that instrument dutiable.

That instrument of transfer would have been a conveyance or transfer on sale. It would give to Mrs Oughtred Peter’s equitable interest, which would merge in hers.

Under the Corporations law, unless the instrument of transfer is registered, there is no transfer of the legal title. For stamp duty purposes only, the execution of the instrument of transfer is regarded as dispositive. Even though under the Corporations Law, it disposes of nothing, under Stamp Duty law it disposes of what is written in the instrument of transfer.

Lord Denning – (TLA 112-113) (one of the majority). He made the basic point that the oral agreement was not effective to dispose of Peter’s equitable interest because it did not comply with s11 (1)(c). He also said that section s11 (2) did not do away with the necessity to comply with section 11(1)(c) in disposing of Peter’s equitable interest. Lord Denning did not explain why section 11(2) did not do away with the necessity to comply with para © when the time came for Peter to get rid of his own interest to his mother as distinct from merely holding it on a sub trust for her. May speculate and assume that Lord Denning must have taken to have held that Peter could not have released his interest to his mother by relying on s11 (2) but would have had to do so by using para ©. Peter could only have released his interest to his mother; he could not have assigned it to her because his equitable remainder would have merged with his mother’s equitable life interest.Ong personally favours the speech of Lord Denning - I think it is perhaps a little too concise, but it is not wrong

Lord Jenkins (with whom Lord Keith concurred) (113-114 TLA) assumed but did not decide that a constructive trust had arisen in Mrs Oughtred’s favour by virtue of the oral agreement. Nevertheless, Lord Jenkins held that the transfer to her of the legal title to the shares gave Mrs Oughtred something of value, which her mere equitable ownership could not have given her (only the legal owner of shares may vote at shareholders meetings, but not the equitable owner). For stamp duty purposes, the giving of the executed transfer to Mrs Oughtred was regarded as giving her the legal title to the shares. They said that the instrument of transfer because it gave Mrs Oughtred something of value was a conveyance or transfer on sale and was therefore dutiable. Lord Jenkins’ speech is not an exposition of para © or s11 (2). He just made a narrow point. He had nothing to say about the equitable position.

Lord Radcliffe (dissenting) (TLA p114-116) noted that under the oral agreement, Peter became a constructive trustee sub modo for his mother. He also observed that this constructive trust did not have to comply with s53 (1); our 11(1) because of our 11(2). He said that when she paid the consideration to Peter, the constructive trust ceased to be sub-modo (ceased to be under condition) and she became the effective owner of all the equitable interests in the 200,000 shares. Lord Radcliffe did something, which in Ong’s view is unjustifiable. He said that when Mrs Oughtred became the ‘effective owner of the shares’ in equity, it was thus correct to describe her as in equity the ‘absolute owner of those shares’. Those 2 terms are not interchangeable. If Mrs Oughtred was the effective owner, it meant that she could call on Peter to make a release to her. On the other hand, if you call her an absolute owner of the equitable interest, you are assuming that the equitable interest has been released to her already. When Lord Radcliffe said that she was the effective owner, what he really meant was that she was the ultimate owner. Not the same in equity.

Lord Cohen (dissenting) (TLA 116-117) agreed with the IRC that Peter’s equitable interest could only have been disposed of under para © because Peter’s interest was a subsisting equitable interest. He also noted that Peter’s equitable interest had not at any stage been disposed of. He said that after Peter received the consideration for his promise, the constructive trust in favour of his mother was such that ‘Peter could not have disputed her equitable title to the 200, 000 shares’ by claiming an equitable interest in them. He said that after the mother had paid the consideration, Peter could not have disputed his mother’s equitable title to the 200, 000 shares. Despite his mastery of company law, he used an ambiguous phrase. He did not say why Peter could not have disputed his mother’s equitable title to the shares. Ong’s own view is that he could not have made the dispute because Mrs Oughtred could have asked him to make a release to her. However, Lord Cohen seems to have thought that because Peter could not dispute his mother equitable title, Peter’s own title had ceased and this is an unwarranted step. This did not mean that Peter’s interest had ceased. He assumed that Peter’s interest had ceased and therefore the formal transfer gave Mrs Oughtred nothing of value so that it was not dutiable.

The trouble with Lord Cohen and Radcliffe – Although we accept that there was a constructive sub trust of which Peter was the constructive sub trustee, the difficulty is that neither Cohen nor Radcliffe showed us how Peter’s subsisting equitable interest was released to his mother.

Summary Lord Jenkins and Lord Keith had no opinion on para © Lord Radcliffe said that para © and indeed (a) and (b) as well did not apply to constructive trusts

in favour of Peter’s mother because of s11 (2). Radcliffe did not explain how Peter’s interest was released to his mother as a release required the termination of the constructive trust as distinct from the creation of the constructive sub trust

Lord Denning and Lord Cohen both said that Peter had not disposed of his equitable interest to his mother as para © had not been complied with. However, Denning appears to have accepted that Peter’s interest eventually passed to his mother by virtue of the transfer, which transferred both the legal and equitable title to her. By contrast, Lord Cohen thought that Peter’s interest was simply extinguished when he received the consideration from his mother.

Vandervell v I.R.C. [1967] 2 A.C. 291 (TLA pp. 117-118)This case is of great interest in the context of s11 (1)© PLA. Let’s imagine that there is someone who is a sole beneficiary under a trust. This person will have a subsisting equitable interest in terms of para ©. Suppose further that this person intends to give to another person the legal and equitable title to the property at the same time. Suppose that the beneficiary orally directs the trustee to transfer to the donee both the legal and equitable title to the property and the trustee carries out this direction. Upon registration, the beneficiary would get both legal and equitable interests at the same time. Conceptually, because there was a subsisting equitable interest, the subsisting equitable interest should have been disposed of first. Vandervell v IRC said that this was not the case, that the oral direction, being only a revocable mandate, was not subject to para © and that the transferee received both the legal and equitable interest at the time of registration of the transfer.

Lord Upjohn explained that para © was intended to get rid of the problem of hidden oral transactions. He said that where the legal title was transferred by means of writing and the equitable title was intended to be transferred at the same time, the mischief para © was designed to remove would not occur because there would be writing. If were to transfer legal and equitable title at the same time, then there would be no need to comply with para ©.

Re Vandervell’s Trusts (No. 2) [1974] Ch. 269 (TLA pp. 118-119, 372-376) – Regarded as an exciting case to discuss.

5. Charitable Trusts

TLA Ch. 7

Charity has a technical meaning in the law of charitable trusts. Not all types of public benevolence are considered to be charitable. The meaning of legal charity is by law made artificially narrow. It is artificially narrow because the meaning of legal charity is derived from the charitable purposes enumerated in the preamble to the Statute of Charitable Uses 1601 – known as the Statute of Elizabeth. The statute was not enacted with the view of defining legal charity. The statute was enacted to reform the administration of charitable trusts, which was then very inefficient. However, the preamble (TLA p273) did refer to a number of charitable purposes. The courts have taken advantage of the list of charitable purposes appearing in the preamble:1. They accept the list as accurate. If a charitable purpose appears in the list in the preamble, then the

court will say that purpose is charitable.2. They have extended the enumerated purposes by way of analogy with the original purposes. They

accept new purposes as being charitable because of they are analogous with the original purposes. 3. Sometimes, the courts purport to discover directly a unifying spirit behind the enumerated purposes.

Where analogy has failed the judges would go to the spirit of the preamble directly in an entirely fictitious exercise. Purposes are charitable if they fall within the spirit and intendment of the preamble either by way of analogy with the enumerated purposes or by way of inclusion in the spirit as directly perceived.

The Charitable Uses Act 1601 was repealed by the Trusts Act 1973 (Qld). Section 103 (1) Trusts Act (Course outline) has provided that this repeal shall not affect the established rules of law relating to charity.

There are two principal advantages of charitable trusts:1. Most but not all charitable trusts are exempt from income tax and land tax. Land tax is tax imposed

by local authorities for the ownership of land based on the unimproved value of the land. This is because they are perceived to be beneficial to the community and are encouraged.

2. Charitable trusts are not subject to the rules against perpetual trusts - which means that the charitable trust may exist for an indeterminate period - other trusts are subject to the rules against perpetuities.

Note that although a charitable trust may last indefinitely, the property intended to be invested in a charitable purpose must still vest within the trustees or the charity within the perpetuity period. Once property has vested in the charity within the perpetuity period the trust itself can be perpetual. It is possible to establish a charitable trust is established it may last 1000 years, but it is not possible to establish a trust which comes into effect in 1000 years.

The FOUR categories of legal charity were defined by Lord MacNaghten in Commissioners for Special Purposes of Income Tax v Pemsel [1891] A.C. 531 (TLA p. 271) as follows:(1) Trusts for the relief of poverty;(2) Trusts for the advancement of education;(3) Trusts for the advancement of religion; and(4) Trusts for other purposes beneficial to the community not falling under any of the preceding three

heads. But none the less falling within the spirit of the preamble.

Except for trusts for the relief of poverty, all charitable trusts are required to benefit at least a section of the community or a section of the public. For example, it is possible for a trust for the provision of education may fail because it does not provide education to a section of the public. In order for a trust to be charitable, it must be beneficial to people within the spirit of the preamble and the people so benefited must constitute at least a section of the public.

All charitable trusts, apart from trusts for the relief of poverty must benefit a section of the public. What constitutes a section of the community / section of the public?Oppenheim v Tobacco Securities Trust Co Ltd [1951] A.C. 297 (TLA pp. 288-289) - A trust of income was purportedly set up to provide for the education of a group of children. Because the trust was an educational trust, it was prima facie charitable since it fell within the express words of the preamble. The issue was whether the group of children intended to be benefited comprised a section of the community. If the children were a section of the community, then the trust would be charitable. Otherwise the trust would fail for infringing the rule against perpetual trusts. The intended beneficiaries were the children of the employees or the former employees of a specified company or of any of its subsidiaries or allied companies. There were over 110,000 of such employees and numerous more former employees. The children of these persons could have numbered in the hundreds of thousands.

The House of Lords (Lord McDermott dissenting) held that the class of beneficiaries was not a section of the public despite the fact that they were numerous. The HL held that although the number were numerous, the children were not a section of the public because they were identified by reference to a group of employers, namely a group of companies. That group of companies was a group of individual persons, companies having corporate personality. Given that this class of beneficiaries was defined by reference to a group of companies, that class was not a section of the public despite the fact that it was a class which comprised several hundred thousand people.

Lord Simonds - A group of persons could not form a section of the public if the nexus between them was

their personal relationship to a single individual or to several individuals because those several individuals would not be a section of a public (sometimes called a single propositis or several propositi - meaning the same thing as individual). He said if the personal relationship of employment could make 100,000 employees a section of the public, why would it not do the same for 1,000 employees and if it could do so for 1,000 then why not just 10 employees. He said the mere size of a group of persons could not be used to determine whether or not it was a section of the public.

Oppenheim is authority for two propositions:(1) A group of persons no matter how numerous cannot form a section of the public if those persons are

identified by reference to a single individual or to several individuals (propositis or several propositi).

(2) Although the size of a group could not determine whether or not it was a section of the public, in order to constitute a section of the public a group of persons must not be numerically negligible.

Oppenheim approved the decision of the English Court of Appeal in Re Compton [1945] Ch. 123 (TLA pp. 280 and 288). The rule in Oppenheim is sometimes referred to as the Compton rule. That is that there must be a benefit to a section of the public and that people who are identified by reference to individuals cannot constitute a section of the public because the nexus is purely personal.

There have been attempts to define a section of the public.

In Re Income Tax Act (No1) (TLA p288) - Lowe J said that a group of persons with the power to exclude members of the public according to some arbitrary test which it has set up in its own rules or otherwise will be a private group of individuals. It will be a club and a club can exclude members or prospective members by some arbitrary test then it will be a private class of persons and not a section of the public. This requirement does not apply to trusts for the relief of poverty.

Thompson v F.C.T. (1959) 102 C.L.R. 315 (TLA p. 288) - A purported trust to provide funds to schools attended by the children of the brethren and deceased brethren of the Masonic order in NSW only. The executors of the deceased estate claimed exemptions from estate duty on the ground that the trust was for public educational purposes. The HC rejected this claim and said that the children of the brethren and deceased brethren of the Masonic order in NSW did not constitute a section of the public. Dixon CJ explained that the Masonic order in NSW was not a section of the public because it was a voluntary association to which members were admitted through election by the existing members. There were a number of arbitrary tests for admission to membership, therefore that was essentially a class and not a section of the public. So the Masonic order was a private association, therefore children of this group of individuals could not be a section of the public. So the trust could not qualify as a public educational trust and there was no exemption from estate duty. Basically the same as Oppenheim’s case. Follows Oppenheim’s case. Both were prima facie educational but found not to be charitable because failed to satisfy the public benefit test.

Davies v Perpetual Trustee Co Ltd [1959] A.C. 439 (TLA pp. 303-304) - A trust sought to establish a college for the education of the youth of Presbyterians who were themselves descendants of Presbyterians who had settled in the NSW from the north of Ireland. One would have thought that Presbyterian youths were a section of a public. The Privy Council held that the trust failed because the youth in question were not a section of the public, they were a fluctuating body of private individuals. The PC held that the youth were descended from a number of private individuals. Ong finds this very unconvincing because the Presbyterians were not defined by reference to any single individual or any number of individuals. The Presbyterians were defined by reference to the denomination of the Christian religion which they professed. So why would the Presbyterians emigrating from the north of Ireland to NSW not be a section of the public? Ong would have thought that those group of Presbyterians clearly satisfied the Oppenheim test.

Then the PC, by way of additional reasoning, said that the qualifications for receiving the educational benefits (being children descended from immigrants from the north of Ireland) were wholly irrelevant to the educational objects. This was because Presbyterian youth who descended from England or Scotland would have been equally deserving but had nevertheless been excluded from the class of beneficiaries.

They said that this was an improper discrimination making the trust not beneficial to the public. This criterion of improper discrimination must be used with great care, otherwise a lot of trusts will be struck down. Ong thinks that a trust can benefit a section of the public without benefiting every member of the public. This criterion may cease to be beneficial to the public if there is an element of improper discrimination in it; it is a very dangerous rule of exclusion. Nonetheless, this rule of exclusion does exist after the Davies case.

There is an exception for trusts established for the relief of poverty - Dingle v Turner [1972] A.C. 601 (TLA pp 276-280) - A trust was established to pay pensions to the poor employees of a company. The poor employees were identified by reference to a specified company. If one were to apply the Oppenheim test, those poor employees would clearly not have constituted a section of the public. The issue was whether the test in Oppenheim test or the Compton rule should be applied to trusts for the relief of poverty. However, trusts for the relief of poverty have long been exempted from the public benefit test if those trusts are for the benefit of poor relations. The House of Lords held that the Oppenheim test of public benefit did not apply to trusts for the relief of poverty. Lord Cross of Chelsea noted that even in Oppenheim the HL had recognised that there was an exception to the Compton rule in the case of the poor relations of a benefactor.

The other exception relating to the poor employees of a benefactor was of more recent origin and Lord Cross noted the argument that this second exception, because it was relatively new, should not be allowed to continue so that the only exception it was argued should be of poor relations but not of poor employees.

Lord Cross took a conceptual approach and said that it would be quite illogical to draw a distinction between poor relations cases and poor employees. He and the other Law Lords decided that the Compton rule (public benefit requirement) did not apply to trusts for the relief of poverty generally. However, a trust for the relief of poverty, although it is not longer required to benefit a section of the public, is still a public trust and not a private trust. Because all charitable trusts are by definition public trusts, namely they are not enforced by private individuals but by the Attorney General acting on behalf of the Crown.

If trusts for the relief of poverty are public trusts which do not have to benefit a section of the public, then how does one distinguish between a private trust for one’s poor relations and a public trust for the relief of poverty amongst one’s poor relations. Although Dingle took away the requirement of public benefit, a trust for the relief of poverty remains a public and not a private trust. If a trust for the relief of poverty is regarded as a public and not a private trust, it will get tax advantages. Lord Cross said that the distinction between a private trust and public trust for the relief of one’s poor relations was the distinction drawn in the case Re Scarisbrick [1951] Ch. 622 (TLA pp. 276-278) - It was said that a trust for the relief of poverty would arise whenever there was a trust for the relief of poverty among a particular description of poor people. A private trust for poor persons was a gift to particular poor persons, the relief of poverty among them being the motive of the gift, but not being the purpose of the gift. The distinction is illusory in the sense that a judge can go either way. The illusory nature of the distinction was exemplified in:

Re Segelman Deceased. [1995] 3 All E.R. 676 (TLA p. 278) - There was a testamentary gift of the residue of the estate for the benefit of the poor and needy amongst a list of family members which was provided by the testator. There was a proviso that if any of the listed members should predecease the testator or die within 21 years of the testator’s death, in either case if they died with issue, then the issue would replace the deceased person on the list. If the trust was charitable (public trust for the relief of poverty) it would have been exempt from succession duty and this was the purpose for arguing that the trust was for the relief of poverty. Chadwick J held that the gift was for the relief of poverty amongst a particular class of poor people and not a gift to particular poor persons. He was able to make this argument because of the existence of the proviso. This meant that the unknown issue might be added to the list of persons. Because the unknown issue were not individually listed, there was no list of particular poor persons, but a description of poor people (being the list of persons plus their issue should they die prematurely). Ong thinks the reasoning is most unpersuasive because if there is a list of poor persons, the issue of those persons would also be particular persons and not a class.

So trusts for the relief of poverty are public trusts, which do not require the element of public benefit. The distinction is outlined in these examples:

If a testator listed all his cousins on a particular date and said I want all my money to go to them because they are poor. Because he had listed all his poor cousins in existence at a particular date, this trust would not be a public trust for the relief of poverty, but a private trust for particular poor people and would not be exempt from tax.

However, if the testator had referred to his poor first cousins as a group on a particular date (namely, to my poor first cousins who are in existence on a particular date) then according to Segelman this would be a public trust for the relief of poverty.

There are Four Categories of Charity:1. Trusts for the Relief of Poverty – No satisfactory or precise definition of poverty.

Ballarat Trustees Executors and Agency Company Limited v F.C.T (1950) 80 C.L.R. 350, at 355 (per Kitto J) (TLA p. 274) said ‘I should say that a person is in necessitous circumstances if his financial resources are insufficient to enable him to obtain all that is necessary, not only for a bare existence, but for a modest standard of living in the Australian community’. Ong thinks it begs the question of what is a modest standard of living in the Australian community. In other words, a poor person in the law of charities is a person who cannot afford a modest standard of living. There is an inherent uncertainty because it is not possible to identify what a modest standard of living is.

2. Trusts for the Advancement of EducationLike poverty, education has a technical meaning in the law of charitable trusts. What is meant by education

in the law of charitable trusts?

I.R.C. v McMullen [1981] A.C. 1 (TLA pp. 286) - A trust was established to encourage pupils at schools and universities to play games or sports in order to ensure that they received physical education and mental development. The trust was upheld by the H of L as a trust for the advancement of education. Education includes physical education and is not confined to mental development. Lord Halisham (Lord Chancellor) said that education was a balanced and systematic process of instruction, training and practice containing spiritual, moral, mental and physical elements.

Games or sports that are provided to promote physical education and mental development are educational whether or not they are offered by an educational institution – McMullen’s case. There is no need for the physical education or mental development to be offered by an educational institution in order for them to be regarded as educational in the law of charities.

NOTE that mere sport is not charitable. Re Nottage [1895] 2 Ch. 649 (TLA pp. 284-286) – It was held that a trust to establish a prize for an annual yacht race was not charitable. It was said that the promotion of mere sport could not be charitable. In view of the following cases this could be regarded as bad law.

But a trust to provide prizes for athletics in a school is a trust for the advancement of education - Re Mariette [1915] 2 Ch. 284 (TLA pp. 285-286). In the light of McMullen’s case, a trust to provide prizes for athletics would be charitable although the athletics were not sponsored by a school. Ong thinks that Nottage is not good law but it has not been overruled.

A trust to promote the playing of chess has been held to be educational - Re Dupree’s Deed Trusts [1945] Ch. 16 (TLA pp. 285-286) - It was said that the playing of chess encouraged the qualities of foresight, concentration, memory and ingenuity. It provided intellectual stimulation and therefore it was an educational charitable purpose. In the light of this case perhaps Nottage should be regarded as bad law.

A trust for the promotion of the boy scout movement was educational because the movement gave instructions to boys of all classes in principles of discipline, loyalty and good citizenship - Re Webber [1954] 3 All E.R. 712 (TLA p. 286).

It is important to remember that a purpose can be educational even though it does not involve any teaching. An example of this is Royal Choral Society v C.I.R [1943] 2 ALL E.R. 101 (TLA p. 282) – The court held that the formation of a choir to perform choral works was an educational purpose because the performances of the choir provided aesthetic education by raising the artistic taste of the members of the community who listen to the music. Therefore it can be educational, even though there is no formal teaching.

A trust to promote the work of the composer Frederick Delius throughout the world was held to be an educational trust. This would apply to other composers - Re Delius [1957] Ch. 299 (TLA p. 287)

Re Pinion Decd. [1965] Ch. 85 (TLA pp. 280-281) - In that case a testator tried to set up a trust to endow museums with his worthless personal possessions. The English Court of Appeal said that this was not an educational trust because the display of the testator’s atrociously bad pictures was not educational. That trust failed as a trust for the advancement of education.

Re Shaw deceased. [1957] 1 All E.R. 745 (TLA p. 281) - George Bernard Shaw purported to set up a testamentary trust and he said that the purpose of the trust was to inquire how much time could be saved by the use of the proposed British alphabet which he had himself invented. He said that the ABC alphabet was inefficient, that his proposed alphabet would be superior. The purpose of the trust set up in his will included an enquiry as to the time, labour and money wasted by the use of the present alphabet.

Justice Harman held that the purpose of the trust was not educational - he said (p. 685) that the testator’s purpose merely tended to increase public knowledge with no element of teaching or education combined with such an increase in public knowledge. So there was no element of teaching and no element of education combined with such an increase of public knowledge, therefore it was not educational - this reasoning is difficult in two respects -

1. It was not true to say that no teaching was involved. The contemplated debate as to which of the two alphabets was the more efficient would have possessed a teaching and educational element for those who engaged in that debate of the respective merits of the two alphabets and for those who would have listened to or have read about it.

2. Even if Justice Harman was right in saying that the no teaching was involved, he was wrong in saying that teaching was a necessary element in education. Because IRC v. Royal Choral Society (CB 688) the English Court of Appeal held that teaching was not a necessary element in a trust for the advancement of education. McMullen also made it clear that education is not confined to teaching. Because of this narrow view of education, it may not be good law in Australia.

Re Hopkins’ Will Trusts [1965] Ch. 669 (TLA p. 287) - A trust was established to find the Bacon Shakespeare manuscripts. Wilberforce J held that the trust was educational and also charitable under the fourth category. He said that it was educational because the discovery of the original manuscripts of England’s greatest dramatist would be of the highest value to history and to literature and therefore the search for such manuscripts was a charitable educational purpose. Secondly, he said that the discovery of even one of the manuscripts would probably contribute decisively to the identification of the author of the manuscripts and therefore this attempt to find the author would itself have been an educational purpose.

Incorporated Council of Law Reporting of the State of Queensland v F.C.T. (1971) C.L.R. 659 (TLA pp. 282-284) – The issue was whether the non-profit making production of law reports was charitable. If it had been made for profit, would not have been charitable. Issue was whether the council was a charitable institution so as to be exempt from income tax. Fighting the FCT over the issue of income tax liability. All three judges of the HC held that the non profit making production of law reports was charitable but they disagreed as to the reason for that purpose being charitable; namely under what head was it charitable. Barwick CJ & McTiernan J held that it was charitable but that it fell within the fourth category. They held that the non profit making production of law reports was not an educational purpose because law reports were merely informative and not educational. Ong finds this distinction unpersuasive.

On the other hand, Windeyer J. held that the purpose of producing law reports otherwise than for profit was a purpose for the advancement of education. He said (p. 687) ‘The purpose that the council serves is a purpose of public utility, the advancement of legal learning by publishing reports’. Ong entirely agrees with Windeyer - He regards the producing of law reports otherwise than for profit to be educational - why do we use the law library other than to advance our legal learning. It is likely that the view of Windeyer J. will prevail.

3. Trusts for the Advancement of ReligionThere is an issue as to what ‘religion’ means in the law of charities, because charities are exempted from most income and land taxes it is beneficial to have activities classed as charities.

In Church of the New Faith v Commissioner of Pay-roll Tax (Vic) (1983) 154 C.L.R. 120 (TLA pp. 292-294) the question was whether Scientology actually constituted a religion. The joint judgement of acting Chief Justice Mason & Brennan J is the clearest. (p. 692) - They said that the criteria of religion are two fold:

1. Belief in a supernatural being, thing or principle and 2. The acceptance of cannons of conduct in order to give effect to that belief.

Ong thinks that this has simplified the law and his only query is whether they should have drawn a distinction between being, thing or principle. Ong thinks that they realised that being, thing or principle are things that are known in the natural sphere and simply assumed that in the supernatural sphere these distinctions are also valid. Ong finds this unconvincing. So there must be belief in a supernatural being, thing or principle and then acceptance by people of cannons of conduct to give effect to that belief - if you can find such a group of people then you have a religion.

It may be that instead of purporting to recognise different phenomena in the supernatural sphere they should merely have referred to supernatural phenomena - Ong. They said there must be a belief in a supernatural being, thing or principle, how do they known that in the supernatural world there can be this trichotomy. In our world you can say that there a difference between being, thing and principle but since they are talking about the supernatural world how do they know that there are these three different phenomena. because by definition the supernatural world is not accessible to human perception - Ong queries whether it is necessary for them to have this trichotomy - if they had said a belief in a supernatural that would have been enough.

Mason and Brennan rejected the view of Dillon J in Re South Place Ethical Society [1980] 3 All E.R. 918, at 924 (TLA p. 293) where Dillon J had said that religion was confined to faith in a god and worship of that god. Mason and Brennan said that the relevant belief was not limited to a supernatural being but extended to supernatural things or principles. They said that Dillon was wrong to say that you must worship a god before you had a religion because a god they said was a being and of course they said that the belief in the supernatural thing or principle even though neither was a being would be enough and therefore Dillon’s view was too narrow. (unknown whether there is substance is this criticism - how does one know that god is a supernatural being or thing or principle - what is meant by being in the supernatural world).

Murphy J. (TLA p293) gave a very wide definition of religion. He said any body which claimed to be religious and offered a way to find meaning and purpose in life was religious. This is an extremely wide view. He said that there is no need to confine religion to belief in the supernatural. This view does not represent the law in Australia and anywhere else in CL world. NOTE that Murphy does not require any supernatural element in the concept of religion - so if there is a body of persons who believe that they should show kindness to other people - this would a be religious body (per Murphy) and entitled to claim exemption from income tax and from land tax (not really a good result).

Wilson & Deane J. (TLA p293) were not as definite as Mason & Brennan) - They were excessively cautious and said that they were not offering any criteria to identify a religion although, they would offer 5

indicia (less strong than criteria) none of which was decisive in itself. The five indicia were -

1. Belief in the supernatural (unlike Mason & Brennan - Wilson & Deane did not proceed to divide supernatural into beings, things and principles.)

2. Belief in a relationship between people and supernatural things (phenomena).3. The adherents of that belief accept that they should observe particular codes of conduct having

supernatural significance.4. The adherents of that belief must be an identifiable group of persons5. The adherents must regard the relevant collection of ideas and/or practices as constituting a religion.

They said that it was unlikely that any collection of ideas and/or practices would be a religion if it lacked most or all of these indicia. They would not want to say that you would have to comply with all five of the indicia before you can have a religion but if most were not complied with it would be unlikely you would have a religion.

All 5 justices upheld Scientology (which was in issue in that case) as a religion because it involved belief in reincarnation. Reincarnation is a supernatural thing - it is not something we can perceive or prove. Scientology embraced the belief that a person’s immortality is achieved by that person’s soul or spirit undergoing an infinite series of reincarnations. This definition is to be found in (1983) 154 CLR 120 at 142.

Technically there was no majority view in that case nor does it have a ratio - but it can be assumed as a practical matter that no pursuit of any collection of ideas will be regarded as religion in Australia unless that pursuit embodies a belief in the supernatural and cannons of conduct to give effect to that belief. Scientology includes belief in reincarnation and therefore embodies the belief in the supernatural. If you ask what is supernatural? - Something is supernatural if it cannot be perceived by the senses.

Roman Catholic Archbishop of Melbourne v Lawlor (1934) 51 C.L.R. 1 (TLA pp. 297-298) – Ong calls this case an indecision because the HC was evenly divided 3:3. It is not a HC authority. The testator set up a trust to establish a ‘Catholic Daily Newspaper.’ The issue was whether those words established a religious purpose. By virtue of s23 (2) (a) Judiciary Act 1903, the decision of the SC of Victoria was upheld. It prevailed because there was no higher authority changing it.

The 3 judges who held that the phrase did not constitute a religious purpose - Dixon, Rich and Stark JJ held that the purpose was not religious.

Gavan Duffy CJ & Evatt & McTiernan JJ held that those 3 words did create a religious purpose.

Dixon J. said that in order for a purpose to be religious it was not sufficient for the purpose to be conducive to the good of religion, the purpose must itself be religious. This distinction was drawn by the Privy Council in Dunne v Byrne [1912] A.C. 407 (TLA pp. 292-296), which drew a distinction between a religious purpose and a purpose which was only conducive to the good of religion. Dixon said that in the phrase ‘Catholic Daily Newspaper’ - the word Catholic embraced much more than the purposes of religion. This was in Ong’s view a bare assertion - Dixon J did not explain why the word Catholic, when spelt with a capital C, would include much more than the purposes of religion - it may be suggested that against the view of Dixon J. that the word Catholic when spelt with C described the attributes of the Catholic faith (other Justices found this a reasonable view).

Dixon also said that the conduct of a Catholic newspaper was at the very most conductive to religion and therefore not enough. He thought that it did not even amount to something conducive to religion (bare assertion).

Gavan Duffy CJ and Evatt - Took the view that the establishment of a Catholic daily newspaper was a religious purpose because in their view, there was no difference in principle between spreading the Catholic faith by giving sermons from the pulpit and spreading that faith through the circulation of a Catholic newspaper. (Ong personally is more convinced by Duffy than by Dixon - but the matter is open because there is no ratio from that evenly divided decision, nonetheless people are influenced by Dixon’s prestige

and incorrectly state that his view is the correct one). McTiernan agreed.

In Gilmour v Coats, the House of Lords (Lord Simonds) said that a trust of income for a contemplative order of nuns, although prima facie religious, lacked public benefit because one could never prove that intercessory prayers were of any benefit to the community. Namely, Carmelite nuns who devoted their lives solely to prayer and did not do any exterior work. Lord Simonds said that although this was a trust for the advancement of religion and therefore prima facie religious, it was not a charitable trust because it was not for the public benefit. There could be no proof that the intercessory prayers of the cloistered nuns could be of any benefit for the community. Ong - Lord Simonds did not merely attack the contemplative order of nuns as a charitable institution, but he attacked religion because one cannot prove that religion would ever benefit the community.

Apart from trust for the relief of poverty, all other trusts have to demonstrate public benefit. Lord Simonds said that how can they prove their prayers were for public benefit.

In Crowther v Brophy [1992] 2 V.R. 97, at 100 (TLA p. 291) there was a trust of income for the saying of masses for the souls of designated deceased persons. It had long been established that a trust for the saying of masses was a religious purpose. Justice Gobbo held that the bequest was a charitable trust for the advancement of religion. In Nelan v Downes (1917) 23 C.L.R. 546, the HC held that a trust to say masses for the souls of the dead was charitable. So a trust for the thing of masses is a trust for the advancement of religion.

The decision itself is uncontroversial, but the outstanding significance lies in the obiter dicta uttered by Gobbo in which Gobbo J. doubted whether the case of Gilmour v Coats [1949] A.C. 426 (TLA pp. 289-292) was good law in Australia. The test should not be whether intercessory prayers were efficacious but whether they gave comfort or peace of mind to those who believe in the efficacy even though the efficacy cannot be proven. Ong agrees with Gobbo.

Gobbo J., said that the test applied by Lord Simonds was inappropriate and said that the question should not be whether intercessory prayers could be proven to be efficacious but whether intercessory prayers, effective or not, afforded comfort and peace of mind to those who believed in their efficacy, even thought that efficacy was unprovable. This comfort and peace of mind would be a public benefit.

He was of the view that intercessory prayers comforted a section of the public. His obiter observation was that these prayers did confer public benefit. He emphasis that it was not necessary for him to decide whether Gilmour had been correctly decided.

Summarize the position: The obiter dicta of Gobbo in the Supreme Court of Victoria, would not be enough to overthrow the decision in Gilmour v Coats particularly since it was approved by the Privy Council in Leahy v A.G (TLA 316). Gilmour was implicitly approved by Viscount Simonds himself in an appeal to the Privy Council from Australia in Leahy v. A-G (TLA p316). But both Leahy and Gilmour are older authorities whereas Brophy is a recent authority.

Therefore we do not know whether a contemplative order of nuns or intercessory prayers are regarded in Australia today as conferring a public benefit and therefore qualifying for a charitable purpose for the advancement of religion.

4. Trusts for Other Purposes Beneficial to the Community and Falling Within the Spirit of the PreambleNot all trusts which are beneficial to the community are charitable. Otherwise, every purpose that was beneficial to the community would be a charitable purpose, but this is not the law. To bring a trust under this category the purpose must not only be for the public benefit, even though it must be for the public benefit, so it is a necessary condition rather than a sufficient condition. The second condition is that it must fall within the spirit of the preamble. Many of the categories in the fourth class are fictitiously identified to within the fourth category. The fourth category contains the residue of the purposes within the spirit of the preamble.

The most perplexing aspect of the 4th category is that although it falls outside the first three categories of charity it nonetheless requires the spirit of the preamble to be reduced to specific charitable purposes. So there is an inherent element of uncertainty in the 4th category. The 4th category is derived firstly from the spirit of the preamble, which is itself ascertained by analogy with the purposes specified in the preamble; and alternatively by the direct perception of the spirit without using the process of analogy.

A case that fell outside the 4th category is:Royal National Agricultural and Industrial Association v Chester (1974) 48 ALJR 304 (TLA pp. 306-308) - HC authority for the proposition that public benefit alone is not sufficient to bring a purpose within the fourth category. There was a trust of income established for ‘improving the breeding and racing of homer pigeons.’ The HC accepted that the purpose of the trust was beneficial to the community because it provided recreation for quite a number of pigeon fanciers. It produced birds which were interesting, beautiful and may at times be useful as a means of communication. It also afforded opportunity for the scientific study of the birds’ remarkable homing instinct. Therefore this purpose was definitely for the public benefit. However, the court held that although the purpose was beneficial to the community, it was not within the spirit of the preamble either by way of analogy with the original purposes specified therein or by direct reliance on the spirit (Again, this would be a bare assertion).

This conclusion was a bare assertion by the court because the court did not explain why the beneficial purpose was not within the preamble’s spirit. It is very difficult to say whether a purpose is within the fourth category or not.

In Chester the court rejected the opinion expressed by Lord Justices Russell and Sachs in the case of Incorporated Council of Law Reporting for England and Wales v A - G [1972] Ch. 73 (TLA pp. 307). The two Lord Justices had said that any purpose beneficial to the community should be regarded as falling within the spirit of the preamble unless there was a good reason for excluding it from the spirit of the preamble.

In Chester, the H.C. noted this view but said that this view was contrary to authorities - because nothing in preamble which indicates that all publicly beneficial purposes were prima facie charitable. The HC stuck to the view that the spirit of the preamble must be derived whether directly or analogously from the purposes specified in the preamble. So the shortcut suggested in Chester’s case is not good law in Australia.

There is a case which indicates artificiality of process of analogy, namely to pretend that a purpose is charitable by way of analogy with an original purpose.

The process of extending the purposes to be found in the preamble by way of analogy is singularly unconvincing, perhaps only less persuasive then the so called direct perception of the spirit of the preamble. Scottish Burial Reform and Cremation Society v Glasgow Corporation [1968] A.C. 138 (TLA pp. 301-302) - The issue was whether cremation was a charitable purpose within the fourth category. By the process of analogy with a purpose that was originally found in the preamble the HL held that it was a charitable purpose. The HL took four steps in their analogy:

Step 1: They started with an original purpose in the preamble, namely ‘the repair of churches’. So, it would undoubtedly be charitable.

Step 2: (first extension of 1.) This phrase has been extended by analogy to maintenance of burial grounds in a churchyard. The connection between the original purpose and the second purpose had nothing to do with burial, but because of the word churches in the first stage, maintenance of burial grounds in a churchyard have been regarded as charitable.

Step 3: (2nd extension by analogy) Can extend by analogy to maintenance of burial grounds in a cemetery. There is no resemblance to the repair of churches (note the word churches in the preamble has become redundant, there is no link between the second extension and the original purpose).

Step 4: (3rd extension) The promotion of cremation is itself charitable. (On the ground that both burial and cremation were methods of disposing of the dead)

So the phrase found in the preamble relating to the repair of churches has been extended to all methods of disposing of the dead. It is testimony to the artificiality of the this process of analogy with this original words in the preamble - that the words repair of churches could have been interpreted to include in its spirit the promotion of cremation so as to make the latter a charitable purpose within the fourth category.

In the Scottish case - Lord Wilberforce (who may have doubted the validity of the reasoning by analogy) also said that apart from the process of analogy, the promotion of cremation was directly within the spirit of the preamble because cremation was of public utility and fell within 4th category. This view is contrary to Chester’s case and would not be law in Australia Again difficult line of reasoning - because in the Chester case the H.C. declared that public utility, although being a public benefit, is not enough in itself to bring a purpose within the preamble. So, although the process of analogy is unconvincing, the direct appeal to the spirit of the preamble is even more unconvincing.

National Anti-Vivisection Society v I.R.C. [1948] A.C. 31 (TLA pp. 305-306) - The object of the society was the total suppression of vivisection (the experimentation with live animals in the interests of medical science). The society sought exemption from income tax on the ground that it was formed for charitable purposes only. HL rejected the Society’s application and said that its purpose was not for charitable purposes only. There were 2 issues in that case:

1. Was there any prima facie public benefit in the Society’s purpose (namely in its attempt to suppress vivisection totally)?

2. Even if there was a prima facie public benefit, was the society’s purpose a political purpose? If so, then being a political purpose it would be precluded from being a public benefit within the 4th category. A political purpose in the law of charities has a very limited meaning and means a ‘purpose to change the law’.

On the first question, Lord Simonds (TLA p.306) said that in the case of the first three categories (poverty, education & religion) there was a presumption of public benefit unless the contrary was proven. In the fourth category, because it is an innominate category, there was no such presumption of public benefit otherwise all purposes would have to be presumed for the public benefit. - NOTE that Lord Simonds’ remarks regarding the presumptions operating in favour of the first three categories were made before the case of Dingle v Turner (TLA p279); where it was held that poverty trusts no longer needed to possess the element of public benefit. Today, a presumption of public benefit would operate in favour of religious and educational trusts only.

Therefore the presumption of public benefit now operates in favour of religious or educational trusts only. It is for those who wish to oppose the charitable nature of the trust to prove that it is not charitable because it does not benefit a sufficiently large section of the public. What Lord Simonds said is only beneficial to religious and educational trusts, but is superfluous to poverty trusts.

Lord Simonds then said that the suppression of vivisection was greatly to the public disadvantage and could not confer a public benefit. He did not say why but Ong presumes that the loss of useful information from the experimentation with live animals would be to the public disadvantage. So the trust would fail as a charitable purpose on this ground.

He then said that another reason this trust could not be for a charitable purpose (TLA p306) was because the total suppression of vivisection involved the abolition of vivisection and this involved a change in the law and therefore a change in the law necessarily could not be for the public benefit. Because the law could not stultify itself by holding that it was for the public benefit that the law itself should be changed. In other words, the law could not condemn itself by saying that it was wrong and a change would be for the public benefit, it cannot admit that there was something wrong with itself.

If there was a trust to change the law in a foreign country - would this be for a political purpose in the relevant sense. The public benefit law would still apply. Although the change of the law in a foreign country cannot stultify the domestic or municipal law, it has been held that a trust to change the law in a

foreign country is not for the domestic public benefit. Therefore a trust with such a purpose cannot fall within the 4th category -McGovern v A - G [1982] Ch. 321.

There is an anomalous case. Lander v Whitbread [1982] 2 N.S.W.L.R. 530 - Holland J held that a trust established for the benefit of a community in a foreign country was charitable whether or not it also benefited the local community. So long as the purpose of the trust was not harmful to the local community or contrary to local public policy. (generous approach). Per Holland J, a trust that was upheld in NSW was a trust ‘for the government of the State of Israel for the advancement of education in that State’. That was held to be charitable - even though it would not benefit the local community, it did benefit the community in Israel. Ong thinks that Lander is wrongly decided.

I.R.C. v Baddeley [1955] A.C. 572 (TLA pp. 303-304) - There was a purposed trust for the residents of a locality who were members or likely to become members of the Methodist church. The purposes of the trust were to provide religious services and instruction and social and physical training and recreation for those residents. The HL held that the purposes were too wide to be exclusively charitable. Viscount Simonds declared that the clause was too wide because its purpose was to establish a community centre in which discreet festivity might go hand in hand with religious observance. Although the religious observance was ok because it was for the advancement of religion, the discreet festivity, being purely recreational, was not regarded as charitable. That was the position before the intervention of statute. That was the first point made by Viscount Simonds, that the purposes were not exclusively charitable.

The second point made by Viscount Simonds was that even if the purposes had been exclusively charitable, which was not the case, the trust lacked the element of public benefit because the recreational facilities were to be restricted to Methodists living in a particular area, thereby excluding the participation of other residents from the same area. Ong thinks that this case establishes the view that if the discrimination is improper, then what would otherwise be publicly beneficial may lose its element of public benefit. The HL gave an example. They said that if one were to build a bridge in a particular locality and allow everyone to use that bridge, then there would be no doubt that the construction of the bridge would be for the public benefit. If one were to say that only Methodists may use that bridge, then even though Methodists would be regarded as a section of the public, the trust would lack the element of public benefit because discrimination would be so improper as to deprive the trust of its element of public benefit. Ong thinks that Baddeley’s case should be noticed with particular care because it is possible for a trust which prima facie benefits a section of the public to be made uncharitable because of the improper discrimination against other sections of the public. What has to be handled with particular delicacy is the concept of improper discrimination because some types of discrimination are not regarded as improper. If that bridge were to be confined to the use of the elderly residents of the locality, arguably although it would discriminate against younger persons, that bridge would still be regarded as benefiting the public because it would make it easier for elderly persons to travel. The element of discrimination is ok provided it is not improper. What is improper is a difficult question to answer.

In Baddeley’s case, even though the Methodists were a section of the public, it was decided that the construction of such a bridge would not be for the public benefit. Baddeley’s case is now partly good law and partly bad law.

Insofar as Baddeley decided that recreational facilities were not charitable – that decision was reversed in England by the Recreational Charities Act 1958 (UK) - Queensland counterpart is s103 of the Trusts Act 1973 (Qld), section 103 (2), (3) and (4).

S103 (4) is important because although that section makes the provision of recreational facilities generally a charitable purpose, it does have this qualification which is crucial. S103 (4) of the Trusts Act 1973 (Qld) reads ‘ Nothing in this section shall be taken to derogate from the principle that in order to be charitable, a gift, trust or institution must be for the public benefit.’ In other words, although the provision of certain recreational facilities enumerated in s103 of the Trusts Act is prima facie charitable, it could still not be charitable if it was shown that it was not for the public benefit. Insofar as Baddeley’s case said that recreational facilities were not charitable, that part of the case is now bad law because of s103 Trusts Act.

Insofar as Baddeley reiterated that there is a requirement of public benefit, that decision is still good law by virtue of s103 (4).

If the facts in Baddeley were to arise for decision in Qld today, the outcome would still be the same because although the recreational facilities would now be prima facie charitable, the public benefit requirement would still not be satisfied by the facts of that case because of the restriction of the facilities to use by Methodists and prospective Methodists in the locality.

S103 (2) of Trusts Act 1973 (Qld) provides that it shall be and be deemed always to have been charitable to provide facilities for recreation or other leisure time occupation in the interests of social welfare.

S103 (3) of the Trusts Act 1973 (Qld) provides that the requirement that the facilities be provided in the interests of social welfare shall not be satisfied unless amongst other things the facilities are made available to the members or to the male or female members of the public. If one were to apply s103 (3) to a benefit to be restricted to Methodists, then Ong thinks that it would still be bad because it would not be available to members or to the male or female members of the public, but simply to members of the public who were Methodists. S103 provides that recreational facilities would prima facie be charitable. In the Baddeley case one of the Law Lords said, ‘If you were to build a bridge for the use of Methodists only, then there will be no public benefit’.

A case in Qld that applied s103 is Re Samford Hall Trust [1995] 1 Qd. R. 60 (TLA p. 312) - The purposes of a Hall were use by members of the local community for their recreation. The purposes of recreation were held to be within s103. If the recreational facilities were denied to some sections of the public without explanation, it would also have made the trust fail for lack of public benefit. The recreational facilities were such as to include local tennis club members who held regular meetings in the hall. It was a community hall and provided recreational facilities, therefore it came within s103. It was true that members of the Masonic Lodge also used the hall for meetings. That did not mean that the hall was not for the public benefit or did not mean that the hall was not for members of the public because the facilities were not restricted to members of the Masonic Lodge. Had there been such a restriction, then s103 (3) would not have been satisfied because of the failure to provide facilities to members of the public. If one were to confine the facilities to male or female members of the public, then that would have been fine provided that there was some reason for the restriction of the use of the facilities.Macrossan CJ said that the purposes of a charitable trust which have not been set out in writing can be established by evidence of usage.

The phrase in the preamble which reads: ‘for relief of aged, impotent (sick), and poor people’ [part of the Preamble to the Statute of Elizabeth]. These words are to be read disjunctively (independently of each other). Impotent means sick. Namely, a trust will be charitable if it is for the aged, even though it does not benefit the sick and even though it only benefits some of the poor. However, given Dingle v Turner, even though those words are to be read disjunctively, if have a trust for the relief of the old, that would have to satisfy the public benefit test. Similarly, a trust for the relief of the sick. However, a trust for the relief of the poor would not have to satisfy the public benefit test.

The authority that these three words should be read disjunctively is LeCras v Perpetual Trustee Co Ltd (or Re Resch’s Will Trusts) [1969] 1 A.C. 514 (TLA p. 309). In that case, there was a trust established for the general purposes of St. Vincent’s Private Hospital. The PC upheld the trust under the fourth category. There were 2 issues in this case.

1. Were the general purposes of St Vincent’s Private Hospital prima facie within the spirit of the preamble? If the answer to that question is yes, then ask the second question.

2. Did those purposes benefit the community or a section of the community?

Lord Wilberforce said that a gift for the purposes of a hospital was prima facie a charitable gift. There were two alternative reasons for this view:

(1). The presence of the word impotent in the preamble was an express indication that the relief of the

sick was a charitable purpose.(2). The provision of medical care for the sick is in modern times directly within the spirit of the

preamble. This alternative reason based on a direct appeal to the spirit of the preamble was identical to the approach Lord Wilberforce had taken in the Scottish Reform case. This reasoning is contrary to Chester’s case which says that public benefit as such is not enough. Need to show that purposes are publicly beneficial and fall within spirit of the preamble. The second reason would have to be based on the use of the word ‘impotent’ in the preamble.

Lord Wilberforce made a number of subsidiary points:(1). A hospital which operated for commercial profit would not be a charitable institution. (2). A hospital that did not benefit a sufficiently large section of the public would not be charitable. (3). If the purposes of a hospital were otherwise charitable, those purposes would not cease to be

charitable merely because the patients in it were required to pay for the services they received. The mere fact that the patient had to pay does not mean that the hospital is run for commercial profit.

(4). Lord Wilberforce rejected the submission that the purposes of St. Vincent’s Private Hospital did not benefit the public because the poor were excluded from using that hospital. It was argued that the hospital catered only for the well to do. Ong thinks that this part of the case is not convincing. It had been argued that the purposes of the hospital were not charitable because the poor were excluded from using the hospital by reason of that hospital’s fees. Lord Wilberforce rejected that argument and said that only some of the poor would be excluded from St Vincent’s Private Hospital’s facilities. Ong thinks that it is now clear law that if a trust excluded all of the poor, then it would not be charitable. Lord Wilberforce referred to the phrase ‘aged, impotent and poor people’ in the preamble and emphasised that the relief of the sick was not confined to the poor sick. So long as it was for the relief of the sick, it would be charitable so long as all of the poor were not excluded.

(5). He then went on to say that St. Vincent’s Private Hospital was accessible to both the rich and the poor. He said that the poor were not excluded merely because by reason of expense the medical facilities were only available to persons of some means. He declared that not all of the poor were excluded, but only some of the poor. The question unanswered is ‘What section of the poor can be excluded consistently with the intention to be charitable?’ This type of distinction is very troublesome because it is imprecise. He said that the section of the poor who were excluded fell into three categories -

a). Those who had not contributed sufficiently to a medical benefit scheme;b). Those who needed to stay longer in the hospital than their benefit would cover;c). Those who could not get a reduction off or exemption from the charges.

Lord Wilberforce said that the facilities at St. Vincent’s Private Hospital conferred a public benefit because they brought relief to the beds and medical staff of St. Vincent’s General Hospital. By having the private hospital, the general hospital had more beds. The standard of medical care in the General Hospital was improved by the juxtaposition to the private hospital. Presumably this meant that the medical specialists who worked at the Private Hospital would thereby become more readily accessible to patients in the General Hospital.

The words ‘aged impotent and poor’ are to be read disjunctively. Therefore, the provision of homes for old people who are not also necessarily poor have been upheld as charitable. The cases that support this proposition are Hilder v Church of England Deaconess’ Institute of Sydney Ltd [1973] 1 NS.W.L.R. 506 (TLA p. 308) and Trustees of Church Property of the Diocese of Newcastle v Lake Macquarie Shire Council [1975] 1 N.S.W.L.R. 521 (TLA p. 308).

In LeCras case, it was said that a trust which excluded the poor would not be charitable. If had a retirement village open only to the rich, it would not be charitable. May be difficult to decide whether confined to the rich given that one could exclude some poor people even though one cannot exclude all of the poor.

Trusts for Charitable and Non-Charitable Purposes

Under the general law, if the purposes of a trust are both charitable and non-charitable, the trust would fail

because under the general law, a trust must be exclusively charitable. In Australia, statute has intervened to save such trusts by severing the non-charitable purposes from the trust, so as to make the trust exclusively charitable. The relevant provision in Qld for the severance of the non-charitable purposes is S104 of the Trusts Act. There was once an issue as to whether the section applied only where the charitable and non-charitable purposes were set out in separate expressions. For example, charitable or political purposes, in which case could sever political purposes. Or whether s104 would also apply where the charitable purposes and non-charitable purposes were contained in a single (composite) expression. E.g. Philanthropic purposes.

Leahy v Attorney-General for New South Wales [1959] A.C. 457 (TLA pp. 316-318) decided that you could sever the non-charitable purposes even though they were contained in a composite expression which also contained charitable purposes. In Leahy’s case, there was a trust to provide amenities to certain orders of nuns. The phrase ‘orders of nuns’ embraced both active orders which were charitable and contemplative orders which were not charitable because contemplative orders were orders which could not demonstrate the element of public benefit. The issue was whether the phrase could be severed so that the trust would only apply to the charitable purposes, namely to active orders of nuns. Viscount Simonds said that the section did apply to sever from the composite expression such orders of nuns as were contemplative and as were not active.

Viscount Simonds said very convincingly (Ong) that if the expression had been such order of nuns whether active or contemplative, the section would have applied. Ong agrees with him. S104 applies to sever the expressions respectively containing charitable and non-charitable purposes and also to composite expressions embracing charitable as well as non-charitable purposes. However, there is still a problem because can have a composite expression which contains charitable and non-charitable purposes but which is not sufficiently charitable and this is an area that is difficult.

Viscount Simonds gave an example of a phrase that contained charitable and non-charitable purposes to which the section would not apply. That case is Re Hollole [1945] V.L.R. 295 (TLA p. 317) where property was given in trust to someone ‘to be disposed of by him as he may deem best.’ This person could have given all of the property for charitable purposes, could have given all of it to non-charitable purposes and could have given some of the property for the promotion of charitable purposes and the remaining property to non charitable purposes. Although this expression contained both charitable and non-charitable purposes, s104 did not apply because it was said that the purpose did not sufficiently indicate a charitable intention.

Viscount Simonds said that there would be marginal cases where the expression used did not significantly indicate a charitable intention. As an illustration of the difficulty, he declined to give examples of such marginal cases. There is a persisting difficulty regarding s104. In England, there was an equivalent to s104 but it was retrospective and not prospective in effect.

The Doctrine of Cy-pres

Cy-pres means ‘as nearly as possible’. Was invented by the courts to save certain charitable gifts. A court will order a cy-pres scheme in two situations.

1. In a case of initial impossibility - Namely where it is impossible or impracticable to carry out the specific charitable purpose at the outset. In such a case, a cy-pres scheme will only be approved by the court if the testator has evinced a paramount general charitable intention, namely a charitable intention wider than the intention disclosed in the specific charitable purpose found to be initially impossible. A paramount general charitable intention does not mean an intention to benefit charity generally, but an intention wider than the initially impossible intention.

2. In a case of subsequent impossibility - Namely where the charitable purpose was initially possible but has subsequently become impossible. In such a case, the settlor or testator would not need to have evinced a paramount general charitable intention because a gift once it is vested in charity, cannot

cease to be vested in charity. In a case of subsequent impossibility, a cy-pres scheme will be ordered by the court even though there might be no general charitable intention.

A-G (NSW) v Perpetual Trustee Co Ltd (1940) 63 C.L.R. 209 (TLA pp. 322-323) - There was an initial impossibility and therefore a question arose as to whether there was a paramount general intention. A property called Milly Milly was given in trust ‘for a training farm for orphan lads being Australians.’ It was found that the property was not suitable as a training farm. It was a case of initial impossibility because the property was not suitable as a training farm. Therefore, the issue was whether the testatrix had exhibited a general charitable intention. A majority of the HC (Rich, Dixon, Evatt & McTiernan) said that she had exhibited a general charitable intention. The doctrine of cy-pres was invented by the courts at a time when resulting trusts had not been properly understood. Because the doctrine was designed to save charitable trusts, it is a very artificial doctrine and the finding of a general charitable intention is often a fictitious exercise. There is no specific technique of discovering a general charitable intention. The so-called discovery of such an intention is entirely fictitious. The majority said that she had exhibited a general charitable intention.

Latham CJ & Stark dissented saying that there was no general charitable intention.

Dixon & Evatt (Ong thinks this is the most important judgment in this case.) - They said that if a literal execution of a charitable trust is initially impracticable, the issue then would be whether the directions in the trust are essential to the purpose of the trust or whether they are not. If the specific directions were intended by the testator to be essential, there would be no wider intention and the trust would fail for initial impossibility and would not be applied cy-pres. If you could find a wider intention, and if could convince yourself that the specific directions were not essential, then you would find a wider intention and the trust could be applied cy-pres. Applying the trust cy-pres means applying the failed particular purpose cy-pres, namely to use the money for another purpose which was as close to the original purpose as possible. Evatt and Dixon observed that any charitable purpose wider than the original purpose would constitute a general charitable intention, namely if one could convince oneself that the original purpose was only a means to an end, then cy-pres will be applied. How do you find the general charitable intention – They say that look at the terms of the instruments and also look at the extrinsic circumstances. They said that logically, two steps had to be taken:

1. Have to find the wider purpose.2. Having found the wider purpose, have to find that the wider purpose was intended to be the

dominant purpose.

They explained that once the wider purpose is found, the courts will assume that it is the dominant purpose. There is no case in which the courts have found a wider charitable intention and then went on to decide that the wider charitable intention was not dominant.

The judges said that the testatrix had not intended the use of Milly Milly as a training farm to be an indispensable condition of her disposition. They said that the fact that she made other charitable bequests indicated that she intended to devote much of her property to the general benefit of the community. She was not moved by a desire to conserve Milly Milly intact, she had exhibited a general charitable intention. The property was sold and the proceeds were used to promote another charitable purpose although the law reports do not disclose what type of scheme was actually ordered.

Latham CJ dissented. He said that the process of deriving a general charitable intention by a process of abstraction is not logical and therefore it was illegitimate. What he says is correct but it is too late in the day apart from statutory intervention to say that the doctrine of cy-pres is illegitimate. In his view the process of abstraction could not be used in this way because the removal of details from any specific charitable purpose would always yield a general charitable intention. (Logically correct - but Cy-Pres was intended by the courts as indulgent to save charitable gifts). If Latham CJ is correct, then there can be no doctrine of cy-pres. If look at original purposes, they are quite specific and the discovery of a general charitable intention is entirely fictitious.

Sometimes the courts decide that there is no such general charitable intention and a trust that failed for initial impossibility would therefore fail. An example is:

Re Goodson decd. [1971] V.R. 801 (TLA p 322) - A testatrix purported to create a trust of her house as a home for refined elderly ladies. The house was totally unsuitable for the designated purpose because it was in a semi-derelict state and its design made it uncongenial to elderly persons. Adam J held that whether there was a general charitable intention was a matter of the construction of the will. He found that the testatrix had strong sentimental attachments to the house. The specified future use of her old home was of predominant importance to her as evidenced by the fact that she wanted the house named after her family and the fact that she expressed in great detail the future use of her house to ensure that it be enjoyed as it had been by her in her lifetime (Contrast with Perpetual Trustees). Adam J said she had not exhibited a general charitable intention.

This case is based solely on policy. The result is good but the reasoning is unconvincing:

Re Lysaght decd. [1966] Ch. 191 (TLA p. 323) - The testatrix set up a trust to be administered by the Royal College of Surgeons to provide scholarships for British born students ‘not of the Jewish or Roman Catholic faith.’ The college was not prepared to accept the trusteeship unless the discriminatory proviso was expunged. So the issue was whether the discriminatory proviso was essential to the testatrix’s purpose. Ong would have thought that it clearly was essential to her purpose otherwise she would not have inserted it. Buckley J. was determined to save the gift and very unconvincingly said that the proviso was not essential to her purpose and that what was essential to her purpose was that the college should act as trustee of the trust. The trust failed on the ground of initial impossibility since the college refused to act as trustee without the expungement of that offensive proviso. Therefore, the trust was applied cy-pres by removing the proviso. Therefore, that trust was upheld by virtue of the doctrine of cy-pres.

There is a statutory modification of the general law in relation to the equitable doctrine of cy-pres. Trusts Act 1973 (Qld), section 105. The essence of s105 is to be found in s105 (2), which provides that the section does not alter the equitable doctrine of cy-pres, except in so far as that doctrine requires a failure of the original purposes. There is s105 (1) ©, which says that where the property given to the trust and property given by other trusts for similar purposes can be more effectively used if the respective items of property can be used in conjunction with one another, then you could combine those various trusts under the doctrine of cy-pres. Can only combine those various trusts if there has been no initial impossibility; if there was a paramount general charitable intention. If had five different charitable trusts, each one of those five trusts contained a general charitable intention, can combine those five trusts under s105 (1)© to make it a more effective single trust.

Nothing in s105 dispenses with the need for a paramount general charitable intention in the gift where there is no initial impossibility. If there is no initial impossibility under s105, can still combine the various trusts and apply them cy-pres provided that there is a general charitable intention in each one of those trusts. The only alteration is that if have five trusts and they are all initially possible, can still apply a cy-pres scheme to embrace all of them provided there is a paramount general charitable intention in each one of them. If there is no paramount general charitable intention, they cannot be combined whether or not there is initial impossibility.

6. Resulting Trusts TLA Ch. 8

There are arguably two categories of Resulting Trusts:(i) Automatic resulting trusts (there is argument over the existence of this trust); (ii) Presumed resulting trusts.

The creation of a resulting trust does not have to be evidenced in writing by virtue of S11 (2) of the PLA. However, once an equitable interest has been created by way of a resulting trust, that equitable interest (as

distinguished to the trust itself) can only be disposed of by compliance with S11 (1)(c) of the PLA and if that equitable interest is an equitable interest in land then a declaration of a sub-trust over that interest will have to comply with s11 (1)(b) of the PLA.

So a resulting trust can be created without written evidence. But the interest that has been created by the resulting trust, if that interest is to be disposed of, it must be disposed of in compliance with para ©.

Automatic Resulting TrustsThose who say that can have an automatic resulting trust argue that this type of resulting trust is not created by the intention of the person creating the trust. Where the owner of property transfers property to another person to be held in trust by the transferee, but the express terms of the trust do not dispose of the entire equitable interest in the property, then that part of the equitable interest which is not expressly disposed of according to this doctrine automatically results to the transferor, namely the equitable interest that is not expressly disposed of springs back to the transferor. This remaining equitable interest will result to the transferor whether he or she intends it to happen or not.

According to this view, even if the transferor intends not to receive the remaining equitable interest, that remaining equitable interest will nevertheless be vested in him or her automatically.

Eg. A is the absolute owner of a block of land. A transfers the land to B to be held in trust for C for life (C has an equitable life estate). C’s equitable life estate does not exhaust the entire equitable interest in the land because A was the absolute owner in fee simple of the land. What is to happen to the remaining equitable interest in the land given that C only has an equitable life interest and B is the trustee? - B takes as trustee and therefore B is not intended to take the remaining equitable interest. The remaining equitable interest in the land is called the equitable reversion in fee simple.

If A transfers the land to B in trust for C for life, then there would be an equitable reversion to A. If believe those who say that there an automatic resulting trust, the resulting trust of the equitable reversion for A is automatic. Ong’s view is that this reversion for the benefit of A is not automatic because if A transfers the land to B in trust for C for life, A is intending to give C an equitable life interest only, whilst necessarily intending himself to have the equitable reversion in fee simple. If A intends B as a trustee only and intends C to take a life interest only, then A must have intended for himself to take the equitable reversion. If someone intends to give away only part of what he owns, then necessarily he intends to retain the other part. Ong does not think the example he has given is an automatic resulting trust. It is dependent on A’s intention and therefore it is a presumed resulting trust.

The automatic resulting trust was first propounded by Justice Megarry in Re Vandervell’s Trusts (No 2) [1974] Ch. 269 (TLA pp. 376-379). He made that observation by way of an obiter dictum. Megarry’s actual decision was reversed by the court of appeal without either approval or disapproval of the obiter in question.

Although Ong took the view that there was no such thing as an automatic resulting trust, he was at a great disadvantage because the authors and Megarry J was against him. Relief for Ong’s view that there was no such thing as an automatic resulting trust came in Westdeutsche Landesbank v Islington London Borough Council [1996] A.C. 669, at 708 (per Lord Browne - Wilkinson) (TLA pp. 338 and 379) declared that he was not convinced that Megarry J was right in Vandervell to suggest that there was such a thing as an automatic resulting trust. On the contrary, Lord Browne-Wilkinson observed that all resulting trusts are created by the intention of the person whose conduct in relation to the property has created the trust.

It is clear now that the difference between an express trust and a resulting trust is that in the case of the express trust the intention to create the trust is express and in the case of a resulting trust, the intention to create the trust is implied. However, the controversy has not been stilled because there are some people who say that Lord Browne-Wilkinson is wrong and Megarry J is right.

DKLR Holding Co (No. 2) v Commissioner of Stamp Duties (1982) 149 C.L.R. 431 (TLA pp. 382-385) - A majority of the High Court held that it was impossible for a person to transfer a bare legal estate, namely an empty legal estate. The majority were Gibbs CJ, Aickin and Brennan. The minority who said it was possible to transfer a bare legal estate were Stephen J and Mason J. Ong personally agrees with the majority.

Presumed Resulting TrustsA presumed resulting trust is a resulting trust based on the presumed intention of the person whose conduct in relation to the property has created the trust. There will be a presumed resulting trust where the presumption of a resulting trust is not rebutted. If have a situation where there is a presumption of a resulting trust and the presumption is not rebutted, then have a presumed resulting trust. Clearly distinguish between the mere presumption of a resulting trust which may or may not be rebutted and a presumed resulting trust where the presumption has not been rebutted.

A presumption of a resulting trust in favour of A arises when A voluntarily (without receiving valuable consideration) transfers property to B in circumstances where:1. There is no presumption of advancement in favour of B and2. Where A is silent as to whether he intends B to take as trustee only or as someone who is to take as a

beneficiary, namely to take absolutely.

If have A transferring a block of land to B and B is in such a situation where there is no presumption of advancement, namely of gift and A doesn’t indicate whether wants B to take as trustee or as absolute owner (beneficiary), then there is a rebuttable presumption that A intends B to hold the legal title on a resulting trust for A.

A resulting trust also arises where A does not make a transfer to B, but A pays for the land and directs the vendor to transfer the property to B; there would also be a presumption of a resulting trust where B is not someone in whose favour a presumption of advancement operates and A is silent as to whether he intends B to take as trustee or as beneficiary (absolutely).

There is only a presumption of a resulting trust and B may adduce evidence to show that A intended B to take absolutely. If B rebuts the presumption of a resulting trust, B takes absolutely and there will be no resulting trust. If B fails to rebut the presumption of a resulting trust, then there will be a presumed resulting trust for A.

A so called example of an automatic resulting trust is:

Re Abbott [1900] 2 Ch. 326 (TLA pp. 382-385) - Subscribers made contributions to a fund which was held on a discretionary trust for two disabled women. After their deaths, there was a dispute as to who owned the surplus in the fund. Justice Stirling decided that there was a resulting trust for the subscribers to the fund. Some people have claimed this case to be an example of an automatic resulting trust. Ong sees no reason for this as the expression ‘automatic resulting trust’ was never used by Stirling J.

Ong thinks that in Australia, judges are very keen to classify trusts correctly. Namely, determine whether they are resulting trusts or whether they are constructive trusts. Judicial trends sometimes fluctuate.

An example of a misclassified trust is the English decision of Hodgson v Marks [1971] 1 Ch. 892 (doubtful law in Australia) - A widow voluntarily transferred her house and land to her lodger under an oral agreement that she would retain the sole beneficial ownership of the house and the land. The lodger then relied on his legal title to deny the widow any interest in the property owing to the lack of writing. The English CA decided that the lodger had taken the property on a resulting trust for the widow. This finding is very difficult to explain because the property was transferred to the lodger under an express agreement that the property was to be held in trust for the widow. The fact that the agreement was made orally did not make it any less an express agreement. A trust created expressly cannot be a resulting trust because Ong finds it conceptually difficult to regard a resulting trust as a trust that has been created expressly. Ong

thinks that a resulting trust is a trust that has been created impliedly. The trouble with this transaction was that the agreement was oral, so there was no written evidence of this express trust of land. The land was transferred expressly on trust but the trust was not evidenced in writing. Therefore, this trust, if it was an express trust would fail for the infringement of what in Qld would be s11 (1) (b). If this trust was to be upheld, it could not be upheld as an express trust for failure to comply with s11 (1) (b). In Ong’s view, it should have been upheld as a constructive trust. There are authorities that say that such a trust is to be upheld as a constructive trust because that would be the only way to avoid fraud. Given the express intention of the parties, it could not be a resulting or implied trust. The distinction, if any between a resulting trust and implied trust is automatic.

In England, in a case called Bannister v Bannister [1948] 2 All E.R. 133 (TLA pp. 460-463), the court held that it was a constructive trust. The land has been given to a person in trust and the trustee fraudulently denied the trust and relied on the lack of writing. Bannister was upheld by the High Court in Bahr v Nicolay (No. 2) (1988) 164 C.L.R. 604 (TLA pp. 460 and 463). Hodgson v Marks in Australia would be regarded as a constructive trust.

In Qld, have Property Law Amendment Act 1999 (Qld), which came into force on the 21 st December 1999. This act introduced a new Part 19 PLA. This legislation deals with de facto couples. The cases will be decided today in accordance with the new legislation. However, this does not mean that the cases are worthless. They are still valid in relation to persons who are not de facto couples. Good law insofar as the principles can be applied to non de facto couples. Eg principles in Calverley v Green would be applicable to a brother and sister living in the same house.

S283 PLA provides that where a de facto relationship has ended, a de facto spouse may apply to the court for an order adjusting interests in the property of either or both the de facto spouses.

S286 (1) PLA – Upon such an application, a court may make any order it considers just and equitable adjusting the interests of the de facto spouses or a child of the de facto spouses in the property of either or both the de facto spouses.

S260 (1) – A de facto spouse is either one of two persons who are living or have lived together as a couple whether of the same or the opposite sex.

Example of a Presumed Resulting Trust Calverley v Green (1984) 155 C.L.R. 242 (TLA pp. 349 and 355-357) - A man and a woman were in a de facto relationship and they purchased a house which was transferred to them as legal joint tenants (but the legal title is inferior to a contrary equitable title). The total purchase price of the property was $27,250.00. The man paid the deposit of $9,250.00. The balance of the purchase price, being $18,000 was obtained through a loan which was secured by a mortgage over the property. The man and woman made themselves jointly and severally liable under the loan. As a matter of law, they were joint and several borrowers under the loan. This meant that they owned the borrowed sum of $18, 000 in equal shares. The repayments of the loan were made by the man only. The loan was taken out in their joint names. The de facto relationship was later terminated by the parties.

The woman claimed she owned one half of the house. The man claimed that in equity, he was the sole owner of the property because he had paid all the repayments. Neither party was entirely successful. The man argued that the woman had not made any financial contribution to the purchase of the property because he had paid the deposit and had paid all of the mortgage payments. The HC told the man that he got his law wrong. The High Court said that the woman had made a financial contribution because she had made herself jointly and severally liable with the man for the repayment of the loan. Namely the $18, 000 was borrowed jointly by her and the man and that money was used to pay off the balance of the purchase price, therefore she contributed one half of the balance of the purchase price.

Justices Mason and Brennan (p. 741) said that although people assumed that the repayment of the mortgage instalments were the completion of the payment of the purchase price. That, they said was wrong because the purchase price is not what is paid to the lending bank. The purchase price is the money paid to the vendor. If contribute to the money paid to the vendor, then contributed to the purchase price. The payments

of the mortgage instalments are not contributions to the purchase price because the mortgage instalments are paid not to the vendor but they are paid to the lender. Payment to the lender is not payment of the purchase price. They said that the woman did contribute to the purchase price in taking out the loan jointly and severally with the man.

The man had contributed $9, 000 and he contributed the deposit. So the man’s total contribution to the purchase price was $18, 250. The woman’s contribution was one half of the loan. The court said the legal title is not in doubt, but would have to determine the equitable ownership. In determining the equitable ownership, the court applied the law of resulting trusts.

Justices Mason & Brennan said that in the absence of a presumption of advancement, namely in the absence of a presumption of gift, where two or more purchasers contribute unequally to the purchase of property which is transferred to them as legal joint tenants, there is a rebuttable presumption in equity that the legal title to the property is held by them on a resulting trust for themselves as tenants in common in shares proportionate to their respective contributions to the purchase price.

Brennan & Mason also said that if the parties had contributed equally to the payment of the purchase price, equity will raise a rebuttable presumption of an equitable joint tenancy to reflect the legal joint tenancy. In this case, the man and woman had contributed unequally and there was therefore a presumption of a resulting trust for the man and the woman as equitable tenants in common in shares proportionate to their respective contributions. This presumption of a resulting trust was not rebutted by the evidence because there was no presumption of gift and there was no intention to give. Therefore, there was a presumed resulting trust in shares proportionate to their contribution to the purchase price.

However, the man had made the mortgage repayments and was therefore entitled to claim contributions from the woman for her share of the liability for these payments and therefore the man was entitled to an equitable charge over her equitable interest in the land to secure her liability to pay contribution to him.

Justices Mason & Brennan (742 - 3) said that it would be wrong to apply in favour of the woman the presumption of advancement, namely the presumption of gift, because a presumption of gift would only apply if it was a transfer from husband to wife. Since the man and the woman were not married to each other, the presumption of advancement did not apply in favour of the woman. The presumption of advancement from husband to wife is clearly established in the case of Martin v Martin (TLA p358).

Mason and Brennan also examined a highly exceptional situation, where unlike the facts of the case before them, a property was acquired as a mortgage-free investment. In a mortgage-free investment, the respective shares of the investors are determined by the sums of money paid by them towards the deposit and towards the discharge of the mortgage. In that situation, in order to determine the shares of the respective parties, consider not only the deposit but also the mortgage instalments. If the property in Calverley v Green had been intended to be acquired as a mortgage free investment, the man’s payments of the mortgage instalments would have been included in his contribution and would have increased his share of the house.

A case of a mortgage-free investment is Bloch v Bloch (1981) 55 ALJR 701 (TLA p. 360) - The mortgage repayments were counted in that case because they were necessary to the acquisition of the property as a mortgage-free investment. In Calverley v. Green it was said by Justices Mason & Brennan that normally you do not have a mortgage-free investment where the couple live in the house, but exceptionally you may have a mortgage free investment which will depend upon the intention of the parties.

So a mortgage free investment is different from an ordinary investment because in the case of a mortgage free investment the parties intend that the mortgage payments be counted as part of the relevant party’s contribution to the acquisition of the mortgage free investment, namely the acquisition of the land without the mortgage.

If there is a presumption of advancement, namely a presumption of gift, that would prevent a presumption of a resulting trust from arising.

Brown v Brown (1993) 31 N.S.W.L.R. 582 (TLA pp. 358, 359 and 389) (Presumption of advancement applied so there was no presumption of a resulting trust. If presumption of advancement, namely presumption of gift is rebutted, then there would be a resulting trust. A presumption of advancement prevents a presumption of a resulting trust from arising. However, if the presumption of gift is rebutted, then there would be a resulting trust as distinct from a mere presumption of a resulting trust.) - A widowed mother contributed almost half the purchase price of a house, the legal title to which was transferred to her two sons who contributed the balance of the purchase price. Before Brown was decided, there was no doubt that the presumption of advancement (gift) applied in respect of property given by a father to his children. Before Brown v Brown, it was uncertain as to whether the presumption of advancement applied in respect of property transferred by a mother to her children. An issue was whether the presumption of advancement applied given that the mother was the person directing the transfer to be given to her two sons. The NSW Court of Appeal held that a presumption of advancement arose even with respect to property given by a mother. Because it was only a presumption, it could be rebutted by contrary evidence.

In Brown v Brown, the presumption of advancement was rebutted by the mother. She adduced evidence to show that she had no intention of making a gift to her sons of her share of the property. She had died in the course of the proceedings and her personal representatives obtained a declaration that the sons held their legal title to the property in trust for themselves and for their mother’s estate in shares proportionate to their respective contributions to the purchase price of the house. So the court held that a presumption of advancement applies not only in respect of property transferred by a father, but also in respect of property transferred by a mother. There was a presumption of advancement, it was rebutted and therefore a resulting trust replaced the presumption of advancement.

There is still an anomaly in the law of presumption of advancement because where there is a transfer of property from husband to wife, there is a presumption of advancement. If there is a transfer from wife to husband, there is a presumption of a resulting trust. Presumption arose in 17th century. Justice Kirby (President of the Court of Appeal), took the view, which is not law in Australia that a presumption of advancement should apply in the case of a transfer of property by a wife to her husband (Brown v. Brown, 598 - 599).

This proposition of a presumption of advancement would be equally true where the purchase price is provided by one person and that person directs the vendor to transfer the property to another person.

Wirth v Wirth (1956) 98 C.L.R. 228 (HL p. 692) (TLA pp. 344-345) - Dixon CJ held that the presumption of advancement applied not only in favour of a wife, but also in favour of a woman who was engaged to be married. This presumption applied in her favour against the person to whom she was engaged. In doing so, Dixon CJ adopted the English decision in Moate v Moate [1948] 2 All E.R. 486 (TLA p. 359). However, although this presumption applies, if the parties do not ultimately marry, then the presumption of advancement lapses and is replaced by a presumption of a resulting trust in favour of the man. Authority for this is Jobson v Beckingham (1983) 9 Fam. L.R. 169 (TLA p. 359). The presumption of advancement arises in a limited number of situations:

1. Transfer of property from father to children;2. Transfer of property from mother to children;3. Transfer of property from someone in loco parentis (namely, in the position of a parent) to the

transferee - Ebrand v Dancer (1680) 22 E.R. 829 (TLA p. 359)4. Transfer of property by a man to the woman to whom he is engaged to be married, provided that if

marriage between them does not subsequently take place, the presumption is replaced by a presumption of a resulting trust.

5. Transfer of property from husband to wife - Martin v Martin (TLA p358).

NOTE: - There is no presumption of advancement in the case of property transferred by a de-facto husband to his de-facto wife - Calverley v Green (TLA 355), see also Napier v Public Trustee (W.A.) (1980) 32 A.L.R. 153 (TLA pp. 359-361)

NOTE: There is no presumption of advancement when property is transferred by a step-parent to a step-child - Re Bulankoff [1986] 1 Qd. R. 366 (TLA p. 359). Step-parent was not in loco parentis to the step child, so there was no presumption of advancement. If step-parent had been in loco parentis to the step-child, then a presumption of advancement would have applied. The mere fact that someone is a step-parent does not raise a presumption of advancement in relation to property transferred by him to a step-child.

The gratuitous transfer of title to personal chattels does not raise a presumption of a resulting trust:

The voluntary transfer of some forms of property do not raise a presumption of a resulting trust. Instead, with regards to these forms of property there is a presumption of advancement. Being a presumption, it is rebuttable. It is regrettable that the presumption of advancement does not apply in every case. The presumption of a resulting trust is really the product of a historical accident and should be done away with. But it is still law.

The voluntary transfer of personal chattels does not raise a presumption of a resulting trust in favour of the voluntary transferor. The voluntary transferor is rebuttably presumed to make an advancement to the voluntary transferee in the case of personal chattels.

The law in regard to personal chattels is very logical. If someone hands personal chattels to another person and the recipient does not provide consideration, there should be a presumption of a gift and it is up to the transferor to prove that there was no intention to make a gift and to prove that the transaction was other than a gift. Authorities start with:

Joaquin v Hall [1976] V.R. 788 (TLA pp. 345 and 346) – It was assumed that the mere payment of money to a stranger did not raise a presumption of a resulting trust because money would be a chattel that passes by delivery. It was held that the payment of money to a stranger raised a presumption of advancement, so that if the payor wanted to show that no gift was intended for the payee, the payor would have to rebut the presumption of advancement. In that case, the payor failed to rebut the presumption of advancement so the payee took the money as a gift. Justice Jenkinson simply followed the decision of HC in Heydon v Perpetual Executors, Trustees and Agency Co. (W.A.) Ltd (1930) 45 C.L.R. 111 (TLA pp. 345 and 346).

So, payment of money to a stranger raises a presumption of advancement. Payment of money to a stranger is different from payment of money by way of contributing to the purchase price of land, the title to which is then transferred to a stranger. In such a case a presumption of a resulting trust does arise in the case of such a contribution made to the purchase price of land. Authority is Calverley v. Green (TLA 355). Situation is extremely illogical. If A gives $100, 000 to B, then there is a presumption of advancement which can be rebutted by contrary evidence. If A buys a block of land and directs the vendor to transfer the land to B, then there is a presumption of a resulting trust in favour of A.

A voluntary transfer of annuities to a stranger does raise a presumption of a resulting trust - Fowkes v Pascoe (1875) 10 Ch. App. 343 (TLA p. 399). The payment of cash raises a presumption of advancement but the transfer of annuities raises a presumption of a resulting trust. It seems that Joaquin v Hall can be argued to be a case applicable to cheques. Ong’s own view is that a cheque should come within the presumption of advancement because a cheque is not only a chose in action but also a personal chattel. Ong’s view is that there is a presumption of advancement in the case of a giving of a cheque and this presumption of advancement is rebuttable.

Rebutting Either the Presumption of Advancement or the Contrary Presumption of a Resulting Trust:

The presumption of a resulting trust as well as the presumption of advancement may be rebutted by contrary evidence:

Charles Marshall Pty Ltd v Grimsley (1956) 95 C.L.R. 353 (TLA pp. 357-358) - The HC, following the decision of the HL in Shephard v Cartwright [1955] A.C. 431. (TLA pp. 361) held that acts and

declarations of the parties before or at the time of the transaction or occurring so immediately after the transaction that they form part of the transaction were admissible in evidence either for or against the party who did the act or made the declaration. BUT subsequent acts or declarations by the parties are admissible only as evidence against the party doing the act or making the declaration.

This proposition of law was assumed to be correct by HC in Charles Marshall v Grimsley. This rule is entirely logical because if subsequent acts or declarations could be used by the party doing the act or making the declaration, then could have self-serving subsequent acts or declarations. Therefore, subsequent acts or declarations can only be used against the party doing the act or making the declaration. In Charles Marshall, a father had allotted shares in a company controlled by him to two of his daughters. The HC held that the presumption of advancement applied in favour of the daughters. The HC held that the father who had later died, had failed to rebut the presumption of advancement so that the daughters took the shares absolutely (namely, they took the shares beneficially and took legal title to the shares).

Presumption of a Resulting Trust may be rebutted either completely or only partially:A presumption of a resulting trust may be rebutted partially. Ong supposes that the same principle would apply to a presumption of advancement. If have a presumption of a resulting trust and that presumption was rebutted only in part then there would be a gift of that part of the property in respect of which the presumption of a resulting trust is rebutted. There is relatively a presumed resulting trust in respect of that part of the property where the presumption of a resulting trust is unrebutted. An example of a partial rebuttal of a presumption of a resulting trust is:

Napier v Public Trustee (TLA p359) - A de-facto husband paid for a parcel of land and directed the vendor to transfer the title to it to his de-facto wife, intending her to have only a beneficial life interest in the land. After the woman’s death, the court held that her executor (public trustee) had rebutted the presumption of a resulting trust only to the extent of showing that she had a beneficial life interest in the land so that the remainder in fee simple was vested in the man by way of a presumed resulting trust.

This case also illustrates the proposition that a presumption of a resulting trust in the absence of a presumption of advancement arises in two situations:1. There is a voluntary transfer of property other than personal chattels;2. A person pays for property other than personal chattels and directs the vendor to transfer it to

someone who has not given consideration to the purchaser and the vendor makes the directed transfer.

Courts want to achieve a just result by a slight distortion of orthodox legal principles:

Muschinski v Dodds (1986) 160 C.L.R. 583 (TLA pp. 473-477) – The difficulty with this case is that there is no ratio decidendi. A man and a woman were in a de-facto relationship and they purchased a cottage property. The property was transferred to them as legal tenants in common in equal shares. Each of them spent money on the renovation of the cottage. There would have been no possibility of survivorship because it was not a joint tenancy. Their total expenditure on the purchase and renovation of the cottage was divided as follows:

The woman contributed 10/11ths and the man contributed 1/11ths. At the time of the purchase of the cottage, the man had said to the woman that he would at his own expense set up a pre-fabricated house on the land. However, this promise was found not to have induced the woman to make the gift of a part of the ownership of the land to the man. The parties also intended to convert the cottage into an arts and crafts centre for the woman. All their plans collapsed and their de-facto relationship came to an end.

Three of the five judges of the HC found that the woman had intended the man to have an immediate and unconditional beneficial interest in his legal half share of the property. This intention rebutted the presumption of a resulting trust in favour of the woman. There was no presumption of a resulting trust because of the immediate and unconditional gift. The three judges who found that there was this immediate and unconditional intention on the part of the woman were Gibbs CJ, & Mason & Deane JJ. On the other hand, Brennan and Dawson J held that the gift made by the woman to the man was immediate but was

conditional on the construction of the pre-fabricated house and on his assisting her to set up the arts and crafts centre.

Gibbs CJ (TLA 475)- Said that because the woman had intended the man to have an immediate and unconditional beneficial interest in the property, there was no resulting trust of the man’s legal title for the woman, because that intention to make an immediate gift had rebutted the presumption of such a resulting trust. Furthermore, Gibbs J held that because the gift was also unconditional, there was no constructive trust. No resulting trust because of an immediate intention to make a gift; no constructive trust because the gift being unconditional, there was no unconscionability on the part of the man in accepting it. Gibbs CJ found that there was neither a resulting trust nor a constructive trust for the woman.

However, he thought that as both the woman and man had contracted with the vendor to pay the purchase price and as only the woman had paid the purchase price she was entitled to a contribution from the man in respect of what she had paid. This reasoning is very unconvincing because if make a present to someone, don’t ask that person to pay for it. However, this particular line of reasoning based on the man’s liability to contribution was rejected by the other four justices of the HC. It does not represent the law.

Although Gibbs disagreed with the reasoning of Deane J, he accepted the order proposed by Deane J and imposed a constructive trust on the man. Mason J. also agreed with Deane J. Gibbs said that because the gift was unconditional, there could be no constructive trust. But he eventually agreed with the order that a constructive trust be imposed. He agreed with that order even though that order was based on reasoning which he rejected. There was a majority for the order made by the HC, namely that there be a constructive trust. Nonetheless, there was no majority reasoning for that majority order.

Deane J. (Mason J concurred) (TLA 476) - Agreed that the woman had intended to make an immediate and unconditional gift to the man of his legal half share of the property. He again held that this immediate and unconditional gift precluded any resulting trust in favour of the woman. However, although Deane J held that the gift was not only immediate but unconditional, Deane J imposed a constructive trust on the man in respect of the legal title held by him. His view was rejected by Gibbs CJ, Brennan and Dawson.

Deane J said that where parties engaged in a joint venture or a joint endeavour which subsequently fails without attributable blame, then the parties would retain whatever they had contributed to the joint venture. Or if the assets had diminished in value, their respective interests would diminish proportionately. This principle was not a new principle. That principle had no application to a situation where one party had made an immediate and unconditional gift to the other. Very disruptively, Deane J imposed this rule on a situation where there was a gift made immediately and unconditionally. He said that the property should be sold, and to the extent allowed by the proceeds of sale, the parties’ respective contributions should be returned to them. He said that if the sale should produce a surplus, the surplus should be equally divided between the parties. Deane imposed what he thought to be a just solution, without the support of a clear principle.

This principle would only apply if there was no attributable blame. If there was attributable blame, then the party would have to suffer whatever consequences would be appropriate.

Brennan & Dawson JJ. (TLA p475) – They held that the woman was not entitled to a remedy. They dissented from the order proposed by Deane. Brennan & Dawson held that the gift was immediate. There was no room for a resulting trust or a constructive trust. They said that the gift was conditional on the man improving the property in the agreed manner. Surprisingly, they held that such condition was not a normal condition subsequent which would have the effect of terminating the man’s interest in the land. It was an unusual condition subsequent in that when this condition subsequent occurred, there was a personal obligation imposed on the man, namely to reimburse the woman. The man’s breach of this personal obligation merely entitled the woman to compensation from the man. The woman had not claimed compensation; she had claimed a proprietary interest. She had made the wrong claim and therefore they would give her nothing.

Muschinski v Dodds has been followed. Although it has been followed, it has never been followed in a case where one of the parties made an immediate and unconditional gift to another. There is no case subsequent to Muschinski in which a person making an immediate and unconditional gift was able to invoke that principle. The next case is:

Baumgartner v Baumgartner (1987) 164 C.L.R. 137 (TLA pp. 478-480) – It is not a case of a resulting trust, it is a case of a constructive trust. However, in the light of Muschinski’s case it is convenient to deal with this case here. In Baumgartner, a man and woman lived together in a de facto relationship for 4 years. The house in which they lived was purchased solely in the man’s name. The deposit for the purchase price was paid only by the man and the balance of the purchase price of the house was obtained by the man through a loan which was secured on the house. The sole borrower of that loan was the man. The man and the woman pooled their earnings so that the man contributed 55% and the woman 45%. All household expenses including the mortgage instalments were paid from this pooled fund. The de facto relationship ended and there was a dispute over the ownership of the house. Each party claimed sole ownership of the house. The issue in Baumgartner was this – Given that the man was registered as the sole legal owner of the house, did the woman by virtue of her contributions to the pooled fund acquire a beneficial interest in the house. If one were to apply the Calverley v Green principle, one would have said that the contributions to the payment of the mortgage instalments were not contributions to the purchase price.

However, the HC did not apply the principle of a resulting trust and applying the principle of a joint venture which failed without attributable blame, held that the woman had acquired a beneficial interest in the house by way of a constructive trust imposed on the man because the household expenses including the payment of mortgage instalments were paid from the pool fund. The court declared that insofar as the pooled fund was used to pay the mortgage instalments, the woman had no intention of making a gift of her share of the fund to the man. The HC applied the principle that the joint venture between the man and the woman had failed without attributable blame and it was unconscionable for the man to claim that the house was solely and beneficially his.

If there had been a JV, then this principle would have applied and the parties would have been able to claim back whatever they had put in. The only question is did the parties in living together in a de facto relationship intend that there be a JV in the commercial sense?

The court said that applying this principle, not the principle of a resulting trust:The beneficial ownership of the house was to be as follows - 55% to the man and 45% to the woman - This reflected the proportions in which they had respectively contributed to the pooled fund.

The only way to reconcile Baumgartner with Calverley v Green is to say that in Calverley the principle of a failure of a JV without attributable blame had not yet been imported into domestic relationships. In Baumgartner, it was imported for the second time. First time was when it was imported in Muschinski v Dodds. If one were to import the principle of failure of JV without attributable blame into a Calverley v Green situation, one would have got a result more favourable to the man because the man’s payment of the mortgage instalments would then have been taken into account.

NOTE: If apply Baumgartner, then don’t apply the principle in Calverley v Green nor the principle in

Bloch v Bloch.

Baumgartner was followed by the NSW Court of Appeal in Hibberson v George (1989) 12 Fam L.R. 725 (TLA p. 466).

Allen v Snyder (1977) 2 N.S.W.L.R. 685 (TLA pp. 466-467 and 469-470) – Must now be read subject to the Baumgartner principle, because at the time it was decided the Baumgartner principle had not been decided. The man promised to give the woman an interest in the house if and when they married each other. They never married each other. The NSW Court of Appeal held that since the parties did not have a common intention that the woman was to have an interest in the house unless they married and since they did not marry the woman could not claim that she had acted to her detriment in reliance on the man’s

promise. At the time that Allen was decided, there was no Baumgartner principle. In order for the woman to have succeeded, she would have to show that she had been induced to do something and that she had acted to her detriment in reliance on the man’s promise, so that the man would be estopped and give her the promised interest. It was assumed that a party who had not contributed to the purchase price of a property could only acquire an interest in the property as against the legal owner by way of proprietary estoppel in the absence of a contract between them. So the issue was whether the man had been proprietarily estopped; the answer was no because the promise was to give the woman a share upon marriage and not otherwise. The proprietary estoppel route is one way of acquiring a proprietary interest in the land where a party has not contributed to its purchase price.

Baumgartner has now provided an alternative route to claiming an interest in the property where the claimant has not contributed to its purchase price. This is the principle of the joint venture failing without attributable blame. Distinguish very clearly between these 2 different methods of acquiring an interest in property when the claimant has not contributed to its purchase price. One is proprietary estoppel and the other is the Baumgartner principle.

Proprietary Estoppel (a species of constructive trust)Proprietary estoppel is a branch of promissory estoppel. There is a proprietary estoppel if the Court, as a result of the promisee having acted to their detriment upon the inducement held out by the promisor, gives to the promisee a proprietary interest in the relevant property. If as the result of promissory estoppel property in equity is given to the promisee, then this is a case of proprietary estoppel. Another instance of proprietary estoppel is:

Green v Green (1989) 17 N.S.W.L.R. 343 (TLA pp. 466 and 468) - A de-facto husband induced his de-facto wife not to return to her native country by promising to give her a proprietary interest in the house in which they were then living. The de facto wife acted to her detriment by not returning to her native country in reliance on the de-facto husband’s promise. The de-facto husband then persuaded his de-facto wife to move to another house by promising her that she would have a proprietary interest in the second house in substitution for her proprietary interest in the first house. It was the parties’ common intention that the de-facto wife should have some proprietary interest in the second house.

A majority of the NSW Court of Appeal (applying the principle of proprietary estoppel, which is a form of constructive trust) held that as a result of the woman having acted to her detriment in reliance on the man’s equitable promise to give her an interest in the house, the woman had acquired a beneficial joint tenancy with her de-facto husband in their second house. Note that proprietary estoppel is estoppel that gives the party relying on the estoppel a proprietary interest in the relevant property. That house was registered in the name of a third party who had originally held it as a trustee for the husband. But because of the beneficial joint tenancy, he held it for the husband and wife as beneficial joint tenants. Upon the husband’s death, the wife succeeded to the sole beneficial ownership of the house by virtue of her right of survivorship as an equitable joint tenant. The registered owner therefore held the property in trust solely for the wife of the deceased.

The majority judges in Green v Green were Gleeson CJ and Priestly JA. The dissenting judge was Mahoney JA. He took the view that the woman had suffered no detriment because she would not have returned to her native country even if the man had not promised her a proprietary interest in the house. Green v Green and Allen v Snyder would illustrate the proprietary estoppel principle.

If have a situation where a claimant has not contributed to the purchase price and where the claimant cannot prove proprietary estoppel and where the claimant cannot show that there was a joint venture, then the claimant cannot claim an interest in the property merely by virtue of his financial contributions to the household budget. This proposition of law is derived from the case of:

Bryson v Bryant (1992) 29 N.S.W.L.R. 188 (TLA pp. 466 and 472) – After 60 years of marriage, the wife predeceased her husband. The wife’s brother who was the executor and sole beneficiary of her estate claimed that although the matrimonial home had been acquired solely in the husband’s name and had been paid for solely by him, the wife nevertheless owned a beneficial half share in the home. The brother’s claim

was based on the fact that the wife had performed domestic tasks and had contributed to the household expenses during the marriage. So the brother argued that his sister’s contributions entitled her to a half share of the house on one of three alternative basis:

1. Resulting trust;2. Constructive trust; or3. Unjust enrichment.

The majority of NSW Court of Appeal, Sheller & Samuels JJ, said the wife had not made any financial contributions to the acquisition of the house. There was no proprietary estoppel and they could see no principle on which the wife could have claimed an interest in the house. There was no financial contribution and therefore there was no resulting trust. They said there was no inducement for the wife to stay in exchange for an interest in the property. Therefore there was no proprietary estoppel and no constructive trust. They said furthermore that the Baumgartner principle did not apply because even assuming that their married life could have been regarded as a joint venture, it did not collapse, but was eventually terminated by the death of one of the two parties. So there was no collapse of the joint venture. The joint venture terminated naturally as it was intended to do.

1) There was no constructive trust under the Baumgartner principle2) There was no constructive trust under the proprietary estoppel principle3) There was no resulting trust because the wife had made no contribution to the purchase price.

They said that the wife could not have obtained any interest in the house. They said finally that they could see no reason why the husband would have been unjustly enriched by not giving his wife an interest in the property.

Kirby J. dissented. He said that the wife’s financial contributions to the domestic budget gave her a half interest in the house. Either on the basis of a constructive trust or on the basis of unjust enrichment.

In NSW, de facto relationships are dealt with under the Property (Relationships) Act 1984.

Still dealing with proprietary estoppel is the case of:

Grant v Edwards [1986] Ch. 638 (TLA pp. 465 and 472) applied the principle of proprietary estoppel as in Green v Green. A de-facto husband purchased a house which was transferred to him and his brother as legal joint tenants (the brother did not claim any beneficial interest in the house and no further reference is made to him). The de facto husband said to his de facto wife that there was only one reason why her name was not on the title, and that was to avoid prejudicing her in her pending matrimonial proceedings between her and the man to whom she was then married. The Court of Appeal found that the parties had a common intention that the man and the woman should share the title to the house equally. Indeed, the court said that the man’s lie would not have been necessary if they had not intended to share the house in equal shares. The court found that the woman had acted to her detriment in reliance on a common intention by substantially contributing to the general household expenses, thereby enabling the man (who had paid the deposit) to pay the mortgage instalments. The Court held that it was unconscionable for the man to claim sole ownership of the house when the woman had been induced to act as she did. On the basis of proprietary estoppel the court gave the man and the woman equal shares in the house. With proprietary estoppel, the extent of the interest which the claimant is allowed to have on the property will depend on the scope of the inducing promise.

Eves v Eves [1975] 1 W.L.R. 1338 (TLA p. 472) is a similar case. The de-facto husband lied to the de-facto wife and said that the title to the house was not put in her name only because she was then under 21 years of age. The plaintiff believed that she had ownership in the house even though her name was not on the title. The plaintiff, acting on that assumption, did a lot of work to improve the house on the basis of the defendant’s inducement to her that she had an interest in the property. The Court of Appeal gave her a one-quarter interest in the house based on proprietary estoppel.

Cooke v Head [1972] 2 All E.R. 38 - A woman was induced by her de-facto husband to act to her detriment on the implied promise that she would be given a share in the land purchased in his name only. They planned to build a house on the land and the woman assisted in the construction of the house. Her labours included use of a sledgehammer to demolish an old building on the site and the painting of the house that was built by them. The English Court of Appeal gave her a one-third share of the house on the basis of proprietary estoppel.

Giumelli v Giumelli (1999) 73 ALJR 547 - There was a son called ‘Robert’. His parents had promised him that he would be given a part of the land which they owned if he agreed to stay on the land to plant an orchard and did not work for another person. The promise was made orally, so there was no written contract. Relying on the promise the son declined an offer of work that was made to him by his then father-in-law. The son planted the new orchard after being induced by his parents. After planting the new orchard, the son had an argument with his parents over his proposed re-marriage. His parents asked him to choose between the proposed new wife and continuing to work on the property. The son chose to marry his proposed bride and left the property. The son on the basis of proprietary estoppel, commenced an action in the Supreme Court of W.A. claiming as against his parents that they should subdivide the land and transfer to him the lot that had been promised to him. The Full Court of W.A. granted the remedy. The parents appealed to the HC. The parents admitted that the son was entitled to some equitable relief, but they argued that the equitable relief did not entitle the son to have a constructive trust imposed on the promised lot.

The H.C. agreed that the son was not entitled to the remedy of a constructive trust, although it accepted that it was the man’s prima facie entitlement. So the HC said that prima facie the son was entitled to the promised lot. However, they said that because there were third parties which had not been joined in the action, they could not declare a constructive trust in favour of the son. However, they ordered the parents to pay to the son the full value of the promised lot.

In Giumelli’s case, the HC did not impair the principle of proprietary estoppel. Technically, the court invoked equitable estoppel but not proprietary estoppel for the reason that the son did not obtain a proprietary interest as a result of the estoppel.

Resulting Trusts and Illegal Transactions

The old law was this: If there was a trust set up in furtherance of an illegal purpose and that illegal purpose had been carried out either partly or wholly, then the beneficiary of that trust could not enforce that trust. If the illegal purpose had not been carried out at all, then the trust can be enforced by the beneficiary. This part of the old law is still good law. The part which is bad law is the part which says that if the illegal purpose has been carried out either wholly or partly, then the trust will not be enforced.

There is also another rule which is law in England but not law in Australia. In the case of a presumption of a resulting trust, the court will enforce an illegal resulting trust because a resulting trust is dependent on a presumption of a resulting trust not being rebutted. The beneficiary would only have to show that he or she had made a contribution. There would be a presumption of a resulting trust in favour of the contributor. The contributor, as part of his or her course of action need not rely on the illegal intention.

The English position is dealt with in a case called:

Tinsley v Milligan [1994] A.C. 340 (TLA pp. 389-390) - In that case, it was not disputed that the appellant and the respondent had contributed equally to the purchase of a lodging house in which they as well as the lodgers lived. The legal title to the house was transferred to the appellant only. This was done to enable the respondent to make false benefit claims on the Department of Social Security. The respondent and the appellant subsequently quarrelled and the appellant relying on her legal title, sought to evict the respondent from the house. The respondent counter-claimed for a declaration that the appellant held her legal title to the house for both of them as equitable tenants in equal shares.

A majority of the House of Lords [3:2] dismissed the appellant’s claim and upheld the respondent’s counterclaim. The respondent, although she was thoroughly dishonest, did not have to rely on her dishonesty. All she had to do was to show that she had made a contribution to the purchase of the house. That contribution would have created a presumption of a resulting trust in her favour. This resulting trust was one which the appellant was unable to rebut. Therefore, the respondent was entitled to her half share by virtue of her contribution only. She did not have to adduce evidence of her illegal interest.

The two Law Lords who dissented said the illegal purpose had been carried out and therefore it was contrary to public policy to allow the trust to be enforced. Both the majority and minority view are not law in Australia.

In Tribe v Tribe [1996] Ch. 107 (TLA p. 387) the English Court of Appeal, following Tinsley v Milligan, held that if a party were only able to rebut a presumption of advancement by disclosing an executed illegal purpose, a court would not allow him to rebut that presumption and he would lose his beneficial interest. However, on the fact the illegal purpose had not been executed so that was ok.

Current Australian Position

Nelson v. Nelson (1995) 70 ALJR 47 (TLA 390) - A mother, Mrs Nelson, had paid for a house which was transferred into the joint names of her son and her daughter. The house was subsequently sold and the dispute concerned the ownership of the proceeds of sale. In order to determine the ownership of the proceeds of sale, it was necessary to determine the ownership of the house. There were two issues before the HC:

1. Whether there was a presumption of advancement in favour of the children given that it was a case of a mother paying for the property – The HC said yes; a presumption of advancement would apply even as against a mother; and

2. Whether if there was a presumption of advancement in favour of the children, Mrs Nelson would be permitted to rebut that presumption of advancement by adducing evidence of her illegality.

By saying that she had no intention of making a gift to her children, but that the reason why she put the house in the names of her two children was to enable her to obtain at a later stage and illegally a defence service home loan to pay for a second house. She acquired a second house by obtaining a subsidised defence service home loan on the fraudulent basis that she did not own any house or dwelling at the time of the application. She got the second house, namely the illegal purpose had been executed. The illegal purpose having been executed, can she rely on her own illegal purpose to rebut the presumption of advancement – HC said yes. The son did not dispute his mother’s title, but the daughter did so - she said that she owned her interest legally and beneficially and denied that she was holding her interest in trust for her mother.

The High Court accepted Mrs Nelson’s argument that the purpose of the Defence Service Homes Act, under which she obtained her loan was sufficiently served by the penalties which the statute imposed for fraudulent applications and that there was no need to do more than the penalties imposed by the statute. She said that to do more would be to deny her the benefits of the resulting trust without furthering the objects of the legislation.

A majority of the HC (Deane, Gummow and McHugh) declared: If on or before the 9th of January 1996, Mrs Nelson had paid to the Commonwealth an amount equal to the sum of the benefit fraudulently received by her, then her children’s solicitors would hold the whole of the balance of the proceeds of sale of the house together with any interest earned thereon upon trust for her. The balance of the proceeds comprised the proceeds of sale remaining after the payment from those proceeds of the mortgage debt. The same justices ordered that the sum of money should then be paid by the children’s solicitors to Mrs Nelson.

The same three justices said this - If Mrs Nelson failed to pay back to the Commonwealth the benefit which she had illegally obtained from it by the 9th of January 1996, then the children’s solicitors should hold a sum equal to the fraudulently obtained benefit for Mrs Nelson’s daughter and the ultimate balance for Mrs Nelson. In either event, Mrs Nelson would not be allowed to benefit from her illegal activity. If she didn’t pay by the due date, those two sums of money would be paid to Mrs Nelson and to her daughter respectively.

The minority judges, Justices Dawson & Toohey said that the remedy given to Mrs Nelson should not be conditional. They said that it was up to the Commonwealth whether they wanted to sue her to recover the money or not. If the Cth decided not to sue her to recover the money, then she would have the benefit of the entire trust. It was not for the court to act for the Cth or to punish Mrs Nelson if the Cth chose not to sue her.

CAVEAT: The legislation did not make the trust invalid. However, if the legislation did either expressly or impliedly make the trust invalid or unenforceable, then the court would not enforce that trust. Supposing there was some type of illegality that was not covered by legislation, court will have to decide whether public policy would allow the guilty party to disgorge the illegally obtained benefit in exchange for a full enforcement of the trust. Ong thinks a court would do so and that Nelson v Nelson has said that unless the legislation provides to the contrary either expressly or impliedly, the guilty party can enforce the trust in full by disgorging the illegally obtained benefit. Otherwise, the person who benefits would be someone like Mrs Nelson’s daughter, who would be wholly undeserving of any benefit.

If we were to apply Nelson v Nelson to the facts in Tinsley v Milligan, then the respondent would still have got her result in trust but she would have had to disgorge to the Department of Social Security her illegally obtained benefit. Ong thinks that Nelson v Nelson is a superior decision to Tinsley v Milligan in that the guilty claimant would not lose out on the trust but would also not benefit from her illegality.

Nelson v Nelson would not create a dichotomy as between a person who was relying on the presumption of a resulting trust on one hand and a person who was seeking to rebut a presumption of advancement. Nelson v Nelson would say that dichotomy as far as illegal trusts are concerned is of no relevance. If the trust has been executed and the claimant is ordered to disgorge her illegally obtained benefit, then she can enforce the trust. Whether she proves the trust by relying on a presumption of a resulting trust or by relying on a rebuttal of a presumption of advancement is not relevant. Ong thinks that is quite logical.

Ong has dealt with illegality in relation to resulting trusts but the same principle applies even to express trusts. However, there is till a tiny bit of uncertainty left by Nelson v Nelson: What do you mean when you say that someone is to disgorge an illegally obtained benefit. Suppose have an illegal purpose which was carried out but backfired. The claimant of the resulting trust, namely the beneficiary of the resulting trust has not obtained any benefit at all. Does it mean that the claimant can get the full benefit of the resulting trust without any penalty simply because this person has not obtained any illegal benefit? – Ong would hope that if the claimant has not obtained any illegal benefit, then even though the trust has been fully carried out, this claimant should be entitled to the full benefit of the trust.

Note: If the illegal purpose has not been carried out either wholly or partly, then the trust will be enforced in favour of the claimant without any conditions – Martin v Martin (TLA 390); Nelson v Nelson.

7. Constructive Trusts

TLA Ch. 9

A constructive trust is a trust that is neither an express trust nor a resulting trust. An express trust is created by express intention and a resulting trust is created by implied intention. A resulting trust is sometimes known as an implied trust. However, both express trusts and resulting trusts are based on intention. On the other hand, a constructive trust is not created by intention.

A constructive trust is imposed on a legal owner of property whenever equity considers it unconscionable for the legal owner to deny that another person or other persons have either the whole or a part of the beneficial interest in that property. As know from proprietary estoppel, it will be unconscionable of the legal owner to deny a beneficial interest in the land in the person who is pleading the estoppel. Therefore, a constructive trust is imposed on the legal owner of the land because his denial of the equitable interest of the person pleading the estoppel is regarded as unconscionable conduct because he had induced the person pleading the estoppel to act to his detriment. Have examined constructive trusts in the context of de facto relationships. Ong supposes that would also cover domestic relationships that are not de facto relationships.

(a) Constructive trusts imposed to prevent the statutory writing requirements of the Statute of Frauds

from being used as an instrument of fraud

The writing requirements are sections 11 and 59 of the Property Law Act 1974 (Qld). S59 PLA provides that no action may be brought on any contract for the sale or other disposition of land unless the contract is either made or evidenced in writing and signed by the party charged or by a person lawfully authorised by that party to sign.

Some people dishonestly rely on the absence of writing to deny another person an interest in land. Such a dishonest attempt occurred in a case called:

Last v Rosenfeld [1972] 2 N.S.W.L.R. 923 (TLA pp. 461-463) - This case illustrates that the court will not allow the writing requirements to be used as an instrument of fraud. The plaintiffs and the defendants were equal owners of a house, namely the two plaintiffs owned one half and the two defendants owned the other half. They entered into an oral agreement under which the plaintiffs sold and transferred their half of the house to the defendants. This sale was subject to a condition. The condition was that if the defendants did not, within 12 months of the completion of the sale, commence to live in the house, then the defendants would re-transfer the half share to the plaintiffs at the same price as the price it was being sold to the defendants.

This agreement was oral and therefore it did not comply with the NSW counterpart of section 59 PLA. The defendants in breach of the oral agreement sold the house to a third party for a cash payment and a mortgage back to them to secure the payment of the balance of the purchase price. The plaintiffs applied for a declaration that they were entitled to one-half of the cash payment and a one-half interest in the mortgage. They could not get their half share back because the purchaser was a bona fide purchaser for value without notice. Justice Hope granted the plaintiffs this declaration. Hope J said that the defendants had received the house in trust as to one half for the plaintiffs. He said that trust was a defeasible trust in that it would have been terminated if the defendants had commenced living in the house within 12 months of the completion of the sale. That trust would only be defeated if the defendants commenced living in the house within 12 months. The defendants did not commence living in the house within 12 months and so the trust became an indefeasible trust in favour of the plaintiffs.

Hope J said that the defendants having received the property in trust would not be permitted to rely on the absence of written evidence to deny the trust because the Statute of Frauds could not be used as an instrument of fraud. He noted that this was a case of the defendants having taken title to land in trust and not the case of an absolute owner of land making an ineffectual voluntary oral declaration of trust over land. Nor was it merely a case of an oral agreement to sell land.

Hope J was saying that s11 (1) (b) was not completely ineffectual. E.g If someone were to declare himself orally a trustee of land for another person, and this oral declaration was not evidenced in writing then Hope J said that this voluntary oral declaration would still be ineffectual and would still be caught by s11 (1) (b) in Qld.

He also said that if there was simply an oral agreement to sell the land that was not evidenced in writing, then this oral agreement to sell the land would be ineffectual so that s59 would still apply. He was emphasising that his decision did not mean that s11 (1) (b) and s59 PLA were superfluous.

Supposing P and D had entered into oral agreement not evidenced in writing and supposing the P had refused to transfer their half share to the D. There was no way the D could then have compelled the P to transfer the half share to them because of s59. If there is a purely voluntary declaration of trust over land and that declaration is not evidenced in writing, then that declaration is void. Authority is Wratten v Hunter [1978] 2 N.S.W.L.R. 367 (TLA p. 102).

In the case of an oral contract for the sale of land, there is an exception to the rule that it is void. That exception is where the purchaser, even though the contract is oral has carried out acts of part performance, thereby attracting the doctrine of part performance. The doctrine of part performance is an exception to the writing requirements by virtue of s6 (d) PLA.

If someone receives land in trust and the trust is not evidenced in writing, then the trust would be enforceable even though there is no writing because it would be fraudulent of someone having received land in trust to deny the trust on the basis of an absence of writing.

(b) Secret trusts and half-secret trusts

A fully secret trust is a trust where, on the face of a will there is a beneficial disposition of property to a person. This person (nominal beneficiary under the will) would have agreed with the testator before the will is executed that he would take whatever is given to him under the will in trust for some other person or persons. The oral agreement to hold the property in trust is enforced despite the fact that the will makes no reference to the trust. This would be known as a fully secret trust, namely the trust is fully secret because the face of the will shows that someone has taken property absolutely and this person had agreed with the testator that he would take the property in trust for other people. The trust would be enforced because it would be unconscionable for the legatee or devisee to rely on the writing requirements of testamentary dispositions to deny the existence of the trust. Ong’s own view, which is resisted by some authors is that the fully secret trust as well as the half secret trust is really an example of proprietary estoppel, namely that the testator has been induced to make this gift on the understanding that the nominal donee will take as trustee only.

A half-secret trust is in all respects the same as a fully secret trust except that in the half-secret trust the legatee or devisee is identified in the will as a trustee, but the beneficiaries of the trust are not identified in the will. In the case of a half secret trust, the legatee would take as trustee on undisclosed trusts. In a fully secret trust, the will would show that X took absolutely. In a half secret trust, the will would show that X took as trustee but the trust would not be disclosed in the will itself. In either case, there would be a trust enforced against the persons seeking to deny it on the ground that the trust had not been evidenced in writing in accordance with the Wills Act or in Qld, the Succession Act, which requires a will to be made in writing.

An example of a fully secret trust is a case called:

Ottaway v Norman [1972] Ch. 698 - There were three essential elements in a secret trust:

1. The testator’s intention to subject the primary donee to an obligation in favour of the secondary donee. The primary donee is the person who takes under the will. The secondary donee is the person who takes under the half secret or fully secret trust.

2. There must be a communication of that intention to the primary donee.3. The acceptance of that obligation by the primary donee either expressly or by acquiescence.

An example of a half secret trust is Blackwell v Blackwell [1929] A.C. 318 (TLA p. 464). In Ong’s view, both trusts are examples of proprietary estoppel.

(c) Strangers who receive trust property given to them in breach of trust with notice of such a breach /

Strangers who assist another person in the latter’s breach of fiduciary duty and who thereby either

receive trust property or make a profit.

Can become a constructive trustee if receive trust property with notice of the breach and can also become a constructive trustee if help a trustee or fiduciary to breach his fiduciary duty and in so helping the fiduciary to breach his duty you receive trust property or make a profit, in which case hold the trust property or the profit on a constructive trust for the trust estate.

This is known as a case of knowing assistance. The case that deals with knowing assistance is:

Barnes v Addy (1874) L.R. 9 Ch. App. 244 (TLA pp. 400-407) - In that case, there were two trustees of a trust fund and each trustee employed a solicitor. One of the trustees wanted to give up his position as trustee. So he wanted to transfer his half of the trust property to the other trustee so the other trustee could become the sole trustee. The solicitors for these two trustees prepared the necessary documentation of transfer. The trustee who was given sole ownership of the trust property embezzled the entire trust fund. The issue was whether the two solicitors had in preparing the transfer documents knowingly assisted the defaulting trustee to breach his trust fraudulently. By preparing the documents, they had assisted the trustee to breach his trust in the sense that if there had been no transfer, there could have been no embezzlement of the transferred property. The issue was whether the solicitors had done so knowing of the intending breach.

The Court of Appeal in Chancery held that neither solicitor knew or had reason to suspect the fraudulent design of the defaulting trustee. Lord Selbourne explained that there were two classes of strangers to a trust (by strangers, it is meant persons who have not been appointed trustees of the trust. These two classes of strangers would be made constructive trustees:

1. Persons who obtain title to trust property purportedly for their own benefit and who did so with notice of the breach of trust.

2. Persons who may or may not have obtained title to trust property purportedly for their own benefit but persons who have assisted the trustee to commit his breach of trust. If trust property was received by knowing assistance given to the trustee in breach of trust, then the stranger would become a constructive trustee of the property. If no trust property was received, but loss was caused to the trust, then the stranger would be liable to repair that loss.

In Australia, the definitive case on knowing assistance is Consul Development Pty Ltd v D.P.C. Estates Pty Ltd (1975) 132 C.L.R. 373 (TLA pp. 417-428) – Gray acted as a director of the plaintiff, DPC. It was held by the HC that although Gray was not a properly appointed director, because he had acted as a de facto director, he would owe a fiduciary duty to DPC. Acting in breach of his fiduciary duty to the plaintiff, Gray without the knowledge of the plaintiff (and therefore without the consent of the plaintiff) entered into an agreement with the defendant Consul Development, to purchase for themselves some parcels of land which the plaintiff was interested in buying. The agreement was made between Gray on one hand and Consul on the other. Consul, being a company, had to act through its MD, whose name was Clowes. Gray was unquestionably acting in breach of his fiduciary duty to the plaintiff in making the purchase. Consul, in joining with him in making the agreement was assisting him to breach his duty. The question was whether Consul, through Clowes, knew about Gray’s breach of duty. If Consul did not know of Gray’s breach of duty, Consul would have assisted Gray to breach his duty but would not have done so knowingly so that Consul would not have been liable under the Barnes v Addy principle for knowing assistance. HC had to decide what was meant by that limb of liability known as assistance with knowledge or knowing assistance (what constituted knowledge for the purposes of this form of liability). The HC did not give a clear view of what degree of cognisance would constitute knowledge in this context.

Gibbs J - (TLA 422) explained that the principle of liability in Barnes v Addy applied to knowing assistance in cases of breach of trust and also to knowing assistance in cases of breach of other fiduciary duties. A fiduciary does not have to be a trustee. Gibbs said that a person who derives a benefit by knowingly assisting a fiduciary to breach his duty is liable to account for that benefit to the person to whom the fiduciary duty is owed. Gibbs J, without finally deciding the issue, said that he was prepared to assume that a stranger would have the relevant knowledge where the breach of fiduciary duty would have been revealed to him on reasonable enquiry and an honest and reasonable person would have made the inquiry. This test of knowledge was first propounded in a case called Selangor United Rubber Estates Ltd v Cradock (No. 3) [1968] 1 W.L.R. 1555 (TLA pp. 407- 411 and 414- 417). This test will be referred to as the Selangor test.

Applying that Selangor test, Gibbs J held that Clowes, the defendant managing director did not have the relevant knowledge because Gray had persuaded him that owing to financial constraints the plaintiff was not interested in purchasing the land which he and the defendant had agreed to acquire for themselves. Gibbs J said that in that event, there could be no liability because if it had been true that the plaintiff was not interested in buying the land, then Gray would not have been in breach of fiduciary duty to the plaintiff in purchasing the land jointly with the defendant. On the facts which Gray had induced Clowes to believe, Gray would not have been acting in breach of his fiduciary duty to the plaintiff. Therefore, Consul would not have been assisting in any breach of duty. It was crucial to Gibbs reasoning that Clowes was persuaded by Gray to believe the lie that DPC owing to financial difficulties was not interested in buying the parcels of land. Therefore, the purchase fell outside Gray’s scope of fiduciary duty and therefore Gray could purchase the land either alone or with others.

Stephen J (with whom Barwick CJ concurred) (TLA 423) – Stephen J rejected the Selangor test. He said that the Selangor test was too strict on the stranger. Stephen J opted for a narrower test of knowledge. He said that in order to fix the stranger with liability, the relevant knowledge had to be either actual knowledge of facts which themselves would to a reasonable person tell of fraud or breach of fiduciary duty or abstention from enquiry for fear of learning the truth. Stephen J was saying that the stranger would be fixed with liability only if in the stranger’s conduct there can be found an element of dishonesty. Stephen J said that jealousness would not be able to fix the stranger with liability. Applying the narrower test which requires dishonesty on the part of the stranger (the test was more lenient to the stranger), Stephen J reached the same conclusion as Gibbs J. He said that if Clowes believed Gray when Gray lied to him about the financial circumstances of DPC, then Clowes and therefore Consul behaved honestly because Clowes had been misled into thinking that the plaintiff was not interested in buying the land. Therefore, on the state of facts believed by Clowes to exist, there would have been no breach of fiduciary duty by Gray, so there was no relevant knowledge.

McTiernan J (dissenting) (TLA 421) - He applied the same test as Gibbs did, namely the Selangor test, but applying the same test, he reached a different conclusion from Gibbs. McTiernan J concluded that Clowes had undermined Gray’s loyalty to the plaintiff. McTiernan did not accept the view that Clowes had been deceived by Gray; he said that Clowes had actively undermined Gray’s loyalty to the plaintiff.

Two judges applied the Selangor test (McTiernan and Gibbs) and two applied the narrower test (Stephen & Barwick). The narrower test applied by Barwick and Stephen is known as the Carl Zeiss Test {Carl Zeiss Stifting v Herbert Smith & Co (No. 2) [1969] 2 Ch. 276 (TLA pp. 411-417)}.

It is very strange that although Gibbs and McTiernan applied the same test, they got different results and although Gibbs and Stephen applied different tests, they ended up with the same result. It has been suggested that these two tests, although they appear to be sharply different in formulation are in fact not all that different in practice so that in practice, there is no case in which the court has said this person is liable if applied Selangor test but not liable if applied the Carl Zeiss test. The practical impact of this distinction has yet to be demonstrated. Gibbs uses the test of the ‘honest reasonable person’ and Stephen uses the test of the ‘reasonable honest person.’ Ong cannot tend to understand the distinction.

The preponderance of authority in Australia is in favour of the Carl Zeiss test (narrower test). Carl Zeiss was referred in a case called United States Surgical Corporation v Hospital Products International Pty Ltd [1983] 2 NSWLR 157 (TLA p. 413), a decision of the NSW CA which formulated that preference because it assumed that a fiduciary duty existed. The HC overturned the CA because the HC found on the facts that no fiduciary duty had existed. There is no HC decision as far as Ong is aware which determines whether the relevant test of knowledge is the Selangor test or the Carl Zeiss test.

Agip (Africa) Ltd v Jackson [1991] Ch. 547 (TLA p. 413) – The court also preferred the Carl Zeiss test. In that case, the plaintiff had been defrauded by its chief accountant, who removed the name of the lawful payee and substituted as payee the name of a company controlled by the defendants. The question was whether the defendants who controlled that company had reason to believe that the chief accountant had behaved dishonestly. The chief accountant had been doing this over a period of time. The issue was whether the defendants knew about the accountant’s dishonesty or had reason to believe in the chief accountant’s dishonesty so that they would be held constructive trustees of the amounts in the cheques. The Court held that the defendants were liable as constructive trustees because they had heard that the plaintiff was being defrauded and had not made enquiries for fear of learning the truth.

Royal Brunei Airlines v Tan [1995] 2 A.C. 378 (TLA pp. 415-416 and pp. 427-429) - The plaintiff was an airline company and the defendant was the managing director and principal shareholder of a travel agent company. The agreement between the travel agency and the airline was that the money received by the travel agent was to be held in trust for the airline. The travel agency was short of cash and it used the money which it had agreed to hold in trust for the airline. In breach of the agreement, the travel agency used the airlines money for its own purposes. The plaintiff airline terminated the agency. The travel agency was insolvent; the airline sued the defendant personally because he as the managing director of the travel agency had knowingly assisted the travel agency in its fraudulent design. The Court of Appeal in Brunei held that the travel agency had been badly mismanaged. However, it held that the travel agency had not been guilty of fraud in using the airlines money for its own purposes. Ong would have thought that if the agency used the airlines money for its own purposes, that was fraudulent. The CA in Brunei said in order to attract the Barnes v Addy principle (knowing assistance), had to show that the stranger had knowingly assisted in a fraudulent breach of trust. The CA in Brunei said it was not enough if the assistance was offered to a breach of trust that was innocent rather than fraudulent.

The issue before the PC was whether someone who assisted another person to act in breach of trust would be liable if the original breach of trust was innocent and not fraudulent. PC said that the breach of trust did not have to be fraudulent. They said it was sufficient that the stranger who had assisted in the breach of trust had behaved dishonestly. The PC said that dishonest assistance will attract liability even if the breach of trust or fiduciary duty was itself innocent.

The Privy Council rejected the relevance of the test of knowledge and said that they did not wish to be engaged in tortious convolutions which the test of knowledge had produced. For good measure, the PC held that the travel agent’s breach of trust was dishonest. By holding that the original breach of trust was dishonest, they made into obiter their view that the assistance given to a person breaching his trust needs to be dishonest but that the breach of trust itself does not have to be dishonest. Because they found that the breach of trust itself had been dishonest, what they said about the breach of trust not having to be dishonest would be obiter. They said that the breach of trust was dishonest because the MD of the travel agent company was dishonest and his dishonesty would be imputed to the travel agency itself because the MD was the controlling mind of the agency.

Royal Brunei, in saying that one must reject the test of knowledge was not very convincing because they said that there must be dishonest assistance. Ong’s view is that in order for there to be dishonest assistance, there must be some degree of knowledge. Ong thinks that although PC did not actually say so, the dishonest assistance which was the basis of liability outlined by PC in Royal Brunei is the same as the Carl Zeiss test in that they both require the stranger to be dishonest before imposing liability on the stranger. Although technically they are different, Ong’s view is that it is not possible to distinguish between the Carl Zeiss test and the dishonest assistance test in Royal Brunei.

Cigna Life Insurance New Zealand Ltd v Westpac Securities Ltd [1996] 1 N.Z.L.R. 80 - Justice Greig adopted the test of dishonesty propounded in Royal Brunei. In Cigna, the plaintiffs’ reliable servant had fraudulently deposited the plaintiffs’ cheques into his own account with the defendant, a money market operator. Justice Greig held that as the plaintiff had not alleged that the defendant had behaved dishonestly and as there was no evidence the defendant had so behaved, the defendant was not liable to the plaintiff as a constructive trustee. Greig J. did say that if he was wrong about the requirement of dishonesty and that mere constructive knowledge was enough, in this case there was no constructive knowledge because the plaintiffs’ servant was someone whom the plaintiffs had trusted and known to the defendant to be a trusted servant.

The courts are not very keen to discuss whether Royal Brunei is good law in Australia:

Australian Securities Commission v AS Nominees Ltd (1995) 133 AL.R. 1, at 19 (per Finn J.) – Finn J applied the test of knowledge under the Barnes v Addy principle but he did not comment on the correctness or otherwise of Royal Brunei, nor did he find it necessary to decide whether the Carl Zeiss test or the Selangor test was the appropriate test. His judgment is for our purposes not at all useful.

8. Fiduciary Relationships

TLA pp. 433-458

There is no generally accepted definition of a fiduciary relationship.

There is no generally accepted definition of a fiduciary relationship. The best we can do is to offer a workable definition. In Ong’s view, a workable definition was offered by the NSW CA in United States Surgical Corporation v Hospital Products Ltd [1983] 2 N.S.W.L.R. 157. The court there said that a fiduciary is a person who undertakes to act in the interest of another person and not to act in his own interest in the matter to which the undertaking relates. There are two limbs to this definition and it is the second limb (the undertaking not to act in his own interest) which imposes on the fiduciary the duty not to place himself in a position where his interest conflicts with that of the person to whom the fiduciary duty is owed.

This second limb is crucial. It is this second limb that requires the fiduciary to subordinate his interest to that of the person to whom the duty is owed. In Ong’s view, this element of subordinating the fiduciary’s interest to that of the person to whom the duty is owed is the touchstone of a fiduciary relationship.

Queensland Mines Ltd v Hudson (1978) 52 A.L. J.R. 399 (TLA pp. 455-456) - The Privy Council declared that a fiduciary must not place himself in a situation where there is a real possibility of conflict between his duty and his interest. Ong thinks that the current law is ‘The duty is a duty to avoid a real possibility of conflict.’ The duty is not to avoid a theoretical or fanciful possibility of conflict. The fiduciary may avoid a situation of conflict in one of two ways:

1) By obtaining the informed consent of the person to whom the duty is owed to enter into the transaction, which otherwise would create a conflict between duty and interest.

2) By the fiduciary entering into a transaction which is beyond the scope of the fiduciary duty.

There is no exhaustive list of fiduciaries - these are examples:

Some examples of Fiduciary Relationships

(i) Trustee and Beneficiary

The most obvious example of a fiduciary relationship and the oldest one is the relationship between trustee and beneficiary and this example is to be found in the case of Keech v Sandford (1726) 25 E.R. 223 (TLA pp. 436 and 448). The strictness of the duty of a fiduciary was exemplified in Keech v Sandford. In that case, there was a trustee of a lease and the lease expired. The trustee went to the lessor and asked for the lease to be renewed. The lessor refused to renew the lease for the benefit of the trust. After failing to renew the lease for the trust, the trustee renewed the lease for himself and he thought that it was alright. Lord

King, the Lord Chancellor, very laconically decided that the trustee must hold the new lease on a constructive trust for the infant beneficiary and that the trustee was under a duty to account to the beneficiary for the profit which he had obtained from the lease. Lord King realised that it was harsh that the only person in the world who could not renew the lease for himself was the trustee. He said that notwithstanding that harshness, the rule was appropriate because if a trustee was allowed to renew a lease for himself after failing to renew it for the benefit of the trust, then he would be tempted not to do his best to renew the lease for the trust.

The Lord Chancellor said that in order to ensure that the fiduciary behaved himself, he must not be allowed to put himself in a position where his interest conflicted with his duty.

(ii) Director and Company

A company director would owe a fiduciary duty to the company of which he was a director. Authority is:Regal (Hastings) Ltd v Gulliver (1942) [1967] 2 A.C. 134 n (TLA pp. 433-435, 437-442) - In that case a company called Regal formed a subsidiary for the sole purpose of acquiring two cinemas. The share capital of the subsidiary company comprised 5000 one-pound shares. Regal was not liquid enough to subscribe for all the 5000 shares in the subsidiary. Regal could only afford to subscribe for 2,000 of those 5,000 shares.

The directors of Regal were in a quandary. It so happened that the co had 5 directors and the chairman of the board decided not to subscribe for any of these shares. The four remaining directors each took up 500 shares. Of the remaining 1000, the company’s solicitor took 500. The last 500 shares was subscribed for by two other companies and a private individual. But these last 500 shares were not the subject of subsequent litigation. The subsidiary company purchased the two cinemas. The two cinemas were operated very profitably and therefore profits were made. The shares of Regal and the subsidiary rose in value and the shares in Regal as well as the shares in the subsidiary company were sold. Large profits were made for Regal’s former directors and former solicitor through the sale of the shares of the subsidiary. The new directors wanted the former directors and the company solicitor to account for the profits made by them. The House of Lords held that the four former directors of Regal were liable to disgorge their profits to Regal with respect to the profits they had made by selling the shares in the subsidiary. They said that the former company solicitor did not have to do so because he had taken the shares at the request of the directors and had done so with the informed consent of Regal. The HL were unanimous in finding that the four former directors were liable to account to Regal. However, the Law Lords were not agreed as to the principle which supported that liability.

Viscount Sankey took the principle to be that a fiduciary who placed himself in a position where his duty conflicted or might possibly have conflicted with his interest was liable to account to the person to whom the fiduciary duty was owed for any profit made as a result of such a conflict.

On the other hand, Lord Russell said that the directors as fiduciaries were liable to account for their profits because they had made those profits only by reason of the fact that they were directors of Regal and in the course of the execution of the office. Lord Russell did not base his reasoning on the conflict between duty and interest rule.

All of the Law Lords were agreed that if the four directors had obtained the informed consent of Regal for their purchase, they would not have been liable. There is a difficulty with this concept of obtaining consent. Lord Russell had said that the directors could have obtained the company’s consent by a resolution of the company in general meeting giving such consent. However, the facts of the case do not show whether the directors controlled a majority of the shares in Regal. If they did control a majority of the shares in Regal, then they wouldn’t be able to exonerate themselves simply because of their majority shareholding. The All England Reports states that the directors did have a majority shareholding in Regal. However, the actual speeches in the House of Lords did not disclose whether they did have such a majority shareholding or not. Ong would be very surprised if the All England reports were correct because in a case called:

Cook v Deeks [1916] 1 A.C. 554 (TLA pp. 450-451) – PC held that directors who had a majority shareholding could not obtain the company’s consent by using their votes. On the assumption that Lord Russell did not wish to challenge the ruling in Cook v Deeks, Ong would suggest that the directors in Regal did not own a majority shareholding in Regal so that a resolution of the company in general meeting could have given consent provided the directors did not speak or vote on the motion which was passed.

Managing Director and Company

Industrial Development Consultants Ltd v Cooley [1972] 1 W.L.R. 443 (TLA pp. 437-439) - The defendant was the managing director of the plaintiff company. Being MD, he was a fiduciary to the plaintiff company. The defendant was an architect and the plaintiff was a construction company. The plaintiff company had been trying for a number of times but unsuccessfully to secure a contract from a particular third party. The third party did not like the plaintiff company. The third party approached the defendant personally and offered him the contract rather than the company of which he was MD. Ong wishes to emphasise that the defendant was approached personally and not in his capacity as MD so that the defendant would not have obtained that information in the course of the execution of his duties. The defendant improperly failed to disclose this offer to the plaintiff. Instead the defendant resigned from his position as managing director of the plaintiff on the pretext that he was in ill health. The plaintiff would not have released the defendant had the plaintiff known the real reason for his resignation. The defendant resigned and after his resignation he accepted the third party’s offer. He made a large profit from this contract. The company heard about this profit and wanted the defendant to account for it.

Justice Roskill held that the defendant in resigning from the plaintiff in order to take up the offer made to him when he was still the MD of the plaintiff and also in failing to disclose to the plaintiff information obtained by him in the course of his associations with the third party had created a conflict between his duty to the plaintiff and his personal interest. Since the defendant’s profit was derived from his breach of fiduciary duty to the plaintiff as its managing director, he was ordered to account to the plaintiff for that profit. Roskill J applied the conflict between duty and interest rule.

(iii) Promoter and Company

A promoter of a company is someone who makes all the arrangements for the formation of the company. This person, because he is instrumental in forming the company is a fiduciary to the company after its formation. The authorities for saying that a promoter is a fiduciary to the company are Erlanger v New Sombrero Phosphate Co (1878) 3 App. Cas. 1218; Tracy v Mandalay Pty Ltd (1952) 88 C.L.R. 215

(iv) Stockbroker and Principal

A stockbroker is a fiduciary to his principal. Authority is Daly v Sydney Stock Exchange Ltd (1986) 160 C.L.R. 371 (TLA p. 552). In Daly’s case, the principal merely lent money to the stockbroker, and it was held that the loan was outside the fiduciary relationship, so that the stockbroker as a mere borrower did not hold the money in trust for the principal. The principal couldn’t trace.

(v) Partner and Partner

A partner is a fiduciary to his co-partners. A case regarding a partner’s fiduciary duty is Chan v Zacharia (1984) 154 C.L.R. 178 (TLA pp. 433, 435, 452) - Chan and Zacharia were doctors who had a medical practice and they were partners and they rented premises on which they held a three year lease with an option to renew for a further two years. After the lease had run for only two years, the partnership was dissolved and it was in the course of being wound up.

After the dissolution of the partnership, Chan and Zacharia could not agree on whether or not to exercise the option to renew the lease because the lease was in their joint names. Chan obtained a lease for two years on the same premises. This was not an exercise of the option to renew. Chan had to pay a premium to the lessor. A premium is a sum of money paid to the lessor in addition to the rent. The High Court decided that Chan held the new lease as a constructive trustee for those persons entitled to the distribution of the partnership assets. Justice Deane held that the fiduciary duty which a partner owed to his co-partners continued until the partnership was completely wound up so that the partners’ fiduciary duty would continue even after the dissolution of the partnership.

Justice Deane applied the two principles of liability in Regal (Hastings) v. Gulliver (conflict rule and the profit rule) and decided that these two rules were distinct and overlapped to a large extent. He then applied an obiter observation from Keith Henry & Co Pty Ltd v Stuart Walker Pty Ltd (1958) 100 C.L.R. 342 (TLA pp. 457-458) and decided that Chan was liable to account as a constructive trustee of the new lease.

Deane J held that Chan was liable on two grounds as a former partner in a dissolved partnership which had not yet been completely wound up. The second ground was as a trustee of the lease for the interest of the partnership when it was a going concern and later upon the dissolution of the partnership as a trustee of the lease for those entitled to the distribution of the partnership assets. Some people have queried this second ground because their view is that a partner does not hold partnership property as a trustee. This last mentioned view of Justice Deane was not part of the ratio and the other majority judges did not agree with him. Ong thinks that it is best to base Chan v Zacharia on the breach of fiduciary duty by a former partner rather than on the trusteeship principle.

Justice Murphy dissented (Murphy said that Chan was not liable) – He said that Chan’s fiduciary duty terminated upon the dissolution of the partnership. He said Chan had acquired a new lease when he was no longer under a fiduciary duty, so he was alright. But Murphy was dissenting.

(vi) Banker and Customer (not, as such, a fiduciary relationship)

A bank as such does not owe any fiduciary duty to its customers. This must be so because if a bank as such owed fiduciary duties to its customers, the bank would find it very difficult to make profits because the making of profits would be in breach of the bank’s fiduciary duty. Authority is Foley v Hill (1848) 9 ER 1002. However, if the Bank through any one or more of its officers so conducts itself as to assume the role of a financial adviser to its customers, then the bank will owe that customer a fiduciary duty in respect of such advice. So the bank must be very careful not to assume the position of financial adviser. The bank made a mistake in Commonwealth Bank v Smith (1991) 102 A.L.R. 453.

In that case, the bank manager gave financial advice to two groups of customers, namely the prospective vendors of the leasehold interest in a licensed hotel as well as the prospective purchasers of that leasehold interest. The financial advice included advice on the proposed sale of the hotel. The bank manger thought that he had protected himself when he disclosed to the prospective purchasers that he was also acting for the prospective vendors in the proposed sale.

He was wrong because having told the prospective purchasers that he was also acting for the prospective vendors, the bank manager sided with the prospective vendors because he dissuaded the prospective purchasers from seeking skilled independent advice on the matter. The bank manager in dissuading the purchasers from seeking skilled independent advice had acted in breach of his duty to the purchasers. Because he was the bank manager, the bank was also in breach of its fiduciary duty to the purchasers. Once a breach of duty occurs, the rule is that it is not open to the fiduciary to prove that the prospective purchasers would have proceeded with the purchase even if they had been properly advised by the fiduciary. It was not open to the bank manager to prove that the prospective purchasers would not have taken the skilled independent advice even if he had asked them to do so. So the rule in very strict, in Ong’s view too strict because it violates the principle of causation. This rule infringes the rule of causation, but it is currently law. Ong hopes that one day it would be overturned because it would be unfair if the bank manager could not show that his failure to give appropriate advice was causally irrelevant.

The bank manager had advised the prospective purchasers not to seek skilled independent advice and he advised the prospective purchasers to buy the hotel at a price substantially above its market value. The Full Federal Court held, affirming the decision of the primary judge, that the Bank and its manager had to compensate the purchasers for the monetary difference between the purchase price paid by the purchasers and the lower market value of the hotel.

Contrast with Finding v Commonwealth Bank (1999) Q Conv R 54-533 – The bank was careful, having learnt its lesson in Smith. The bank did not at any time assume the role of financial adviser. Indeed, the bank had expressly disavowed such a role to the two customers who wanted to hold it liable to them as a fiduciary. The two customers had purchased a hotel from the bank and the bank was the mortgagee exercising its power of sale. The two plaintiffs, namely the two customers argued that the bank in lending them the money to purchase the hotel and in not disclosing to them a valuation which the bank had obtained of the hotel which was considerably lower than the purchase price of the hotel and the bank in not asking them to obtain independent advice had breached its fiduciary duty towards them.

However, the plaintiffs’ argument had a basic defect. That basic defect was that the bank did not in the circumstances owe them a fiduciary duty. Because there was no fiduciary duty owed the bank did not have to disclose to them the valuation which it had obtained for the hotel nor did the bank have a duty to ask them to obtain independent advice. All these duties are dependent on a fiduciary duty being owed. Because there was no fiduciary duty owed by the bank to Finding, that case is distinguished from Smith where the bank did owe a fiduciary duty. In Finding, the two plaintiffs had mortgaged their home to the bank to secure the money lent to buy the hotel. Upon the plaintiff’s default in repaying their loan, the bank applied for possession of the plaintiffs’ home. The plaintiffs attempted to resist this action by attacking the validity of the sale and also of the mortgage on the ground of the bank’s breach of fiduciary duty. Since the bank made it very clear that it was not acting as a fiduciary, the bank did not have to tell them that the valuation that they obtained for the hotel was much lower than the asking price for the hotel.

Maguire v Makaronis (1997) 71 A.L.J.R. 781 (TLA p.449) – The HC entrenched the principle that a fiduciary who has breached his fiduciary duty is not permitted to show that the persons to whom he breached his duty would have entered into the relevant transaction even if no such breach of duty had occurred. This rule is celebrated by some persons as a very salutary rule but Ong is not so sure about its beneficial effect because it infringes the causation principle. In other words, the fiduciary in breach is prohibited from showing that his breach of fiduciary duty did not cause the relevant act to occur or did not cause the relevant omission to occur. Ong thinks that a person should be allowed to show that his breach of duty was causally irrelevant.

In Maguire, had two solicitors of Mr and Mrs Makaronis. They lent money to their clients and acquired a mortgage over their clients’ land to secure the loan. However, they did not explain to their clients that they were themselves the lenders and mortgagees. They took advantage of their clients’ defective command of English and simply asked them to sign documents without explaining the true situation. The solicitors breached their fiduciary duty to their clients in that they failed to make it clear to their clients that the loan was made by them personally. The HC said that failure to inform their clients was a breach of fiduciary duty and the HC set aside the loan and the mortgage. In this case, the registered mortgage was ordered to be removed from the clients title to the land. Because the solicitors had made a loan to the clients, the clients had to repay that loan with accrued interest at a rate to be determined by the court and not at a contractual rate before the mortgage could be removed from the clients’ title. In other words, the sole benefit obtained by the clients was a lower rate of interest. The HC held that the solicitors were not permitted to prove that the clients would have entered into the transaction even if they had explained to the clients that they themselves were the lenders.

(vii) Agent and Principal

Unless there are extraordinary circumstances, an agent is a fiduciary to his principal. A case that illustrates this is a case called:

McKenzie v McDonald [1927] V.L.R. 134 (TLA p.52) – In that case, the plaintiff was someone who owned a farm but who wanted to live in the city for personal reasons. The plaintiff approached the defendant, an estate agent, to sell the farm for her. The defendant agreed to sell the farm for her but he managed to persuade the plaintiff to sell her farm to him in exchange for his shop and dwelling in the city plus a small cash payment. The defendant, being an agent to the plaintiff was a fiduciary to her, but he exploited that fiduciary relationship to his personal advantage. He behaved very dishonestly; he deliberately under valued the plaintiff’s farm and over-valued his shop so as to benefit dishonestly from the exchange.

The plaintiff trustingly believed the defendant estate agent and sold the farm to him at an undervalue and purchased his shop at an overvalue. It was clear that he behaved dishonestly. The plaintiff, when she discovered this dishonesty, decided to rescind the contract of sale on the ground of the defendant’s clear breach of fiduciary duty. However, before the plaintiff commenced her action, the defendant had resold the farm to an innocent third party. So it was therefore impossible to order a precise restoration of the parties to their pre contractual position. So at common law, rescission of this contract would have been impossible because precise restitutio integram was impossible, the farm having been resold.

However, the position in equity is different because equity requires only a substantial restoration of the pre-contractual position. So Acting Justice Dixon ordered rescission in equity even though CL rescission was no longer possible. So he ordered the defendant to pay to the plaintiff the real difference between the value of the plaintiff’s farm and the value of the defendant’s shop. Substantial, even though not perfect restitutio integram was achieved. However, the defendant had breached his fiduciary duty to the plaintiff and the plaintiff elected to rescind. However, the plaintiff could have elected for an account of profits but the plaintiff could not have double recovery. The plaintiff could not rescind the contract and claim an account of profits because the account of profits made by the defendant would presuppose the validity of the contract because the profits would have been made by means of the contract. However, the plaintiff decided to rescind the contract and decided not to sue for an account of profits. According to Dixon J’s calculations, the plaintiff would have obtained more by having an account of profits than by rescission. This was because in an account of profits the defendant had to account for all of the profits and the price at which the defendant resold the farm was a higher value than the estimated value of the farm. However, there is a practical problem here: It is very difficult to ask for an account of profits. Even today, people are reluctant to ask for an account of profits. They would prefer something simpler.

(viii) Joint VenturersThe phrase ‘joint venture’ is often used, but that phrase is not a term of art. In other words, there is no definition of a joint venture as such. So if one comes across the term joint venture, one has to ask what the terms of the so-called joint venture are because unless one knows the terms of the joint venture, one really doesn’t know what it is in legal terms. A joint venture may be a partnership. In the case of a conventional partnership, there is a continuing commercial enterprise. However, it is possible for persons to be engaged in a single joint undertaking and yet for them to be partners. In other words, some joint ventures are partnerships; others are not. So the term joint venture is equivocal. However, in some cases a JV would be a partnership. The strictness of the rule that a fiduciary must not make secret profits or must not allow a conflict to arise between his duty and his interest was illustrated in case called:

United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 C.L.R. 1 - There were three companies called Brian, UDC and SPL. Although they described themselves as joint venturers, they were in fact partners as the HC found. They were going to develop a block of land under the JV and that land was owned by SPL only. When these parties were still discussing the proposed partnership, SPL without telling Brian gave a mortgage over the land to UDC to secure to UDC monies lent by SPL on any account, namely whether the money was borrowed for the JV or not. So SPL gave an all monies mortgage to UDC and this was done without Brian’s knowledge. At the time that the mortgage was given, the partnership had not yet been formed. Brian entered into the partnership not knowing about the existence of the mortgage given by SPL to UDC. The partnership produced a profit but UDC was the mortgagee of the land and the profit was made from the use of land. UDC claimed priority and said that the profit must first be used to pay off the mortgage debt owed to UDC before the surplus of the profits could be divided between the three of them. Brian objected and said that the two parties had breached their fiduciary duty by not telling Brian about the mortgage when they were negotiating the formation of the partnership.

The High Court held that UDC and SPL had obtained advantages for themselves without the informed consent of Brian. UDC was not allowed to benefit from its breach of duty to Brian. UDC argued that the mortgage was given before the formation of the partnership. UDC said at that stage it did not owe Brian any fiduciary duty because at that stage there was no partnership. The High Court introduced new law and rejected this argument, saying that a fiduciary relationship could arise between parties who were negotiating with one another and in particular a fiduciary relationship would ordinarily arise between prospective partners who had embarked on negotiations leading to a partnership even though the partnership had not yet been formed and may never be formed.

If one were to combine UDC v Brian with Chan v Zacharia with respect to the fiduciary relationship between partners, would find that relationship extends over a very long period. That fiduciary relationship subsists not only during the period of the partnership but it commences at the point of the partners negotiating to form the partnership and it ends not upon the dissolution of the partnership but upon the complete winding up of the partnership.

(ix) Solicitor and ClientBoardman v Phipps [1967] 2 A.C. 46 (TLA pp. 442-447) - Boardman was a solicitor to a trust. One of the beneficiaries was called Thomas Phipps. In the litigation, Thomas Phipps was regarded as owing a fiduciary duty to the trust. The respondent (plaintiff) was John Phipps, another beneficiary under the trust. John Phipps sued Boardman and Tom Phipps for an account of his share of the profits because he argued that profits made by Boardman and Tom Phipps belonged to the trust estate and as a beneficiary he was entitled to a share of the profits. The trust estate owned a very substantial but minority shareholding in a private company. Boardman and Tom Phipps purported to represent the substantial shareholding and obtained from the private company valuable information concerning the affairs of the company. They were able to obtain this valuable information because they had purported to represent the trust. They then used this information for themselves and they acquired the remaining shares in the co (non-trust shares). Boardman was a brilliant businessman. He turned this poorly performing co into a very successful company and huge profits were made and dividends were paid and it was a great success. The success of the co benefited the trust estate because the trust estate was a minority shareholder.

However, John Phipps was not satisfied with that benefit. He said that the estate could get more. The estate should get the shares which Boardman and Phipps acquired and the profits made by them from those shares subject to Boardman and Phipps being reimbursed for their expenses.

Boardman and Tom Phipps admitted that they were fiduciaries but denied liability to account to the trust estate for the shares and the profits because they purchased the shares only after they had ascertained the trust estate was not interested in purchasing the shares. They said there was no conflict between duty and interest because the trust estate was not interested in purchasing the shares. Ong thinks that this case illustrates the distinction between the inability of the fiduciary to make a purchase and a disclaimer of interest. Some courts like Consul v DPC take a reasonable view – If a fiduciary demonstrably had no capacity to undertake something, that should be regarded as equivalent to a disclaimer of interest. Therefore, the project may be undertaken by the fiduciary. But in Boardman, the majority of the law lords took a very artificial view. They said that a distinction must be maintained between a fiduciary who was not in a position to undertake a project from the position of a fiduciary who was not interested in undertaking the project. The majority said that there was a liability to account because although one trustee was not going to apply to the court for permission to buy the shares, that simply meant that the trustees were not in a position to apply to the court for permission to buy those shares. It did not mean that the trust was not interested in buying those shares. The general rule, subject to exceptions is that ‘Unless the trust instrument authorises them to act by majority decision, trustees must act unanimously. Authority is Luke v South Kensington Hotel Co (1879) 11 Ch. D. 121 (TLA p. 211)

HL said did not obtain consent of trustees to make the purchase. Although the trust could not make the purchase, this did not mean that the trust was not interested in making the purchase. Breached fiduciary duty by allowing personal interest to conflict with duty. They also said that Boardman v Phipps had used their position to acquire information. This case as far as majority is concerned, is a combination of two alternative lines of reasoning used in Regal Hastings. One ground of liability is a conflict between duty and interest. The other ground of liability is misusing one’s fiduciary position to obtain a benefit for oneself. The majority said that Boardman and Phipps were liable because they had breached their fiduciary duty. However, the minority said there was no breach of fiduciary duty. The minority said there was no serious possibility of conflict between duty and interest. Minority were Lord Upjohn and Viscount Dilhorne. Ong thinks that these two judges, although dissenting were stating the law in Australia consistently with Consul and DPP. Ong thinks that the position in Australia is – If there is an inability on the part of the fiduciary to undertake a project, one could infer that there was also a lack of interest in undertaking the project and therefore the project could be undertaken by the fiduciary. In Australia, the possibility of conflict between duty and interest would have to be real or serious. Ong thinks that the conflict of interest perceived by the majority was entirely fanciful. HL ordered Boardman v Phipps to account as constructive trustees of the shares which they purchased subject to them being reimbursed for the money they had used to purchase the shares. The appellants were also accountable for the profits which they had made from the shares purchased by them. However, the appellants were entitled to a liberal allowance for the skill which they had exercised in the acquisition of the shares and in the making of the profits resulting from that acquisition. Ong thinks that today the uncertain element is the amount of the liberal allowance. This is a practical problem, namely how much in the circumstances would constitute a liberal allowance. Ong thinks there is now a conflict between two principles. One is the strict accountability of the fiduciary. The other principle is the principle of unjust enrichment. If don’t give the delinquent fiduciary a liberal allowance for profits made by them in breach of fiduciary duty but also made because of the skill and labour which they displayed, then would be unjustly enriching the person to whom the fiduciary duty is owed. If give fiduciary liberal allowance, then the fiduciary will be benefiting in a limited sense from his breach of fiduciary duty. That infringes the rule that a fiduciary cannot make an undisclosed profit. The liberal allowance would be an exception to that prohibition.

(x) Employer and Employee This was made clear by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (at 96 per Mason J)

(xi) Other Fiduciary RelationshipsHospital Products Ltd v United States Surgical Corporation (1984) 156 C.L.R. 41 – One of the most disappointing cases ever. USSC was a manufacturer of surgical staples in the USA. USSC appointed HPI as its Australian distributor. HPI’s assets were subsequently acquired by HPL. This distributorship was later and quite properly terminated by USSC. During the currency of the distributorship, HPI secretly manufactured staples similar to those made by USSC. When orders were made, HPI did not fill those orders. HPI deferred the filling of those orders. They waited until the distributorship was terminated before filling the orders with their own products.

The High Court was unanimous in holding that what HPI did was a breach of contract, namely the contract required them to fill orders for the staples and they did not do so. The other question was whether HPI owed a fiduciary duty to USSC. If HPI did owe a fiduciary duty, then HPI would have breached that duty because it created a conflict between its duty and its self-interest. However, the majority of the High Court (Mason J. dissenting) decided that the distributorship agreement did not create a fiduciary relationship between USSC and HPI. The majority said that this was simply a contract, the parties were dealing at arms length and there was no fiduciary relationship between them. The majority who supported the conclusion that there was no fiduciary relationship were Gibbs CJ, Wilson, Deane and Dawson. Gibbs J gave a very compelling reason why there was no fiduciary relationship. He said that the contract did not require HPI to subordinate its interests to USSC so there was no express or implied agreement by HPI that it would subordinate its interests to USSC. Gibbs J said that given that there was no agreement by HPI to subordinate its interests to those of USSC, the relationship could not be a fiduciary one because the absence of this agreement to subordinate its interests meant that HPI was permitted to have a conflict between its duty and interests. Gibbs J said the contract, although imposing certain obligations did allow HPI to

consider its own interests, even above those of USSC. Gibbs J said how can you have a fiduciary relationship in that sort of situation where the contract permits HPI to put its own interests above that of USSC provided there was no breach of contract.

Justice Mason (dissenting) thought that HPI’s rights to act in its own interests did not prevent HPI from being a fiduciary to USSC. Today, the view of Mason J is more popular than that of Gibbs J. Mason J was saying that even where there was no obligation to subordinate one’s interests, one could still be a fiduciary. One can still be a fiduciary even if one had no obligation to subordinate one’s interests. Ong finds this almost incoherent because he does not see how someone could have to duty to avoid a conflict between self-interest and duty if his duty did not include an obligation to subordinate his self-interest to his duty. Mason J said ‘The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interest of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense.’ He did not say that the person (fiduciary) must not act in his own interest. Ong thinks that the omission of that requirement means that Mason J has now diluted the fiduciary relationship. Having found a fiduciary relationship, Mason J decided that there was a constructive trust to be imposed and he imposed a constructive trust that was narrower in scope than that ordered by the NSW CA. His judgment was a dissenting judgment and the order which he would have made was not part of the order made by HC.

Justice Deane, although he held that HPI was not a fiduciary, agreed with Mason J that there could be a limited constructive trust. He imposed a constructive trust as a remedy for a breach of contract which did not involve any breach of equitable duty. His view was not the view of the HC and not bound by it.

The majority (Gibbs CJ, Wilson and Dawson) held that there was only a breach of contract and that the only remedy against HPI was damages for breach of contract. Dawson J said there is no fiduciary relationship unless the person to whom the duty was owed was in a position of disadvantage or vulnerability. This view of Dawson J was adopted by Justice Sopinka in LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 D.L.R. (4th) 14, at 63 (per Sopinka J.) (TLA p. 458).

Doctor and Patient?McInerney v MacDonald (1992) 93 D.L.R. (4th) 4th Series p.415 - The Supreme Court of Canada held that the relationship of doctor and patient as such was a fiduciary relationship.

However the HC in Breen v Williams (1996) 70 A.L.J.R. 772 said that in Australia the relationship of doctor and patient as such was not fiduciary. Ong thinks that HC is doing the right thing by not expanding the categories of fiduciaries.

Clergy and ParishionerClark v Roman Catholic Archdiocese of Brisbane [1998] 1 Qd. R. 26 – Williams J held that the relationship between Bishop and communicant is not a fiduciary relationship and Ong thinks that is a good development. There is no fiduciary relationship between a clergyman and a parishioner as such.

Exoneration from Duty to AccountA fiduciary would have no duty to account if he has obtained the informed consent of the person to whom he owed the fiduciary duty to undertake the project. However, apart from consent, there could also be another ground of exoneration from duty to account – If the activity engaged in by the fiduciary is beyond the scope of the fiduciary’s duty. A well known case of exoneration from duty is:

Queensland Mines Ltd v Hudson (1978) 52 A.L.J.R. 399 (TLA pp. 455-456) - The board of directors made it clear to everyone including the MD that the co was not interested in exploiting those mines. When the MD understood from the board that the co was not interested in exploiting those mines, the MD exploited the mines for himself and he made a very large profit from that exploitation. The company sued the former MD for an account of those profits. The Privy Council held that the managing director did not have to account for those profits because the company had consented to the undertaking. So one of the two grounds of decision was the consent of the company. The other ground of decision was that as soon as the company expressed its lack of interest in acquiring the mines, the mines fell outside the scope of the

managing director’s fiduciary duty to the company. The expression of lack of interest can be explained in both ways. Ong’s own view is that the lack of interest should not be construed as consent, but as simply taking the activity outside the scope of the fiduciary’s duty.

The PC pointedly adopted the opinion of Lord Upjohn in Boardman v Phipps; that the rule relating to a conflict between duty and interest would only apply if there was a real or serious possibility of conflict between duty and interest. Do have a dichotomy; cases like Consul v DPC which would equate an inability to undertake a project with a lack of interest in the project, thereby taking that project outside the scope of the fiduciary’s duty. Then have the Boardman v Phipps line of cases which distinguishes sharply between a mere inability to undertake a project and a lack of interest in it. It all depends whether or not the court is prepared to infer from an inability to undertake a project the lack of interest in the project.

A fiduciary who is about to breach his duty may be prevented from doing so by injunction

Not only are remedies available upon breach of fiduciary duty but if a person to whom a duty is owed is fearful that a fiduciary is about to breach his duty, then this person may obtain an injunction to stop the fiduciary from acting in breach of his duty. The authority for this proposition is Pacifica Shipping co Ltd v Andersen [1986] 2 N.Z.L.R. 328 (TLA p. 434).

Remedies to recover gains improperly made by fiduciaries and to recoup loses improperly caused to persons to whom fiduciary duties are owed

Supposing a fiduciary acts in breach of fiduciary duty and makes a gain from it or alternatively he breaches that fiduciary duty and causes loss to the person to whom the duty is owed. What remedies do you give to the person to whom the fiduciary duty was breached?

Personal liability (equitable debt)In some cases like Boardman v. Phipps, Chan v. Zacharia and USSC v HPL, the appropriate remedy was considered to be the imposition of a constructive trust on the benefits obtained by the defaulting fiduciary. However, there are other cases like Cooke v. Deeks and Regal Hastings v Gulliver where the PC and HL respectively decided that the remedy was a personal liability to account for profits, namely a liability to account for those profits as an equitable debtor. In those two cases, no constructive trust was imposed. Even today, when we find that a fiduciary has made a profit, it is still uncertain whether the appropriate remedy is to order the fiduciary to account on a personal basis for those profits or whether a constructive trust should be imposed on those profits. There is no principle to help us decide which is the appropriate remedy. Sometimes, as Gibbs J observed in Consul v DPC (TLA 457), the court awarding the remedy has not made it clear whether it was imposing a personal liability or whether it was imposing a constructive trust.

Ong can say quite clearly that if a fiduciary takes a bribe, then the bribe is held on a constructive trust. Authority is Attorney-General for Hong Kong v Reid [1994] 1 A.C. 324 (TLA p. 436). If the bribe money which is held on constructive trust is invested by the defaulting fiduciary and a profit is made from that investment, the profit will form part of the constructive trust. On the other hand, if the investment falls in value, the trustee will continue to be liable as a constructive trustee for the investment but additionally he will be personally liable to pay the person to whom the duty was owed the difference between the original value of the bribe and the current lower value of the investment. Ong thinks that it is almost certain that the Australian position will reflect the decision in A-G Hong Kong v Reid.

It is very important to decide whether there is a constructive trust or whether there is merely a personal liability to account because if there is a constructive trust, the subsequent bankruptcy of the fiduciary will not prejudice the person to whom the duty is owed because s116 (2) (a) Bankruptcy Act 1966 (Cth) says that the property held in trust by a bankrupt is not distributable amongst his creditors. If a constructive trust were imposed on the profits, then the subsequent bankruptcy of the fiduciary will not prejudice the person to whom the duty was owed. If there was only a personal liability to account and the fiduciary was only made an equitable debtor, then the person to whom the fiduciary duty was owed would not have the

protection of s116 (2) (a) but would have to approve in the bankruptcy of the fiduciary as an unsecured creditor under s108 Bankruptcy Act.

If Ong was a person to whom a fiduciary duty was owed, he would claim that a constructive trust was imposed so that in the case of subsequent bankruptcy, he would be protected under s116 (2) (a). The position has been examined in:

The relevant equitable remedies compared

Warman International Ltd v Dwyer (1995) 69 A.L.J.R. 362 (TLA pp. 447 and 456) - The plaintiffs were Warman and its holding company, called Peko-Wallsend (both companies will be referred to as Warman.) Warman was the Australian distributor of gearboxes for an Italian company called Company B. Dwyer was the general manager of the Queensland division of Warman and it was not disputed that as GM of the Qld division, Dwyer was a fiduciary to Warman. During the distributorship agreement, Dwyer did something very dishonest; Dwyer went to Italy and said to Company B that Warman was not suitable as a distributor and persuaded Company B to terminate the distributorship agreement it had with Warman and to appoint as its new Australian agent a company formed by Dwyer for the purpose of taking over the agency. Dwyer also formed another company to provide services which were interlocked with those provided by the first company.

What Dwyer did created a clear conflict between his duty to Warman and his self-interest. He was in breach of his fiduciary duty to Warman in obtaining the agency for one of his own companies. The profits were made by the two companies and Dwyer was the directing mind of the two companies. So Dwyer’s breach of duty was known by the two companies. The two companies were guilty under the Barnes v Addy principle of having knowingly assisted Dwyer in the breach of his fiduciary duty to Warman.

The Queensland Court of Appeal had ordered Dwyer and his two companies to pay Warman equitable compensation for depriving Warman of its chance of continuing its agency agreement with Company B. The High Court said that this was the wrong remedy; equitable compensation would not be the appropriate remedy. The HC said that the more appropriate remedy was to ask Dwyer and his two companies to account for their profits for a period of two years. They were asked to account for a period of two years because the HC took the view that after the period of two years, the benefits obtained by Dwyer from his breach of fiduciary duty had been exhausted. Then the HC said that from these profits there should be deducted a due allowance for the expenses, skill and effort which Dwyer and his two companies had contributed to enable the profits to be made. There would be a liberal allowance given to Dwyer and his two companies for their expenses, skill and effort in producing those profits. This due allowance could be substantial, depending on the disposition of the court.

The HC also decided that equitable charges would be imposed on the assets of Dwyer’s two companies to secure the payment of the profits to Warman. Ong supposes that if a personal liability was secured by a charge, that would protect the person to whom the duty was breached in the event of bankruptcy because if there’s a charge on the asset of a bankrupt, the charge would not be affected by the bankruptcy in the sense that the asset of the bankrupt would need to be sold to pay the debt secured by the charge. If combine a charge with a personal duty to account, that would make the person secure. What was done in Warman is from the plaintiff’s perspective better than what was done in Regal Hastings because in Regal Hastings there was an order for an account of profits to be made but no charge was imposed.

The HC said there was a personal duty to account for profits on the part of the two companies and Warman and also that this personal duty was secured by a charge. The charge does not fall within s116 (2) (a) because it is not a trust but nonetheless because a charge is a security interest on an asset of the bankrupt, bankruptcy does not freeze the asset from the charge. The charge still applies even in bankruptcy. The HC, having said that the CA was wrong to award equitable compensation for deprivation of a chance of making a profit, said nonetheless it was happy to give Warman the right to elect between equitable compensation and an account of profits. The right to claim equitable compensation for breach of fiduciary duty was established in a case called Nocton v Lord Ashburton (TLA 403).

In Warman v Dwyer, the court did not impose a constructive trust on the profit made by Dwyer and his two companies. The uncertainties persist as to whether one should impose a constructive trust or impose only a personal duty to account.

Remedies sought must be mutually consistent

The remedies sought by the plaintiff must be mutually consistent. There cannot be double recovery or multiple recovery because although the plaintiff is entitled to a remedy, the plaintiff is not entitled to inconsistent remedies. This point was made in a case called:

Tang Man Sit (decd.) v Capacious Investments Ltd [1996] 1 All E.R. 193 - PC held that it was inconsistent for a plaintiff to claim an account of profits as well as compensation for the loss caused by the fiduciary’s breach of duty. The plaintiff had to elect between an account of profits and equitable compensation. If claim compensation, the plaintiff is repudiating what was done by the fiduciary and claiming compensation for the loss. If the plaintiff is claiming an account of profits, he is affirming the transaction. One cannot concurrently claim with respect to the same transaction an account of profits as well as compensation.

9.

9. TracingTLA Ch. 10

Tracing is now a very useful remedy in light of the rate of bankruptcies. If someone can trace his property into the apparent assets of the bankrupt, the person can say that that asset is only an apparent asset of the bankrupt and is in fact an asset owned by the tracer so that the bankruptcy would not impair the tracer’s ownership of the asset traced. Tracing is an action which allows a person to follow his property through a number of transactions into the hands of another person. Tracing is a proprietary action and is not a personal action. The right to trace property is very useful in the case of someone who holds property but subsequently becomes bankrupt because of s116 (2) (a) Bankruptcy Act. A case where there was tracing of property held by a bankrupt (applying s116 (2)(a)) is a case called Re Goode (TLA 552).

When it comes to tracing, have common law tracing and tracing in equity. In the case of CL tracing, because what one is tracing is a title at law, that CL title cannot be defeated by the plea of bona fide purchaser for value of the legal estate without notice. By definition, if someone can trace his legal title, then no one can claim to have received the legal title. That is the advantage of CL tracing. The corresponding disadvantage of equitable tracing is if someone is able to trace in equity only, this person would acquire an equitable interest and this person (because only able to establish equitable title) can be met with a defence of bona fide purchaser for value of the legal estate without notice. In equitable tracing, the person who so traces can be defeated by someone pleading bona fide purchaser of the legal estate for value without notice.

However, equitable tracing has an advantage denied to CL tracing. In the case of CL tracing, there is a limited process in that if have assets that are inextricably mixed, then CL tracing stops. If someone was tracing a particular banknote and didn’t know serial number and that banknote was mixed with another banknote of the same denomination, CL tracing would say don’t know what to do because cannot say which of the two banknotes was being traced because now mixture of two banknotes. However, equitable tracing is more effective here. Equity says that the mixing of assets would not be a problem (would not prevent equitable tracing) because equity can impose a charge on the amalgam so that the amalgam can then be separated. Even with equitable tracing, there can be some cases of mixture that are so complex that even equitable tracing is not available.

(i) Common Law Tracing

Taylor v Plumer (1815) 105 E.R. 721 (TLA pp. 487-489) – There was someone called Thomas Plumer. He handed money to Walsh, who was his stockbroker, for the purchase of Exchequer bonds. Walsh did not use the money to purchase Exchequer bonds for Plumer as had been agreed. Instead, Walsh used the money to buy shares and gold bullion purportedly for himself. Plumer succeeded in taking the share certificates and gold bullion from Walsh before Walsh could escape from England. After seizing the share certificates and gold bullion from Walsh, Walsh became bankrupt and his assets were assigned to his assignees in bankruptcy. The assignees in bankruptcy of Walsh took the view that the share certificates and gold bullion belonged to Walsh. They brought an action in conversion against Plumer for having taken the items from Walsh. An action in conversion is concerned with legal title, therefore Ong would regard Taylor v Plumer as a case of CL tracing. Plumer’s defence was that the items in dispute belonged to him as the legal owner because he could trace his money into those items by showing that they had been purchased with his money. Ultimately, the issue was whether Plumer could trace his money at CL.

Lord Ellenborough said that Plumer could trace his money at CL for the simple reason that he could show that the share certificates and gold bullion were purchased with his own money so that the gold bullion and share certificates were merely being substituted for Plumer’s money. The action in conversion failed because Plumer was able to show that the legal title to the gold bullion and share certificates belonged to him and not to Walsh. Lord Ellenborough did observe obiter that where sums of money belonging to different persons had been inseparably mixed, the CL would then not be able to trace the money into the

funds. However, in Ong’s view, he was correct in saying that at CL one could not trace money that had been inseparably mixed with other money. However in equity one could do so. Lord Ellenborough was not concerned with the equitable position because he was concerned with CL title. Therefore, Lord Ellenborough said that Plumer succeeded in showing that he could trace his money into the share certificates and bullion and therefore he was not guilty of conversion. Therefore, the action in conversion against Plumer failed.

Lipkin Gorman v Karpnale Ltd [1991] 2 A.C. 548, at 568-574 (TLA p. 493) – Lipkin Gorman were a firm of solicitors and Karpnale Ltd was the owner of a gaming club. LG had a solicitor called Cass and Cass was a partner in the firm. He had authority to withdraw from the firm’s account. However, Cass withdrew large sums of money from that account and gambled them away at Karpnale’s club. HL held that at CL the money in the bank which the firm of solicitors had was a chose in action against the bank. HL held that the money that had been improperly withdrawn from the bank by Cass could be traced at CL into the hands of Karpnale. There had been no mixing of funds. After Karpnale received the money, the money was mixed with Karpnale’s own money so that the money became inextricably mixed and therefore no longer traceable at CL. The court was concerned with CL tracing and there was no issue of equitable tracing. Why did the court not use equitable tracing? - Karpnale was not bankrupt and all the solicitors needed to do was to show that Karpnale had received the money. Once they showed by CL tracing that Karpnale had received the money, the solicitors could sue Karpnale in an action for money had and received (a personal CL action). Ultimately, the action was a personal action but the CL tracing principle was used to trace the money into Karpnale’s hands.

(ii) Tracing in Equity

In equitable tracing, equity allows money to be traced even when it has become inextricably mixed with other monies. There is a very long drawn out debate as to whether in equitable tracing need to establish an initial fiduciary relationship, namely whether the person seeking to trace in equity needs to show that the money sought to be traced was initially handed over to a fiduciary. This issue has not been resolved. There are cases like Re Hallett’s Estate (1880) 13 Ch. D 696 (TLA pp. 499-511) and Re Diplock [1948] Ch. 465 (TLA pp. 523-537) which insist that there must be an initial fiduciary relationship before can have equitable tracing. However, there is a case decided to the contrary called Chase Manhattan Bank v Israel - British Bank [1981] 1 Ch. 105 (TLA pp. 534-535). If Chase Manhattan is to be believed, then in equitable tracing do not need to establish an initial fiduciary relationship.

There is a rule known as the rule in Clayton’s case (1816) 35 E.R. 781 (TLA pp. 498-499). The rule in Clayton’s case prescribes that in an active account (an account with debits and credits) there is a rebuttable presumption of fact that money is withdrawn from the account in the order in which it is paid into the account so that money that is first deposited is presumed rebuttably to be the money that is first withdrawn. The rule does not apply to different sums of money deposited on the same day because there is no evidence that a bank or a building society will record the deposits in the order in which they are made on the same day. If different sums are paid in on the same day, the rule in Clayton’s case does not apply. The authority for saying that Clayton’s case does not apply to different sums of money paid into an account on the same day is a case called The Mecca [1897] A.C. 286 (TLA p. 498).

Re Hallett’s Estate (1880) 13 Ch. D 696 (TLA pp. 499-511) – Mrs Cotterill had a solicitor whose name was Hallett. She gave H custody of some Russian bonds. H became the bailee of those bonds for Mrs C. Sir George Jessel held that a bailee was a fiduciary to the bailor. Hallett was also a trustee of his own family trust. As a trustee of the family trust, he held certain other Russian bonds as trustee. H was a double fiduciary. He sold without authority the Russian bonds belonging respectively to Mrs C and to the trust. He deposited the proceeds of sale on different days into his personal account, in which he had money of his own. He paid in the proceeds from the trust bonds before paying in the proceeds from Mrs C’s bonds. Thereafter, he made deposits and withdrawals from the same account, however at no time did the credit balance in the account fall below the amount of the combined proceeds of sale of the two parcels of bonds. There was always enough money in that account to pay Mrs C and the trust.

When case went to CA, the issue was whether or not one should apply the rule in Clayton’s case and assume that monies first deposited were also correspondingly first withdrawn. If the rule in Clayton’s case had been applied, the result would have been quite capricious. The money from the family trust which was put in first would have been withdrawn altogether and dissipated and only a very small part of Mrs C’s money would have been withdrawn and dissipated. Jessel MR together with LJ Bagalay who represented the majority thought that this capricious result could not be supported. Jessel said that if someone has done something and if could have done it rightfully, he would not be allowed to say that he had done it wrongfully. Jessel said that because there was always enough money in the account to cover the monies of the trust and of Mrs C, the trustee Hallett would be deemed to have done the honest thing and he would therefore be deemed to have withdrawn his own monies first. Neither the trust nor Mrs C would lose any of their money. That is known as the presumption of honesty.

The presumption of honesty would still apply today even if the trustee in making the withdrawals had to withdraw some of the trust money. In that case, the presumption of honesty would still apply even though there was no honesty in fact. Now this rule, namely the presumption of honesty will apply whether or not there is actual honesty. It is assumed that the trustee will withdraw all of his money first before withdrawing any trust monies. LJ B agreed with Sir George Jessel. They comprised the majority. Thesiger LJ dissented. He was quite happy to apply Clayton.

In Hallett, Sir George Jessel made a number of important observations. He said that if property was purchased entirely with trust money (any money traceable in equity), then the beneficial owner can elect to take the property purchased or to hold it as security for the amount of trust money used in its purchase. Supposing the asset was purchased with trust money as well as the trustees’ own money; in that case because the asset was not purchased entirely with trust money, the tracing claimant would not be able to claim the entire asset as his or her own. The tracing claimant can claim a charge over the asset purchased with his money as well as the trustees’ own money. The law has now gone further and said that not only does the tracing claimant have a charge over the asset purchased with trust money and the trustees own money but as an alternative the tracing claimant can claim a proportionate share of the asset. This right to claim a proportionate share of the asset was not stated in Hallett but in Scott v Scott.

In the case of an asset purchased solely with trust money, the question that is prompted is what should the tracing claimant do, to take the charge or to claim the asset. As a matter of common sense, Ong supposes that if the asset has diminished in value and is likely to remain diminished in value, a charge over the asset would be a better choice for the tracing claimant. If the asset has increased in value and is likely to remain at this higher value, then the tracing claimant should elect to have ownership of the asset. This is a common sense proposition and something that is now law. Ong favoured this result but could not cite authority for it. Now there is authority namely Foskett v McKeown [1997] 3 All E.R. 392, at 403-404 (per Scott V - C) (TLA pp. 553-554). There Scott VC said that was the intelligent thing to do. Foskett v McKeown was reversed by HL but the reversal of that decision does not affect what was said by Scott VC in the CA. Basically, what the HL decided was this: If the trustee were to take $10 of trust money and were to buy a lottery ticket with that $10 and he were to win a million dollars then the entire million dollars would belong to the trust. There was a fraudulent fiduciary. He had a life insurance policy. Some of the premiums were paid with his own money and other premiums were paid with trust money. This person died and the contest was between the beneficiaries of the trust and the beneficiaries of his will. The beneficiaries of his will said would take proceeds of the insurance policy and reimburse the trust for the amount used to pay for the premiums. The beneficiaries of the trust wanted a proportionate share of the proceeds of the insurance policy.

Hallett’s case did make it very clear that needed an initial fiduciary relationship. The fiduciary relationship between H and Mrs C was that of bailor and bailee and in the case of the trust was that of trustee and beneficiary. There was an initial fiduciary relationship and equitable tracing was allowed on that basis. This was followed in Re Diplock [1948] Ch. 465 (TLA pp. 523-537).

Chase Manhattan Bank v Israel - British Bank [1981] 1 Ch. 105 (TLA pp. 534-535) – Goulding J said that in equitable tracing there was no need for an initial fiduciary relationship. Ong agrees with him because don’t see why need an initial fiduciary relationship for equitable tracing. CM Bank made a mistake and

pursuant to that mistake it paid a large sum of money to the I-B Bank and the I-B Bank subsequently became insolvent. Because of the insolvency of the I-B Bank, the CM Bank had to show that it could trace its money. There was no fiduciary relationship between the two banks. The issue was given that there was no initial fiduciary relationship between the two banks, could the CM Bank trace in equity. Goulding J held that there was no requirement of any fiduciary relationship in the case of equitable tracing. He said that the basis of equitable tracing is based on the continuing equitable proprietary interest in the subject matter. He said equity would recognise the equitable interest of the owner and therefore there was no need for any initial fiduciary relationship.

Ong would agree with Goulding – Example of 2 thieves. One thief is an employee therefore according to Mason J in HPI he would be a fiduciary. He steals 1000 dollars and he mixes that 1000 dollars with his own money so that CL tracing becomes impossible and need equitable tracing. In that case, there is no problem because he being a fiduciary, the money can be traced in equity. Then have another thief who is not a fiduciary. He steals 1000 dollars and mixes that $1000 with $1000 of his own money. Because of the mixing, the owner is not able to trace the money at CL. The owner, if Diplock and Hallett are correct would not be able to trace in equity either because there is no initial fiduciary relationship. In Ong’s view, there is absolutely no merit in this distinction because they are both thieves.

Black v Freedman (1910) 12 C.L.R. 105 (TLA p. 501) – Those who support the Goulding view cite this case as a case for saying that there is no need for a fiduciary relationship in equitable tracing. There was a thief who stole from his employer. The employer was held by HC to be able to trace the stolen money in equity. Those who take this view and say that Black v Freedman is a case to support the proposition that do not need an initial fiduciary relationship in equitable tracing overlooked that the thief was an employee and therefore a fiduciary. Black v Freedman cannot be used to support the proposition that do not need an initial fiduciary relationship in equitable tracing. That only case that can be cited in support of that proposition is the Chase Manhattan case. Tracing has sometimes been abused in the sense that even where there is no possibility of tracing, a court will pretend that the money is traceable. This was done by the NZ CA in a case called Re Goldcorp Exchange. Fortunately, the PC reversed the decision of the NZ CA and said tracing must mean tracing and if there is nothing to be traced, can’t have tracing simply to do justice.

Re Goldcorp Exchange [1995] 1 A.C. 74(at 97-99) (TLA p. 544) – A few people had purchased bullion from a company on a non-allocated basis, namely they purchased quantities of bullion but not specific bullion. The company became insolvent and went into receivership. When they went into receivership, the floating charge of the Bank of NZ crystallised on the assets of the bullion company. The issue was could the non-allocated claimants claim equitable ownership of the bullion which they purchased but which had not been specifically allocated to them. PC very clearly and very simply said no; there can be no tracing because never had any bullion to trace. PC gave NZ CA a very sharp reprimand. PC said the non-allocated claimants never had any proprietary interest in the bullion and therefore they cannot invoke the tracing principle.

Mixing by fiduciaries of their own money with trust moneys derived from one or more sources

Re Oatway [1903] 2 Ch. 356 (TLA pp. 509-511) – Oatway was a solicitor and he was also a trustee so he was a double fiduciary. He paid 3000 pounds of trust money into his personal bank account. A trustee cannot pay trust money into his personal bank account. That is a breach of trust. A trustee must pay trust money into a trust account. By paying trust money into his personal bank account, Oatway acted in breach of his fiduciary duty. He then withdrew from his account 2137 pounds and used this sum of money to buy co shares. Immediately after withdrawing this sum to purchase the company shares, there was still a credit balance in the account of more than 3000 pounds, namely of more than the trust money. Later all of the money in the account was withdrawn and dissipated. Immediately after the withdrawal, there was still enough money in the account to cover the trust money. The proceeds of sale from the company shares were identifiable. Oatway died insolvent so tracing became imperative. Oatway’s deceased estate tried to use the presumption of honesty enunciated in Hallett. So Oatway’s deceased estate argued that there should be a presumption of honesty so that Oatway would be deemed to have withdrawn his own money first to purchase the shares and to have left the trust money in the account. Although that was a logical argument, it

was rejected because it was inexpedient. Joyce J said that such a result would have been very unjust because the trustees of the deceased estate would be able to get hold of the proceeds of sale of the co shares. Joyce J had to twist a basic principle. He had to distinguish Hallett and avoid applying the presumption of honesty. Without acknowledging that he was introducing an exception to Hallett, he did in fact introduce such an exception. He held that the order of withdrawals was of no relevance. He said if a trustee withdraws money from a mixed account and uses it to purchase an investment which he still retains and the balance in the account is subsequently dissipated, then the trustee cannot invoke the presumption of honesty. He said the court would treat the investment as having been made with trust money and will consider the money later dissipated to be the trustee’s own money. The result of combining Oatway and Hallett is that the presumption of honesty can be applied only as against the fiduciary. The fiduciary himself cannot rely on the presumption of honesty to benefit himself.

The position in Oatway is admired by some people, but not by others including Ong. In Oatway, there was no genuine tracing because Joyce J said that if money was withdrawn from the account and invested profitably, and the balance is subsequently dissipated, then the money profitably invested must be deemed to have been purchased with trust money. However, there is a problem. The money is withdrawn from the account and an investment is purchased. Ask Joyce J whether trust money is in the balance of the account or whether the trust money is in the investment. He cannot answer because he has to wait and see whether the investment is subsequently retained and whether the balance in the account is subsequently dissipated. Oatway is not a case of tracing because tracing requires the property of the tracing claimant to be identifiable at every stage of the tracing process. This has now been affirmed by HL in Foskett v McKeown. If cannot follow property at every stage of the tracing process, then the property is lost. In Oatway, at the moment of the purchase of the investment, Joyce cannot tell where the trust money is.

There is a case which re-asserts the correct principle. Such a case is:Roscoe v Winder [1915] 1 Ch. 62 (TLA pp. 521-523) – There was a debt collector. This debt collector had collected 455 pounds and he improperly paid that sum of money into his personal bank account. There were various payments into that account and withdrawals from that account after the payment of 455 pounds of trust money. After a number of transactions, the balance in the account fell to the sum of 25 pounds 18 shillings. After the balance fell to this amount, the debt collector paid in some of his own money and also withdrew some of the money deposited by him. He died insolvent and hence the tracing action. When he died, the debt collector had in that account 358 pounds. The persons on whose behalf the debts had been collected said they wanted that money. Sargant J said no; he said if we are to use the tracing process, all the claimants are entitled to would be the 25 pounds 18 shillings which represented the balance at its lowest point. At that point, the trust monies had been reduced to 25 pounds 18 shillings. The subsequent payments did not include any trust money. Therefore, all that could be traced was 25 pounds 18 shillings. Ong himself would applaud this case. Has been applied in Australia. It was applied in Qld in a case called:

Re MacDonald / Lofts v MacDonald (1974) 3 A.L.R. 404 (TLA p. 523) – One can only trace the amount which represented the balance at its lowest point because after that point the money would no longer be trust money. In Roskill v Winder, there is an exception. Suppose the money was paid into a trust account. The withdrawal from the trust account for the fiduciary’s personal purposes would have been a breach of trust. Had the account been a trust account, the subsequent payments into that account of the trustee’s own money would be presumed to be payments by the trustee to repair the breach of trust. This exception is consistent with the tracing process because if it was withdrawal from a trust account in breach of trust, then any subsequent sum paid in by the trustee would be deemed to be monies paid in to repair the breach of trust. It must be a trust account. There is no such favourable presumption in the case of a personal account.

The principle of tracing established in Roscoe v Winder is that the person tracing his money can only trace the amount constituting the lowest credit balance during the intermediate period. The intermediate period is the period between the moment of the improper mixing of the trust money with the trustee’s own money.

Bishopsgate Investment Management Ltd v Homan [1995] Ch. 211 (TLA p. 544) – This case established the obvious proposition that one cannot trace through an overdrawn account. If trust money is paid into an account and subsequently the account becomes overdrawn, then by definition all of the trust money is gone

and cannot trace the trust money. In the CA in Foskett v McKeown, the CA suggested it is possible to trace through an overdrawn account. Ong’s own view is that should accept Bishopsgate as good law and cannot have a tracing through an overdrawn account.

May have a situation where the competition is in fact three cornered. Have a competition between the fiduciary and two or more trust funds where the fiduciary’s money has been mixed with the money from these two or more trust funds. Then have second competition between owners of the two or more trust funds. As between the fiduciary and trust funds, either apply the presumption of honesty in Hallett or apply the Oatway principle. If competition between owners of trust funds, do not apply the presumption of honesty and do not apply Oatway. Choose between two rules. As between the two or more trust funds, apply the rule in Clayton’s case or the pari passu rule (namely that the trust funds would own the mixed funds proportionately).

Clayton or Pari Passu?

Re Stenning [1895] 2 Ch. 433 – North J held that where a fiduciary mixes several trust funds and withdrawals are made from that amalgam, apply the Clayton rule. In doing so, he followed the obiter dictum in Hallett.

A different view was taken in: Re British Red Cross Balkan Fund [1914] 2 Ch. 419 (TLA p. 530) - A trust fund had been raised by subscription to help the sick and wounded in the war. After the end of the war, the trust fund was found to have a surplus so applying the law of resulting trusts that surplus was held on a resulting trust for the subscribers. The issue of whether this trust was charitable was never raised and it was assumed the trust was not a charitable trust. The subscribers paid in their subscriptions at different times. If one were to apply the rule in Clayton’s case, then those who made their subscriptions earlier would have lost all their money and the balance would go to those who made a later subscription. J said that this was a capricious result. He said that the fund should not be applied by using the rule in Clayton’s case but the balance should be applied proportionately amongst all of the subscribers to the fund. The British Red Cross fund is fair therefore withdrawals are to be constituted proportionately. This pari passu rule is supported by obiter dicta in HL in a case called Sinclair v Brougham [1914] A.C. 398 (TLA pp. 511-521).

Re Registered Securities Ltd [1991] 1 N.Z.L.R. 545 (TLA p. 532) – NZ CA also supported the pari passu rule as against the Clayton rule in a competition between several investors seeking to trace their money into a fund.

The clearest exposition of the law is to be found in:Re Ontario Securities Commission (1986) 30 D.L.R. (4th) 1 (TLA p. 532) – Ontario CA said the pari passu rule should be applied to every withdrawal made from a mixed fund comprising monies belonging to equally innocent parties. Some people don’t like the reasoning. They say that in practice it is a nightmare. Ong would support the Re Ontario Securities Commission case.

Barlow Clowes International Ltd (in liq.) v Vaughan [1992] 4 All E.R. 22 (TLA p. 531) – This case is not as clear as Ontario Securities Commission. English CA held that if applying the rule in Clayton’s case would produce injustice, then one should apply the pari passu principle as enunciated in Re Ontario Securities Commission. They also said that where the application of Clayton’s rule would produce an unjust result but it would be impracticable or disproportionately expensive to apply Re Ontario, then take the easy way out, namely ignore both Clayton and Ontario and just look at the ultimate balance in the mixed fund and divide the ultimate balance pari passu. This happened in Barlow Clowes. If find that it is practicable to apply Re Ontario to every withdrawal, then that is what we must do even according to Barlow Clowes and only avoid Re Ontario Securities Commission if it was impracticable or disproportionately expensive to apply that case. The balance of authority in England and Canada is in favour of the pari passu rule. In Ong’s view, it is the latter position that represents the true application of the pari passu rule. In Australia, if one is asked to decide how an amalgam of funds from equally innocent

owners is to be ascertained, one would have to say that apply Clayton rule or pari passu rule. It is uncertain whether courts would determine withdrawals in accordance with Clayton or pari passu.

In Australia, the authorities are conflicting as to whether apply Clayton or pari passu:Re Jones (decd.) (1953) 16 A.B.C. 169 – Kline J applied the pari passu rule. Austin v Khaliffe [1966] 2 N.S.W.R. 632 (TLA pp. 530-531) – Myers J purportedly applied Clayton’s case.

Presumption of Honesty not confined to mixing of different sums of money but applies to any mixing of different items of pure personalty by a fiduciary.

Brady v Stapleton (1952) 88 C.L.R. 322 (TLA pp. 508-509) –Three propositions of law:

1) The presumption of honesty in Hallett is not confined to cases of mixing of money. The presumption of honesty applies to all forms of mixing of pure personalty.

2) Where items of pure personalty are mixed in such a way as to be specifically severable, eg the mixing of shares or the mixing of bonds, in that case the tracing claimant has a choice between taking a charge on the shares on bonds or alternatively taking from that mess the number of items of property he has contributed thereto. However, HC did say that in certain cases of mixing, there cannot be specific severability. They said that if 2 funds were mixed and used to purchase a horse, then neither tracing claimant can obtain specific severability

3) The presumption of honesty in Hallett applies not only where the presumption of honesty is consistent with the factual situation, namely it applies even though there is no honesty in fact. It is in fact a form of estoppel. Although there is no factual honesty, the honesty presumption will apply. This is subject to Oatway.

Equity Lecture Week 12

Tracing compared with an account of profits

Tracing involves the following of one’s property into its ultimate form. If a trustee in breach of trust were to embezzle $1000 and were to invest that $1000 in a profitable investment which is currently worth $2000, tracing would allow the trust estate to trace to the asset worth $2000. It would not be open to the trustee to say that he took $1000 from the trust in breach of trust and he wishes to repay the $1000 to the trust estate plus interest and thereby repair the breach of trust. That would contravene the tracing principle. There is HC authority for the proposition that tracing by the trust estate allows the trust estate to follow the embezzled sum of money into its ultimate form and that the repayment of the embezzled sum to the trust estate does not repair the breach of trust. The case that illustrates this very vividly is a case called:

Scott v Scott (1963) (1963) 109 C.L.R. 649 (TLA pp. 537-542) – A trustee acting in breach of trust mixed his own money with trust money to buy a house. The house appreciated in value and the trustee thought that all he was required to do to repair the breach of trust was to repay the trust money to the trust estate. The trustee was also the life tenant and therefore he did not have to pay interest. The HC held that the trustee had not repaired his breach of trust simply by repaying to the trust estate the embezzled sum. The HC said that the trustee, who had since died, was wrong to assume that he could have absolute ownership of the house purchased with the mixed moneys simply by repaying to the trust estate what he had taken from the trust improperly. The HC purported to apply the principle in Regal Hastings v Gulliver.

The HC said that the trustee cannot profit by misusing fiduciary position. It said that because the trustee was not allowed to profit from his breach of trust, the trust estate was entitled to a proportionate part of the profit made by the trustee. The trust estate was entitled to the embezzled sum plus the profit made from the use of that embezzled sum. The HC said that the defaulting trustee had to account for the profit made; the profit attributable to the use of the trust money. The reason why Ong says that the HC only purported to

apply Regal Hastings v Gulliver as distinct from really applying Regal Hastings v Gulliver is: The HC allowed the deceased trustee’s estate to retain that proportion of the profit attributable to the use of the trustee’s own money. If one were to apply Regal Hastings strictly, all of the profit would have to be given back to the trust estate and the trustee’s own estate would only be able to recover the principal sum used by the trustee, namely his own money. The reason why the HC did not give to the trust estate a better remedy was because of some erroneous advice, the trust estate did not claim all of the profit but only claimed that part of the profit attributable to the use of trust money.

The HC also made the observation (obiter observation but good law) that where a trustee has mixed his own money with trust money to buy an asset, then the trust estate is entitled to claim a proportionate share of the asset as an alternative to claiming a charge over it. The HC said that where two trust funds are mixed and the amalgam used to buy an asset, then the two trust funds would own the asset proportionately, citing Lord Provost of Edinburgh v Lord Advocate (1879) 4 App. Cas. 823 (TLA pp. 538-539)

This obiter dictum was applied in an English case called: Re Tilley’s Will Trusts [1967] Ch. 1179 (TLA pp. 542-544).

Two Difficult Cases:

There is a clash between two principles and the courts have not expressly acknowledged this problem. This is a direct clash between the tracing principle and the profit principle as it is founded in Regal Hastings. Suppose there is a trust. The trustee takes out in breach of trust $1000 of trust money and he mixes that $1000 of trust money with $1000 of his own money. That sum is used to purchase an asset. The asset is now worth $4000. If apply tracing principle to the asset, then the trust estate as well as the trustee would each have a half share of the asset. The tracing principle would dictate that the asset would be owned equally by the trustee and the trust estate. If one were to apply the Regal Hastings principle, namely the profit rule then a different result would be reached. The profit rule says that the delinquent fiduciary cannot make a profit by breach of his fiduciary duty. Therefore, in the case of the $4000 asset, the trust estate would be able to claim three quarters of it, namely $3000 worth of interest in it. According to the profit rule, the trustee would only be allowed to recover his $1000. Ong thinks that on the authorities, it seems where there is a clash between the two, the profit rule will prevail. It is likely that the courts would say that $3000 would belong to the trust estate and $1000 would belong to the trustee. In Scott v Scott, the HC said that the asset was owned proportionately but that was because the trust estate chose not to claim the entirety of the profit.

There are cases which purport to apply the tracing principle and produce a result inconsistent with the tracing principle but that result is consistent with the profit principle. A case that illustrates this confusion is:

(1) Paul A Davies (Aust) Pty Ltd v Davies (No.2) [1983] 1 N.S.W.L.R. 337 (TLA pp. 541-542) – There were two defendants and they were directors of the plaintiff company. In breach of their fiduciary duty, they improperly but innocently used the plaintiff’s money to pay for the deposit of a boarding house which they purchased. The two delinquent directors, being fiduciaries, then borrowed from another source the balance of the purchase price. One would have thought applying the tracing principle in an orthodox manner, the two fiduciaries would own a proportion of the house and the company would own the remaining proportion because the plaintiff co would have contributed the deposit and the two fiduciaries would have contributed the balance of the purchase price. However, before the NSW CA the plaintiff successfully sought a declaration that the defendant held the boarding house in trust for it.

The NSW CA held that the whole boarding house belonged to the plaintiff co. The NSW CA rejected the notion of proportionate ownership of the house. Two judges said that the balance of the purchase price, although nominally borrowed by the two fiduciaries, was successfully borrowed by using the deposit and the deposit was trust money. Therefore they argued very unconvincingly that the balance of the purchase price was also trust money because it was

obtained by using trust money, namely the deposit. They said there was no proportionate ownership of the house because the whole house was bought with trust money. They said that the defendants would be entitled to be repaid what they put it. Hutley J said that the use of the deposit to obtain the exchange of contracts created a constructive trust in favour of the co.

Basically, all 3 judges of the CA said that in law all of the money used to buy the house belonged to the plaintiff co, therefore the plaintiff co owned the whole house in equity. They owned the whole house subject to reimbursing the two directors for the money which they actually used. This is very unconvincing because one would have thought applying Calverley v Green that the directors would have contributed the balance of the purchase price. Although this case purported to apply the tracing principle, it did so unconvincingly. If one were to apply to this case the profit principle, then the result can be justified. If one were to apply the profit principle, then one could say that the house was the profit made by the two fiduciaries, subject to the fiduciaries being repaid whatever money they used so that none of the profit could be kept by the fiduciaries. It reached what Ong considered to be the right result by using the wrong reasoning. It is quite unfair to deny that the two fiduciaries had contributed the balance of the purchase price because they had borrowed that money and they were liable to the bank for that money and applying Calverley v Green, it was their money.

(2) Australian Postal Corporation v Lutak (1991) 21 NS.W.L.R. 584 (TLA p. 542) – Had a contribution from thieves. The thieves were not fiduciaries and the court did not allow the thieves to keep the profit. Given that the thieves were not fiduciaries, it is difficult to see why the thieves were not allowed to keep the profit and to rely on the tracing principle.

A house was purchased with $20,000 comprising the proceeds of sale of stamps stolen from the Australian Postal Corporation and with $70, 000 borrowed on a bank mortgage by the thieves. The house was purchased with $90, 000 and increased in value to $110, 000. The thieves were not fiduciaries so there would be no profit rule involved. Bryson J held that the various parties were entitled to share in the profits in proportion to their contributions to the purchase price. He held that although the purchasers had borrowed $70, 000 to buy the house, they had not contributed to its purchase price at all because they were only able to raise the $70, 000 by using the APC’s $20, 000 as a deposit. In Ong’s view, the thieves should have been entitled to trace their $70, 000, they not being fiduciaries at all. Bryson J said that the proceeds of the sale would belong entirely to the Australian Postal Corporation. The APC would get back its $20,000 and get $20, 000 profit. The remaining $70, 000 was to be repaid to the bank.

Sometimes to achieve justice, have a case where the principle applied is by no means clear.

Mixing by Innocent Volunteers

Sometimes, no fiduciary is involved. Sometimes, the mixing is done by an innocent volunteer. That occurred in:

Re Diplock [1948] 1 Ch. 464 (TLA pp. 523-537) – Diplock was not a case where a fiduciary mixed his own property with trust property. It was a case of innocent volunteers mixing their money with trust money. Diplock made a will and he said that he would give his residuary estate to charitable or benevolent objects to be selected by his executors. In England, there is no equivalent of s104 Trusts Act. It failed in England because Chichester Diocesan Fund v Simpson [1944] A.C. 341 (TLA p. 523) said that the gift would fail in England.

The executors did not know that the trust failed. They believed the gift to be charitable so they under a mistake of law distributed almost all of the residuary estate to a large number of charitable institutions. The next of kin on behalf of the deceased estate sued the executors for breach of duty. This claim against the executors was compromised. That was not enough to restore to the trust estate all of the distributed monies. The next of kin, to obtain the balance that was outstanding, sued the innocent recipients of the money who were the charities. They sued the charities on two alternative basis:

1) A personal action against them to return the money wrongly paid to them2) A proprietary remedy based on the right to follow the estate’s money

A personal action against them to return the money wrongly paid to themIn a case calledMinistry of Health v Simpson [1951] A.C. 251 (TLA pp. 523-524) – HL upheld the right of the next of kin suing on behalf of the deceased estate to sue the recipients in a personal action to recover the money provided the next of kin first exhausted their remedy against the executors, a condition that was satisfied in that case. HL found the tracing claim too complex and did not want to make comments on the tracing claim. Re Diplock did deal with the tracing (proprietary) claim of the deceased estate to follow the money paid to the charities into the assets nominally owned by the charities.

May say that by allowing the next of kin to sue, the CA was going against the principle in:Commissioner of Stamp Duties v Livingston [1965] A.C. 694, at 713-714 (per Viscount Radcliffe) (TLA p. 523). That would be wrong because the next of kin were not suing in their personal capacities; the next of kin were suing on behalf of the estate. The CA then created new law by following a remark made by Lord Parker in Sinclair v Broome. The innocent volunteer is someone who has received trust property without notice of the breach of trust. This person is called an innocent volunteer because the word ‘innocent’ refers to this person’s lack of notice and the word ‘volunteer’ refers to the fact that this person has not given value. They said in principle if an innocent volunteer mixes his own money with trust money, the mixed fund is owned by the two owners pari passu unless there are further withdrawals made. The same position applies in a case where there is no competition between two trust funds, but a competition between a trust fund and an innocent volunteer. The same ambiguity applies, namely whether use pari passu or Clayton. They should own the amalgam pari passu, namely the innocent volunteer and the trust estate. The CA then examined four different situations in Diplock:

1) The charities use the trust money to improve buildings on their own land. The CA said that the money used by the charities in this manner could not be traced. The CA gave two reasons for disallowing tracing in the case of trust money used to improve the buildings (TLA 524-525):

The improvements could not be shown to have increased the value of the buildings. Indeed, the improvements could have decreased the value of the buildings.

Even if could show that there was an improvement in the value of the buildings by reason of the use of the trust money, it would be an extravagant result to give the estate a charge on the entire land owned by the charity simply because the estate’s money had been used to reconstruct a part of a building on it. This is totally unconvincing. If CA in Diplock is right, would have the following result – Have to distinguish between 2 situations – Trust money of $100, 000 is mixed with the innocent volunteer’s money of $100, 000. That amalgam is used to buy a house which later increases in value to $300, 000. If follow Diplock reasoning, would say that the innocent volunteer and trust estate owned the house in equal shares. In the second illustration, the volunteer uses his own money to purchase a vacant block of land. The land is purchased entirely with the innocent volunteer’s money. The innocent volunteer then uses trust money to build a house on the land. Diplock would say that the entire property would belong to the innocent volunteer because the house is just a building.

2) TLA 532 – If the innocent volunteer had earmarked the trust money in some way, then the earmarking would mean that separate fund would be recoverable by the trust estate. The CA found that there was no such earmarking. What they said about earmarking, although good law would be obiter.

3) TLA 527 – Where trust money had been mixed with the volunteer’s own money in the volunteer’s bank account – CA said would apply Clayton’s case because the account was an active banking account. The court said that given their earlier view that when sums of money belonging respectively to the trustee and trust estate are mixed, it might be argued that the withdrawals would also be pari passu. If didn’t stop at that point, then apply Clayton to the withdrawals. The application of the pari passu principle to the withdrawals from the account would in practice lead to the greatest difficulty and complication. This was mentioned by the Ontario CA in the Ontario Securities Commission case which condemned this part of Diplock.

4) The innocent volunteers used their money to buy war stock, namely government bonds. Then when they got the trust money, they used the trust money to buy more war stock. The war stock were owned by the innocent volunteer and trust estate proportionately. They said that the rule in Clayton’s case would only apply to bank accounts. The war stock subsequently withdrawn and sold was to be constituted proportionately to the ownership of the stock by the parties and not according to the rule in Clayton’s case. They said in the case of war stock, the war stock was not an account and in that case apply the rule of pari passu.

Special statutory provision: Trusts Act 1973 (Qld), section 109 – In Ministry of Health v Simpson, HL held that persons entitled under a deceased estate may sue in a personal action.

In Qld, s109 (1) Trusts Act extends this right to any person who has suffered loss by reason of wrongful distribution of trust property by the trustee. Before s109 (1), Simpson’s case would only allow this personal action in the case of a wrongful distribution by an executor or administrator of a deceased estate. This personal action has now been introduced by s109 (1) against wrongful distributees from trustees.

S109 (2) provides that except by leave of the court, no person who has suffered loss by the wrongful distribution of a personal representative or a trustee may sue the wrongful distributee until he has first exhausted his remedies against the personal representative or trustee as the case may be. The courts may give leave to sue the wrongful distributee before suing the personal representative. S109 (2) would follow the Ministry of Health position except that it allows the court to grant leave. S109 (2) should contrasted with s65 (7) Trustees Act 1962 WA which requires the plaintiff to sue the wrongful distributee before suing the trustee or personal representative.

S109 (3) – As far as Ong knows, SC of Qld has not yet by way of decision applied s109 (3). S109 (3) provides that where a wrongful distributee has received the property in good faith and has so altered his position in reliance thereon that it would be inequitable to enforce the remedy against him, the court may make such order as it considers to be just in all the circumstances. S109 is concerned with the right of a person who has suffered loss as a result of a wrongful distribution. The question that has yet to be answered by the courts is – Does s109 (3) apply in favour of someone against whom there would otherwise be a successful tracing claim? S109 in Ong’s view is concerned with the right to sue the wrongful distributee in a personal action. S109 does not confer a right to trace for the reason that there is already a right to trace. S109 simply extends the personal action made available in Simpson to those who have wrongfully received property from a trustee. A tracing claimant who is able to trace property is by definition someone who has not suffered loss.