Equity and Trusts

EQUITY AND TRUSTS

EQUITY AND TRUSTS

SUMMARY

PX SOLUTIONS

Sources used 5

HISTORY AND NATURE OF EQUITY 6

Two chief characteristics 6

Unconscionability being used to justify an extension of doctrine 6

Cautions 7

FIDUCIARY OBLIGATIONS 8

What is a fiduciary duty? 8

Remedies for breaches of fid dut. 9

The existence of a fiduciary relationship 9

Scope of the fiduciary obligation 11

Has the fiduciary breached his/her duty? 12

Fully informed consent 12

Established relationships 13

Solicitor/client 13

Director/company 14

Partners 15

Agents 16

Establishing fiduciary duties on the facts 17

Defences to breach of fiduciary duty 18

Remedies for breach of fid dut. 19

1.Recession of transaction 19

2. Equitable compensation 19

3. Account of profits 21

4. Constructive trust 24

INTRODUCTION TO TRUSTS 26

EXPRESS TRUSTS 27

Fixed and discretionary trusts 27

Express private trusts and the three certainties 27

1. Certainty of intention 27

2. Certainty of subject matter 34

3. Certainty of objects 35

Conditional gifts 38

Purpose trusts 39

Unincorporated associations 40

Formalities 41

Formal requirements for inter vivos trusts 41

Ilegality 43

ADMINISTRATION OF TRUSTS 45

Types of trustees 45

1. Natural persons 45

2. Corporations 45

3.Public trustee 46

4.The Crown 46

Appointment of trustees 46

1. Appointment under the express terms of the trust. 46

2. Statutory powers of appointment 47

3. Appointment by the court 47

Disclaimer or retirement by appointed trustees 48

Removal of trustees 48

Trustee’s powers 49

Powers of appointment 49

Trust powers and mere powers 50

When can the exercise of a trust power or mere power be reviewed by the court? 51

Trustee’s Duties 51

Duty to obey the terms of the trust 52

Duty to account and provide information 52

Duty to adminster the trust personally. 53

Duty to act impartially between beneficiaries 54

Duty not to profit from the trust 54

Duty to invest 54

Rights of trustees 55

VARIATION AND TERMINATION OF TRUSTS 56

Variation of trusts 56

1.Powers to vary contained in express trusts 56

2.The court has power to vary trusts 56

Termination of trusts 56

Termination by revocation 57

Termination by beneficiaries 57

Termination by order of the court 57

Under the terms of the trust by way of distribution of the trust property to the benficiaries. 57

EQUITABLE ASSIGNMENT 58

Legal assignments- Assignment by statute 58

Assignment under equity 59

Equitable choses in action 60

Legal chose in action where the statute is not complied with (equitable assignment of legal property) 60

Legal choses of action which cannot comply with s12 because they don’t come within the operation of s12 63

Future property or expectancy 64

Present or future property? 64

RESULTING TRUSTS 67

1. Non-disposal of beneficial interest (automatic resulting trust) 67

Failure of an express trust 68

2. Purchase price resulting trust (presumed resulting trust) 68

Purchase of property in another person’s name 68

Contributions to the purchase of property 69

Rebuttal of presumption of RT and advancement 69

Presumption of advancement 69

The presumptions and proof of illegality 72

CONSTRUCTIVE TRUSTS 75

Intuitional constructive trusts 75

Remedial constructive trust 76

Timing of remedial constructive trust 78

Backdating the remedial constructive trust 79

LIABILITY OF 3RD PARTY TO BREACH OF FIDUCIARY DUTY/TRUST 80

Recipient liability 80

Questions re agents 81

Knowledge 81

Accessory liability 82

EQUITABLE REMEDIES: SPECIFIC PERFORMANCE 85

Nature of specific performance 85

True specific performance 86

Jurisdiction to make the order 86

Particular contracts 86

Discretionary considerations in making the order 87

EQUITABLE REMEDIES: INJUNCTIONS 89

Jurisdiction of the court 89

Final Injunctions in the auxiliary jurisdiction 89

Relevant considerations in the exercise of the court’s discretion (including enforcing negative covenants) 90

3 exceptions 90

Contracts of personal service 90

Interlocutory injunctions 92

DAMAGES UNDER LORD CAIRNS’ ACT 95

Lord Cairns’ Act 95

How are damages to be assessed? 97

PERSONAL AND PROPRIETARY REMEDIES FOR BRACH OF TRUST/FIDUCIARY DUTY 98

Personal claims against third parties 99

Personal remedies 99

Equitable compensation 100

Account of profits 101

Proprietary remedies- Tracing 102

Requirements for tracing 103

Mixed property 104

Tracing property to a third party 106

CONSTRUCTIVE TRUSTS

A trust imposed by law- ‘A rag bag of single instances’

Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.

[Deane J in Muschinski v Dodds]

There is an argument as to whether the CT is an institution or a remedy.

Institutional- if it arises in settled circumstances. It arises by operation of law once you have the required set of circumstances. e.g remedy against third party for breach of fid. dut.

Remedial- appropriate remedy created by the court as the remedy. The courts have used both unconscionability and unjust enrichment as basis for imposing remedial constructive trusts.

If you have an institutional CT is arises as soon as the elements arise.

If you have a remedial CT, the court decides when the CT arises

See Cth Reserves [2001] 2 NZLR 374- 381-386

Deane J in Muschinski v Dodds says there isn’t much difference between the 2 types of CT. It is more of a continuum. Everything starts out as a remedy but over time it becomes so recognised that you are entitled to that remedy that it becomes institutional.

Intuitional constructive trusts

A fiduciary who gains by reason of her or his position may be liable to account for that gain through the imposition of constructive trusteeship upon the fiduciary regarding money or property the subject of the gain. Any such gain is held by the fiduciary as constructive trustee [Hospital Products]. The constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.

Parsons v McBain

Facts: Informal property arrangement between two married couples; two brothers bought houses in their own names but agreed at the time that their wives would have an interest in the homes as well= common intention constructive trust- the operation of this type of CT is not dependant on a court order.

Brothers became bankrupt- contest between the trustee in bankrupsy and the wives of the bankrupts as to who was entitled to the property (legal title in name of husbands)

Held: Trustee in bankrupsy declared that a CT could only arise when the court declared it i.e once the required circumstances arose, the institutional CT came into existence.

Remedial constructive trust

The remedial constructive trust that we have in Australia is based on the unconscionable denial of beneficial interest.

The principle use of remedial constructive trusts has been as a vehicle to allocate property interests on the breakdown of relationships between persons (chiefly de facto relationships), where:

a) the legal proprietary interests of the parties do not reflect that which equity considers consistent with equitable principle; and

b) there is no statutory jurisdiction to do so.

Muschinski v Dodds

Facts: Couple in defacto relationship had taken land as tenants in common in equal shares even though Mrs M had paid most of the purchase price; D was to make subsequent contributions by way of building a cottage on the property; relationship failed before they were able to do what was contemplated.

Q. Was Mrs M entitled to greater beneficial interest in the property since D hadn’t done what they had contemplated he would do.

Held: Deane J ordered the parties to hold the land on constructive trust. Each party was entitled to an interest in the property which equalled their contributions and to half of the residue or profit for sale.

Deane’s principle: Where there is a joint relationship/endeavour and contributions are made to the endeavour, equity won’t allow the other party to retain the benefit of the relevant property to the extent that it would be unconscionable to do so.

In this case, D had not made any other contribution that would have removed his unconscionability in asserting his full half interest into the property.

\A constructive trust will only be imposed where it would be contrary to equitable principle for the legal owner to deny the beneficial interest claimed by another.

The contributions that the court can take into account are both financial and non-financial, including ‘support, home-making and family care.’ [Muschinski v Dodds]

Deane J’s broader constructive trust was adopted in Baumgartner