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Table of Contents
INTRODUCTION ............................................................................................................................... 3
CORE DUTIES ................................................................................................................................... 4
CLASSIFICATIONS OF TRUSTS ..................................................................................................... 6
EXPRESS TRUST .......................................................................................................................... 6
Fixed Trust: ................................................................................................................................ 6
Discretionary Trust:.................................................................................................................... 6
Constitution ................................................................................................................................ 7
CONSTITUTION ................................................................................................................................ 7
THE THREE CERTAINTIES ............................................................................................................. 9
INTENTION .................................................................................................................................. 9
Other possible interests: ............................................................................................................. 9
3rd Party benefit contracts........................................................................................................ 13
CERTAINTY OF SUBJECT ....................................................................................................... 14
CERTAINTY OF OBJECT .......................................................................................................... 16
Fixed Trust - 'List Certainty' .................................................................................................... 17

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Discretionary Trust - 'Criterion Certainty'................................................................................ 18

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Baden's Criterion Certainty ................................................................................................. 20
Mere power or Trust power? .................................................................................................... 22
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PURPOSE TRUSTS .......................................................................................................................... 24
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Non-Charitable Purpose Trusts ..................................................................................................... 24
Trusts for illegal purposes ............................................................................................................. 25
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CHARITABLE PURPOSE TRUSTS................................................................................................ 27

Relief of the aged, impotent or poor ............................................................................................. 28
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Advancement of education ........................................................................................................... 29

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Advancement of Religion ............................................................................................................. 30

Trusts beneficial to the community............................................................................................... 31
Mixed Purposes ........................................................................................................................ 33
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Cy-Prés .................................................................................................................................... 33
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Public Benefit................................................................................................................................ 35
Benefit of humans .................................................................................................................... 36
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Suitable section of the public ................................................................................................... 36

RULE AGAINST PERPETUITIES .................................................................................................. 39
RESULTING TRUSTS ..................................................................................................................... 41
AUTOMATIC RESULTING TRUSTS ....................................................................................... 41
PURCHASE PRICE RESULTING TRUST ................................................................................ 46
Effect of illegality on resulting trusts ....................................................................................... 49
Rebutting the presumption ....................................................................................................... 50
CONSTRUCTIVE TRUSTS ............................................................................................................. 53
THIRD PARTY LIABILITY ........................................................................................................... 54
Recipient Liability (knowing receipt) ........................................................................................... 56
Accessory Liability (knowing assistance) .................................................................................... 59
DUTIES OF TRUSTEES .................................................................................................................. 61
Duty to learn the terms of the trust ............................................................................................... 61
Duty to obey the terms of the trust................................................................................................ 61
Duty to administer the trust personally ......................................................................................... 62
Duty to exercise a standard of care ............................................................................................... 63
Duty to invest ................................................................................................................................ 64
Duties of Trustees in Statute: ................................................................................................... 66
RIGHTS OF TRUSTEES .................................................................................................................. 68
Right to be indemnified ............................................................................................................... 68
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 Subrogation .................................................................................................................................. 69
Contribution and recoupment ....................................................................................................... 69
RIGHTS OF BENEFICIARIES ........................................................................................................ 71
REMEDIES ....................................................................................................................................... 73
FOLLWING AND TRACING ......................................................................................................... 74
Trust monies mixed with trustees own money ............................................................................. 75
“Lowest intermediate balance rule” ......................................................................................... 75
Trust money mixed and property bought ...................................................................................... 76
Two sets of trust money mixed .................................................................................................... 77
Trust property transferred to third party ....................................................................................... 78
DEFENCES TO EQUITBLE REMEDIES ....................................................................................... 80
Informed consent .......................................................................................................................... 80
Waiver by release .......................................................................................................................... 80
Delay ............................................................................................................................................. 82
Limitation of Actions ............................................................................................................... 82
Waiver & acquiescence ............................................................................................................ 84
Laches....................................................................................................................................... 84
Unclean hands ............................................................................................................................... 87

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INTRO

Definition of a trust

Jacobs
“ the Trustee must hold a legal or equitable interest in the property, must be under an obligation to
deal with that property for the benefit of the beneficiaries and this obligation must annexed to the
trust property”

• “annexed to the trust property” means the beneficiary has a personal interest in the trust
property itself, that is, proprietary rights in relation to that property. They also have personal
rights against the trustee because of the fiduciary obligations that are owed.

Elements of the definition:

1. The trustee must hold the property – this makes the relationship different from an ordinary
fiduciary relationship where the fiduciary does not necessarily hold property
2. The trust has no independent legal personality, unlike a company!
3. At law he trustee is the legal owner of the property and has legal title

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4. The trustee is the one who must 'deal' with the property

Terms:
“settlor”
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• creator of an express trust
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“Trustee”
• Holds the legal but not beneficial title of trust property for the beneficiaries.
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• Strict fiduciary obligations are owed by the trustee.

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• A person may be both trustee and beneficiary of the same property, however they may not
be the sole trustee and beneficiary, as in this case the legal and equitable title would merge.
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• There can be more then one trustee,

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• The trustee can be a corporation.

• If the trustee dies, the trust will not fail, the court will simply appoint another trustee.
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“beneficiary”
• The object of the trust, holds the beneficial title to the trust property.
• Beneficiaries of a discretionary trust only have a mere expectation, not a beneficial interest
in trust property.
• The beneficiary does not need to be aware that a trust has been created for them.
• A beneficiary may disclaim trust property.
• The beneficiary does not need to have been born at the time the trust is created for them.
• The beneficiary does not need to be an individual but may also be a charitable purpose.

“trust property”
• the subject of the trust
• in order to be trust property it must first fall within the definition of property
• certainty and identification
• may be real or personal chattels
• may also be a chose in action
• the property can be equitable title, does not have to be legal title

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CORE DUTIES

The trust is the archetypal fiduciary relationship.

Equity binds the trustee to hold the property on the terms that the trustee recieves it.

NO profit
• No profit from your principal
NO Conflict
• No conflict of interest will the principal

It is possible to have a breach here without economic loss

TEST: (Upjohn in Boardmann v Phipps)

The test of a possible conflict of duty and interest means that a reasonable person looking at the
circumstances would think that there was a real sensible possibility of conflict’

Boardmann v Phipps
There was a breach of no conflict here

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• There was no loss of the trust assets, they had in fact increased
Facts
• an estate from a will held on trust m
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• held on trust for widow for life and apon her death for the children
• one asset of the estate was a large but minority holding in a textile business 'Lester & Harris'
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• the active trustee (the accoutant) was not happy about the level of dividends paid on the
shares not very good. He thinks this is because of the bad management of 'lester and Harris'
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• Accountant (fox), Soliciortor of trust (bardmann) and one beneficiary (tom Phipps)
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all agreed
• made inquiries about the company on behalf of the trust and became pricy to
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information they would not otherwise have gotten

• learned value of assets of the company was high, but its income was low
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• needed some say in the company

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• All went to the annual meeting of L& H to try to get Tom elected as director (failed)
• * offer for purchase of shares was made but was only partly successful
• * then negotiations conducted by the solicitor and Tom on behalf of the trust
• they are acting on behalf of the trust
• during these negotiations they obtained info about the operations of the company about its
operations and assets that they would not have obtained any other way
• they then make a new offer for the shares which is successful
• they get into company having purchased shares on own account and realise the company's
assets and distribute them to the shareholders, afterwhich the shares retained their value – so
highly profitable exercise
• One beneficiary complained
• argued Boardman had been acting in breach of his Fobs that tom was a fiduciary as
wellany profit they had made personally should be given to be held on trust for the
beneficiaries
• Beneficiaries had not actually LOST any funds, actually increased the assets
Held
• had been a breach even though it had been done in good faith and the trust had benefited
greatly.
• Had been a breach of NO conflict and NO profit rule

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 • Court made them hold their shares on trust for the trust
• did award them renumeration for the work they did on a liberal scale.
Maguire v Makaronis
“equity intervenes, not so much to recoup the loss of the principal, but to hold the fiduciary to, and
to vindicate the high duty owed to the principal”

There are certain features of trust obligations distinct from fiduciary obligations
• Trustee has title to property
• Action by beneficiaries for breach of trust has as its objective restoration of the trust fund,
not compensation of a particular beneficiaries loss
• There are a number of particular duties on trustee that arise from administration of the trust

Uses of trusts

• Providing for a succession of limited interests

Eg: to Z for life, then to X and Y
• In family settings (family trust)
• income split in order to lower the tax rate

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• putting assets into a trust for income protection reasons
Eg: in case the family business goes broke this will protect assets like the family
home from creditors m
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• Protective trust
• to separate the ownership and management for the benefit of a person who is unable
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to look after their own affairs

• superannuation
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• Public Investments
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• for pooled investments, ie; a unit trust rather then shares

• The advantage of investments are mainly regulatory in nature.
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• Tax
• companies can not pay dividends out of capital (must come from profit) however
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trusts can pay out of trust property capital.

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• Becomes a problem when trust pays dividends to beneficiaries out of capital from new
shareholders (ponzi schemes)
• Company borrowings – debentures
• the public lends to a corporation and the trustee secures assets of the company in
order to secure the public investment

• Unincorporated associations
• Clubs and societies, a trust allows them to hold property because **
• Quistclose trust

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EXPRESS TRUST general information
• ‘an obligation enforceable in equity which rests on a person (the trustee) as owner of some
specific property (the trust property) to deal with that property for the benefit of another
person(the beneficiary) or for the advancement of certain purposes’
• Express trusts are a form of wealth management, where it is desirable to split management
from benefit
• Ownership and management of the property is split from the enjoyment of the property
• The trustee manages the property but not for his own benefit
• Express trusts are not limited to land; any form of property can be held on trust
• A trust is enforceable in equity
• The trustee holds legal or equitable title to the trust property. Functionally, the trustee is the
manager of the trust property
• Management duties are not uniform, they vary according to the nature in question
• The trustee manages the property for the benefit of another person, the beneficiary
• The beneficiary holds equitable title to the trust property and is known as the object of the
trust
• Trusts can be created for unborn beneficiaries aswell as for the living

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• Not all trusts are established for the benefit of human beneficiaries, some are created for the

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advancement of purposes
• A trust is distinguishable from a gift to beneficiaries
• A trust has no legal personality
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• A trustee owes fiduciary obligations to the beneficiaries of the trust- the trustee will be
subject to the no conflict and no profit prohibitions will apply to all fiduciaries
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• Where the beneficiaries are entitled to the whole beneficial interest in the trust property (so
not a discretionary trust), the rule in Saunders v Vautier allows the beneficiaries if adult, can
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agree to terminate the trust and divide the property between themselves.
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Fixed v Discretionary trust

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• Under a fixed trust the share of property which each beneficiary is to receive is
determined by the trust instrument
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• Under the discretionary trust, the share, if any, which each beneficiary is to receive is
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determined by the trustees and not by the trust instrument

• The discretionary trust is more accurately known as a ‘trust power’ à there is a
‘trust’ bc the trustee is obliged to distribute property by the termination date of the
trust, BUT it is coupled with a ‘power’ to choose which beneficiaries will receive the
distribution
• From the beneficiaries point of view there are great differences between a fixed and
discretionary trust: the beneficiary will have a proprietary interest in property where
a fixed trust is created, the interest may be vested or contingent. Where a
discretionary trust has been created no beneficiary has a proprietary interest in the
trust property or any part of it.

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CLASSIFICATIONS OF TRUSTS

EXPRESS TRUST
• created by the settlor
• If created through a will it is created by the 'testator'

− Involves the express intention to create a trust in relation to a person of charity.

− A trust will be express where the court can identify an intention

Can be either;

1)Public express trust – created expressly for a 'charitable purpose' as recognised in law.
2)Private express trust – created expressly for an individual or individuals.

An express trust will be either:

Fixed Trust:
• all beneficiaries are ascertained

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• all fixed beneficiaries have fixed shares of the trust property
• there is no discretion on the part of the trustee to vary the group of beneficiaries or nature of
their interest m
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• In the traditional express trust:
• settlor defines the exact interest of capital and income each beneficiary will receive
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• the beneficiaries have a vested interest**

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Discretionary Trust:
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1. The trustee must distribute trust property between the members of a certain class but is
given the discretion to decide which of a defined class of beneficiaries is entitled to trust
property.
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• The trust deed will here confer on the Trustee a 'trust power
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2. the Trustee may also be given the right to choose to distribute the property as they see fit
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include the option not to choose not to distribute at all.

• The trust deed here will confer on the trustee a ' absolute discretion' or 'bare power'
1. A bare power is usually combined with a 'gift over'
◦ if property hasn't been distributed to the beneficiaries because of Trustees bare power
then it may go to the next in line, as a gift over
2. If there is no 'gift over' the property will revert to the settlor on resulting trust. Where
express trust fails there will be a resulting trust

Trust power =
The power MUST be exercised
• can distribute as they see fit to at least one of the class of beneficiaries, but MUST distribute
to someone.
Bare Power =
The power MAY be exercised
• 2 choices - can distribute as they see fit, or not at all.
Fixed trust =
has no power at all to decide who gets what
* there may be a combination of more then one type of power within the one trust deed

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CREATING A TRUST

Inter vivos trusts are trusts that come into affect during the settlors life.
Testamentary trusts are created by will, and will only come into affect on the death of the testator.
A declaration of trust is simply a way of saying that the requirement of certainty of intention to
create a trust has been satisfied.
The formalities relevant to express trusts created by declaration depend upon the nature of the trust
property-only some inter-vivos trusts must comply with formalities.
-no formalities are required to create a trust of personal property where the trust is intended to
take effect during the settlor’s lifetime
-a trust of land must comply with statutory requirements which requires the declaration of trust
to be manifested and proved by writing signed by the person able to declare the trust: PLA

Complete constitution

General rule : incompletely constituted trust not enforceable. This only presents a problem when
the creation of the trust is by way of transfer rather than declaration as the declarant is already the

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owner of the property and the declaration is itself effective to create the trust (provided statutory

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formalities under s 53(1) met).

There are two aspects to the question of complete constitution:

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– Transferor must do everything necessary that can only be done by the transferor to
enable transfer of the property; and
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– What must be done is determined by reference to the kind of property it is.

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Constitution through a declaration of a trust over certain property the settlor owns.
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To legally transfer real trust Property:

• must be in writing
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• signed by the settlor

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• registered by the trustee

PROPERTY LAW ACT: Instruments required to be in writing

(1) Subject to the provisions hereinafter contained with respect to the

creation of interest in land by parol-

(a) no interest in land can be created or disposed of except by writing

signed by the person creating or conveying the same, or by his agent
thereunto lawfully authorized in writing, or by will, or by operation
of law;
• must be in writing signed by settlor or agent
• only applies to the creation of an interest in land
(b) a declaration of trust respecting any land or any interest therein
must be manifested and proved by some writing signed by some person
who is able to declare such trust or by his will;
• declaration of trust must be in writing signed by settlor (no agency allowed)
• only applies to land
• This declaration must be manifested and proved in writing – which means it does not have
to have been in writing, may have been an oral declaration of a trust enforceable provided
some document is signed which proves it happened.
• No real need for (b) because when you declare a trust you are creating an interest in land so

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 (a) should apply – unclear..
(c) a disposition of an equitable interest or trust subsisting at the time
of the disposition must be in writing signed by the person disposing
of the same, or by his agent thereunto lawfully authorized in writing
or by will.
• must be in writing signed by settlor or agent
• only applies to disposing of an equitable interest not creating an equitable interestn
(2) This section shall not affect the creation or operation of resulting,
implied or constructive trusts.

OR

Real property will be transferred only in equity if

• The settlor has done everything that is necessary to effect transfer but it is unregistered
equity will recognise the trust as having been constituted (Corrin v Patton)
• the trustee will only hold the property in equity (once it is registered the trustee will hold it

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legally)

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Through transfer of trust property to the trustee. The property may be delivered to the
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trustee to hold for the beneficiary
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• Once constituted this trust can no be undone, unless the trasferrer has retained a right
of revocation
Chattels:
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• will be constituted when legal title is tansferred by deed or simply passed to the trustee
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• and there was the requisite intention to create the trust on the part of the settlor
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A post mortem transfer must comply with s 7 of the Wills Act 97:
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(1) A will is not valid unless-

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(a) it is in writing, and signed by the testator or by some other person,

in the presence of, and at the direction of the testator; and

(b) the signature is made with the testator's intention of executing a

will, whether or not the signature appears at the foot of the will;
and

(c) the signature is made or acknowledged by the testator in the presence

of two or more witnesses present at the same time; and

(d) at least two of the witnesses attest and sign the will in the presence
of the testator but not necessarily in the presence of each other

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NON-EXPRESS TRUST

These are trusts that arise in the absence of any express or inferred intention.

Resulting Trusts

Automatic resulting trust

Eg: if S creates a trust for B, but B dies before he can receive the property.
The law will automatically assume the property should go back to S, not the trustee of that trust.

Presumed Resulting Trust (purchase money resulting trust)

Eg: where A purchases property but puts property in B's name even though B has not
contributed any of the purchase price
The law will assume A retains beneficial ownership even though B has legal title.

Constructive Trust
• Imposed by operation of law without reference to the intentions of the parties

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THE THREE CERTAINTIES

-for enforceability of trusts

-for EXPRESS trustsà must be certain in 3 distinct respects: the 3 certainties
-certainty requirements are related to each other in the sense that failure to satisfy one certainty
may cast doubt on whether one of the others has been met

INTENTION

• Settlor’s intention to create a express trust (inter vivos) or testator’s intention via will (post-
mortem)
• The question of whether a trust has been constituted will ultimately come down to intention
of the settlor.
• The intention to create a trust is determined by reference to the settlor’s objective intention:
would a reasonable person consider that in all the circumstances the settlor intended to
create a trust?: This was confirmed in Brynes v Kendle
• The settlor must have intended to create a trust of her property, as opposed to making a gift

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or loan
• The settlor need not have used the word trust
• m
Burden of proof lies with person asserting that trust exists
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• Court may examine whole of circumstances;
• Intention can be inferred from conduct (Paul v Constance);
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• Beneficiary need not be informed

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Precatory Words
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Do vague words that are not explicit create a trust?

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− Hope
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− wish
− pray
− desire

Early approach: it was presumed that any such words expressing some kind of intention were taken
to be imperative that the trust was created.

Other possible interests:

1. They may create a moral obligation to do something, but no legal obligation on the
recipient of the property.
2. Person who receives the property may hold it in favour of a third party subject to an
equitable lien
• this usually happens in cases of bequests to parents for the maintenance of children
• In these case it is usually not seen as the intention that the legal and beneficial
ownership of the money be split and beneficial ownership exclusivly for the children
and not the mother.
3. The words may create a common law condition precedent to the beneficiary obtaining an
interest in the property
• Eg: the parents have to educate the children before they receive any money

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 themselves, if they dont use it that way they won't get any money
• for there to be a condition precedent there must be words that make it clear that if the
certain thing is not done the gift will fail.
4. The B takes an unencumbered title to the gift but is under a personal equitable obligation to
C to confer the benefit on C (Gill v Gill)
Gill v gill
Facts
• farm left to son on condition he keep the homestead for unmarried sisters, giving them two
separate bedrooms and a sitting room, and free use of 1/3 of cows and poultry
• Son didn't keep the rooms in repair
• sisters argued the estate should be forfeited for failure to fulfil a condition (a common law
condition)
Held
• not a condition, too vague
• the wording created a personal equitable obligation, so compensation could be claimed

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Imperative words: will impose a trust.

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Is there a trust created?
Do

Case studies:
Re Gardner
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• gave real estate “subject to paying $1000 within two years of my death”
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Held
• this amounted to a condition, not a trust or personal equitable obligation,
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• had not been complied with so estate passed on intestacy

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Mussoorie Bank v Raynor

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• Testator left property to widow “feeling confident that she will act justly to our children in
dividing the same when no longer required by her”.
Held
• No trust

Re Williams (1933) 1 Ch 244

• property to wife absolutely “in the fullest trust and confidence that she will carry out my
wishes in the following particulars”
• left his estate to her so she could buy the policy and pay the premiums on the
insurance policy, and when she dies the dividend from her and his life insurance
policy would go to daughter lucy
• Wife argued that the phrase 'in the fullest confidence' was just precatory words
Held
• No binding obligation.
• No trust
• argument that the phrase seems precatory but the fact that the details in the will were so
specific about what wife should do, revealed that he had an intention to create a trust, and
not for her to have exclusive use of the property, and that her receiving the estate was
subject to this action

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 • Lord Lindley: particularisation does not overcome absence of specific intention

Dean v Cole (1921) 30 CLR 1

• Husband left to wife his estate “trusting she will divide in fair, just and equal between my
children all such part and portion of my estate that she may be in the use and enjoyment of”
• earlier part of will referred to 1300 being at the wives absolute disposal
Held
• words precatory and not imperative
• she was 'in use and enjoyment' – how can it be a trust because she has some equitable
entitlement, no separation of beneficial and legal ownership
• plus 1300 of it was exclusively for her disposal
• Higgins dissenting – said 1300 should be separated out

Hayes v National Heart foundation

Facts
• testator leave the balance of his estate to daughter
• “on the understanding” that she write into her will that the shares were to be sold on her

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death and the capital to be received would be divided between three charities

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Held
• 'on the understanding' – suggested a limitation had already been placed on the estate
• was a trust and she was bound by the terms
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The court will look at the document as a whole, if trust language is only used once then there may
Do

not be an intention **

Express Intention
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Commissioner of Stamp Duties v Jollif (HL 24.5C)

No intention = no trust
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Facts
• The state bank prevented customers from having more then one savings account, and only
in

paid interest on first 1000 pounds of that account

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• Mr Joliff opened a second savings account that was officially created to be on trust for his
wife (to get around rule)
• Wife dies
• Tax commissioner assesses stamp duty based on that money being hers.
• Mr Jolliff then says that he never had any intention that the account be on trust for her when
he created it or that the money be beneficially hers.
Held
• No trust
• Assuming evidence proves there was no real intention; there was no intention
notwithstanding the written statement there could be no trust
• Importance of intention
• Even if prima facie it seems like there is intention, you can still lead evidence that there is
none
• Dessent [Issacs] – written evidence should be enough!

Barklays Bank v Quistclose Investment Ltd [1970] AC 567

• intention to create a trust inferred from the nature of the agreement.
• If a creditor and debtod agree, debtors may become trustees of money transferred to them by
creditor

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No express evidence of intention?

The court will look at the circumstances surrounding the case.

One very strong indication of intention to create a trust is whether or not the supposed trustee is
required by the settlor to keep the trust property in a separate fund
• were the assets kept separate from the trustee's own assets
• was there an understanding to this effect?

Re Kayford Ltd(in liq)

Facts
• A mail order company experiencing financial difficulties, so it sets up a “Customers Trust
Deposit Account” in place of an existing company account.
• It puts the deposits of all the orders coming in for goods to be delivered t prevent creditors
having access to them in case of liquidation.
• the Q was – was there a trust created by this account in favour of the customers?
Held

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• The three certainties were there; Q: was was there the sufficient intention to create the trust?
• Was a trust created.
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• The purpose of setting up the account was to protect the money for the benefit of those who
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had paid it
• if no trust had been created the customers would be merely creditors of the company
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• payment into the account is an indication of the intention to create a trust

• no words of trust had been used but the entire purpose of the account was to ensure that the
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beneficial ownership of the property remained with the customers.

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*Note: Won't matter if you name an account a trust account the important thing is that you had an
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intention to create a trust – Jollif v Kayford

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Cohen v Cohen
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Facts
• 3 separate items of property, 3 funds
• a fund A - wife had funds in Germany
• arranged for her husband to withdraw the marks in Germany and use them to purchase
goods in germany for his importing business (could get goods out of germany but not
money) and to pay her back
• Fund B – during marriage husband sold some of wife furniture but didn't giver her proceeds
• Fund C – Wives jewellery and furs, was an insurance claim because they had been stolen
but husband got money and didn't giver her money, just bought her some cheep jewellery
Held
• wife couldn't claim these amounts from the husband in debt because her common law claim
was statute barred
• she argued he had held these funds on trust for her, and because he owed her obligations as a
trustee he had to account to her for the trust fund (limitation statute didn't apply here)
• Was intention that money was to be held on trust or not?
• Fund A (money): no intention for money to be kept separate, the husband mixed it with his
own money, so fund A not a trust
• Fund b & c: was a trust
• In all circumstances because of nature of relationship - the intention wouldn't have
been for this woman to have ever wanted anything other then the items themselve

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Inferring intention

3rd Party benefit contracts

• a promise by A to B whereby A agrees to benefit C (who is not a party to the contract).
• When A fails to do so for C and thus breaches the contract.
• C can not sue because of privity of contract
How can C enforce her rights?

→It may be possible to show that where there is a contract between B and A for benefit of C, B
held C's right on trust for C, and so B may be able to sue A on C's behalf.

Relevant intention:
B is the settlor here so it is B's intentions that are relevant at the time of the creation of the trust,
• A's intentions are irrelevant.
• It will not matter if the contract is later varied, what matters is who what was settlor's
intention at time of creation

Trust property:

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• The trust property is the right to sue for non-performance – a chose in action (a contractual
right).
• C is the beneficiary of the chose in action m
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Tridant General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Do

• This case endorses the principal that contracts for third parties may be capable of being
interpreted as evidencing an intention that the benefit be held on trust for third parties.
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Facts
wa

• Two parties to a contract had agreed the subcontractors would be covered by the insurance
policy
ks

• sub contractor made a claim under the insurance policy

• was then argued the sub contractors weren't privy to the contract so couldn't sue
in

Held
Th

Deane J
• among other reasons one way to allow this to happen would be to find there was a trust to
cover the subcontractors
• benefit of the promise was held on trust for SC so they could enforce it by the trust
• It is more likely to find evidence of intention with some contracts then others

*Note: This situation to date has been confined to insurance contracts and remains to be seen if it
will expand to general contract law.

16
QUISTCLOSE TRUST: the co-existence of contract & trust
• An example of an express trust created by a contract us a quistclose trust
• Quistclose trusts arise out of contracts of loan.
• If money is lent under a contract which establishes a quistclose trust the borrower does not
become the beneficial owner of the money. Instead he receives it as a trustee to apply it
solely for the purpose specified by the lender.
• From the lenders perspective the advantage of a quistclose trust is that in the event of the
borrower’s bankruptcy, the borrower’s creditors will not be entitled to any part of the loan
• Barclays Bank Limited v Quistclose Investments Ltd
Held: money lent was on trust, first, to pay the dividend to the SH and then in the event the
dividend could not be paid, to repay quistclose
The bank had notice of the terms of trust and was therefore not entitled to exercise to
exercise its right of set off.
The loan bw RollsRazor & Q was made on condition ‘that it is used to pay the forthcoming
dividend due on July 24’. The contract therefore did not specify that RollsRazor, the
borrower was to receive the loan in the capacity of trustee. The words showed that RR was
not to obtain beneficial title to the loan..it had to use the money to pay dividend or return to

t
en
quistclose.
-the trust enabled the dividend to be paid, and also ensured the borrowers creditors could not
m
claim the money since the borrower had received it as trustee and NOT as the beneficial
cu
owner
Do
p
wa
ks
in
Th

17
CERTAINTY OF SUBJECT

In order for there to be a trust the trust property must be sufficiently certain – that is it must be
capable of identification.

In the case that the subject is uncertain:

Where the settlor is alive – the property will revert to the settlor
Where the settlor is dead – the property reverts to the residuary estate, through a residuary clause or
intestacy.

If the subject is too vague:

Eg:
• a direction to “remember” someone (Bardswell v Bardswell – 1838)
• a direction to “reward very old servants and tenants according to their desserts” (Knight v
Knight – 1840)
• a direction to give the “bulk of my residuary estate or an appropriate sum of money”
(Palmer v Simmons – 1854)
*Note: theses are all very strict interpretations, it seems that now there is now developing more

t
en
judicial tolerance to imprecision.

Re Golay's Will trusts

Facts
m
cu
• Trustees were to pay Tossy a “reasonable income”
Do

held
• A “reasonable income” had some subjective element but was sufficiently objective on its
face for the court to make a ruling as to what constituted a 'reasonable' income.
p

• As such the subject matter was certain.

wa

• “The court is constantly involved in making such objective assessment of what is

reasonable…’Doesn’t matter that there’s a subjective element”
ks

• this decision shows ‘trend to greater judicial tolerance of imprecise language…a less
in

formalist and more purposive approach to trusts law.’ (28)

Th

If subject is impossible to identify:

Many problems arise when the beneficiary is to receive a specific proportion of a collection of 'non-
fungible' items.
Fungibles: Property that is interchangeable
• cash
• where there are two of something and that property is substitutable – Eg: 2 of everything on
trust for Liz and Tim.
Eg:
Re London Wine Co (shippers) [1986] PCC 121
• bottles of wine of one vintage were not fungible because their individual value could vary
depending on any deterioration during storage

Hunter v Moss [1994] 3 All ER 479

• 5% of ordinary shares in a company ok because all shares identical

Boyce v Boyce(1849)
Facts
• testator devised four houses on trust to a trustee to maria which ever one she chose

18
 • residuary to Charlotte
• Maria died before testator before making a choice
• as Maria predeceased we don't know which houses are 'the others'
Held
• The subject matter couldn't be identified because it was dependent on Maria making a
choice. Since Maria had died the subject was held to be uncertain because itcould never be
ascertained.

Common law rules of construction to identify the meaning of a will

The 'armchair principle':

• court will admit extrinsic evidence to identify the meaning of a will as the testator would
have when he/she made it
• Eg: testator’s property, family, acquaintances and friends to put the court in the
position to read the will.
• The court will only admit factual circumstances, evidence of intention not admissible.
• Words remain ambiguous ?
• no further evidence will be admitted and disposition will be void for uncertainty.

t
en
Admittance of extrinsic evidence, 'equivocation'.
m
• The court may admit extrinsic evidence of intention where there are words with a latent
cu
ambiguity – that is where words could mean equally one of two or more things.
Mustard as Executrix of the Will of Thanas (Dec v Oikonomov) Sp Ct WA 14 June 1998
Do

(unreported))
Facts
p

• the gift was to the “survivors of the Thanos Family”

wa

• these words were capable of applying to two competing groups of people

• one was deceased sisters and their children, the other was any person with a blood
ks

connection to the deceased's family

Held
in

• Court was willing to admit evidence of intention because no one knew what was meant by
Th

the clause in the will.

• in any case even after this is was held the evidence of intention didn't shed any light
• so the clause was struck down and the property went on in testacy
Owen J:
“An equivocation rises where words in the will contain a latent ambiguity. That is the
specific words of the will can equally be used to describe equally and accurately two or
more things. Here the court will admit extrinsic evidence of the testator’s intentions (eg
declarations by the testator of his intentions before or after he made the will and any actual
instruction to the solicitor who drafted the will.”

There is also legislation in states and territories to expand evidence admissible to clarify a will.
• Wills Act 1997 (Vic) s 36 allows evidence of testator’s intention to be admitted where the
language of a will is meaningless;
36. When is evidence admissible to clarify a will?

(1) In any proceedings to construe a will, if the language used in a will

renders the will or any part of the will-
(a) meaningless; or
(b) uncertain or ambiguous on the face of the will; or
(c) uncertain or ambiguous in the light of surrounding circumstances-
evidence may be admitted to assist in the interpretation of that language.

(2) Evidence which may be admitted under subsection (1)(c) does not include

19
evidence of the testator's intention.

t
en
m
cu
Do
p
wa
ks
in
Th

20
CERTAINTY OF OBJECT

-the beneficiaries of a trust must be identifiable

-this type of certainty is more difficult than the other 2 due to expanding use of discretionary trusts

Types of uncertainty of object

Evidentially
• the trust will not fail for evidentiary uncertainty because the court can apply for directions

Definition too wide

• definition of a certain class is so wide it creates administrable unworkability

McCracken v AG (Vic)
Phillips J considered trust power for ‘Christian organisations and societies’ might be
administratively unworkable, but didn’t decide matter.
• must be hopelessly wide: Eg: all the residents of greater London

t
• In this case the objects will probably be conceptually certain but administrably unworkable

en
and therefore void.
Eg:
m
• 'For John Smith' – but settlor knew three different John Smiths, will be uncertain in
cu
absence of evidence of which one is being referred to. (Gulbenkian)
• 'My old friends'
Do

• 'dependants or relatives' (Baden No 2)

• Sacks J here drew the distinction between conceptual and evidential
p

uncertainty – A trust will not fail for evidential certainty.

wa

Conceptual Uncertainty
ks

Re Blyth
in

trust for ‘such organisations as Public Trustee [thinks] are formed for the purpose of raising the
Th

standard of life throughout the world’ – might mean different things to different people, but this
conceptually uncertain rather than admin unworkable

Re Leek (Decided before No 1.)

Trust for those having a “Moral claim” on Leek was too subjective

21
Two aspects to the issue of certainty of object
1. the beneficiary principal must be adhered to
2. The objects of a trust must be capable of identification

1. The Beneficiary Principal

A trust must be for the benefit of either an individual or an acceptable charitable purpose.
Policy: there must be a beneficiary who has an enforceable equitable interest arising out of
the trust who can enforce the trust in the event the trustee is failing in his duties
OR a charity – which theoretically the Attorney-General will watch over.

Morice v The Bishop of Durham (HL 25.2C)

“… every other trust [other than charitable] must have a definite object. There must be
somebody, in whose favour the court will decree performance.”

Exception: look at Re Denleys case below

t
en
2. Are the beneficiaries ascertainable?

For a Fixed Trust: m

cu
Uncertainty in a fixed trust may arise because:
Do

1. The eligibility criteria is far to vague/conceptually uncertain, as to make it impossible for

trustees to determine WHO fits the description.
2. The problems may stem from practical difficulties associated with compiling the list
p

▪ this may not necessarily be fatal to the trust, as an application may be made to the
wa

court for directions

ks

TEST: 'List Certainty'

in

TEST: if within a reasonable time the court can be satisfied on the balance of probabilities that
Th

the substantial majority of beneficiaries have been ascertained and that no reasonable inquiries
could be made which would improve the situation then the list/beneficiaries will be held to be
certain. (West v Weston)

This test determines if the beneficiaries have/can be identified with sufficient certainty.
• It must be possible to make a list of all the beneficiaries
• The objects must be so conceptually certain as to allow this to happen

West v Weston
Facts
• The will stated that the trust property was to be divides equally amongst “such of the issue
living at my death of my four grandparents”
• At time of trial, 1,675 people could be identified as “issue”
• This was still not a complete list, so it was impossible to create a definitive one.
Held
Young J:
‘The rule 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 beneficiaries have been
ascertained and that no reasonable inquiries could be made which would improve the situation.’

22
*Note: West v Weston is a pragmatic approach – represents a departure from English law and has
been criticised.

t
en
m
cu
Do
p
wa
ks
in
Th

23
For a Discretionary Trust:

TEST: 'Criterion Certainty'

This test should be applied where there is a discretionary trust with either a mere power or trust
(these powers explained a few pages below)

TEST: Is it possible to determine whether or not a particular person is or is not, on the facts at a
particular time, within one of the classes of beneficiaries?
• If the court can not tell – using the wording of the clause – if any person considered is
within that category or not then the trust will fail for uncertainty. (ReBade’s Deed Trusts;
McPhail v Doulton)

• Evidentiary certainty not relevant to the question of whether the criterion certainty
requirement is satisfied.
• The list must be conceptually certain enough to apply it to anyone in the world and be able
to conclusively include or rule them out of the class of beneficiaries.
• Need administrative certainty...?

t
en
Overview of development

1. Re Gestetner (1953)
m
cu
• distinguished between the two types of powers of appointment that a trustee under a
discretionary trustee has; a 'bare' power and a 'trust' power.
Do

• Different tests for each

p

2. Re Gulbenkian
wa

• In this case there was a Mere/bare Power

• created formulation for criterion certainty test and applied it
ks

3. Re Baden’s (no. 1)
in

• existed some difficulty with distinction of type of power of appointment – decided it was a
Th

trust power
• Decided Criterion Certainty is to be applied to all discretionary trusts, whether trust power
or bare power.

4. Re Baden's (no 2.)

• created three slightly different formulations of the Criterion Certainty test (Sachs LJ
preferred)

5. There is NO High Court authority, only state authorities for the application of Criterion
Certainty test to both types of discretionary trust.

24
Development:

Old approach/position

Re Gestetner[1953] Ch 672
Harman J: ditinguished between the two types of powers of appointment that a trustee under a
discretionary trustee has; a 'bare' power and a 'trust' power.

Trust Power: Certainty rules were stricter here, list certainty was required.
Bare power: Criterion certainty was all that was required.

*Note: Re Gestetner was followed until the 1970s.

Problems:
• not always clear what type of power of appointment it was – and much turned on this
distinction
• may void pension funds

Formulation/refinement of Criterion Certainty test

t
en
Re Gulbenkian Settlement [1970] AC 508,
Facts
clause 2 said:
m
cu
• “trustees may at their absolute discretion provide funds for benefit of (a) any person by
Do

whom Mr G is employed; and/or (b) any person in whose house or in whose company or
under whose care Mr G may be residing.
• 'In who's company may be residing' was most ambiguous phrase
p

Held
wa

• Was a Mere/bare power (ie could choose to give no money).

• Start with the literal words
ks

• if unclear will use common sense and some sort of desire to make sence of setlor's
in

intention to give language reasonable meaning

per Lord Reid:
Th

• “Must be able to determine whether or not a particular person ‘is or is not, on the facts at a
particular time, within one of the classes of beneficiaries; (HL 546) If can imagine cases
where court could not tell, then void for uncertainty. Not void just because difficult to work
out.”
Upjohn
• if you can find admissable evidence for something that was otherwise uncertain it might save
it from uncertainty (john smiths)

New Application of test to both powers

Re Baden’s Deed Trust [1971] (McPhail v Doulton) HL 24.11C (UK)

Facts
• Argument about powers of appointment
• The trustees were to “apply the net income of the fund in their absolute discretion for the
benefit of employees of the company or any relatives or dependents of any such persons in
such an amount in such conditions as they think fit”
• Q: was this a trust power or a mere power? - could really argue either way, unclear
Held
25
 • It was a trust power
• The Criterion Certainty test should be applied regardless of whether the power was a
bare power or a trust power.
• Sometimes it is very difficult to distinguish which type of power it is.
• has to be enough certainty to ensure you can make a broad selection of the objects, a more
comprehensive range of inquiry may be required of a trustee
• possible requirement to show it is certain within criterion test but that it is also
administratively workable, that is, that trustees can be able to make a survey of the
appropriate persons they are going to select
• if court cant resolve conceptual certainty and court cant decide who the objects are the trust
will be void

(HL 558):
*Note: distinction still important:
• Bare Power: ‘ought to make such a survey of the range of objects as will enable them to
carry out their fiduciary duty.
• Trust Power: higher obligation on trustees – A wider and more comprehensive range of
inquiry is called for in the case of trust powers than in the case of powers

t
en
Different Formulations of the Criterion Test m
cu
Re Baden's Trust Deeds (No 2)[1973] Ch 9
Do

• went back to decide if concept of “relatives” was so uncertain that failed the newly
appointed criterion certainty test.
Held – THREE different versions of the criterion test!
p
wa

1
Sachs LJ: (the favoured decision)
ks

Evidential certainty v conceptual certainty

• concept of 'relatives' was conceptually certain: “anyone with a common ancestor”
in

• drew a distinction between evidential difficulty and conceptual certainty

Th

• “it is conceptual certainty to which reference was made when the "is or is not a member of
the class" test was enunciated”
• “Once the class of persons to be benefited is conceptually certain it then becomes a question
of fact to be determined on evidence whether any postulant has on inquiry been proved to be
within it: if he is not so proved, then he is not in it”
• It might be difficult to find out if someone fits this description but that was an
evidentiary problem, not a conceptual one.
• The trust won't be void for evidential uncertainty
• Just because you can't say if someone is a relative because they lack the
evidence is not sufficient for it to be void.
• Considered “moral obligation' to be conceptually uncertain.
• Evidential difficulties in practice simply confine a class to manageable limits.
2
MeGaw LJ:
If a substantial number of objects come within the class its ok
• will be satisfied if it can be said with certainty whether or not a substantial number of
objects fall within the trust, so didn't think there was any practical difficulty
• “What is a "substantial number" may well be a question of common sense and of
degree in relation to the particular trust”

26
 • the trustees could ascertain, by investigation and evidence, many of the objects: as to
many other theoretically possible claimants, they could not be certain
3
Stamp LJ:
Strict application – must be able to conduct a complete survey
• was strict with test – whether it could be said that any given person did or did not fall
within the class, namely that is is possible for a trustee to conduct a complete survey of
the range of objects or possible beneficiaries.
• didn't accept that 'relatives' means “a common ancestor” he solved the problem by saying
relative meant “next of kin” – and it is possible to survey the field for next of kin.

Position in Australia
There is no High Court authority on the application of the criterion certainty to both bare power
and trust power cases. So technically there may still remain a distinction between the application of
the test for trust and bare powers.
• Seem to have favoured Sachs LJ's formulation
• evidentiary certainty not relevant to the question of whether the criterion certainty

t
requirement is satisfied.

en
• Conceptual uncertainty may mean criterion certainty is failed
m
The following state court decisions have treated Re Baden as good law:
cu
• Gerhardy v South Australian Auxiliary t the British and Foreign Bible Society (1982) 30
SASR 12
Do

• power to select from “any other christian organisation which may need assistance”
failed for conceptual uncertainty
p

• McCracken v A-G for Vic [1997] 1 VR 67

wa

• power to choose between “such christian organisations and societies as the trustee
in his absolute discretion thinks fit” failed for conceptual uncertainty
ks

• In the Matter of Blythe [1997] 2 Qd R 567

• Spotlight Stores Pty Ltd v Commissioner of Taxation [2004] FCA 650
in
Th

27
How to know whether Mere power or Trust power?

Mere power of appointment (also known as bare power)

• Trustee has a discretion to appoint someone to benefit, but is not required to do so
• Trust deed will often state what to happen if no one is selected/appointed to benefit :eg gift
over in default
• All the trustee must do to discharge his obligation is to seriously consider whether to
distribute the trust property

Trust power of appointment

• The trustee must distribute the property to their discretion and select someone in accordance
with trust deed or will

How do we tell which power it is?

When it is not clear on the face:

• court looks at whether there is imperative language suggesting the trustee MUST exercise
the appointment.

t
en
• If there is a 'gift over in default of appointment' this will suggest the power is a mere power.
• Can use gift over in default of appointment as evidence of a mere power, but this is
not always the case. (Re Leek) m
cu
Re Leek (Decided before Baden No 1.)
facts
Do

• a trust providing that the company held a death benefit on certain trusts for
“the following persons as the company shall in it's absolute discretion decide, namely
p

Leek's wife, children or other issue or such persons as have a moral claim on Leek or
wa

failing them on the next of kin selected by the company”

• trust – company holds death policy proceeds on trust for the above
ks

• Q does this power of appointment fail for want of certainty?

• Argued it was a mere power of appointment because there is a 'gift over in default'
in

Held
Th

• words were sufficiently imperative to make it a trust power

• Reason why there was a gift over in default of appointment was in order to provide for a
situation where no one met the first criteria.

• Look at the general context and surrounding circumstances.

• How is the language used in the rest of the document?

28
Problem solving of certainty of object

Is it a fixed trust?
If, yes, then list certainty applies.
• To be able to draw a list conceptual certainty required but practical uncertainty not
necessarily fatal.
• May also be assisted by West v Weston approach but query whether be followed in Victoria.

Is it a discretionary trust?
If yes:
Is the trustee granted a power of appointment?
What kind of power of appointment is it?
• Is it a bare(trust)/mere power or a trust power?
- is there a gift over?
- is the
• If it’s either, the test of certainty is criterion certainty.
• Consider all the 3 different approaches in Baden's No 2.
• if a trust power,

t
en
• then higher obligation on trustees, in particular they must make a
selection and must make a more comprehensive survey of the possible
m
beneficiaries than is the case for mere powers and query whether the
cu
trust has also to be administratively workable. See Wilberforce in
Baden No 1.
Do

• probably more onerous then mere power, must be able to survey the
whole class
• If a mere power
p
wa

• fiduciary obligations of a mere power involves a serious consideration

of whether or not to exercise the power
ks

• need criterion certainty too, conceptual certainty

in
Th

29
PURPOSE TRUSTS

Recognised purpose Trusts

Anomalous non-charitable purpose trusts

→Pets may be the objects of a trust

• Re Dean (1889) 41 Ch d – for horses, ponies and hounds
• Mitford v Reynolds (1848) 16 Sim 105 – Horse
• Re Haines The Times (London) 7 Nov 1952, 11 – Cat
Pettingall v Pettingall (1842)
‘Having a favourite black mare, I hereby bequeath…50 pounds per annum be paid to keep her in
some park in England or Wales; her shoes to be taken off, and she is never to be ridden or put in
harness…’
• purpose was to look after a horse

→ Maintenance of a monument or tombstone

t
• Pirbright v Salway HL 577

en
• South Eastern Sydney Area Health Service v Wallace [2003] NSWSC 1061

→The furthering of Fox Hunting m

cu
• Re Thompson HL 578
Do

→The saying of masses for the dead

• Bourne v Kean [1919] AC 815
p

*Note:
wa

• The policy behind these small categories of purpose trusts was the fact that there was a
residuary beneficiary waiting.
ks

• These anomalous cases must also be limited to the perpetuity period

in
Th

Non-Charitable Purpose Trusts

Re Denley's Trust Deed [1969] 1 Ch 373

Facts
• trust for land to be maintained as sports ground
• 'primarily for the benefit of employees and secondarily for the benefit as such other persons
as the trustees may allow to use it'
Argued that it was a trust for the non-charitable purpose of setting up a recreational ground
− if it is a purpose trust it can be struck down
Held
• There is a trust for a purpose, but it was held to be valid.
• There was a sufficiently close connection between the purpose and individuals who
are beneficiaries, so the mischief of beneficiary principal would not arise because
there are people here to ensure this.
Goff J:
‘Where, then, the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or
individuals, it seems to me that it is in general outside the mischief of the beneficiary principle....Beneficiary principle
only invalidates purpose trusts which are ‘abstract or impersonal...The objection is not that the trust is for a
purpose…per se, but that there is no beneficiary…Trust here valid”

30
TRUSTS FOR ILLEGAL PURPOSES

This stems from the equitable maxim: He who comes to equity must come with clean hands
If a trust is created for an illegal purpose it may be void.

Approaches in the UK and Australia are different.

Tinsley v Milligan(UK approach)

If a trust is created for an illegal purpose and its existence can be proved without reference or the
need to lead evidence about the illegal purpose the court will ignore the question of the illegality.
Facts
• A and B purchased a boarding house, put it in A's woman's name so that B could continue to
get social security benefits.
• Had a falling out, now argue over who own it.
• B wants an interest by way of purchase price resulting trust (because she had provided half
of purchase price)
• B argued it was set up for an illegal purpose so A can't claim it

t
Held

en
• Trust upheld
• In arguing there should be a purchase price resulting trust A didn't have to make any
m
reference to that illegal purpose because at all, only her contribution to the purchase
cu
price.
• A doesn't have to rely on the fact of illegality to prove her rights, doesn't matter
Do

WHY she wasn't on the legal title.

p

Nelson v Nelson (1995) 184 CLR 583 (Australia)

wa

Evidence of illegality may be lead but the court will decide according to conscience and other
considerations (pg 242 BQA)
ks

facts
• A woman puts her assets in name of son and daughter so she could apply for a subsidised
in

war loan (couldn't have too many assets or you would not be eligible)
Th

• idea was that son and daughter held it on trust for her as part of scheme to defraud the govt
to avoid interest
• On the sale of the property the son conceded his interest and made the claim that the
property was being held on trust for his mother.
• The daughter would do no such thing, and claimed a beneficial interest in the
proceeds based on the presumption of advancement.
• falls out with daughter, who now claims that the asset belongs to her
• Daughter argues illegal purpose will need to be argued to show you have a legal interest in
the property in order to get around presumption of a gift from parent to child –
• mum would have to rely on illegal purpose to prove it is not a gift but instead a trust
Held
• didn't follow UK
• presumption of advancement did apply
• The issue became whether the mother was permitted to rebut the presumption by leading
evidence of her illegality.
• where there is an illegality can't use a broad approach and say any illegality will not equal a
trust
• Court will look at
• whether or not the punishment (of having trust invalid) fits the crime, is it

31
 proportionate to the illegality
• does the legislation under which the illegality has been committed proved a
punishment? A lot of regulation today
• here it would be out of proportion to say mother had no interest in the house on the basis that
she got reduced interest on a loan
• there were provision in legislation to allow the government dept to waive any people who
had got this type of loan illegally
• mother had to give back the difference between the low interest she got and the market rate
• no policy sense to make decision turn on such a small illegality

[Deane and Gummow JJ]

• Q – what outweighs what? Unjust enrichment of the grantee of a resulting trust OR policy
against giving relief to the payor who has entered into an illegal transaction
• she must do equity according to the consideration of good conscience.
• she must take sufficient steps to satisfy the underlying policy of the Act which
granted her the loan
• She must pay back the difference between the subsidised interest rate and the normal
market rate she would have been charged had she not acted illegaly.

t
en
[Dawson J]
• Common Law - “A court will not lend it's aid in enforcing a cause of action which is
founded upon an immoral or illegal act” m
cu
• Equity - he who comes to equity must come with clean hands
• Considers approach in Tingsdale v Milligan – that equity will uphold the trust if it can be
Do

proved without reference to the illegal behaviour

• does not agree, very poor policy behind this approach.
p
wa

Immoral purposes
ks

Trust for future illegitimate children (Ayles Trusts 1875 1 Ch 282)

in

• was voided because it promoted immorality

Th

Trust for existing illegitimate children (Fletcher v Fletcher)

• was held to be ok

Trust that undermines marriage

• not ok
Ebbocks Case
facts
• testator left money on trust for wife for life
• kids got it when she died on condition that kids and wives professed the Presbyterian faith
• at time of will two sons were married to catholics and other was about to marry a catholic
Held
• was struck down because it undermines marriage

32
Rules favouring circulation of property

a) Rules against restraints on alienation

b) Rule against remoteness of vesting (rule against perpetuities
c) Doctrines striking at indestructible trusts
1. Perpetual gifts of income
2. Rule in Saunders v Vautier (discussed in beneficiary rights lecture)
3. Non-charitable purpose trusts limited in length to the perpetuity period

Restrictions against Alienation:

àOnce property given absolutely on trust any restraint inconsistent with that will be invalid.
-eg settlor settles property on beneficiary with a condition that such property shall not pass to the
beneficiary’s creditors on bankruptcy – invalid
-compare this with interests determinable upon bankruptcy. Brandon v Robinson (1811) 18 Ves
427; 34 ER 370

t
en
m
cu
Do
p
wa
ks
in
Th

33
CHARITABLE PURPOSE TRUSTS

Charitable purpose trust TEST:

1. There is a charitable purpose as legally defined – be in one of the 4 categories

AND

2. There is a public benefit.

LIMB ONE

Definition of “Charitable Purpose”

The pre-amble of the statute of Elizabeth (Statute of Uses 1601) remains the basis for the legal

t
en
definition of 'charitable':
“The relief of the aged, impotent and poor, mariners; the maintenance of schools of learning, free
m
scholars in universities; the repair of bridges, ports, haven, causeways, churches, sea bank, and
cu
highways; the education and preferment of orphans; the relief, stock, or maintenance of houses of
correction; the marriage of poor maids; the supportation, aid and help of young tradesmen,
Do

handicraftsmen, and person decayed; the relief or redemption, of prisoners or captives; the aid or
ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers, and other
taxes”
p
wa

FOUR CATAGORIES
ks

Modern Refinement of what is charitable:

1. Relief of the aged, impotent or poor
in

2. Advancement of education
Th

3. Advancement of religion
4. Other purposes beneficial to the community (not falling under 1 – 3)

This refinement into four identifiable categories comes from Commissioner for special purposes of
income tax v Pemsel (HL 29.4C)

• 1st, 2nd and 3rd Pemsel heads are ‘now recognised charitable purposes, and determination
of their ambit rarely requires any reference to Statute of Elizabeth’
• But 4th head sometimes requires that it be shown to be beneficial to the community and
within the ‘spirit and intendment of the Statute of Elizabeth’

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Legal definitions of each category:

1. Relief of the aged, impotent or poor

The 'poor':
• Not limited to those destitute or living in absolute poverty
• Those who have to “go short” by community standards (Re Coulthurst)
• Those unable to maintain a 'modest standard of living' – not just the bare existance. Poverty
doesn’t mean abject poverty, just that you are ‘subject so some degree of financial necessity’
(Ballarat Trustees v FCT)
• can be charitably for the poor notwithstanding it limits the degree of poverty it is for
• Re De Carteret – trust for the provision of 40 pounds per year for widows who's
annual income was between 80 and 120 pounds.

Implication of poor relief

The trust may come under this category if poverty is what it is implicitly concerned with:

Re Wall (1889) 42 Ch D 510

t
en
• intention to relieve poverty was inferred from the fact that those eligible had to be 50 or
older and the award of money was for only 10 pounds per year.
m
cu
Downing v FCT HL
facts
Do

• Trust for amelioration of the conditions of the dependants of any member of the armed
forces
• No express purpose of poverty
p
wa

• Court took the word 'amelioration' to imply it was for persons who needed improvement and
so poverty was implied
ks

Re Sander's wills trusts

in

• gift for a creation of new housing for the working class not for poverty because workers are
not necessarily poor
Th

Re Drummond
• gift to provide holidays to badly paid employees not necessarily for the poor.

Re Gwyon v Attorney General (1930) 1 C255

*Could not imply that it was for the relief of the poor
facts
• “Gwyon's Boys Clothing Foundation
• provision to provide underpants to boys
• Reverend had a will
• trust gave the underpants if you were in a particular area – residential and there was an age
qualification
• couldn't get underpants if boys were supported by charitable institution or parents were
getting poor relief
• couldn't be black
• and if boy applied the following year had to bring the last year's pair and show they were the
correct pair (prevent sale)
• detail of type of knickers, not to be sporting or fancy
Held

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 • not a charitable trust
• not valid
• Argument: the trust was beneficial to the community, for the relief of poverty
• no public benefit for relief of poverty because of the conditions, because poor relief
recipients were limited
• did not imply it was for relief of poor so failed

Gift to a private hospital

• Private hospitals that are not-for-profit are OK. Rational being that they relieve the pressure
on the public system
• Probably won't extend to profit making hospitals.

Le Cras v Public Trustees C Ltd (HL29.24C),

Privy Council, Lord Wilberforce:
• Gift to hospital prima facie charitable (‘impotent’ in Statute and medical care accepted
under 4th class as public benefit in modern times)
• Don’t need to show sick are also poor (HL 689)

t
• Here meets public benefit test because despite profits and fact that poor can’t afford to go

en
there, relieves pressure on public system.
* care of the ill may be charitable notwithstanding that the ill in this circumstance aren't necessarily
poor.
m
cu
• The purpose must be relief
Do

2. Advancement of education
p

Education defined broadly:

wa

• Schools
• University
ks

• Zoo (Re Lopes)

• Choir
in

• Chess (Re Dupree's Trust Deed)

Th

• Museum
• Sporting associations within educational institutions (Re Mariette)
• Sport on its own is NOT charitable (Re Nottich)
• to improve the environment in which education takes place(McGrath v Cohen)

Limitations:

Education can not be Propaganda.

Re Shaw (HL 692)

• trusts to find out how much time would be saved by adopting phonetic alphabet,
• Also providing for transliteration of a George Bernard Shaw play into the new alphabet.
Held
Harman J:
• not charitable – not persuaded that the ‘propaganda element tends to more than to persuade
the public that the adoption of the new script would be a ‘good thing’, and that in my view,
is not education’

Requirement of Advancement

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Research:
• A distinction is drawn between the development and dissemination of knowledge
• it is not enough to simply increase knowledge, the idea of a trust for an educational purpose
is for knowledge to be disseminated through teaching and learning.
• There must be some educational value – what is needed is an element of instruction or
communication of the results of the research
• The knowledge must be disseminated
• a closed society and research of a private nature is not ok (Re Hopkins)
• in the absence of communication research would be a private activity and fail the
public benefit test.

Taylor v Taylor
• Trust was upheld – for scientific research that adds to the general fund of human knowledge
and will eventually be taught to others

Re Hopkins Wills Trust (HL 29.28C) :

facts
• Trust to find the Francis Bacon-Shakespeare manuscript.

t
en
• Idea that it was bacon who wrote shakespeare instead
Held
• Education goes beyond teaching: m
cu
• it must ‘lead to something which will pass into the store of educational material or so as to
improve the sum of communicable knowledge…[extends to] the formation of literary taste
Do

and appreciation.’ (HL 694)

• took a lax view, what was decided here??
p
wa

Pinion [1964] 1 All ER 890

• A trust for the establishment of a museum of useless household chattles and atrocious works
ks

of art was not advancing education.

Russel LJ
in

“ the mere fact that someone makes a gift of chattels to form a public museum cannot
Th

establish that its creation will have the tendency to advance education or anything else...
Some further judicial inquiry is needed directed to the quality of those chattels”

3. Advancement of Religion

* The court is not interested in judging the truth or otherwise of any religion – it will not go into the
relative merits

Advancing religion?

TEST
Must foster the advancement of religion (United grange lodge)
Will it spread or strengthen spiritual teaching?

United Grange Lodge of ancient free and accepted masons of England v Holborn Borough Council
• Gift to freemasons
Donovan J:
• while “believing in a supreme being” was a condition of entry, advancement of religion was
not the object of the society

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 • To advance religion means to promote it, to take steps to sustain and increase it – masons
don't do any of this.

What is religion?

Church of New Faith Case

• There’s no element of court making ‘assessment of the utility, the intellectual quality, or the
essential “Truth” or “worth” of tenets of claimed religion

Mason J & Brennan J:

• 2 elements:
• Belief in a supernatural being, thing or principal
• canons of conduct to give effect to that belief
• On the facts, whatever the intentions of the corporation, the state of the evidence required the
finding that the general group of adherents had a religion
• it might be a sham and set up by a sharleton but if people believe it it will be a religion

t
en
Murphy J:
• hoax is not a religion.
m
cu
Wilson and Deane JJ (created criterion) :
• No real definition but there are some criterion (not any one is determinative)
Do

(1) belief in reality that extends beyond the senses;

(2) concern with man’s place in universe and re supernatural;
(3) ideas accepted by adherents about codes of behaviour or practices re supernatural;
p
wa

(4) must constitute an identifiable group

(5) adherents see the collection of ideas and/or practices as constituting a religion (HL 701)
(6) None determinative.
ks
in

Roman Catholic Bishop of Melbourne v Lawlor

Facts
Th

• was a trust set up for the creation of a catholic daily newspaper.

Held
• setting up of the newspaper was NOT a charitable purpose
Dixon J:
• There must be a distinction between purposes that are charitable and purposes which are
conducive to religion but are not charitable.
• Eg of advancement of religion:
• gifts in support of the clergy
• building churches
• holding services for the public (Crowther v Brophy [1992] VR 97)
• gifts to religious bodies.

Joyce v Ashfield Municipal Council (HL 29.32C)

Facts
• Trust to pay the rates on Exclusive Brethren hall.
Held
• was a charitable trust
• even though religious practices in hall closed to public, this withdrawal is to prepare
members for going back to world ‘in which they will battle according to their religious

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 views to raise the standards of the world by precept and example.’ (HL 697)

4. Trusts beneficial to the community

For a trust of this nature to be upheld it must be shown

1. It is beneficial to the community;

2. It comes within the 'Spirit and intendment of the statute of Elizabeth'

◦ public works
◦ protection from war and disaster (Cyclone Tracey Fund)
◦ sport – attached to Police, military or education
◦ public safety and defence
◦ anything analogous to what was in the statute

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Social Burial Reform and Cremation Society v Glasgow Corporation

en
facts
• Trust for the purpose of promoting creation
Held m
cu
• at first inst that trust was for public benefit but not within spirit and intendment of Statute.
• HoL disagreed. Two possible pathways to decision:
Do

• Analogy : ‘evolution process’ from Statute ‘repair of churches’ to maintenance of burial

grounds within churches, to cemeteries extended beyond churchyards, to support for
p

cremation. Or
wa

• Argue that it does fall within spirit and intendment. Statute ‘has within it the common element
of public utility’. Here Parliament has said cremation is a public service like burial
ks

RNAIA v Chester HL 29.6C

in

Facts
Th

• A trust set up for racing pigeons

• It was argued they were for beneficial to the community because they could be used for
military purposes
Held
• Was not charitable
• There has to be some link between the purpose of the trust and the Statute of Elizabeth
• Didn’t work either by analogy (ie looking at ‘the character of the activity itself’) or by
arguing that of community benefit in the sense intended by the Statute of Elizabeth.
• HCA considered cremation case : decided that trust for racing pigeons not charitable
• Not every activity beneficial to community will be charitable. Here there’s public benefit
(beauty of birds, recreation of owners, scientific research into homing instinct) but too
remote from Statute’s purposes.

Council of Law Reporting v FCT

Facts
• Trust for the publishing of law reports
Held
• There was public utility here
• The trust made provision for “indispensables of the settled community”

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IRC v Badly
Simon:
• Trusts for social, physical training and recreation were not charitable
• but trusts for gifts of land for recreatiotial purposes open to the public at large or residents of
a geographical area ARE charitable

Gifts for Political Purposes

• Are NOT charitable
• Anything concerning political adgetation to change the law is NOT a charitable purpose.

National Anti-Vivisection Society v IRC (HL 29.21C)

• One reason is that courts are not able to determine what political object is in public interest.
Particularly reluctant where law reform proposals are concerned (so Amnesty International’s
work for political pressure re prisoners of conscience held not to be charitable, while its
work on abolition of torture was).
• Problems with court administering law and trusts for change in law!

But what is political?

t
en
• Trust for elimination of war upheld (Re Blyth RD 92)

Mixed Purposes m
cu
• A gift that mixes a charitable purpose with a non-charitable purpose
• If it is possible for the entire of the trust finds to be applied to the non-charitable purpose the
Do

trust will fail.

• Use of the word “benevolent” usually means it will fail.
p
wa

Charities Act 1978

S7M (s131 PLA)
ks

• gifts won't be invalid for mixing

• It you can find a general charitable intention on the part of the settlor the court will read
in

down the terms of the trust so it will only apply to charitable purposes.
Th

Lawlor Case
• This purpose could not be read down to be a paper that simply aids the church
• It was clear that the paper was for politics – there was no overriding general charitable
intention, such as it's use for advertising charity events and other such church notices.

Lee v Attorney-General
Facts
• A gift for nuns or priests (including contemplative orders)
• this was a mix of charitable and non-charitable purposes
• it was argued court should read it down because of the general charitable purpose
Held
• The charitable intention was assumed

Cy-Prés Schemes

Equity has an inherent jurisdiction to amend trust and apply it 'cy-Prés'where:

• there is a general charitable purpose intended
• but for some reason there is a practical impossibility about applying funds as wished.
• Eg: the charity doesn't exist; the settlor got the name wrong; machinery for

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 ascertaining the object or intention failed

Charities Act 1978 S2

(1) where general charitable intention but initial impossibility or impracticability
(2) where there’s supervening impossibility or impracticality (whether general charitable
intention or not) or a surplus is left.

Attorney General v Pertetual Trustees

Facts
• a farm named 'Milly milly' had been left for 'orphaned lads of australia'
• farm not really big enough or in right spot, not appropriate to educate the orphans through
this intention
• applied to Cy-pres to sell farm and apply money for the education instead
• Q – was the use of Milly Milly so intigral to the gift that it was some kind of memorial to
the testatrix, could you not seperate them or was there a more general intention to sell and
use house that way
Held
• was a general intention so property was sold and money used for lads

t
en
Re Lysarcht
facts m
cu
• Scholarship for students, but Jews and Catholics were not allowed to apply
• Royal College of Surgeons wouldn't accept it
Do

• asked for it to be amended Cy-pres

Held
• general intention to benefit the college
p
wa

• so could remove the restrictions and apply it generally

• (suggestion that it probably wasn't what testator wanted)
ks

Phillips v Roberts
in

• didn't like organised religion wanted a new church to further the study of the bible
Th

• Didn't work this way so applied it Cy-pres to further the study for archeological institute

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Charitable purpose trust TEST:
There is a charitable purpose as legally defined – be in one of the 4 categories
AND
There is a public benefit.

LIMB TWO

“Public Benefit”
Has two elements:

a) It must be a benefit
AND
b) It benefits the public (suitable segment of the community)

“Benefit”

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en
If the purpose falls within 1-3:
• there is usaully an assumption that there is a benefit, unless the contrary is shown (Simon in
Anti-Vivisecton case). m
cu
If it is in 4:
• evidence will have to be advanced to prove there is a benefit.
Do

Defining 'benefit' is very difficult because it will always involve value judgments.
p
wa

There must be a “public benefit”

ks

Gilmore v Coats
in

*this is an example of where evidence to the contrary was shown (Simon in Anti-Vivisecton case).
Facts
Th

• A gift for cloistered nuns

• Were a contemplative order, engaging in penance in the cloister, never went out into
the community
• Q- did the contemplative order seen to be a 'public benefit'?
Held
• Court needed proof of public benefit in these circumstances
• Argument: that it was a public benefit because the nuns were praying for the public's benefit
• This was not considered a matter susceptible of proof – a matter of belief only that
the prayers were helping
• Court refused to accept belief as evidence for public benefit
• Argument: in supporting the nuns in leading pious lives was a public benefit because the
public would learn from this piety
• Court found this too remote
• Argument: by granting a benefit to this order would be good for women because it allowed
them to enter into a fully religious life and more woman can do so in future
• if it doesn't create public benefit to give a gift to a contemplative order, then it
doesn't make sense that it would create any public benefit for a gift to allow woman
to join the order in future
• Was no public benefit

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Must be for the benefit of humans

Re Grove Grady (1929) HL

Facts
• Trust for an animal sanctuary where there was no human interaction
• came under 4th category of 'purposes beneficial to the community'
• was not a sanctuary for endangered species, important bird species
Held
• No benefit to public
• because all the animals were left to their own devices, so it wasn't for public benefit, just
allowed all the animals to eat each other as they saw fit
• the only way it would be benefit would be if it protected them from cruelty or prevented
them from becoming extinct,
• it “did not denote an elevating lesson to man kind” so not for benefit of humans

*Note: This case would probably be decided differently today because dominant social values are
reflected in the notion of charitable trusts and public benefits.

t
en
RSPCA v Benevolent Society
Windeyer J:
m
• bird sanctuary ok because it was in the public benefit to conserve beautiful birds and prevent
cu
their extinction.
Do

The benefit must be for a suitable section of the public

p
wa

Oppenhiem Test: If you are selected on the basis of a personal relationship then you are not a
section of the public.
ks

“A group of persons may be numerous but if the nexus between them is their personal relationship
to a single propositus or to several propositi, they are neither the community nor a section of the
in

community for charitable purposes.” (Simons LJ)

Th

The Oppenhiem tests is the most frequently used.

Thompson Test: Is this a group in which any of the members of the public could join? Is the
group one with a recognised calling, but NO bar to admission?

Refinement: Is there a rational reason for the limitation of this class?

Universities and schools

Can be a public benefit even though the class is limited. This is because admittance to these
organisations is due to a rational reason(selective with marks), Organisations such as the Free
Masons have no rational reason for excluding members of the public.

Oppenhiem
facts
• An inter vivos trust
• provided that money was to be held “for the benefit of employees at british tobacco and it's
subsidiaries for the education of their children”
• 110,000 employees
Held

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 • Did NOT benefit public
• whilst you may have a large number of people, if the nexus between them is a single
propositus (by a personal relationship to an institution) then they are niether a community
nor a section of a public
• It was the personal relationship of the employees with the company which was the defining
factor then it was not a section of the public
• Was ONE company in particular
Dissent:
McDermot
• large size of the class was relevant and shouldn't be left out of account
• disapproved of the personal test
• gift to 'railway workers' ok but to 'employees of Brittish rail' bad

Thompson v FCT
Facts
• Trusts for schools for children of brethren and ex-b of Masonic Order of NSW.
• Membership of Masons by election by current members.

t
en
• Education purpose – prima facie charitable but also for public benefit?
Held
m
Dixon CJ : charitable trust must benefit public at large or a class or section of public. Here only
cu
children of members of Masonic order could attend.
• Here, trusts fail because not for the advancement of education because lacks ‘the public
Do

element’ (HL 673)

• Not relevant that many people would benefit because general public can’t obtain benefit;
p

irrelevant that children will benefit (follows Oppenheim that don’t distinguish b/n parents
wa

and children in such cases)

• What is a section of the public?
ks

• On one side large groups readily recognised that have a common calling or adhere to
a particular faith. ‘There is no bar which admits some members of the pubic to those
in

groups and rejects others. Any member of the public may, if he will, follow a
Th

particular calling adhere to a particular faith or reside within a particular area’ .

• On the other side of the line are those groups such as
• ..a club, trade union, literary soc, distinguishing feature is that these bodies take it
upon themselves to exclude members of the public according to some arbitrary test’
they are “‘an artificial entity which exists for the benefit of its members thereof and
not as members of the public’” (quoting Re Income Tax Acts (No 1) [1930) VSC,
HL 674.
• Members of the public in areas where there was a particualr calling or faith, VS clubs and
literary societies.

Exceptions to the public benefit rule:

A trust for the benefit of the poor does not need a public benefit

Dingle v Turner
Facts
• Trust for poor employees
Held
• Cross LJ: no matter how large the employer, a trust for educating kids of employees is not

44
 public purpose because ‘it is a company purpose’

Foreign Charitable purposes

It is commonly argued that a trust such as this will fail because of the lack of nexus between the
benefit and our community.
However if a trust would be a valid charitable trust in Australia the it does not matter if the benefit
is applied overseas.

Lowin (NSW CA)

• Trust upheld for a music camp in Austria
Lander v Whitebread
• Trust for the advancement of education in Israel was upheld
• Controversy: One judge at trial had said that there should be some sense of obligation within
the home community to assist the particular cause (this was struck down on appeal)

t
en
m
cu
Do
p
wa
ks
in
Th

45
RULE AGAINST PERPETUITIES (common law)

A trust will automatically be void if it offends against this rule. It states that for a contingent
interest to be valid the interest must be capable of vesting within the perpetuity period.
• The rule only applies to contingent interests not vested interests.
Policy:
• to prevent property being tied up forever, to limit 'dead hand control'.
• To keep property maintainable and available for marketable development.
• There must be some point at which the property vests so it can be used the way the current
generation wishes to use it.

Perpetuity period:
RULE: No trust is good unless it vests not later then 21 years after some life in being, after the
creation of the interest.

Period = 'a life in being' + 21 years

t
Is assessed at the time the document become operative

en
• (if inter vivos) date of the deed.
• (if in a will) when the testator dies.
m
cu
'life in being'
Do

→The life in being can not be a class capable of increase

• If the class is capable of increase the gift will vest outside the perpetuity period.
p

• Eg: 'grandchildren' will be a class capable of increase until grandparents and parents are all
wa

dead.
• Legal presumption that a man or woman are fertile until death
ks

• At common law the life in being cannot be a member of a class capable of increase at the
in

date the instrument takes effect.

Th

• Eg an inter vivos settlement by S - ‘to A on trust for my grandchildren’.

• The life in being is S. Even though S’s children are relevant to the identification of the
vesting of the property, S’s children cannot be the lives in being as they belong to a class
capable of increase – S might have more children after the deed was executed.

→The life in being may be the settlor, or the settlor may expressly set out who they want to be the
life in being.
• 'Royal life clause':
• Can define the life in being to be the last living survivor of Queen Elizabeth 11 who
is alive at the date the instrument takes effect.

→If there is no 'life in being' the perpetuity period will be simply 21 years from the date the deed
was executed.

Who will be the life in being?:

• Someone who's life is relevant to the vesting of the property (alive at the date of the gift)
• Someone who's class is not capable of increase
*Note: may simply come down to a Q of who of anyone in the problem is a member of a class that is
now not capable of increase?

46
 • If all classes named are capable of increase and it is an inter vivos trust the settlor will most
likely be the life in being.

'Initial certainty rule'

− Look at the facts that exist at the date of creation of the interest and decide on the basis of
those facts
− Will probably be someone who is alive and relevant at the date of disposition

Has it vested?

3 requirements
1. the person to whom the interest has been given is ascertained and in existence
2. the quantum of the estate is fixed
3. all contingent events have occurred in order to allow the estate to come into possession.

CAN THE TRUST BE SAVED?

t
en
Statutory Provisions
Accumulation and perpetuities Act 1968

S5(1)
m
cu
Drafters can select 80 years as the perpetuity period instead of life in being plus 21 years.
Do

S 6 'Wait and See' Rule

This displaces the initial certainty rule.
p

• An interest which may have been void because it might vest outside the PP will now valid
wa

until established it will vest outside the PP.

• Wait and see if it vests within the period before you get too excited.
ks

S9
in

This allows a reduction in an age contingency if it appears it will offend the rule.
Th

• Most common reason for invalidity postponing is vesting until after 21 ??

S 9(4)
Exclusion of members of class – where a class member’s interest might vest outside the PP

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RESULTING TRUSTS

AUTOMATIC RESULTING TRUSTS

This type of trust occurs where the settlor has failed to dispose of the entire of the interest in the
property – the beneficial interest of the trust has not been exhausted.
Where express trust failsà is there a resulting trust?
This year focus is on the QUISTCLOSE type trust

→Equity assumes that the settlor intended that the trust property would revert back to him
or her.
• Where property is transferred to T “on trust” but no B is specified
• Where an express trust can not legally be enforced.
• Money transferred to T for the purpose of purchasing certain property, which now can not
be purchased (Barklays bank v Quistclose)
• failure of one of the three certainties
• some invalidity in transferral of property
• some illegality

t
en
• offence against the rule against perpetuities
An automatic resulting trust is where the property now goes automatically back to the settlor
m
cu
Do

Possibly situations where an automatic resulting trust would occur:

1. Death of the beneficiary

p

• S transfers blackacre to T to be held on trust for B for life

wa

• B dies
• There is no provision in the trust deed for the fee simple remainder
ks

→Automatic Resulting Trust with fee simple held on trust for S

in
Th

2. Property is conveyed on trust but is surplus to requirements

Possible outcomes:
→Resulting trust back to donors; or
→Application of the funds Cy-Prés for a similar purpose (if a charitable purpose trust); or
→If money has been abandoned it will revert in resulting trust to the crown - “Bona Vacantia”.
• Cunnack v Edwards

Ie. There is a public appeal for some good cause and the donations received for the trust are surplus
to what was originally required.
• A situation such as this will not arise where the Settlor has made alternative provision for
the destination of the beneficial interest.

Re Trusts of the Abbot Fund (1900) 2 Chancery

Death of beneficiaries – Monies held on resulting trust back to the donors.
facts
• public had contributed funds for 'deaf and dumb ladies' after a trustee had stolen their trust

48
 funds
• they died
• Q – what was the happen to the balance left over?
Held
Stirling LJ:
• Was to be held on resulting trust for the subscribers of the public funds
• Assumed that the ladies were never to have obtained the whole property but to be used for
their purposes and then held on resulting trust

Gilligham Bus disaster Fund (1958) 3 All ER 65

Money went back on resulting trust to subscribers
facts
• money donated to be used for a memorial for several dead cadets who had been run over as
they were marching along
• Burghers had collected £9,000 and only spent £2,800

t
• Q: what to do with the balance?

en
Held
• Was not a charitable trust
m
• Q should it be a resulting trust in favour of subscribers or go back to the crown?
cu
McGary
• looked at cases of friendly societies where money that had been donated was returned to the
Do

crown when it was not use.

• on the facts here it was not a case of contract as it was in friendly societies, crown had failed
p

to show the ordinary rule, that there was a resulting trust back to subscribers, be
wa

displaced
• should start form proposition that it is a resulting trust unless you can find some reason to
ks

rebut this
• fact that some subscribers were not known was irrelevant (in this case you had usual rule if
in

the beneficiary to a trust fund cant be found – pay the money into court)
Th

Harman J
• Three possible outcomes – Cy-pres, the crown or resulting trust.
• Resulting trust is best
• rational: donor has not parted with his money absolutely, but only to the extent that
his wishes be carried out with it.
• We should not look to settlors intentions of course because he never would have
expected to have it back, but the resulting trust arises through an inference of law
• in this case it is irrelevant that the some of the donors can't be found, because they all
gave with the same object –
• if they can be found a resulting trust should be executed to their benefit, of not the
money should be paid into court.

Re West Sussex Constabulary's Widow, Children and Benevolent Fund

facts
• subscribers had contributed to a fund by purchasing raffle tickets
• There was a surplus of funds
• some had also made donations to this fund instead of tickets
Held
• those who had purchase raffle tickets had already obtained a benefit and had parted with
their money absolutely
49
 • No resulting trust back to the purchasers of the tickets
• in relations to the anonymous donations in collection boxes these were unconditional gifts to
the fund.

Cunnack v Edwards
Because was a contract situation where the subscribers had received the benefit contracted for the
money went to the crown Bona Vacentia
• society was formed to raise a fund by subscription so that the members widows could
receive funds on the death of a member (widow pension)
• after last death of last member there was a surplus
• either went to the crown or you found all the personal reps from 1810 and there was a
resulting trust for them
Held:
• surplus passed to the crown
• was a situation of contract, not charity.
• The payment of money by a member to a friendly society was through a contract of benefit
for the members widow, once the contract had been carried into effect the contractor had

t
received all he had contracted for – not a charity situation.

en
• the society members had never thought the society would come to an end, so was no
expectation that a residuary might be left over m
• Because of this is was considered that the subscribers had parted all together with their
cu
money and so there was no room for a resulting trust.
Do

3. Property is conveyed on trust for a specific purpose and that purpose fails
p
wa

Barklays Bank v Quistclose Finance UK

ks

Where there is money advanced for a particular purpose the question will be whether or not this
creates some kind of trust arrangement:
in

• this will only arise in an insolvency situation

Th

It will come down to a question of intention

Facts
• Q made a loan to Rolls Razor
• purpose of loan that it is to be used to pay dividends to shareholders of Rolls
• Rolls under financial pressure
• Q was concerned of their financial position so wanted to set up an arrangement to make
sure money was used to pay dividends and nothing else
• money was to be advanced to Rolls and it would then be put on deposit at Barklay's
bank
• the money would not be used for any other purpose but the dividend
• Rolls also has a loan account with Barklay's Bank which is in debit;
• so two accounts one for dividends and one in debt
• Barklays wanted to offset the debt, banks have a right to combine accounts and set off
amount in credit to the amount in debit
• right to set off the accounts does not operate if the account which is in credit are
trust monies (because they do not belong to the account holder as trustee)
• Because Rolls was in difficulty a liquidator has been appointed to Rolls

50
 • shareholders in a liquidation are at end of que

Issue:
Q was the money advanced to Rolls to pay the dividends held on trust for shareholders?
• If they were held on trust the bank would not be entitled to set them off
• shareholders can't be paid because of liquidation – so money could not be paid “in
the ordinary course of business”
Quistclose argues:
• Because of the arrangement, Q has made a loan and the money is held on trust to them,
because they are beneficial owners of the money so bank can't use the money to set off
debt Rolls owes to the bank

Held
• because of the common intention between Q and Rolls these monies that were lent, were to
be used for the purpose of paying shareholders
• court found that a trust was intended
• this was evidenced by the fact that it was put in a separate account

t
• discussions that it would be kept separately and a letter of what money was to be

en
used for had been given to bank as well
• Trust and debt can co-exist. Just because there is a loan does not mean that a trust can not
exist m
cu
• were two trusts:
• Primary express trust - created when moneys were advanced to Rolls; Rolls having
Do

legal title holding on trust for shareholders for purpose of dividends, and placed on
deposit with Barklays. Because of appointment of Liquidator it's express purpose
p

fails and so a resulting trust is created for money back to the lender QF
wa

• Resulting Trust - Because these dividends could not be paid to the shareholders
because a liquidator had been appointed this created a resulting trust to Q Finance.
ks

Failure of primary trust of shareholders

in

Problems with analysis:

Th

• if shareholders are the beneficiaries why couldn't they call for the monies?
• Starts to look like a non-charitable purpose trust ?
• if moneys it advanced for purposes of paying the dividend have become the assets of the
company not only can’t the money be used to pay the dividend because a liquidator
appointed (on liquidation the assets of the company must be used to pay ordinary creditors
before the shareholders) but these moneys now become available for distribution amongst
RR’s creditors.
• Second, if the bank has a right of set-off over the monies, then the bank will effectively go
to the head of the queue of RR’s creditors

Australian Elizabethan Theatre Trust

Elizabethan Theatre Trust (1991) 102 ALR 681
facts
• a scheme whereby gifts were made to the theatre company
• the gifts were expressed to be 'unconditional' so that tax could be avoided
• the idea behind the gifts was that ATT pass them on to a nominated arts organisation
• the gifts were placed into a seperate account
• before they could be given over ETT went into liquidation

51
Q: is this money held on trust or is it available to the creditors?
Gummow
• In Quitstclose RR never had beneficial ownership of the money
• Q had a beneficial interest in the fund by way of resulting trust
• The use of the expression “purpose” should not be seen as heralding a new form of non-
charitable purpose trust, but was instead a condition to the entitlement of the
beneficiaries
• the condition being that they have vested rights in the fund only to the extent that
they had a present right to payment.
• That condition to entitlement couldn't be fulfilled when the company went into liquidation
• the second trust then operated in favour of quistclose

is there an express trust created here?

• Usually you look at the intentions of the settlor to see if an express trust has been created
• but here appropriate to consider mutual intention of settlor and trustee.
• What was the “essence” of the bargain?
• There was no imposition of a legal or equitable obligation to use the money in a particular

t
way because the language used was not imperitive.

en
Twinsectra
facts
m
cu
• Yardley the solicitor acted for leach in the purchase of land
• L wanted to loan $1M but bank would not lend the money unkess the loan was secured by
Do

a solicitor's personal undertaking

• Y was unwilling to do this
p

• L approached another firm of solicitors

wa

• The solicitors represented themselves as acting for Y and gave an undertaking to the bank
that the loan would:
ks

1. be retained by solicitors until such time as they are applied for the acquisition of
the property
in

2. the money will be used to buy the property and for no other purpose
Th

3. 1M will be repaid with interest

• The solicitors got conformation from L thorugh Y that the money would be used for
acquisition of the property and released the money to Y as instructed by L
• Y gave L the money as instructed but took no steps to ensure it was applied only for
purchasing the property
• L used money for some other purpose
• solicitors went bankrupt
• no money paid back
Held
• There was a resulting trust in respect to the money
• There is only a resulting trust the entire time
• the lender retains beneficial interest the entire time (or until the money is applied to
the creditors)
• When the money is lent the lender receives a right in equity to see that the money is only
applied for that purpose
• Borrower does not receive any beneficial interest in the money

Beneficial interest in Lender:

• Gummow in AETT though it might be a security device to protect the lender from other

52
 creditors pending application of the money for the stated purpose
• money remains the property of the lender unless and until it is applied according to his
directions; and insofar as it is not so applied it must be returned to him

What we need to understand different analysis for exam:

Quistclose: (primary trust and resulting trust-2 separate trust)

Where the primary trust fails (the express trust) and thus results in a resulting trust back to the
settlor.
This is a question of intention.

In the end, the key issue is that it is necessary to find either a mutual intention (as found in the
agreement) that the moneys are not to fall within the company’s assets and are to be applied for a
specific purpose or that the moneys having been paid over without restriction the recipient later
constitutes himself as trustee (eg Re Kayford)

t
en
Twinsectra: (there was only ever 1 trust: a resulting trust: which arises due to failure to
dispose of beneficial interest by the lender, coupled with the power of the borrower to apply
the money in a particular way) m
cu
Analysis here is that in Q there was only ever one trust in place, a resulting trust.
Do

Q trust is an example of a single resulting trust (it’s not two trusts primary plus resulting).
-When moneys advanced for a specific purpose and borrower not free to apply the money for any
other purpose, then the lender has not disposed of the beneficial interest of the moneys, therefore its
p

just a resulting trust

wa
ks
in
Th

53
Purchase Price (Presumed Intention) Resulting Trust

this type of trust will arise from two possible situations:

1. Voluntary transfers
2. Purchase price resulting trust

1. Voluntary Transfer
• Where the purchaser of property A has placed the legal title in B's name, or in their joint
names where the B has paid no consideration in both cases

In this case there will arise the rebuttable presumption of a resulting trust in favour of A,
• The presumption can be rebutted by some evidence that A intended to gift the property to B.

Victoria:

This presumption does not arise in relation to general law or Torrens title land in Vic (S19A(3)
TLA)

t
en
In Victoria if there is a voluntary transfer by A to B of land
• it is presumed that this is a gift to B. m
• A, however, can produce evidence to rebut this presumption and show that the transfer was
cu
not intended as a gift and that B holds the land on resulting trust for A
Do

(3) In a voluntary conveyance executed after the commencement of this section,

a resulting trust for the grantor shall not be implied merely by reason that
p

the property is not expressed to be conveyed for the use or benefit of the
wa

grantee.
(4) Subsection (3) does not limit or affect the operation of any principle or
rule of equity relating to the implication of resulting trusts.
ks
in

2. Purchase Price Resulting Trust

Th

This situation will arise where there has been a contribution to the purchase price which is not
reflected in the legal title.
Eg:
• A and B are both contributors to the purchase price
• legal title is in A's name only

Calverley v Green HL [30.13C

facts
• A house purchased for 27K by defactos
• man paid a deposit
• balance borrowed by woman and man jointly
• Man paid all mortgage instalments
• man argued she held her legal interest in the house %50 percent on trust for him

Held
• by taking on the liability of the mortgage she was considered to have made a contribution
to house
• she has liability to repay loan to the bank

54
 • mortgage repayments are payments to discharge the debt and mortgage the bank has over
the house
• the money borrowed was a contribution to the purchase price, the repayments were not a
contribution to purchase price but payments to repay the laon
• so woman held property in contribution to her purchase price – 9K
1.Purchase price of house $27,500
2. Deposit paid by man - $9,250
3. Balance (18,000) borrowed on mortgage jointly by man and woman.
4.She ultimately held 17% of her 50% on trust for the man

Calverley v Green Principal: (Mason and Brennan JJ)

When two or more purchasers contribute to the purchase of property and the property is conveyed
to them as joint tenants the equitable presumption is that they hold the legal estate in trust for
themselves as tenants in common in shares proportionate to their contributions unless their
contributions are equal

t
Unequal contributions:

en
There will arise an equitable presumption that A will hold the legal title on trust for both A and B as
tenants in common in shares proportionate to their contributions
m
cu
Equal contributions:
There will arise an equitable presumption that A will hold the legal title on trust for both A and B as
Do

joint tenants
• This means the right of survivorship operates
p

• The surviving joint tenants will be left unaffected in their interest and the dead tenant's
wa

interest will add to theirs – the whole of the estate remaining with the surviving joint tenant
ks

Contributions to the purchase price:

in

Egs:
Th

→Taking on the liability of the loan (Calverly v Green)

→Mortgage liability on its own won't necessarily be enough to trigger a PP resulting trust.

Bertei v Feher [2000] WASCA 165

facts
• A and B always intended that house being purchased to be paid for by sale of house of
house by A.
• Need bridging finance so A and B borrow temporarily while waiting for sale of A’s house.
• When sale comes through, sale moneys used to pay off the mortgage.
Held
• No PPRT in favour of B
• Just because both A and B were liable under a bridging finance loan together and B became
50% liable for the loan for that short period does not mean that Calverly and Green should
be applied
Wheeler J
• in at [43] said that Calverley did not ‘dictate a formula which must be mechanistically
applied’.

55
 • ‘artificial to say that it is the money raised on mortgage for which, temporarily both parties
may be liable, rather than what is intended to be the ultimate source of funding (sale of the
home..) that constitutes payment of the purchase price’.

Thornton v Hyde [2004] NSWSC 125,

Facts
• T met H and paid for her to come from NZ with her Daughter and they lived together with
him and his four kids
• lived in rented accommodation provided by his employer
• decided to buy a house, consulted H but didn't talk about long range plans
• no one was about to commit
• when he went to borrow the money he needed to have a certain level of income and he
didn't have enough at the time, she worked part time. They said they were joint borrowers
• bought house and moved in
• H later said she didn't like house and relationship broke down
• H went to Newcastle to set up a disco, took car and left daughter with T
• end of relationship

t
• T meets another woman and wants to sell

en
• H is on the title
m
• T wants to sell house but he needs her agreement
• T now asserts an interest
cu
• Ex parte hearing (she didn't turn up)
Do

Q can you take mortgage repayments into account?

Held
• mutual intention was that loan be repaid by Mr H
p

• she had no intention in being involved in acquisition in any further way so NO PPRT
wa

• did take mortgage repayments into account

• she never had any intention to live there, never made contribution to household expenses
ks

• would have been uncontentious to claim ownership

in

• Did H make any mortgage payments at all here??

Burchett AJ
Th

• that while mortgage repayments ‘rarely quantify the interests of parties under a resulting
trust’ (quoting Green), in unusual circumstances they may – the facts of Hyde were such a
case.

56
EFFECT OF ILLEGALITY ON A RESULTING TRUST

→Is there an illegal reason for the legal title only being in one persons name??

• Court will take this evidence in, but whether or not the court will then ignore the trust is
dependent on a range of things.
• The factors:
• whether there’s any provision in the statute for dealing with this issue, you look to
the policy for the crime – if you deny prospective resulting trust person the interest,
then you are privileging legal title holder, which is out of proportion - even though
they are proably involved in it, she had facilitated F’s avoidance of her obligation.
• Could say the mortgage repayment should be taken into account, Calverley v Green
scenario is not legislation, in other scenarios may take t into account.
• i.e. A has some property, is in a partnership with B, and A will buy it using the sale of A’s
property, and the sale of A’s property is delayed, so they get a bridging loan from the bank, to
get the loan from the bank they need both of them, bank wants to se both incomes, and b is on
the title.

t
en
Nelson v Nelson (1995) 184 CLR 583
• presumption of advancement did apply
m
• The issue became whether the mother was permitted to rebut the presumption by leading
cu
evidence of her illegality.
• where there is an illegality can't use a broad approach and say any illegality will not equal a
Do

trust
• Court will look at
p

• whether or not the punishment (of having trust invalid) fits the crime, is it
wa

proportionate to the illegality

• does the legislation under which the illegality has been committed proved a
ks

punishment? A lot of regulation today

• here it would be out of proportion to say mother had no interest in the house on the basis that
in

she got reduced interest on a loan

Th

• there were provision in legislation to allow the government dept to waive any people who
had got this type of loan illegally
• mother had to give back the difference between the low interest she got and the market rate
• no policy sense to make decision turn on such a small illegality

[Deane and Gummow JJ]

• Q – what outweighs what? Unjust enrichment of the grantee of a resulting trust OR policy
against giving relief to the payor who has entered into an illegal transaction
• she must do equity cording to the consdieration of good conciousnce
• she must tak sufficient steps to satisfy the underlying policy of the Act which granted
her the loan
• She must pay back the difference between the subsidised interest rate and the normal
market rate she would have been charged had she not acted illegaly.
[Dawson J]
• Common Law - “A court will not lend it's aid in enforcing a cause of action which is
founded upon an immoral or illegal act”
• Equity - he who comes to equity must come with clean hands
• Considers approach in Tingsdale v Milligan – that equity will uphold the trust if it can be
proved without referance to the illegal behaviour
• does not agree, very poor policy behind this approach.

57
 Th
in
ks
wa
p
Do
cu
m
en
t

58
REBUTTING A RESULTING TRUST

Because a resulting trust is not imposed by law against the wishes of the >>>> but instead is
supposed to be giving effect to his presumed intentions, it is also possible to rebut through evidence
of actual intention or by operation of the presumption of advancement.

Evidence of contrary intention

Muschinski v Dodds(1985) 160 CLR 583

• The presumption of a resulting trust was rebutted thorugh evidence of intention
• A had paid 10/11th of the purchase price, property in name of A and B jointly
Held
• There was no resulting trust for A because it was shown that although A had provided
almost all the purchase price there was an intention that B was to have a one half beneficial
ownership of the property
• clear from facts and evidence and circumstances that at time the property was purchased
both had had the intention that each have a one half beneficial and legal interest in the
property

t
en
• Was an expectation that B would be restoring the cottage and borrowing more money
to do so, was fully prepared to maintain the home in the future.
m
• As such no need for recourse to the presumption at law of resulting trust in favour of A
cu
because the presumption operates by referance to presumed intentions and here there were
real intentions.
Do

• Presumed intentions do not prevail over real intentions.

p

Presumption of Advancement
wa

The presumption of a resulting Trust may be rebutted if the circumstance in which the presumption
of advancement operates.
ks
in

Presumption of advancement starts from the presumption that there was a GIFT
• The idea that the equitable estate follows the legal estate – that in certain relationships
Th

advancement is presumed.
• Arises from the idea that in these relationships there is a natural obligation to provide.
• Evidence must be lead in order to rebut this presumption

Situations in which the presumption operates:

→Husband – Wife
→Man – Fiance
• presumed to have been made in the contemplation of forth coming marriage (Blinko v
Blinko)
→Father – Child (Charles Mashall v Grimsley)
→Father – Illegitimate child (National Trustees Executors & Agency Co of Aus v Fem)
→Mother – Child (Brown v Brown)
Nelson v Nelson
• mother transferred the property to children
• was a presumption of advancement
• had to allege illegality to overcome presumption of a gift
Held
• Enforced the resulting trust here as long as she repaid her benefits obtained with loan

59
Does not operate:

→Wife – Husband (Cummins 2006)

Cummins v Cummins
Facts
• Mr and Mrs Cummins were joint tenants (50/50 ownership)
• Mrs had contributed 76% of purchase price, Mr had contributed 24%
Held
• no presumption of advancement by wife to husband
Q did presumption of resulting apply, giving Mrs a 76% ownership in property in proportion of
the purchase price? (Calverly v Green)
• when looking at Q of presumption of resulting trust, it is possible to rebut it with evidence
• In case of traditional marriage – there was plety evidence to show an intention to share
50/50. So presumption of advancement does not apply

t
en
→Man – De facto partner (Calverly v Green – Mason & Brennan)
m
cu
Tinsley v Milligan
Facts
Do

• Man and woman purchased boarding house and put in the man’s name only to allow the
woman to collect social security.
p

• They fell out

wa

• man brought proceedings asserting ownership.

• She said she had beneficial ownership of 50% (ie he held 50% of his interest on resulting
ks

trust for her).

• Argument that the trust was for an illegal purpose and therefore should be struck down.
in

Held
Th

• she had provided half the purchase price, there was a presumption that the man held on
resulting trust for her as to 50%.
• She did not have to prove why the house was conveyed to the man (thereby relying on the
illegality), the motive was irrelevant to her claim based on resulting trust, therefore could be
enforced
• was contributions to the purchase price that weren't reflected in the title, they were not
husband and wife
• all she had to do was to show there was a resulting trust by way of her contribution to
purchase price
Was he her fiance or defacto?? thought defactos not presumption

Presumption of advancement can be rebutted:

• By evidence of actual intention at the time of the purchase of the person who provided the
money (Glynn v Commissioner of stamp duty)
• when the presumption is rebutted a resulting trust is enforced, NOT an express trust (Nelson
v Nelson)

Glynn v Commissioner of stamp duty

facts

60
 • father put beneficial interest of shares in children's name, and retained legal interest
• he used the dividends as he pleased
• he then died and his estate argued that the shares should not go to the children but the
presumption of advancement should be rebutted because there was evidence that he had an
intention that the shares be for him
• evidence lead was that he had used the dividends himself
Held
• Only evidence at the time of the disposition of the interest was relevant,
• his use of dividends later on not relevant
• could not rebut the presumption of advancement.

t
en
m
cu
Do
p
wa
ks
in
Th

61
CONSTRUCTIVE TRUSTS

A constructive trust is imposed on the parties with no reference to their intentions.

It is imposed where:
“there is some factor which ought to act on the conciousness of the person holding the funds
subject of the action” (Wilson v Panini)

General points:

→Arise by operation of law independent of parties intentions

Exception:
• common intention constructive trusts
• resulting trust – automatic which arises independently of intention
→Arise without need for writing
• No recourse to the PLA
→the main obligation of constructive trustees is to simply transfer the property to the beneficiaries
• not like the complicated requirements on the trustee in an express trust
• a more simple duty

t
en
→must comply with the three certainties.

Broad range of possible types of constructive trusts: m

cu
• constructive trust over profits made inappropriately by a breaching fiduciary (Boadman v
Phipps)
Do

• Secret commission by agents, agent not entitled (breach of fiduciary duty) so hold it on
constructive trust
• D holding legal title on constructive trust in cases of undue influence or fraud
p
wa

• agreements for mutual wills – where husband and wife both draft their wills together so that
who ever dies first the other leaves everything to them and assets distributed the same on the
death of either. This situation can be enforced with a constructive trust.
ks

• Common intention constructive trusts (Baumgartner)

in

• joint venture constructive trusts

Th

62
CONSTRUCTIVE TRUSTS FOR THIRD PARTY LIABILITY

It is possible to impose a constructive trust and treat third parties as constructive trustees where they
should have liability to the beneficiaries

Third party liability may arise when:

• where the third party is involved in the breach of fiduciary duty because they received the
property
• may not receive the property but assisted he fiduciary to breach their obligations.
• Involves the breach of trust property or proceeds of breach of a fiduciary obligation

Personal liability:
The constructive trustee has the personal liability to repay the beneficiaries
Still holding property?
• Will be required to transfer the property back
If it has been dissipated?
• Will be personally liable to repay it.

t
en
The two types of third party liability were identified in Barnes v Addy

Barnes v Addy m
cu
Rule: 2 limbs
1. Knowing receipt of property
Do

People who knowingly receive property as a result of the breach

• will be liable to the fiduciaries principal as a constructive trustee
2. Knowing assistance
p
wa

• people who knowingly assist in the fiduciary in their breach

• will be liable to the fiduciaries principal as a constructive trustee
ks

Facts
• two sisters Susan and Ann
in

• Ann married to Mr Barnes (evil)

Th

• Susan married to Mr Addy

• Ann was a co trustee of an estate and became the sole trustee eventually (a family trust)
• Barnes had been in dispute with Mr Addy about how he had been running the family trust
and sued him at some stage.
• Barnes wanted to separate out Ann's portion and appoint himself as sole trustee of her
portion. Mr Addy would stay as trustee as his own wife's portion
• not a good idea to have sole trustee here – increases likelihood of some fraud
• was a breach of A's trust to transfer Anns portion out and set it up so that there was only one
trustee
• Mr Addy advices against it, solicitor acting for B wrote to Ann to advise against it
• All ignored both solicitors
• two solicitors drew up documentation
• As soon an Ann's portion was separated out Mr Barnes took the shares and sold them and
put proceeds into his business and went bankrupt
• Mr B as sole trustee also misappropriated the money
• Ann sues both solicitors
Q what liability do solicitors have?
Held
• Solicitors are not to be made constructive trustees merely because they act as agents and get

63
 instructions within their legal powers
• UNLESS those agents receive and become chargeable with some part of that
property
• or assist with knowledge in a dishonest and fraudulent design on the part of the
trustees
• By merely drafting a deed they had not assisted in the breach
• Barnes and Addy could have done it themselves
• solicitor didn't know Barnes would be fraudulent

Q1: did solicitors knowingly assist A's non-fraudulent breach of trust be facilitating the appointing
of a sole trustee?
• Mr Addy transferred the money to a sole trustee (non-fraudulent)

Q2: did they knowingly assist in B's fraudulent breach of trust?

• Misappropriating the money

• They DID NOT assist in the fraud by simply drafting the documents
the trustees could have transferred it themselves, so their actions had not assisted in the

t
•

en
fraud.
• Also they had not known about Mr B's fraudulent design.
m
cu
Do
p
wa
ks
in
Th

64
Recipient Liability (knowing receipt) $$$$

A third parties personal liability will arise when they become knowingly involved in the breach.

Person who receives trust property or proceeds of breach of fiduciary duty and who receives it
knowing of the breach will be liable to the fiduciary’s principal as a constructive trustee.

Elements:
A will be personally liable if it can be shown defendant:
1. There was a breach of fiduciary obligation: doesn’t just need to be breach of trust
2. D received the (beneficial interest: D receive the property as a principal and not as an agent
for another party) of trust property or proceeds of a breach of fiduciary duty
3. D had knowledge of the breach of fiduciary duty.
• Factual issue: what did the recipient actually know? And
• Was this knowledge enough to hold the recipient liable as a constructive trustee.
This is a question of law.

t
en
If above can be shown: D will then be treated as a constructive trustee of the money and will be
liable to the beneficiaries personally to make payments to them
• this is a personal obligation
m
cu
Do

Qualifications:
p

“Beneficial receipt” for the purposes of knowing receipt

wa

This means that D must receive benefit from the property and not just receive it ministerially.
ks

Banks
Simply the fact that money has been deposited into a bank account is not enough for there to be a
in

'benefit' for the purposes of knowing receipt.

Th

• The bank has simply acted as a depository through which funds have passed
• for there to have been any benefit and overdraft would have to have been paid off
• the benefit here has tp be “long lasting” like paying off a debt.

Robb Evans and Associates v European Bank [2004] NSWCA 82

facts
• A breaching trustee placed money in an account at the bank
• banks use the money in their accounts to invest with and make money
• Q: was the bank receiving a 'benefit' for the purposes of knowing receipt?
Held
• No benefit here - bank just receives money ministerially
• may have been a benefit to the bank had the money been deposited in overdraft (in order to pay a debt)
• because the account was in credit there was no benefit.

“Property” for the purposes of knowing receipt

property has normal meaning here
Information
Information that should have been disclosed can not be considered property for the purposes of the
knowing receipt (Farrah constructions v Say Dee)
• Information does not become property simply because of its confidential nature.
65
 • what about an action for confidential information here?

Level of “knowledge” for the purposes of knowing receipt

It must be shown that the D knowingly received and assisted

Level of knowledge by recipient:

Levels of knowledge taken from Baden

1. Actual knowledge
2. Wilfully shutting one’s eyes to the obvious
3. Wilfully & recklessly failing to make such inquiries as an honest and reasonable person
would make
4. Knowledge of circumstances which would indicate the facts to an honest and reasonable
person (to cover the situation where the D knows all the facts but is morally obtuse-doesn’t
get it)
5. Knowledge of circumstances which would put an honest and reasonable person on inquiry
(negligent failure to inquire)(careless-I could of done more)

t
en
UK
m
In the UK the level of knowledge required for knowing receipt is from 1 – 5.
cu
Vic
Do

In victoria there is more debate

Kooratang Nominees
p

• Only knowledge from 1 – 4 is required, a negligent failure to make enquiries will not be
wa

enough to make out knowledge.

• This was affirmed in:
ks

• Corporate systems publishing pty ltd v Lindgren WA

• Quince v Varga
in

facts
Th

• trustee company trustee of family trust

• directors uses trust assets to secure personal loans from the bank
• tells ANZ that company was the trustee of an inactive trust, in relation to the
property he is using
• said the company used to hold trust assets but doesn't anymore – these assets are my
assests and can be used for me
• ANZ solicitor finds out the trustee company of 'inactive trust' holds various properties – so
fairly clear it is not inactive
• company does have trust assets
• ANZ ignores solicitor, only gets a certificate from the company that says it does not hold
any assets on trust
• should have asked the beneficiaries, not the trustee
• certificate and security documents were forged by director
• Company seeks to have the mortgages set aside
Q: what was the bank's position, when it found out from solicitor that company holding other
prprty it this enough for it to have knowingly received trust property?

Held
• if use traditional analysis the type of knowledge required is 1 – 4 but not 5

66
 • in his view the bank knew the trust property was being misappropriated
• and bank failed to make reasonable inquiries they should have made to find out whether it
really was an inactive trust
• just asking the director himself was not enough
• was of type 2 or 3 knowledge
• In Vic it is 1 – 4

Other possible levels of knowledge

→BCCI v Akindele
• suggested that the Baden categories should be dropped and instead that:
• “a recipient is liable where knowledge is such that it would be unconscionable for
them to retain benefit”
Question then becomes what is “unconscionable”

t
→Birks:

en
If you receive property the liability should be strict
m
• subject to defence of change of position/detriment.??
• Kooratang and Farrah discussed this analysis
cu
• it was rejected by the high court in Farrah
Do

*Note: If there has been no knowledge, suggest possibility of strict liability, or unconscionability as
alternative ways of getting third party.
p
wa

*In Barnes v Addy drafting the deed of appointment did not mount to assistance as it did not
increase the non-fraudulent trustees power to commit a breach of trust
ks
in
Th

67
Accessory Liability (knowing assistance)

Person who knowingly assists a fiduciary in fraudulent and dishonest breach of their fiduciary
obligation is liable to the fiduciary’s principal as a constructive trustee. Assists does not receive
anything themselves.

Elements:
D will be personally liable for the loss if:

1. D knows the fiduciary is acting in breach of fiduciary duty, that a fraudulent and dishonest
design has been implemented
• the knowledge relates to the actual facts and not just allegations
2. D has acted to assist that fraudulent design

→The thirst party constructive trustee may not have ever held the monies:
• Case law has treated knowing assisters and receivers as constructive trustees ever though
they may not have ever held property

t
en
• It does not matter that D has not received any benefit of the monies
• Even though the bank may not get a personal benefit out of it they will still be
personally liable for the loss m
cu
Type of breach
Do

Any breach of trust or fiduciary duty by the trustee or fiduciary here must be a dishonest breach for
accessory liability to apply.
p

AUS (Farrah & Consul Developments):

wa

• dishonest breach of trust or fiduciary obligations

+
ks

• Dishonest assistance
in

UK (Boadman v Phipps)
Th

• dishonest OR honest breach of trust or fiduciary obligations

+
• dishonest assistance

Consul Developments
get facts
Barwick J:
• Knowledge of type 4 and maybe 3 was required for knowing assistance
• must be some dishonesty
• on facts director had been told that DPC estates was not able to invest and that the director
had gone out and made his own enquiries and these inquiries had confirmed this and director
was not required tom make any more requirements
Gibbs J:
• no breach of FD because he had not gained the info from his position in the company
• and was not breach because decision had been made not to take up corporate opportunity
because of financial position of company

Level of knowledge required

68
The knowing assister must have knowledge from level 1-4
• It was traditionally thought that a higher level of knowledge was required for an assister
because they had not held property?

*Note: the level of knowledge required may be a bit higher depending on who the assister is. A
solicitor for example may be held at a higher bar then a lay person who knows nothing about trusts.

t
en
m
cu
Do
p
wa
ks
in
Th

69
DUTIES OF TRUSTEES

Exercise of Trustee’s Discretion

-you can only attack the process or manner of the trustee not that X was appointed over Y.

Where trustee exercises either a mere power or trust power it must be exercised:
‘in good faith, upon real and genuine consideration and in accordance with the purposes for which
the discretion was conferred’ (McGarvie J Karger v Paul )

Burden of proof on proving improper exercise of discretion lies with the person complaining;
Matters of evidence complicated by the fact trustees not generally required to give reasons for their
decisions
Re Beloved Wilkes’ Charity; Re Londonderry Settlement

The Exception:
‘The validity of trustees’ reasons will be examined and reviewed if the trustees choose to

t
state their reasons for the exercise of discretion’. (McGarvie J Karvger v Paul)

en
Effect of improper exercise of discretion:
-improper decision void from beginning
m
cu
-make an application for removal and replacement of trustees
-order returning matter to trustees for decision
Do

-can the court exercise the discretion? Yes UK McPhail v Doulton but? Australia Knudsen v Karar
Kar (2000) à held that the only orders open to a court were either an order for the removal and
p

replacement of the trustees or an order returning the matter to the trustees to make a new decision in
wa

light of the courts judgement. It suggested that the dictum of Wilberforce in McPhail v Doulton
only applies to the comparatively rare case in which the court can determine from the trust
ks

instrument and other trust documents how the discretion should be exercised.
in
Th

1. Duty to learn the terms of the trust

This is an implicit duty for the trustee

• they wouldn't be able to give effect to the terms of the trust if they didn't know them.

2. Duty to obey the terms of the trust

When each trustee enters office:

• have a basic duty to ensure that the terms of the trust are carried out.
• Each trustee is under an obligation separately and of themselves to ensure they do the right
thing and ensure trust terms are carried out (you cant sit by and allow the other trustees to do
all the word) (Bahin v Hughs 1886 31 Ch Div 390)

Bahin v Hughes (1886) 1Ch Div 390

Facts
• one trustee did most of the work in the trust (active trustee)
• she made an unauthorised investment in a mortgage of leasehold rather then on a fee simple
(breach of terms of trust)
• mortgage over leasehold is more risky because the lease can be terminated
70
 • other trustees argued that it was her fault and they were not liable as trustees in relations to
the breach of trust
Held
• While they didn't do the unlawful act they had allowed the other trustee to do this by not
attending to the business of the trust
• they created the situation which had allowed the active trustee to breach because they had
not done anything
• each trustee is under an obligation to carry out their own separate responsibilities in
relation to the trust

Modification of the trust terms

It is not possible for the trustee to simply modify the terms as they see fit

At common law Trustees have certain powers over the trust:

• change infant's property from real to personal
• provide maintenance for infants out of the trust
• sanction a compromise to litigation to which an infant is a part.

t
• Power in an emergency to 'salvage' trust property.

en
Statutory modifications:
m
• Trustee Act 1958 (Vic) ss 63, 63A – power of court to authorise dealings with trust property
cu
and to vary trusts if the court thinks it is expedient (s 63) or where the court ‘thinks fit’ (s
63A)
Do
p
wa
ks

3. Duty to administer the trust personally

in

→All trustees must agree unanimously unless express provision to contrary (Luke v South
Th

Kensington Hotel Coy [1879) 11 Ch D 121)

• S30 Trustee Act
• Allows delegation during absence of incapacitation of the trustee
• may make it so that all that is needed is a majority rather that unanimoty

→A trustee may not fetter their own discretion

• can't hand power over to someone else.
• Must not delegate trust power.
The trustee may appoint an agent (eg appointing an agent to sell trust property in the ordinary
course of business)
• but can't have that person actually making a decision on the part of then trustee.

*It is possible for the trust deed to vary some of the trustee's duties in some way

71
4. Duty to keep accounts and inform beneficiaries of matters relevant to their interests

Extent of the duty:

• duty to give information on location and condition of trust fund/ property(Low v Bouveries)
• duty to keep accounts and let beneficiaries inspect them (Pearse v Green)

No general duty to give information

Law in this area is unclear by several considerations
Look at below case law discussion

Considerations

→Rational for investment or other choices

• The trustees are not required to give information about their discretion and how they choose
to exercise – as such B should not be able to access this information (re beloved wilks
charity)
• but if they choose to state the reasons the validity of the reasons will be examined

t
en
and reviewed. (carger v Paul)
• policy/ Rational: trustees are under no obligation to explain how they exercise their
m
discretions and if they were this would make it difficult for trustees to be trustees and
cu
have to explain themselves. No one would want to be a trustee if they had to explain
every reason
Do

→Trust documents
• If there is a fixed trust and trust property is used to produce or acquire documents – then
p

those documents with become trust property and B has a right to see themselves
wa

• some judges suggest B should be able to look at documents which are trust property
• Another approach:
ks

• give trust documents a broad definition and as such right to access might be
in

overridden by policy arguments

Th

Case law – no definitive theory

Londondary's Settlement
Narrow view that the B is only allowed to see what was trust property.
• The only documents that were provided to B were the documents which had been created
using trust funds (solicitor correspondence)
facts
• Discretion to distribute the entire amount of trust to Bs
• after all capital provided to them this would terminate the trust
• the B that was entitled to the residuary if power was not exercised wanted to examine the
agenda of the T and look at documents of meetings of Ts and minutes
Held
• Correspondence between T and T's solicitors had to be disclosed because trust money had
been used in purchasing that advice ( was trust property)
• Docs prepared fro meetings and other correspondence did not have to be disclosed
• Majority: said didn't have to be disclosed because they were not 'trust documents'
• suggests a narrow definition

72
Schmidt v Rosewood Trust Ltd [2003] 2 AC 709
The beneficiaries rights to information shouldn't be defined on the basis of notions of proprietary
rights.
• Linking their rights to docs to property rights makes no sense
• in a discretionary trust there are no property rights, only mere expectation to to
property
• It is better to look it from the point of view of the courts role in supervising trusts
Facts
• Rights of Bs were under a discretionary trust
• B wanted access to documents
Held
• no B under a fixed or Desc trust has an absolute right to trust Docs especially where there
are issues of personal confidentiality concerned.
• Approved Kirby's dissent in Hartigan Nominees v Ridge (below)

t
• Bs right to inspect docs not based on a prop right but the T's fiduciary duty to keep

en
accounts and keep B informed
m
• what about situation of Bs under a discretionary trust? - they have no real proprietary
rights in the trust assets, thy only have a mere expectation
cu
Rouse v 100f Australia Trustees (1999) SCSA
Do

Policy reasons of protecting T's right to have a private discretion will outweigh any proprietary
argument of the Bs.
p

• T can refuse to show any docs to a B where they have reasonable grounds for showing that
wa

their disclosure would be prejudicial to their discretion

ks

Hartigan Nominees v Rydge:

in

Kirbys dissent-who held that a Bs rights to inspect not based on proprietary rights but upon trustee’s
fid duty to keep accounts and keep B informed. To say based on proprietary rights leads to
Th

unnecessary complications for Bs under discretionary trusts and may give trustees too great a
degree of protection in the case of docs artificially classified as non trust docs.
Majority: endorsed the Londondarry approach

McDonald v Ellis (2007) NSWSC 1068

The trust document approach is better because it is clearer and more definitive.
It is the trust documents which you are entitled to see. Proprietary rights approach
• followed majority in Hartigan, not kirby's dissent
• court should supervise but took the majority 'trust document' approach
• trust prop is a clear rule so should follow it.

73
5. Duty to exercise a standard of care

Common Law definition General standard:

Re Spreight 91883)
“A trustee ought to conduct the business of the trust in the same manner that an ordinary prudent
man of business would conduct his own, and that beyond that there is no liability or obligation on
the trustee”
• General duty to exercise care
• This will vary depending on whether the trustee is a professional trustee or not
• Will probably be a high duty of care with a professional

6. Duty to invest

The trustee may only invest in investments which are authorised by the trust deed

t
en
It is necessary for the trustee to be prudent and take care of the investments
“Prudent person”
• investments should not be speculative or unwise
m
cu
• Speculative investments would not be prudent, however wide the power investment (Sidney
Do

v Huntly (1900) 21 LR (NSW) Eq 10)

• risk should be diversified
-through a broad range of investments (don’t put all your eggs in one basket so if one
p

goes bad you don’t loose entire trust fund)

wa

*Note: if the trustee invests unwisely causing loss they will be liable for equitable compensation.
ks
in

Jacobs sets out six ways in which the standard of prudence is qualified
Th

1. While risk can be incurred it must be a ‘prudent degree of risk’ avoiding ‘hazard’.
2. An ordinary prudent person can commit errors of judgment without being liable
3. Trustee has to take care as if the investment was for the benefit of other people for whom he
felt morally bound to provide.
4. Trustee may only invest in all investments an ordinary prudent person would invest in if the
trust deed or statute allows it.
5. Trustee must act impartially between beneficiaries ie the interest of those presently
entitled to income must be weighed with the interests of those who are to take in the future
6. Is a higher duty for trustees whose profession is to manage the affairs of others.

74
Cowan v Scargill
Main concern should be the financial advantage of the trust
facts
• pension fund of miners, S one of trustees
• Union wanted to make sure the pension fund did not invest in competing overseas industries
• when comparing the finds investment plan the union trustees did not want to invest in
industries competing with coal industries
• other trustees said this would make the range of investment too narrow
Held
• must do what was in best inteest of Bs
• when considering their best interest it was the financial interests that should be thought of
• main thing is to get best financial advantage, even if Bs wanted you to do something else
• anyway not all wanted this kind of investment so it overruled their opinion
• absent any clear provision in trust deed socially responsible investing is ok as long as there
is a proper financial basis that can be justified.

Examples of breaches of this duty:

t
en
→Leasing trust property at a very low rent (Donely v Donely)
m
→mortgaging trust property to take out a loan that I unlikely to be paid back
→Investing fixed interest securities instead of shares (Mulligan)
cu
Re Mulligan
Facts
Do

• farm sold in 1965 and capital invested in fixed interest securities

• this meant that by 1996 the capital was small because of inflation
p

• Widow had insisted there by no investment in shares (she was co trustee with profiessional trustees)
wa

Professional trustees tried to change her mind but didnt do a lot

• Q: should they have invested in shares not fixed interest, would a rpudent trustee in 60s have invested in
ks

shares?
Held
in

• at time it became clear that officers of the trustee knew something should be done
Th

“Invest”
Trustees may only invest in investments that are authorised by the trust deed or statute.
Courts have taken an conservative view of the meaning of invest.
Investing means the purchase of property by which you can expect to receive a return

→A loan on an unsecured promise to repay is not an 'investment' (Khootek Keong Case [1934] )
• It may be that the term in the trust deed is so broad that it does not require security
→Purchase of a house for the beneficiary to live in is not an investment (Re Power)

'Investments' in Statute:

Trustee Act 1958

75
Part 1
Applies to trusts created BEFORE OR after commencement of s4 of the Trustee Companies
(Amendment) Act 1995 (Vic)
S5
unless expressly prohibited by the trust instrument, the trustee may invest funds in any form of
investment at any time, vary an investment
• trustee may, unless expressly prohibited, invest funds in any form of investment, however
trustee is still limited by the duty to act prudently.
• The prohibition here must be VERY clearly express (AXA Trustees Ltd v Attorney-
General for the State of Victoria)
• Thus you have broad powers of investment unless expressly prohibited in the trust
deed (AXA)

AXA Trustees v AG
Facts
• Clause of the trust deed:
• (e) trustees could invest in shares of any company (other than a company principally

t
engaged in the business of drilling or searching for oil or mining) which is officially

en
listed on the Stock Exchange of Melbourne.
• Trustees wanted to invest in shares in ANY company even if the company was engaged in
m
oil or mining or was not officially listed on the Melbourne Stock Exchange
cu
Q: was this an express prohibition for the purposes of s5 of the Trustee Act?
Held
Do

• No, as it was not a restricting provision, it was an expanding provision

• the object of the clause was to expand the range of the things T could invest in – to shares
p

(though a particular type)

wa

• It was not an express prohibition within the meaning of s5

ks

7. Duty not to deal with trust property and otherwise profit by the trust-fiduciary duty* as trustee is
in

a fiduciary
Th

No conflict no profit rule- ‘a fiduciary will be liable to account if it is proved that a profit, benefit or
gain was acquired in circumstances of conflict of duty and interest or by taking advantage of the
fiduciary position: Chan v Zacharia 1984 at 198

8. Duty to pay the correct beneficiaries

-if they pay the wrong person they are in breach of their trustee duties.

Duties of Trustees in Statute:

S6 – Duties of investment
• sets out the trustees’ duties in respect of the power of investment.
• The duties are subject to the trust instrument.
S6(a) – Duty of professional trustee
• ‘exercise the care, diligence and skill that a prudent person engaged in that profession,
business or employment would exercising in managing the affairs of other persons'

S 6 (1)(b) – Duty of a non-professional trustee

• ‘the care, diligence and skill that a prudent person would exercise in managing the affairs
of other persons’.

76
S 6(3)
• Trustee must, at least once in each year, review the performance (individually and as a
whole) of trust investments.

S 7(1) – Laws of equity continue to operate to place requirements on trustees (unless excluded by
trust deed

S 7(2) In particular the following duties continue

a) A duty to exercise the powers of a trustee in the best interests of all present and future
beneficiaries of the trust;
b) A duty to invest trust funds in investments that are not speculative(high risk);
c) A duty to act impartially towards beneficiaries and between different classes of beneficiaries
d) A duty to take advice

S8 – matters to which a trustee must have regard in exercising a power of investment.

(a) the purposes of the trust and the needs and circumstances of the
beneficiaries; and

(b) the desirability of diversifying trust investments; and

t
en
(c) the nature of and risk associated with existing trust investments and
other trust property; and

(d) m
the need to maintain the real value of the capital or income of the
cu
trust; and

(e) the risk of capital or income loss or depreciation; and

Do

(f) the potential for capital appreciation; and

(g) the likely income return and the timing of income return; and
p
wa

(h) the length of the term of the proposed investment; and

(i) the probable duration of the trust; and

ks

(j) the liquidity and marketability of the proposed investment during, and
on the determination of, the term of the proposed investment; and
in

(k) the aggregate value of the trust estate; and

Th

(l) the effect of the proposed investment in relation to the tax liability
of the trust; and

(m) the likelihood of inflation affecting the value of the proposed

investment or other trust property; and

(n) the costs (including commissions, fees, charges and duties payable) of
making the proposed investment; and

(o) the results of a review of existing trust investments.

(2) A trustee may-

(a) obtain and consider independent and impartial advice reasonably

required for the investment of trust funds or the management of the
investment from a person whom the trustee reasonably believes to be
competent to give the advice; and

(b) pay out of trust funds the reasonable costs of obtaining the advice.

77
RIGHTS OF TRUSTEES

1. Right to be indemnified and reimbursed under general law and under statute Trustee Act s36(2).

The trustee will be personally legally liable for any damages, costs and expenses – as such they
have the right to be reimbursed for the expenses that are incurred (as a trust is not a separate legal
entity)
• Damages and costs awarded against the trustee as owner of trust property
• liabilities incurred by trustee in course of conducting trust business, eg agents fees, rates
• costs incurred in defending allegations of breach of trust

This right is secured by a lien over the trust assets

• Trustee will get an equitable lien over the trust property
• Lien (a right to keep possession of property belonging to another person until a debt owed
by that person is discharged)

RULE: where the expenses are reasonably and properly incurred the trustee has the right to be
reimbursed from the trust assets

t
en
“Acting reasonably”
Actions will not be reasonable if: m
cu
• they amount to breach of the trust
• are unauthorised
Do

Nolan v Collie
p

Distinction between breaches of different duties

wa

• some breaches are only minor so they wont cause a loss of indemnity, you have to ask
yourself whether it’s a low level duty and if so its not enough to deny the right to
ks

indemnification (mere errors of judgement will not deny the right to indemnification)

in

• If there’s a breach of a strict duty this removes the right to indemnification eg duty to keep
Th

and render accounts, fiduciary duties, duties of investment, duty to adhere to the trust

facts
• trustees used trust property to secure debts arising out of another transaction
• trustee had not exercised due skill and care – breached the trust and thus trustee should not
be indemnified out of trust property
Held
• arguable it was negligent breach it was a slip but in the scheme of things it was a mere error
and it should not should deprive the trustee of indemnification.

• no criteria to distinguish between breaches!

78
Re Raybould
Breach of duty to 3rd party can not in itself represent breach of duty by the trustee
• committing a tort to a 3rd party may not necessarily mean you have breached your trustee
duties and thus wont remove your right to be indemnified
facts
• trustee conducting a mine which caused subsidence(sinking of land) to neighbour
• was sued by neighbours
Q can trustee indemnify himself out of trust assets to indemnify themselves against the neighbour?
Held
• no breach of duty here by the trustee, no negligence or anything (as trustee had engaged
experienced ppl to run the mine)
• therefore no breach of duty by trustees, even though a tort had been committed to the
neighbour.
• The trustee could indemnify himself from the trust to pay the costs to the neighbour.

t
Subrogation of Trustees right to by indemnified by a third parties

en
The trustee has the right of indemnity against trust assets for
m
cu
Creditor of the trustee who has incurred a debt during due administration of the trust can access
trust assets by way of subrogation. Eg:
Do

• Trustee buys widgets on credit for $10,000.

• This is authorised and not a breach of duty.
p

• Trustee has right of indemnity against trust assets for the $10,000.
wa

• However, the creditor who sold the widgets on credit can be subrogated (ie stand in the shoes
of the trustee) to the trustee’s right of indemnity and therefore can assert a lien over the trust
ks

assets to that amount.

in

The Trustee’s right of indemnity is extremely important if you are trading with the trustee or
Th

lending money to the trustee for the purposes of the trust.

one party, commonly an insurer of another party (X), steps into X's shoes, so as to have the benefit
of X's rights and remedies against a third party.

* check the trustees right of indemnity is not limited in any way

If trust is not enough:

The Trustee may be indemnified by the beneficiaries themselves (if trust assets not enough) in
certain circumstances:
Rationale: where beneficiaries have taken the benefit of the trust fund, they should also bare the
burden of the trust fund.
1. Where it is a fixed trust
• where sole or all beneficiaries are entitled to the same interests as absolute owners
2. Are beneficiaries sui juris (legal competence)
3. if the beneficiary themselves has asked the trustee to incur the expense
4. if the beneficiary has asked the trustee to become the trustee
5. there may also be a clause in the trust deed which limits the possibility of beneficiary having

79
 to indemnify the trustee (Broomhead case)

3. Contribution and recoupment

• Co-trustees who participate in breach of trust are jointly and severally liable to the Bs for the
loss.
• Co-trustee not liable for breach unless they actively participated in the breach or the breach
was facilitated by their wilful default s 36(1)Trustee Act

Contribution
Two trustees A and B liable to Bs for loss of $10,000
Trustee A pays the $10,000 – he or she can then seek contribution of $5,000 from trustee B.
-Both will be entitled to seek contribution from the other if only one pays

Recoupment (full indemnity)

A and X liable for $10,000 to Bs.

t
A and X pay the Bs $5,000 each

en
BUT
m
A says there are circumstances such that he or she is entitled to recoup the $5,000 paid to the
Bs from X
cu
In What Circumstances will there be Recoupment ordered?
Do

(1) Where co-trustee used trust moneys for own benefit

(2) Where breach reflects the fault of one trustee in his or her area of particular expertise see
p

:Re Mulligan Decd [1998]

wa

See also Bahin v Hughes

ks

Example of above: 2 trustees. One is solicitor and one is non solicitor. Both are in breach of duty.
Solicitor will have to indemnify the co trustee the non solicitor as the non solicitor relied on the area
in

of expertise of the solicitor.

Th

4. Right to impound Beneficiaries interest.

Defence to a breach of trust if the beneficiary has requested or consented to the breach by trustee ;

-s68 Trustees Act – allows court to impound(seize) B's interest to indemnify the trustees liability to
the other beneficiaries
Note: beneficiary must have instigated or consented in writing to the breach

example: there is a trust with several beneficiaries and one of the beneficiaries asks the trustees to
do an act which is a breach of trust. In those circumstances there is power under s68 Trustees Act
for the court to get the defaulting beneficiaries (who has instigated or consented to this breach of
trust) interest (eg yearly income under the trust) under the trust and reimburse the trustees for any
payments they’ve had to make to other beneficiaries.

-s67 Trustees Act

Court may wholly or partly relieve a trustee of liability for breach where:
• T acted reasonably and honestly; and

80
• Ought fairly to be excused for the breach of trust and for failing to obtain the directions of the
court in the matter

Re Mulligan (defence didn’t succeed)

Held: ‘the important issue with regard to granting relief to Mrs Mulligan is whether she
acted reasonably in her capacity as a co-trustee. In my view she did not, and to grant
discretionary relief would be inappropriate.’

Jones v AMP (defence will succeed)

Held: ‘In this case I do not doubt that the Perpetual acted honestly and reasonably; it made
proper inquiries and took advice, it directed its mind to the critical question of what was in
the best interests of the trust, it kept the investment under review….’

t
en
m
cu
Do
p
wa
ks
in
Th

81
RIGHTS OF BENEFICIARIES

1. Right to extinguish a trust

When a trust is fully constituted a settlor can't extinguish the trust but the beneficiaries can call a
trust to an end.

Rule in Saunders v Vautier

“An adult B or a number of adults Bs acting together who has (or between them have) an absolute,
vested and indefeasible interest in the capital and income of property may at any time require the
transfer of property to him (or them) and many terminate any accumulation” (CPT Custodian v
Com of State Revenue)

Elements
1. Beneficiaries must be of age
2. must have an absolute and vested interest in the capital and income of the trust
• a contingent interest will prevent the trust coming to an end.

Saunders v Vautier

t
en
facts
• Trustees had a fund of capital and income
• were to be held for benefit of a beneficiaries m
cu
• also a direction to trustees to accumulate the income and when B turns 25 can transfer the
whole amount to them
Do

Held
• interpreted this as being a vested interest – the trust had already vested
p

• direction to accumulate until 25 was superfluous because B could call for the amount to be
wa

transferred to them
• What had been provided was a vested interest in the property simply with a direction as to
ks

income
in

Has the interest vested?

Th

In order for a beneficiary not to be able to call the trust to an end it must be clear in the drafting that
the interest is contingent.
• If the interest has vested, so long as the beneficiary is 18 they can call for the trust to come
to an end

Eg:
Trustees hold trust fund for X with directions that income be accumulated until X is 25, X who is
entitled to whole of the beneficial interest under the trust may terminate the trust and require the
trust fund to be transferred to her upon her turning 18.

82
Discretionary trust: (as there is no absolute vested interest here)
-more problematic here

Bringing the trust to an end

Montefiore Jewish Home v Howet (how you can end the trust)
If you have a discretionary trust
• a class of objects which is closed
• all are 18
• and income that must be paid each year to at least one of the beneficiaries
• Then all beneficiaries together can come to the decision to terminate the trust

**if trustees have a discretion as to whether or not to distribute the income then you cant
end a discretionary trust (depends on powers of appointment?)à this sums up this case

t
en
2. Right of removal of the trustee
m
Court has inherent jurisdiction to remove a trustee and see also s41 of the Trustee Act 1958 (Vic)
cu
→The court has jurisdiction to remove a trustee through legislation
Do

• S41 Trustee Act

p

→generally beneficiaries have NO power to tell a trustee to act in a certain way.

wa

• Trustee can of course take their views into consideration: Cowan v Scargill
ks
in
Th

83
REMEDIES

EQUITABLE COMPENSATION

This is an in personum remedy

Awarded when:
1. causes loss to the trust estate through a breach of trust (no conflict no profit);
OR
2. causes loss through behaviour has fallen below the standard of an ordinary prudent business
person (or one of other duties)

liable to make good that loss by compensating the trust for it.

→This remedy is restitutionary, by placing the beneficiary back to the position they were in before
the breach
→unlike damages at common law, this remedy is not constrained by remoteness or foreseeability
→A causal connection is required between breach of trust and the loss occaisioned

t
en
Nocton v Lord Ashburn
m
equitable compensation is awarded, not so D pays damages but to make restitution.
cu
Re Dawson
Do
p

ACCOUNT OF PROFITS (alternative to equitable compensation)

wa

This is an in personum remedy

ks
in

Account of profits and equitable compensation can not both be chosen, only one (Warman)
Th

CONSTRUCTIVE TRUST

84
FOLLWING AND TRACING
Where someone in claiming a personal action in which it is necessary to identify what has happened
to particular property or monies

Purpose:
1. Will either lead to an equitable claim based on property rights for the beneficiary
2. Will help to identify a knowing receiver

This is not so much a 'remedy' as a process of identification

• The claimant finding the property is the precursor to getting a remedy (whether they ctually
have a claim is another question...)
• “merely the process whereby a claimant demonstrates what has happened to his property,
identifies its proceeds and the persons who have handled or received them, justifies his
claim that the proceeds can properly be regarded as representing his property’ Lord
Millett, Foskett

“Following”

t
en
• where one asset travels from hand to hand and does not change form
T steals a painting a gives it to X
m
B follows painting into X's hands and then makes a claim (that B has equitable ownership)
cu
“Tracing”
Do

• Where a new asset has been identified as a substitute for an old (Foskett v McGowen)
p

T steals money and buys a yacht

wa

B traces money to yacht and makes a claim (that B has equitable ownership)
*it is unclear if one can trace property when there is no fiduciary duty
ks

• Re diplock – suggests you need it

• Black v Freedman – perhaps not necessary was held to exist by the HCA in Black v S
in

Freedman & Co (1910) CLR 105.

Th

“Common law tracing”

Under the common law – when property/money got mixed with other funds the right to trace was
lost

Right to trace lost:

1. if the property is dissipated and there are no proceeds.
2. If there is a bona fide purchaser for value without notice
• beneficiary can not make a claim for the property in these new hands
• here they can still trace property into trustees hands and then make a personal claim
against the trustee, but if the funds are dissapated can only bring an action for breach
of trust

85
General RULES

1. Where property is retained, in substance, by the trustee

→Though property may have changed form, if it is still in the hands of the trustee
the beneficiary can:
• follow into that property (re Hallet's estate)

→Where the trustee has disposed of the property and applied the proceeds to purchase unauthorised
investments.
Beneficiary can:
1. Elect to take the property purchased
2. OR have an equitable lien over the property for the amount that is due to the beneficiairy

t
en
2. Where the trust property has been mixed with other trustees own property (monies put into T's
bank account with their funds)

Mixing money:
m
cu
Do

1. Equity presumes that trustee will assume the trustee draws out their own money first (Re
Hallet)
p

Hallet
wa

facts
• a solicitor as trustee of an estate sold trust property and intermingled the proceeds with
ks

money in his own bank account

in

• he died insolvent
• there was money left over in his account that the beneficiaries laid claim to the money left,
Th

while liquidators also wanted it.

Held
• once funds have been mixed into a bank account then then any subsequent withdrawals will
be assumed to be the trustees own funds, leaving the trust funds intact.

Redeposited money:

“Lowest intermediate balance rule” (Lofts v McDonald)

If the trustee has withdrawn the money from the account
• and then later pays money back into the account
The presumption is that unless you can show an intention on behalf of the trustee to pay back the
trust money then that money will not be considered to be trust money
• The money redeposited will be presumed to be the trustees own funds
• the lowest balance of the account during the relevant period will be held to be the trust funds
• Evidence must be lead to show that the trustee intended to repay.

86
Bought property with first money out?
Presumption that the trustee removes their own funds first does not apply where trustee has bought
property with the first withdrawn funds.
• Eg: if trustee uses those first funds to to buy property and then spend second funds on on a
holiday/dissipate them.

→Rule – in these circumstance where the second withdrawal has been dissipated the beneficiary
may trace into the money that has been withdrawn first (Re Oatway)
• The beneficiary will have an interest in this property and may claim beneficial ownership of
it.
• No cases on this...

3. Where trust money has been mixed with the trustees own money and the trustee has purchased
property

It was originally thought that the most the beneficiary could get was an equitable charge to the amount that was
misused (Halley (obiter))
• This didn't allow for the appreciation of the asset

t
en
The beneficiary can claim an increase in value of the asset:

a) Property that is severable

m
cu
• Only some types of property are severable
Do

Shares
p

Appreciation of property
wa

The beneficiary can elect:

ks

1. To take the proportion of the shares which were paid for by a mixture of trust money and
trustees money; OR
in

2. A charge over the shares for the amount of the stolen funds
Th

The choice the beneficiary makes here will of course depend on the value of the shares and the
possibility of an increase or decrease in their value

b) Property that is not severable

Scott v Scott
• The trustee used mixed funds to buy a house
Held
A beneficiary may elect:
1. to take an equitable lien over the property to secure the repayment of the trust funds, AND
a proportionate share of the profit; OR
2. A constructive trust over a proportionate share of the funds invested

Equitable charge:
This will not be too effected by the changes in value of the property
• The only risk of this choice is if the property decreases in value the amount of profit you
have a proportionate share in will go down

87
 • the debt amount to be paid will remain the same.

Constructive trust:
This gives a proportionate interest in beneficial ownership of the property
• Choosing this option will be a risk in relation to the value of the property
• if the value goes up the beneficiary will profit
• if the value goes down they will have to ware the loss

Profit issues
Profit that the defaulting trustee has made

* in Boadman v Phipps an account of profit is awarded

• The B only getting a proportionate profit seems contrary to this

Paul A Davis v Davies (1983) 1 NSWLR 440

facts

t
en
• a director used company money, in breach of fiduciary obligations, to pay the deposit on a
boarding house
m
• he then contributed the balance of the purchase price with his own money
cu
Held
• The company was held to hold all the property on trust for the beneficiaries
Do

• this was subjct to an allowance made to renumerate the trustee for his work in acqiring and
maintaining the property.
p

• Refused to apply Scott v Scott here and allow the defendant to take a % of the profit!
wa

• Found that whole of profit flowed from company money and none from the money
put in by D
ks

• this is because:
• there was an increase in value of the property between signing of the contract
in

and the time the bank took a mortgage over the property the value of the
Th

property had been enough to cover the loan

• as such the Ds never risked their own money – there was so much equity in
the property

Scott v scott – would say that the beneficiaries should have a constructive trust over 10% of asset

Boadman v Phipps – would award entire amount of profit to the principal.

3. Two sets of trust money mixed from two different trust funds

This is where there are two different trust monies put into the one account.

→AUS – divide the funds in the account in proportion of the contribution of each one's trust fund.
(Re Walter J Schmidt and )
• preferred approach
• is more fare where there are a large number of investors

→Common Law presumes that first monies in are the first monies out (clayton) – the second one in

88
is the one that is left (Clayton)

4. Trust property transferred to third party

1. →The right to trace/follow will be lost be a bonafide purchase for value without notice

2. →If the property is acquired by a volunteer without notice

• Can trace into the hands of the volunteer
• volunteer can use the defence of change of position maybe (cant use not allowed)
• Then use remedy of in personum claim provided a claim against the defaulting trustee has
been exhausted
• extent to which this applies outside a situation with executors is unkown because it
only ever happened in Diplock

Re Diplock
Can personally sue third party recipients to compensate them in an in personum claim provided
they had sued executors first

t
facts

en
• Will drafted
• was 200,000 pounds left to 139 charities
m
• executers paid out charities but problem was that provision allowing for this turned out to be
cu
invalid
• was one mixed charitable and non-charitable purpose (no s7 at this time)
Do

• solicitor who drafted will suicided!

• Q: what happens now? - distribution to charities had occurred
p

• next of kin wanted money and were ones who challenged will
wa

Held
• right to trace into any assets still identifiable by charities and make propriety claim
ks

• court said there was also a in personum claim against charities where the money had been
transferred to them incorrectly provided that the primary remedy against executers had been
in

exhausted
Th

• could personally sue charities to compensate them in an in personum claim provided they
had sued executors first

Foskett v McKeon
• T used 20,000 of trust funds to purchase 50,000 pounds of insurance premiums on a life
insurance policy
• T suicided and wife and children got 1million pounds
• Beneficiary claims 2/5 of payout – 400,000 pounds
• wife and children (hallet) argued only entitled to the 20,000
Held
• had to pay the 2/5s proportionate share

Ministery of Health v Simpson (1951) 2 AC 251

• No general defence of change of position allowed where P is asserting equitable rights

Limpkin Gorman v Rarpanale (1991) 2 AC 458

• in a common law action for monies had and received a change in position defence was
allowed.

K & S Corp Ltd v Spotlight Australia (2003) 87 SAR 312

89
 • Basank J: doubted if the defence would be allowed in Australia.

**** money still missing after bank account?

− will have an in personum action against the trustee for equitable compensation to restore the
remaining amount.

t
en
m
cu
Do
p
wa
ks
in
Th

90
DEFENCES TO EQUITBLE REMEDIES

INFORMED CONSENT

A D will have a defence to an equitable remedy if

1. Beneficiary is sui juris
2. consents to a trustee breaching the trust
• actively encourages it
• inducing the trustee to act
• participating in the breach
• may also be inferred from silence when beneficiary has knowledge of the breach
(Spellson v George)
3. will be liable for any loss and can have her interest impounded to satisfy the loss

ACQUIESCENCE

A D will have a defence to an equitable remedy if

t
en
1. discovers there has been a breach, has full knowledge
2. does nothing about it
• OR m
cu
• adopts the breach
• remains inactive while knowing of the breach
Do

3. may be held to have acquiesced

p

WAIVER BY RELEASE
wa

This is an agreement for valuable consideration to release an equitable right

ks

• It will be enforceable
in

Releasing a right with consideration

Th

1. A beneficiary who has full legal capacity

2. who has full knowledge of the breach
3. may enter into a deed or release in return for some consideration
4. Trustee will be released from liability, is enforceable.

Releasing a right without consideration

1. D expresses a fixed intention to release the right (Airtex services v Bartsch (1992) 10 ALR
539)
• This can be in writing, orally or by conduct subject to any statute requiring writing.
• If the right that is being release is an equitable interest in property, then the release
will amount to a disposition of an equitable interest in property under s 53(1)(c) and
it must be in writing.
2. The party releasing the right must intend it to occur immediately
3. The person who did it must do so with full knowledge of the circumstances form which the
right arose
• This is actual or constructive knowledge (Rees v De Bernardy [1896] 2 Ch 437)

De Busscher
No release by the principal because they did not know the details of the contract between the agent

91
and the person to whom it was on sold
must have full knowledge of circs before you can release
Facts
• was an agent who in brach of FD bought the principals property himself instead of selling it
to a 3rd party
• Principal heard about this and didn't complain

WAIVER BY ESTOPPEL

Waiver by estoppel prevents a ‘party to legal proceedings from asserting against another party facts,
legal rights or the absence of legal obligations, to the extent that it would be unconscionable to do
so’ (Spencer)

Where D has relied on the delay by the P

t
en
Differs from waiver by release in three ways:
1. Establishing a release only requires looking at the actions etc of the party doing the releasing
m
whereas estoppel requires an examination of the reliance of the party who thought the right
cu
was not going be relied on.
2. Never required to prove consideration for estoppel
Do

3. Writing is not required for estoppel.

p
wa
ks
in
Th

92
DELAY

Limitation of Actions Act(1958)

Victoria

* All limits are in the context of actions against trustees

No limitation:
S21(1)
S21
(1) No period of limitation prescribed by this Act shall apply to an action by
a beneficiary under a trust, being an action-

(a) in respect of any fraud or fraudulent breach of trust to which the

trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in
the possession of the trustee, or previously received by the trustee and converted to his
use.

no limitation for an action against:

• a fraudulent trustee; or

t
en
• where the beneficiary is seeking to recover trust property which is in the possession of the
trustee; or
m
• property which is subject matter of the trust has been converted and Trustees have used it.
cu
“Fraudulent” (no limitations)
Do

Fraudulence here is some kind of impropriety or conciousness of wrongdoing (Seymour)

Eg:
→Trustee may deal with property in a way that benefits themselves and to the extent that they
p

understand what they have done is wrong, and are preferring their own interests.
wa

• breach of FD
• making profit out of trust
ks

• conciousness of wrongdoing
in

*Note: This is not dishonesty or fraudulence in the Common Law sense (seymour v seymour (1996)
Th

40 NSWLR 358 at 372)

6 year limitation:
S21(2)
S21 (2) Subject as aforesaid, an action by a beneficiary to recover trust property
or in respect of any breach of trust, not being an action for which a period
of limitation is prescribed by any other provision of this Act, shall not be
brought after the expiration of six years from the date on which the right of
action accrued:

Provided that the right of action shall not be deemed to have accrued to any
beneficiary entitled to a future interest in the trust property until the
interest fell into possession.

6 year limit for other actions

• This is innocent breaches or
• those that don't concern recovery of property as described above.

This limitation provision does not relate to other equitable duties

• no limitation in vic in relation to other breaches of FD that relate to action by beneficiaries
against trustees that are covered by 21(2)

93
“Innocent breaches”
Not all unauthorised dealings will be fraudulent
• Usually breaches of duty of skill and care

EG of innocent breaches to which 6 years applies

• if trustee tried to protect beneficiaries it won't be fraud (Reader v Fried(2001)VSC 495 at
25)
• Investing trust funds with insufficient security.
• Instruction to realise assets of the fund at a particular time but you dont, and looses are
suffered.
• Failure to collect debts that are due to the estate.
• Fail to maintain proper supervision of your co-trustees.

*Note: even though there is no statute of limitation for the fraudulent behaviours this does not
prevent the D from setting up other defences in equity

Application of limitation by annalogy

t
en
If you have a common law cause of action action which is similar to the equitable action that you
m
want to sue in relation to, and there is a limitation period that applies to this common law claim then
cu
equity may apply the statue of limitations by annalogy.
• sufficiently similar to a com law claim to which a limitation applies.
Do

Application by analogy:
1. If you have an equitable cause of action and there is no statute of limitation in relation to it
p

2. Is there a sufficiently close analogy between the equitable right and the relevant common
wa

law legal right?

3. If so, would it be unjust to insist on the statutory period?
ks

• Are there any provisions for extensions of time within the common law limitation
in

period??
Th

Barker v Duke Group (2005) SA (unreported)

Facts
• Ds assisting in relation to breach of directors duties
• conduct giving rise to this knowing assistance had occurred in 1987,
• liquidator learnt about actions in 1997 proceedings institutes 2002
• Argue:
• this action was very similar to some common law torts to which limitations apply,
• deceit, conspiracy to defraud, conversion and conspiracy to injure by unlawful means).
held
• that in determining the justice issue it would be relevant that the Act allowed discretionary
extensions of time for commencing proceedings.
• Not sufficient similarity
• even if they were similar there was provision under the com law limitation period for an
extension of time
• Q2 -Would it be unjust to rely on the limitation period if it was applied by analogy
• looked to see if there was provision for extension of time under the statue for an
extension of time
• was so it would be unjust not to apply such an extension – application by analogy
would include a chance to extend

94
DELAY IN GENERAL

Delay in general may give rise to several defences;

Acquiescence

A D will have a defence to an equitable remedy if

4. discovers there has been a breach, has full knowledge
5. does nothing about it
• OR
• adopts the breach
• remains inactive while knowing of the breach
6. may be held to have acquiesced

Waiver
Delay can be seen as evidence of a present existing intention to release equitable right

Write v Van Der Plank

t
en
• gift by daughter to father could have been set aside, waited for 10 years after he learnt there
was a breach and he had a right
m
• this was present evidence to release the equitable right
cu
Do

“Laches”
*Note: this is when you want justice for D
p
wa

focus here is on the justice to the defendant or third party

no requirement that the D actually relied on the delay (like estoppel)
ks

Elements
in

1. Unreasonable delay on behalf of P

Th

2. No question of understanding of existence of equitable right on behalf of P

3. This delay has caused detriment or substantial prejudice to D or some third party

Examples of situations giving rise to Laches:

→long delay
• Ore v Stone
• witnesses have died, written evidence has dissapeared
• lack of evidence will make it unjust for D

→Where property has passed through several hands

• owners have spent money on the property,
• equity may not rescind the original sale even if a breach of trust Bonney v Ridgard (1784)
Eng.

→Where the transaction is hazardous or speculative.

• D cannot sit by to see whether or not the transaction is profitable
• Can't delay for a long time before assert a constructive trust over mining property or
profits of a retail business see Clegg v Edmondson (1857) Eng (mining)

95
→Where P knowingly stands by while D makes profits out of Ps property and then seeks to recover
profits when he or she recovers property. (Warman International Ltd and Jarvis)

Re Jarvis [1958] 1 WLR 815.

• sisters were trustees and executors of fathers estate, were left half each
• one managed the business for some period of time
• other sster who did nothing then claimed the profits of the buinsee
• she had sat by and never risked any of her own funds
• so claims for past profits failed
• She had sat by and never risked any of her own funds in running the business, so claim for
past profits failed.

Relief?
If the delay has caused a D to act to their detriment on reasonable reliance of the P’s delay, then
relief may be granted to the D

Watson v Commercial Bank of Aust (1879) 5 VLR (L) 36.

• Liquidator of co reasonably acted on the basis that the order appointing him was valid and

t
en
• a shareholder who sat by with full knowledge that the appointment invalid for two years
before seeking to set aside the order of appointment
• was prevented from doing so by laches m
cu
• was unreasonable prejudice to the shareholder
Do

Orr v Ford (1989) 167 CLR 316

facts
p

• Ore had contributed 30,000 to purchase of land acquired by dr stone for the price of 156,000
wa

• registered proprietor was dr stone in 1965

• agreement was that when land was acquired Ore was to get a half share and stone was to
ks

hold it on trust for ore.

• Stone became mentally incapable and started to assert he was sole owner 1970s
in

• Ore had taken no action

Th

• in 1985 he instituted legal proceeds for the agreement being an express trust as to the 50%
share
Defence of Laches
held
• laches not made out because there was not sufficeint prducice to the Ds
• Deane and Mason came to a diff view (is arguable)
• what was missing
• evidence of Ores parents
• dr stone
• house keepers evidence
• “issue is not whether evidence may have been lost, but whether evidecne which may have
cast a diff complexion on the matter has been lost” (issue is that probative evidence has been
lost)
• at this distance of time the probative value of such hypothetical evidence is to be
judged to be slight so its loss does not amount to prejudice
• had Dr Stone's letters
• Dr stone could give evidence of release!
• Yeah but thats speculative
• Q of the loss of such evidence was entirely suppositional
Deane:
96
 • was some argument on the terms of the express trust, at trial were claiming a half share but
at earlier stage they had been arguing a resulting trust on purchase price (which was less)
• death of stone and others was predudicial and unfair
• Dr stone had been looking after property and spending money and Ore had sat by so that
was unfair.

Cubillo v Commonwealth 2000

O’Loughlin J held that even if there was a fiduciary duty owed by the Commonwealth it would be
defeated by the defence of laches
• given that the facts concerning the breach occurred 30 to 40 years previously.

t
en
m
cu
Do
p
wa
ks
in
Th

97
UNCLEAN HANDS

A person who comes to equity must come with clean hands

D must establish:
1. Impropriety on part of P
2. Is a necessary relation to the equity sought.
• Myers v Casey
3. That is the impropriety must be relevant. Evidence of general depravity not enough.
Meyers v Casey (1913) 17 CLR 90

Meyers v Casey
Facts:
• P wanted injunction to restrain Victoria Racing Club from expelling him for attending a race
with an disqualified person.
• Injunction claimed on basis had not been given an opportunity to defend himself against

t
en
the charge.
Held
m
• not being asked to decide if this guy is a good guy or not, have to show some relationship
between the impropriety ad the relief that isbeig relied on.
cu
• by HC the conduct engaged in which led to his disqualification too remote to block relief.
Do

The application for relief related to the failure to allow him an opportunity to be heard, that
is the validity of the decision, not the correctness of the decision. Evidence of the Ps moral
turpitude or integrity was not admissible in relation to the Ps application.
p
wa

What type of impropriety?

Difficult to say but 4 circumstances where it has been shown:
ks

• Where P has been involved in misrepresentation

in

• eg refuse specific performance if P has engaged in misrepresentation even if not

enough to allow rescission of the contract
Th

• or minors fraudulently claiming to be adults have been denied equitable relief of recision of
contract, when they got into the contract by pretending to be an adult or
• Kettles & Gas Appliances ltd v Anthony Hordern & Sons Ltd (1934) SR (NSW) 108
• where a manufacturer of kettles seeking equitable relief in relation to passing-off had
stamped ‘Patented and Copyrighted ‘ on the kettles when they weren’t
• If P has mislead the court or abused the process of the court, relief may be denied.
• Where there has been ‘legal depravity’ by the P
• eg copyright not protected where the P has written a book in breach of fiduciary duty
A_G (UK) v Guardian Newspapers Ltd [no 2] [1990] AC 109 or
• where a beneficiary has instigated a breach of trust and then attempts to sue for the
breach or where the P denied relief against forfeiture of a lease where the P was
using premises for immoral purposes Gill v Lewis [1956] 2 QB 1.

98