Trusts Exam Summary. Semester 2, 2016 Brandon Friedman

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1 Trusts Exam Summary Semester 2, 2016 Brandon Friedman 1

2 Creation of Express Trusts Write: For Clause X to be valid, it must create an express trust that needs to meet the three certainties and statutory formalities. If trust by declaration fails, settlor remains owner of the property If trust by transfer fails, o If property has been transferred to trustee, trustee holds it on resulting trust for settlor or settlor s estate o If transfer itself has failed, settlor continues to hold property If trust created by will fails, the property goes back to the estate and falls to be dealt with in whatever manner specified by the will Certainty of Intention Write: Sufficient certainty of intention is required in order for there to be a valid express trust. The court will look to the circumstances of the case to determine whether X indicated, by words or conduct, that he or she intended to create a trust (Tito). Certainty of intention requires that the settlor intend: (i) Trust by transfer: for the trustee to take legal title as trustee (c.f. as a gift) (ii) Trust by self-declaration: to hold legal title on trust for beneficiary Mallott v Wilson If a settlor creates a trust, they give up all of their right title interest in the property and they cannot then change their mind and ask it back, unless they have reserved the right to revoke 1. Intervivos Trusts Write: The person trying to prove the trust has the onus of proving the trust exists. The HC In Byrne v Kendall unanimously adopted an objective standard for certainty of intention (c.f. Joliffe). The objective test is what a reasonable person with background knowledge of the surrounding circumstances would understand the language used to mean. Formal explicit words used and references to the word trust is persuasive (Byrnes v Kendle) Absence of formal explicit words, trust imputed if necessary to give effect to relationship (Korda) The absence of the use of the word trust is not determinative informal words are sufficient (Re Armstrong) In absence of formal words, can look to extrinsic evidence and documents (Chang) Oral statements, such as the money is as much yours as mine is persuasive (Paul) Require an immediate intention to create the trust (Harpur) Write: even on following the dissenting judgment in Harpur, an intention for the trust to be immediate with the future date being merely machinery could not apply. Sham Note, however, where trust is challenged on basis of illegality (sham), the court can inquire into subjective intention of the settlor (Lewis) o Sham requires intentional deception document not meant to take effect according to its terms as in Lewis, the trust set up to conceal property from the court and to avoid tax Once certainty of intention is established, unless there is an express power of revocation, the settlor cannot later revoke the trust: (Mallott). 2

3 Korda K allowed company to use property as its own for a period of time before repayment indicates no trust Absence of a contractual intention that money be held in a separate fund must surely be fatal to the imputation of a contractual intention to create a trust over that money Re Armstong S deposited two amounts of money on fixed deposit for two years; told bank manager he wanted to benefit his two sons; he wanted the money to go to them eventually, but that he wanted the interest for himself. On advice of bank manager, the accounts were opened in the name of the settlor in re [the names of his sons]. S filled out standard bank form, with a term printed saying depositors held money themselves and not on trust Paul v Constance C received personal injury compensation and lottery winnings Oral statement: The money is as much yours as mine Words and actions, used several times, in front of multiple witnesses, supported intention to create of trust Not a sophisticated man didn t understand options and had heavy reliance on bank manager Manner in which account used inactive use of the account acting as though it wasn t just his money to spend Chang v TJiong Word trust never used father said how parties are to be looked after which is indicative of trust Son filed affidavit in court proceedings, admitted he held the property on trust court entitled to look at that too Where informal words used, court has to consider all circumstances to see if an intention to create a trust has been manifested entitled to look at multiple informal documents Harpur v Levy Deed dated and signed 28 Aug with commencement date 1 st October Held: document was invalid need immediate intention to create a trust - not an intention to create sometime in the future - unsupported promise without consideration 2. Intention requirements for testamentary trusts (wills) Testamentary trusts come into operation upon the death of the settlor, as opposed to during their life. (a) Precatory Words = mere moral obligation Precatory words are those that only express a wish or preference that something happen Re Williams W died and his will left his property to wife absolutely in the fullest confidence she would carry out his wishes Held: precatory words fullest confidence not sufficiently clear to impose obligation Cobcroft v Bruce Mr C died, leaving shares to wife D, to deal with as she in her absolute discretion thinks fit but otherwise on condition that she ultimately give those shares or the remainder to my nephews Held: entitled to use shares during lifetime however she saw fit but if any left over at her death, had to leave to the nephews and failing that, nephews had enforceable right against her estate for the value of the shares Therefore more than precatory words and impose some obligation, but also not the words of trust as she is entitled to use shares in her lifetime subject to the condition Chang v Tjiong Mother and father put money into the purchase of a unit in the name son G (who didn t put money in) Letters from solicitors indicating G not meant to be owner of property Father wrote letter saying if the property is sold, he wants G to look after mum and if anything left over, to do things for his half brother Roy, the son of the father s mistress Held: the words were clear G not meant to get benefit of property and had obligations placed on him Looking at the circumstances, the long term mistress and son that nobody speaks to, the court can t expect G to do the right thing by them therefore, G meant to hold unit as trustee 3

4 If no intention is found, what are the alternatives? Countess of Bective (discussed in Cobcroft v Bruce) Gift, with precatory words only hope Gift on legal condition not a strong possibility have to perform condition if accept gift if not you lose the gift Gift on equitable condition/ charge more likely Given to trustee, but on trust for someone else The issue here is whether there is an intention to create a trust or some other legal relationship. In Countess of Bective, the following possibilities were identified: moral (not legal) obligation (ie. precatory words); legal or equitable condition; equitable charge; and trust. The clause is similar to the clause in Cobcroft v Bruce, where shares were given to the testator s wife to deal with as she in her absolute discretion sees fit, but otherwise on condition that she ultimately gives those shares to the testator s nephews. Young AJ identified 4 possibilities: donee takes shares absolutely; donee takes shares subject to equitable condition; donee has life estate with nephews entitled to remainder; and donee has life estate with general power of appointment. The court held that the clause should be interpreted as a gift to the widow subject to an equitable condition ( Gill v Gill) that she ultimately gives the shares to the nephews. By analogy, clause 1 can be interpreted as a gift to AA subject to a condition that he give the shares to CC s nieces within two years. This raises the question of whether the clause creates a legal condition or an equitable condition. By analogy with Re Gardiner ( subject to paying 1000 within 2 years of my death ) it might be interpreted as a legal condition (condition precedent). As the period of 2 years has not yet expired, however, it is likely that a court would find this to be an equitable condition which, as in Cobcroft, is subject to an order allied to an order for specific performance (for the shares to be transferred to the nieces within the 2 year period). Marks were awarded for any discussion of the meaning of but otherwise, which was significant in the reasoning of Young AJ in Cobcroft Rules of Thumb: Look at the terms of the whole of the document to interpret particular terms Entitled to compare one term against the other compare language strength Entitled to consider nature of property and obligation to see if trust or something less Weakest words are precatory expressing wish that may or may not be fulfilled Relationship between parties more likely that party A could have been expected to look after party B, less likely trust exists as less likely that trustee obligations imposed on that person Certainty of Subject Matter Write: the property must be presently existing, identifiable and ascertainable. An attempted trust may fail if: (a) The trust property is not property, because it is not presently existing property; (b) The trust property is itself uncertain (i.e. we cannot say what it is); or (c) Constitution not satisfied (trust by transfer) (a) Trust property must be presently existing General rule: where the trustee is a volunteer, the trust property must be presently existing. Ask: is the trust property present or future property? (i) Mere personal right Rule: An unassignable right cannot form the subject matter of a trust. (R v Bruynius; Tasmanian Seafoods) Right of way Pensions granted under Queensland superannuation legislation (R v Bruynius) Personal fishing license (Tasmanian Seafoods) Right to damages in tort 4

5 (ii) Future Property Note: future property is assignable only for consideration. Rule: If no value is given, future property cannot be assigned as the transferor has a mere expectancy of property (Re Rule s Settlement). Future Property? (a) Property not yet in existence (b) Property in existence that is not yet owned by the person who purports to deal with it Kennon v Spry Heydon J: Right to see trust is properly administered, go to court and complain that trustee is doing wrong thing. Can insist the trustee do the right thing but they can t insist that trustee make a distribution in their favour Income Cases General rule: you can assign present property that carries with it future income. The income itself cannot be assigned if it has not yet accrued (Williams). Williams Tried to assign the first 500 pounds of net income - no consideration given. Held: assignment failed, as this was future property despite farm regularly producing more than 500 pounds of income, couldn t be said with certainty that in a given year the farm would in fact produce this amount of income If instead gave away 10% of future income would have been okay Norman Attempted assignment of dividends on shares not yet declared, & interest to accrue on a loan payable at will Dividends: unable to be assigned as future property - company has discretion as to declaring dividends, therefore uncertain if it will be paid until declared, only future property Interest on loan: interest was payable in arrears and the loan was repayable at will, which made the future entitlement to interest repayments uncertain therefore, assignment failed this was future property Shepherd S attempted to assign 90% of royalties payable based on production Held: successful - S had assigned right to receive income, rather than income itself Court interpreted words used as assigning 90% of underlying contractual right to receive royalties, rather than the right to receive the royalties themselves Kitto J: assigning 90% of the tree that produces the fruit The importance of consideration If the transferee has given consideration for future property, equity deems done that which ought to be done, and will regard the transferor s conscience as bound by the receipt of consideration. If and when the transferor comes into possession of the property, the transferor will hold the property on constructive trust for the transferee, until the transfer can be completed. (b) Trust property in itself must be sufficiently certain Assuming the trust property is present property, the trust property must be described with sufficient certainty. A trust will fail if the property is not identified to the requisite degree (too vague). Shares: While there have been some suggestions that identification of specific shares may be required, this was rejected in Hunter, where it was held that, provided the shares are part of the same class (same company), there will be sufficient certainty. 5

6 Mussoorie Bank Testator s will left property to wife feeling confident she will act justly to our children in dividing the same when no longer required by her Held: no certainty of subject matter - what could trust property possibly have been? Hunter v Moss M held 950 shares in Moss Electrical and declared that 5% of shareholding (50 shares) held on behalf of H. Shares were indistinguishable, all the same class, in the one company Held: nothing to split the shares one from the other all the same class of shares Where there isn t any difference between the particular items in the indistinguishable mass, that is a sufficient description (5% of total holding is sufficiently certain) White v Shortall D wrote saying he held 222,000 of 1.5 million shares on trust for P in a company Campbell J: applied Hunter - shares not numbered, indistinguishable mass Interpreted this as declaration - defendant held all the shares on trust; 220,000 for plaintiff and rest for himself. Declared trust over all the shares - trust would have two beneficiaries her as to 220,000, and him as to the rest However, if shares not identical, or not of same class, or you can t tell which company is intended, there will not be certainty of subject matter. (c) Constitution Write: as this is a purported trust by transfer, it must be fully constituted. This means that the property must be assigned (either at law or in equity) and relevant formalities complied with. Consequences of failure to constitute mean that there is no trust title remains with settlor The importance of consideration If the transferee has given consideration for the transfer, equity deems done that which ought to be done, and will regard the transferor s conscience as bound. The transferor will hold the property on constructive trust for the transferee, until the transfer can be completed. When transferee is a volunteer, equity law comes into play 1. Is there an assignable right? (a) Mere personal right (right of access) fails and cannot be assigned (b) Present property right (real property) (c) Future property right (assignable if value give) 2. Present Property Right (a) Legal Property TS Land Chattels Chose in actions o Shares o Debts o Right to receive interest on debt o Patents o Trademarks o Life insurance policy o Right to sue for breach of contract o Various bank accounts in a persons name Cheques Other bills of exchange 6

7 3. Was value given? - If value given, assignment will be enforced and the assignor will hold on CT for assignee - If no value give, proceed to steps below 4. Is the legal property assignable at law? A legal chose in action (not including shares, life insurance) is only assignable at law where the transfer is of the absolute chose in action and not a portion of it (PLA s 134; Norman v FCT) proceed to immediate intention test. 5. Was the assignment complete at law? Types of Property Torrens System Land Chattels Shares sold off-market Life insurance policy Cheques Debts / chose in action Transfer Rules TLA S 40: Registration of proper instrument of transfer, signed by both transferee and transferor, lodged with the DCT and then registered. Delivery with intention of transferring legal ownership. Corporations Act S 1071B: Registration in books of company of an instrument in the prescribed form. Life Insurance Act S 200: Memorandum of Transfer endorsed on the policy, signed by transferee and transferor, and registered by the insurance company Cheques Act S 40: Cheques made payable to person by endorsement from that person and delivery to that person PLA S 134: In writing and signed by the transferor, and express notice (in writing) to the debtor or other party of the transfer If transfer rules are complied with then the assignment will be valid at law and there will be no need for equity to intervene. 6. If transfer rules not complied with, is it assignable in equity? To be recognized in equity, the assignment of legal property that is invalid at law must have been carried out by the donor in circumstances in which they have done everything necessary to be done by them alone to complete the assignment (Corin v Patton; Milroy); or, the assignee been equipped to get title. Agency: I note the reasoning of Deane K in Corin, and that the property must be beyond the recall of the donor. Re Stoneham [1919] Chattel in possession of person who wasn t its owner (bailment) - will said M shall have the chattel Delivery deemed to have already taken place given prior possession Thomas v Times Book Co Ltd [1966] Constructive delivery of copy of script by saying it is in pub in Soho and it s yours if he found it Jones v Lock (1865) First Principle: delivery is not sufficient to pass title in a cheque Second Principle: intention alone insufficient Bluebottle UK Ltd v Deputy Commissioner Of Taxation (2007) S134 does not confer any power upon a shareholder to change that rule which is internal to the company s rules which govern the declaration of a dividend A power to assign under S134 doesn t confer upon the beneficiary of a legal chose in action any power to change the internal nature of the chose in action Equuscorp Pty Ltd v Haxton [2012] Held: when you assign rights under S134 PLA, assign only the rights pursuant to the chose in action If chose in action doesn t exist, other rights that might attend someone who pays money attach with it If you are assigned chose in action, you don t inherent other rights other than contractual rights 7

ASSIGNMENT. Introduction. Assignment of legal property. Equity and legally ineffective assignments

ASSIGNMENT. Introduction. Assignment of legal property. Equity and legally ineffective assignments ASSIGNMENT Introduction Assignments are transfers of property, either for consideration or as gifts. o e.g. the sale of a computer is an assignment. Assignment is affected by the common law, equity and