Trusts [4 ed.] 9780409328356, 0409328359

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LexisNexis Case Summaries - Trusts provides a concise summary of the key cases in the law of Trusts.

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This popular text highlights the facts, issues and decision in each case so that the principles can be readily understood and memorised. The cases have been selected to align with current teaching of Trusts law.

An excellent study and revision resource for students, this book is a great quick reference for anyone wanting to understand the case law in this area .

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About the Author Ludmilla Robinson is a lecturer at the School of Law, University of Western Sydney. Her teaching and research

interests include the areas of Equity and Trusts. She is also a practising barrister in New South Wales.

CS LexisNexis Case Summaries

Ludmilla Robinson

4TH EDITION

Related LexisNexis Titles • Barkehall Thomas & Vann, LexisNexis Study Guide Trusts, 2008 • Cockburn, Shirley & Carver, Butterworths Questions & Answers Equity and Trusts, 3rd ed, 2009 • Radan & Stewart, Principles of Australian Equity and Trusts, 2nd ed, 2008 Barkeha ll Thomas & Vann, LexisNexis Study Guide Equity, 2007 ') [email protected] .au www.lexisnexis.com.au .• L

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LEXISNEXIS CASE SUMMARIES

TRUSTS Fourth Edition

Ludmilla Robinson BA (Hons Class I) (JCU), Dip Ed (UNE), Dip Law (JAB/USyd), PhD (JCU) , SJD (UTS) Lecturer, School of Law, University of Western Sydney Barrister, Supreme Court of New South Wales

LEXISNEXIS BUTTERWORTHS Australia

2011

AUSTRALlA

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National Library of Australia Cataloguing-in-Publication entry Author: Title: Edition: ISBN: Notes: Series: Subjects:

Robinson, Ludmilla. Trusts. 4th edition. 9780409328356 (pbk). Includes index. LexisNexis Case Summaries. Trusts and Trustees - Australia.

Dewey Number:

346.94059.

© 2011 Reed International Books Australia Pty Limited trading as LexisNexis. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronica lly in any form whatsoever without such permission. Inquiries shou ld be addressed to tbe publishers. Typeset in Goudy and Helvetica. Printed in Australia by Ligare Pty Ltd (NSW) . Visit LexisNexis Butterworths at www.lexisnexis.com.au

Contents ix

Preface Case Number

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Case Name Re Abraham's Will Trusts Allen v Snyder Re Alston Andco Nominees Pty Ltd v Lestato Pty Ltd Armitage v Nurse Asea Brown Boveri Superannuation Fund No 1 Pty Ltd v Asea Brown Boveri Pty Ltd Re Astor's Settlement Trusts A-G (NSW) v Perpetual Trustee Co Ltd (McDonell's Case) Re Australian Elizabethan Theatre Trust Bacon v Pianta Re Baden's Deed Trusts (No 2) Balkin v Peck Barclays Bank Ltd v Quistclose Investments Ltd Barlow Clowes International Ltd (in liq) v Vaughan Bartlett v Barclays Bank Trust Co Ltd (No 1) Bathurst City Council v PWC Properties Pty Ltd Baumgartner v Baumgartner Bell Group (The) (in liq) v Westpac Banking Corp (No 9) Birmingham v Renfrew Black v Freedman Brady v Stapleton Re British Red Cross Balkan Fund Re Brockbank Re Burton's Settlements Re Bushnell (deceased) Calverley v Green Chan v Zacharia Re Earl of Chesterfield's Trusts Chichester Diocesan Fund v Simpson iii

1 1 2 2 4 4 5 5 6 7 7 8 9 9 10 11 12

13 14 15 15 16 16 17 17 18 19 19 20

LexisNexis Case Summaries Case Number

30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

Contents

Case Name

Chief Commissioner of Stamp Duties v Buckle Chillingworth v Chambers Church of the New Faith v Commissioner of Payroll Tax for Victoria Commissioner of Stamp Duties (Qld) v Joliffe Commissioners for Special Purposes for Income Tax v Pemsel Congregational Union ofNSW v Thistlethwayte Consul Developments Pty Ltd v DPC Estates Pty Ltd Cowan v Scargill Re Dawson (deceased) Delehunt v Carmody Re Denley's Trust Deed Department of Social Security v James Dingle v Turner Re Diplock's Estate Dullow v Dullow Duncan v Cathels El Ajou v Dollar Land Holdings Pie (No 2) Eider's Trustee and Executor Co Ltd v Higgins Farah Constructions Pty Ltd v Say-Dee Pty Ltd Re Fawcett Fletcher v Collis Fletcher v Fletcher Foskett v McKeown Gartside v IRC Re Gillingham Bus Disaster Fund Goodwin v Duggan Re Grant's Will Trusts Re Green Re Gulbenkian's Settlement Trusts Re Hallett's Estate Hancock v Watson Hardoon v Belilios Harries v The Church Commissioners for England

Case Number

21

63 64 65 66 67 68 69

21 22 24 24 25

70

25 26 27 27 28 28 29 30 31 32 33 33 34 35 36 36 37 38 39 39 40 40 41 41 42 43

71 72 73 74 75 76 77

)

78 79 80 81 82 83 84 85 86 87 88 89

90 91 92 93 94

95 96

43

Case Name

Re Hay's Settlement Trusts Head v Gould Holder v Holder Re Hopkins' Will Trusts Horan v James Hunter v Moss Incorporated Council of Law Reporting v Federal Commissioner of Taxation J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd James Roscoe (Bolton) Ltd v Winder Karger v Paul Kauter v Hilton Re Kayford Kearins v Kearins Keech v Sandford Kelly v Perpetual Trustee Co Ltd Kennon v Spry Le Cras v Perpetual Trustee Co Ltd Leahy v A-G (NSW) Lock v Westpac Banking Corporation Re Londonderry's Settlement; Peat v Walsh Re Lowin Lutheran Church v Farmers' Co-operative Re Lysaght McBride v Hudson Manfred v Maddell Re Manisty's Settlement Re Mayo Monty Financial Services Ltd v Delmo Morice v The Bishop of Durham Muschinski v Dodds Mussoorie Bank v Raynor Napier v Public Trustee (WA) National Anti-vivisection Society v IRC National Trustees Co of Australasia Ltd v General Finance Co of Australasia Ltd

iv V

44 45 46 47 47 48 49 49 50 51 52 52 53 53 53 54 55 55 56 57 58 58 59 60 60 61 61 62 63 63 65 65 66 66

Contents

LexisNexis Case Summaries Case Number

97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129

Case Number

Case Name

National Trustees Executors and Agency Co of A'Asia Ltd v Barnes Neill v Public Trustee Nelson v Nelson Nestle v National Westminster Bank Re Oatway Octavo Investments Pty Ltd v Knight Oppenheim v Tobacco Securities Trust Co Ltd Ottaway v Norman Pascoe v Boensch Pateman v Heyen Paul A Davies (Australia) Pty Ltd v Davies Phillips v Roberts Pilkington v IRC Duke of Portland v Lady Topham Re Pryce Quinton v Proctor Re Raybould Robinson v Robinson Rochefoucauld v Boustead Rouse v IOOF Australia Trustees Ltd Royal National Agricultural and Industrial Assn v Chester Russell v Perpetual Trustee Company Ltd Sainsbury v Inland Revenue Commissioner Saunders v Vautier Scott v Scott Scottish Burial Reform and Cremation Society v Glasgow Corporation Sir Moses Montefiore Jewish Home v Howell & Co (No 7) Pty Ltd Re Smith Re Somerset; Somerset v Paulett Re Speight; Speight v Gaunt Spellson v George Re Stenning Re Stone

vi

130

67 68 68 69 70 71

72 72 73 73 74 74 75 76

77 77 78 79 80 80

131 132 133 134 135 136 137 138 139 140 141 142 143 144

Case Name

Re Suco Gold Pty Ltd Target Holdings Ltd v Redferns (A Firm) Tatham v Huxtable Thompson v Federal Commission of Taxation Trustees of the Estate Mortgage Fighting Fund Trust v Commissioner of Taxation Vacuum Oil Co Pty Ltd v Wiltshire Vatcher v Paull Voges v Monaghan Walker v Carboy Re Weir's Settlement Trusts West v Federal Commissioner of Taxation Westdeutsche Landesbank Girozentrale v Islington London Borough Council Re Whiteley; Whiteley v Learoyd Wyman v Paterson Young v Murphy'

90 91 91

92 93 93 95 96 96 97 97 98 99 100 100 101

Index

81 81 82 83 84 84 85 86 87 87 88 89 89 vii

Preface Trusts have been an integral component of Equity's inherent and exclusive jurisdiction for hundreds of years. Although all Australian states and territories have enacted legislation which regulates the creation and administration of express and charitable trusts, the principles developed in Equity throughout this time are still vitally relevant and are applied by the courts today. The cases in this book provide both an explanation of these principles and a demonstration of their application in practice. Furthermore, from these cases the student will also gain some understanding of the broad spectrum of property dispositions and circumstances to which the law of trusts is applicable. In addition to the formation and validity of private express and charitable trusts and discussions relating to the nature of the beneficial interest, many of the authorities presented here deal with the issues regarding constructive and resulting trusts - the trusts which are imposed over property by the court, either as a remedy for breach of equitable principles or where there has been a failure to properly create an express trust. It is therefore hoped that the student of trusts will find within these pages not merely a reference for the most significant authorities on the subject, but also an aid to study and a useful tool for revision of the relevant principles. L Robinson

June 2011 Sydney

ix

Trusts [1] Re ABRAHAM'S WILL TRUSTS [1969] 1 Ch 465; [1967] 2 All ER 1175 Chancery Division Trusts and powers of appointment in a will

Hybrid fiduciary power

FACTS A testator left a will which included a protected life interest in favour of his son Gerald and, by cl 17, conferred on his trustees a power, in the event of Gerald becoming engaged to someone of the Jewish faith, to settle Gerald's share of the residue for the benefit of Gerald, his wife, children and remoter issue or any of them on 'such ulterior or ultimate trusts' and such other provisions as the trustees should think fit. It was argued that cl 17 was thereby void as a delegation of will-making power. ISSUE Whether the power to appoint conferred by the will was invalid. DECISION This was a power and not a trust, although a fiduciary power. The power to make settlements in favour of 'ulterior or ultimate trusts' amounted to a power to appo int to anybody except themselves. That power was not invalid as a delegation of will-making power on the authority of Re Park [193 2] 1 Ch 580 and Re Eyre (1883) 49 LT 259.

[2] ALLEN v SNYDER [1977] 2 NSWLR 685 New South Wales Court of Appeal Express trusts - Resulting trusts - Trusts arising from agreement or common intention FACTS Mr Snyder took proceedings seeking to evict Mrs A llen from a house, the legal title to which stood in his name, and in which they had lived together from 1966 to 1974. Mrs Allen claimed that the beneficial interest in the house was shared equally between the two. ISSUE The court considered whether Mr Snyder h eld a beneficial interest in the house in favour of Mrs Allen arisin g from a common intention of the parties that they should share the beneficial interest. DECISION Mrs Allen had no beneficial interest in the property.Glass JA, with whom Samuels JA agreed, said the court would uphold a trust aris ing from an agreement or common intention as to the division of the beneficial interest, provided the claimant contributed as contemplated.

LexisNexis Case Summaries

The agreement or common intention had to be actual, either expressed or capable of being inferred from the facts, and could not be based on an intention imputed to the parties. Glass JA also held that the trust enforced in such a case was an express trust arising from an agreement between the parties as to their respective interests, rather than the deemed value of their contributions. On the facts the court found that, while there was a common intention that Mrs Allen should have a beneficial interest upon marriage, or in the event of Snyder's death, there was no intention that she should have such an interest while living with him as a de facto spouse.

(3) Re ALSTON [1955] VLR 281 Supreme Court of Victoria Certainty of intention to create a trust -

Precatory trusts

FACTS A testatrix left a will including the provision, 'It is my express

wish' that Newman Spielvogel be granted a lease of two properties for ten years at £2 per week, with a right to terminate . The properties were to form part of the residuary estate after the lease. The testatrix also expressed a desire that, before selling the properties, the trustees should give Spielvogel the opportunity of purchasing them at a reasonable price. The executors brough t a construction suit. ISSUE Whether the words 'it is my express wish' indicated the necessary intention to create a trust or were merely words of precaution. DECISION Per Herring CJ, that the words 'it is my express wish' had to be construed in the context in which they were found, that is, in a will which was professionally drawn, and which in other places contained instructions which were clearly peremptory. Thus, it was not possible to construe them as casting any duty on the executor, but that did not mean that the executor did not have power to deal with the properties in the manner desired by the testatrix and thereby, at his discretion, to treat those properties differently from the rest of the residue.

(4)

ANDCO NOMINEES PTY LTD v LESTATO PTY LTD (1995) 17 ACSR 239 Supreme Court of New South Wales

Appointment of trustees -

Propriety - Vesting order, effect of

Trusts

had been appointed by a Mr Smith, an accountant selected as appointor · of the trust pursuant to orders of the Family Court by a Registrar of that court. Mr Smith was a member of a firm of accountants associated with the solicitors for the wife in bitterly contested Family C ourt proceedings and the company appointed by him as the new trustee was controlled by partners of that firm . A challenge was also raised to the obligation of the outgoing trustee to comply with a vesting order requiring it to vest certain shares in Thurlstane (Aust) Pty Ltd in Andco's name as the incoming trustee when the Articles of Association of the company in which the shares were held included a pre-emptive rights clause and required the consent of directors to the registration of any transfer of shares. ISSUE The court considered whether a vesting order pursuant to s 78 of the Trustee Act 1925 (NSW) could be frustrated by the refusal of the directors to register the transfer of the shares. DECISION Per Santow J, the appointment was valid and the summons dism issed. An appointor under a power of appointment should, in exercising the power, act with good fa ith and sincerity, with the entire and single view to the real purpose and object of the power and not for the purpose of carrying into effect any bye ( that is, collateral) or sinister ( that is, beyond the scope or intent of the power) purpose. However any indirect benefit derived by Mr Smith, through his position ~s a partner in the firm of accountants and that firm's rnle as accountants to the nominated trustee, Andco, would not mfrmge the trust deed; there being no basis for concluding that the trustee, either directly or through the accountants, would charge more than permitted by the Trust Deed. There was no evidence that Smith and Andco had any prior agreement that Andco would exercise its powers as trustee simply to benefit th e wife and without regard to proper consideration of the claims of all beneficiaries and, therefore, the appointment by Mr Smith of Andco was not a corrupt appointment nor a fraud on the power. Andco was also entitled to be registered as shareholder of the shares in Thurlstane pursuant to s 1094 of the Corporations Law without th e necessity to submit th ose shares for sale to other shareholders under the pre-emptive rights clause and without the directors of Thurlstane having any discretion to refuse to register the transfer. A vesting order, under s 78(1) an d (2) of the Trustee Act 1925 (NSW), vests ownership by operation oflaw and, therefore, a vesting order operates as a transmission and not a transfer. T h e fact that Andco was not registered d id not prevent it from h aving legal title.

FACTS One of the objects of a discretionary trust challenged the appointment of a particular company as trustee of the trust. The company 2

3

LexisNexis Case Summaries

Trusts

[5] ARMITAGE v NURSE [1998] Ch 241; [1997] 2 All ER 705 English Court of Appeal

Liabilities of trustees -

[7]

Relief of trustees from liabilities

Re ASTOR'S SETTLEMENT TRUSTS [1952] Ch 534; 1 All ER 1067 Chancery Division

Trusts for purposes -

Certainty of object

FACTS Clause 15 of the trust deed stated: 'No trustee shall be liable for any loss or damage which may happen to Paula's fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud.'

FACTS Property was settled on trust with an intermediate gift of income, for a period of certain lives in being plus 20 years, in favour of various non-charitable purposes, such as the promotion of international relations and the improvement of newspapers and other publications.

ISSUE The issue for appeal was whether this clause was effective to exclude liability for gross negligence.

ISSUE Whether a gift in such terms demonstrated the necessary certainty of intention to create a valid trust.

DECISION That the exemption clause was effective. Millett LJ stated: 'In my judgment clause 15 exempts the trustee from liability for loss or damage to the trust property no matter how indolent, imprudent, lacking in diligence, negligent or wilful he may have been, so long as he has not acted dishonestly.'

DECISION Per Roxburgh J, that the intermediate gift of income was

[6]

ASEA BROWN BOVERI SUPERANNUATION FUND NO 1 PTY LTD v ASEA BROWN BOVERI PTY LTD [1999] 1 VR 144 Supreme Court of Victoria

Powers of trustees - Exercise of discretion superannuation fund deed

Variation of

FACTS The trustee of a superannuation fund had wide powers to

amend the deed. Consent of members was required for changes that would be detrimental to members. Amendments to the deed were made without seeking the consent of members. A new trustee was appointed and sought answers from the court regarding the validity of amendments. ISSUE One issue was whether the trustees had a duty to act in the interests of the employer.

DECISION Per Beach J, the trustees owe a duty of loyalty only to the members: cf. Lock v Westpac Banking Corporation (1991) 25 NSWLR 593, [81] . However, this does not mean that the trustees cannot make amendments that will benefit the employer, if the trustees are satisfied that the amendments benefit the members.

4

invalid on two grounds. In the first place, on the authority of Morice v The Bishop of Durham, because there was no person in whose favour the court could decree performance, and secondly, on the same authority, because the subject and objects of a trust must be ascertained, upon principles familiar in other cases, and because in this gift there were many uncertain phrases in the enumeration of purposes so that it was not possible for the court, if called upon to carry out the purposes declared, to do so without having to select from them by eliminating those which were too uncertain. His Lordship also added that those two grounds had their origin in a single principle: that a court of equity does not recognise as valid a trust which it cannot both enforce and control. [8]

A-G (NSW) v PERPETUAL TRUSTEE CO LTD (McDONELL'S CASE) (1940) 63 CLR 209; [1940] ALR 209 High Court of Australia

Charitable trusts charitable trusts

Charitable intention -

Interpretation of

FACTS A testatrix left a farming property on trust as a training farm for Australian orphan boys. The farm was, in the event, unsuitable for that purpose as it would have run at a loss and lacked a sufficient variety of farming activities to provide good training. The next of kin argued that the gift had failed.

ISSUE Whether the testatrix had demonstrated a general charitable

intention in making the bequest.

5

LexisNexis Case Summaries

Trusts

DECISION A general charitable intention was shown and that the gift should be applied by way of a scheme. Dixon and Evatt JJ (at 222) said that charitable trusts, as trusts for purposes and not for persons, were thus interpreted differently and more liberally by the courts.

[1 O] BACON v PIANTA (1966) 114 CLR 634; [1966) ALR 1044 High Court of Australia

[9]

Re AUSTRALIAN ELIZABETHAN THEATRE TRUST (1991) 30 FCR 491; 102 ALR 681 Federal Court of Australia

Express trusts - Certainty of intention to create trust- Quistclose trusts - Words of precation FACTS The Australian Elizabethan Theatre Trust (AETT) received gifts which were allowable as tax deductions to the donors on behalf of other bodies in the arts and theatre world which were not entitled to allow their donors such exemptions. The Commissioner of Taxation ruled that he would only allow deductions where money was transferred voluntarily and where any such gift was unconditional. People wishing to make a tax deductible donation to some artistic or theatrical purpose gave the money to the AETT expressing a 'preference' for the manner in which it was to be applied. Donations of this sort in which a 'preference' was expressed were ckductible, provided the AETT received them in its own right and had an unfettered discretion as to how the money would be applied. Following the appointment of a provisional liquidator of AETT, questions arose as to the status of moneys held by AETT representing donations made in favour of three artistic organisations. Those three organisations sought declarations to the effect that the AETT held those moneys on trust for them respectively. ISSUE The court considered whether the donors had expressed a sufficiently clear intention that any one of the three organisations should benefit or whether the words used were merely precatory. DECISION Per Gummow J, no trust arose in favo ur of any of the organisations. The gifts were 'unconditional' and words expressing any preference were merely precatory. There were no grounds upon which the AETT's bank could be held liable as a constructive trustee by reason of receiving such donated moneys. Gummow J observed, in effect (at 694 ), that the Quistclose trust was not a new legal institution, but rather an example of the particular operation of principle upon the facts as found. The trust was an express trust based on the intention of the parties.

6

Trusts for unincorporated associations purposes

Trusts for political

FACTS A testator made a gift of the whole of his estate 'to the Communist Party of Australia for its sole use and benefit'. The Communist Party was an unincorporated assoctation. The testator's next of kin challenged the gift on the grounds that it was both a bequest to present and future members of the party and that it was for the non-charitable, political purposes of the party. ISSUE Was the trust invalid as a gift to either an unincorporated association or for a political purpose? DECISION The gift failed on both grounds. The form of the gift and the fluctuating membership of the party, as well as the silence of the party's constitution on the question of the property of the party, which made it impossible to say whether the members had any practical capacity to put an end to their association and distribute its assets, made it quite artificial to hold that the gift was one for the present members.

[11]

Re BADEN'S DEED TRUSTS (NO 2) [1973) Ch 9; [1972) 2 All ER 13004 Court of Appeal

Trusts and powers of appointment -

Certainty of object

FACTS A fund was settled on trustees to provide retirement and other benefits for the staff, including former staff, of a certain company and their relatives and dependants. Clause 9 of the deed provided, 'The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of ( the staff etc.) in such amounts at such times and on such conditions (if any) as they think fit ... '. The trustees were not bound to exhaust the income of the fund in any given year. No one was to have any rights to or in the fund except by exercise of the trustee's discretion. In the event of the termination of the fund by agreement between the trustees or upon the liquidation of the company, the fund was to be applied in making retirement grants to the employees etc., purchasing pensions or other benefits for them or to be paid into some other fund or scheme.

ISSUE Whether the gift satisfied the test for certainty and whether it could be said with certainty that a given individual was or was not 7

Trusts

LexisNexis Case Summaries

[13]

a member of the class of objects, particularly in respect of the words 'dependants' and 'relatives'. DECISION The class of objects was sufficiently certain. Sachs LJ rejected an argument that it would be necessary to be able to say with certainty that a given individual was not a member of the class even though there was sufficient conceptual or semantic certainty to be able to say whether a given individual did fall within the class. Megaw LJ thought the test was satisfied if, as regards a substantial number of objects, it could be said with certainty that they fell within the trust, even though for a substantial number of others it would have to be said that it was not proven whether they were in or out. Stamp LJ thought the test was not satisfied unless one could say affirmatively either that a given individual was within the class or that he was outside it. That depended upon the construction placed on the words used. In this case 'relatives' was not uncertain if taken to mean nearest blood relations.

[12] BALKIN v PECK (1998) 43 NSWLR 706 New South Wales Court of Appeal Rights of a trustee - Right to an indemnity for liabilities of the trust - Beneficiaries' obligation to reimburse a trustee FACTS The settlor established a trust giving his sister a life interest, with

the remainder to his children. The trustees purchased a flat in London for the sister to live in. It was sold on her death, and the proceeds distributed to the children. Three years later, the trustees were required to pay tax on the sale of the property. Only one ch ild agreed to reimburse the trustees, who brought this action seeking reimbursement from the other beneficiaries. ISSUE Whether the trustees were entitled to be reimbursed by the

benefic iaries for expenses incurred on behalf of the trust. DECISION The beneficiaries were required to reimburse the trustees. The principle from Hardoon v Belilios [1901] AC 118, [61 ] does not prevent recovery in these circumstances. The principle in Hardoon has been applied to multiple beneficiaries. This is not a case where beneficiaries are not sui juris, or entitled to a limited interest, such as a life estate. It is also irrelevant that the beneficiaries did not request the trustee to make the payment. The liability to pay the tax arose when the life tenant died, and the trustees are entitled to recoupment even though the trust has been wound up and the assets distributed. This right against the beneficiaries personally is distinct from the right of indemnity out of trust assets. 8

BARCLAYS BANK LTD v QUISTCLOSE INVESTMENTS LTD [1970] AC 567; [1968] 3 All ER 651 House of Lords

Express trusts - Certainty of intention - Resulting trusts Money paid for a particular purpose which failed FACTS A company in serious financial difficulties, which included an overdraft of £484,000 against a permitted limit of £250,000, sought to borrow further funds. A financier was willing to lend £1 million but only on condition that the company found a sum of £209,719 to pay a dividend which had been declared in July 1964. The company obtained a loan for the purpose of paying that dividend from the respondent and a cheque for the necessary amount was pa id into an account opened specially for the purpose. Before the dividend was paid the company went into voluntary liquidation. The respondent claimed that the £209,719 was held by the company on trust to pay the dividend and, as the trust had fa iled, the money should be repaid. ISSUE Whether the money was available as part of the general funds of the company or whether it was held on trust for the lender. DECISION The funds were held on trust for the lender. Lord Wilberforce stated that arrangements of this character, for the payment of a person's debts by a third person, gave rise to a relationship of a fiduciary character in favour, as a primary trust, of the cred itors and, secondarily, if the primary trust fails, of the third person. The bank had notice of the trust.

[14]

BARLOW CLOWES INTERNATIONAL LTD (IN LIQ) vVAUGHAN [1992] 4 All ER 22 Court of Appeal (England)

Rights of beneficiaries trust moneys

Tracing into a fund comprising mixed

FACTS An investment company registered in Gibraltar and associated English companies went into liquidation and receivers were appointed. The companies had managed certain investment portfolios and at the time of the collapse owed over £115 million to approximately 11,000 investors. The amount avai lable for distribution to investors was far less than the total of their claims.

9

Trusts

LexisNexis Case Summaries ISSUE The case turned on an argument as to whether it was more

appropriate to apply a first in first out process of accounting or whether the investors ought to be repaid pari passu. DECISION The rule in Clayton's case, that is to say first in first out, would be applied where moneys from two or more investors were paid into the one account, if the rule provided a convenient method of determining competing claims where several beneficiaries' moneys had been blended in one account and there was a deficiency (per Dillon LJ at 33), or where there had been a wrongful mixing of different sums of trust money in a single account (per Leggatt LJ at 45) . However, where the application of the rule would be impractical or would result in injustice between the investors or beneficiaries because a relatively small number of investors would get most of the fund, and some would get none, the rule would not be applied if a preferable alternative method of distribution was available (per Woolf LJ at 42). The rule would also not be applied where it was contrary to the intention, express or implied, of the investors or beneficiaries. Such an intention would be displayed where the investments were paid into a common pool indicating that the investors intended their moneys would be combined together and, therefore, mixed in one or more bank accounts, with the result that each would have an equitable charge on the fund for the amount of his or her investment and, thus, an aliquot share of the investment pool (per Leggatt LJ at 45-6 and WoolfLJ at 42).

[15]

BARTLETT v BARCLAYS BANK TRUST CO LTD (NO 1) [1980] Ch 515; 1 All ER 139 Chancery Division

Duties of a trustee - Duty to preserve trust property properly invest trust property

Duty to

FACTS Barclays Bank was trustee of 99 per cent of the shares in Bartlett

Trust Limited (BTL), a property management company, pursuant to a settlement made in 1920 by Sir Herbert Bartlett. The beneficiaries of the trust were Bartlett's children, as life tenants, and thereafter their appointees subject to an accrual in the event of a failure of issue. By 1960 there were no Bartlett family members, nor any representatives of the bank, on the board of BTL. From that time the company engaged in a policy of speculative property development, which included an ambitious project opposite the Old Bailey. The purpose behind that project was, in part, the promotion of the sale of shares in BTL to the public, a plan which was later shelved, although the Old Bailey project was kept going. The directors did not keep the bank's trustee department 10

fully informed of these activities, although BTL did borrow £1 million from the finance department, which told the trust department of the loan. That sum was equal to half the asset value of the trust. Planning permission was refused for the Old Bailey project and the end of the property boom in 1974 saw the other plans collapse as well. Bartlett Trust Holdings (which had been floated to take over from BTL) was left with a heavy loss. Seven Bartlett grandchildren took proceedings against Barclays for breach of trust. ISSUE Whether the bank had acted in a manner consistent with its duty to preserve the trust property or had it acted imprudently and thereby in breach of trust. DECISION Per Brightman J, that the bank was liable. His Lordship said that had the trust existed without the incorporation of BTL, so that the bank held the properties directly on the trusts of the settlement, there would have been a clear breach of trust to hazard the trust's money on such projects. The fact that the bank had the power to prevent the loss, if need be by calling a general meeting of BTL and replacing the directors, did not mean that it was therefore liable for that loss. As a shareholder in BTL, the bank was bound to act as a prudent person of business would. If facts came to their knowledge which told that the company's affairs were not being conducted as they should be, or which put them on inquiry, they should take appropriate action - either by consulting with the directors, or replacing them if necessary. He or she should not content themself with receipt of the sort of information which a company gives to its shareholders at an Annual General Meeting. Where the trustee is a trust corporation which has held itself out as having the skill and expertise to carry on the specialised business of trust management, the standard of care imposed is higher than that expected of the ordinary prudent person of business, as would apply or be demanded of a trustee without specialised knowledge.

[16]

BATHURST CITY COUNCIL v PWC PROPERTIES PTY LTD (1998) 195 CLR 566; (1998) 157 ALR 414 High Court of Australia

Charitable trusts Enforcement by constructive trust Inappropriate as a remedial device FACTS The council owned land to be used as a public car park and sought to change the planning controls relating to that land. If the land was subject to a 'trust for a public purpose', the council could not alter the use of the land.

11

LexisNexis Case Summaries

Trusts

ISSUE One argument on appeal related to whether the land was subject

DECISION Per Mason CJ, Wilson and Deane JJ, in a joint judgment with which Toohey and Gaudron JJ in separate judgments generally agreed, that the majority of the Court of Appeal were not entitled to ignore the primary judge's finding of fact that there was not a common intention to create a trust but that the woman was, nevertheless, entitled to relief by way of constructive trust although not on the same terms as the trust decreed by the Court of Appeal. Their Honours applied the principle stated by Deane Jin Muschinski v Dodds (1985) 160 CLR 583; 62 ALR 429, [92], allowing a party to recover the benefit of his or her contribution to some joint endeavour where the substratum of that endeavour has been removed without attributable blame and where it would be unconscionable for the other party to assert beneficial title to the contributions made by the first and that a constructive trust can be imposed as a remedy in such circumstances to preclude a party from retaining or asserting beneficial ownership of property where it would be contrary to equitable principle to do so. The parties' arrangement in pooling their funds to provide for their various expenses was seen as sufficient to establish a joint relationship, one of the purposes of which was to secure accommodation for themselves and their child. In those circumstances the man's assertion that the property was his alone amounted to unconscionable conduct justifying equitable intervention and the imposition of a constructive trust. That trust was not, however, one in favour of the parties in equal shares but rather in proportions of 55/45 per cent with an allowance in favour of the man for his initial contribution of $12,883 from the proceeds from the sale of his unit, less the amount paid by way of instalments on the mortgage secured on that unit from the pooled funds during the period of cohabitation, and for instalments he had paid on the mortgage secured on the Leumeah property after the termination of the relationship, subject to an off-set to reflect any benefit to him from sole use and occupation of the property during that period, and, again in favour of the man, for the value of furniture taken by the woman which had been purchased with pooled funds.

to a charitable trust. The Court of Appeal had held that the land was

held on a constructive trust for purposes. DECISION The purpose of the council in holding land for a public car park looked like a charitable purpose under the fourth head from Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531, [34]. However, a charitable trust cannot be imposed as a remedy for unconscientious conduct as it would lack vital components required for a trust for charitable purposes. There is a need for a general charitable intention. The trust for charitable purposes is also an unsuitable trust to be imposed as a remedial device as it has perpetual duration and requires the involvement of the Crown for its enforcement. A general comment was also made that the court should also consider if other remedies are available before imposing a constructive trust.

[17]

BAUMGARTNER v BAUMGARTNER (1987) 164 CLR 137; 62 ALJR 29 High Court of Australia

Constructive trusts - Trusts to prevent unconscionable retention of a benefit conferred through some joint relationship FACTS A couple had lived as de facto man and wife for four years, with interruptions. At first they lived in a home unit owned by the man but after the birth of a child they moved into a house which was purchased in the man's name only. Funds for the purchase of the land and the building of the house came from the balance of the proceeds from the sale of the home unit and a loan from a building society. That loan was taken out in the man's name only as the society would not lend to unmarried couples. Otherwise, the two pooled their salaries to pay living expenses and fixed commitments in approximate proportions of 55 per cent by the man and 45 per cent by the woman. After their separation the woman sought orders declaring that the man held his interest in the property on trust for her or, in the alternative, that he held the property subject to a charge in her favour. At first instance Rath J found that there was no intention to create a trust nor any circumstances giving rise to a constructive trust and that there was nothing unconscionable or inequitable in the man retaining full legal and beneficial title to the property. In the Court of Appeal, Kirby P and Priestley J A held that there were sufficient grounds upon which to infer an actual common intention to create a trust and decreed that the man held the property on a constructive trust for the two of them in equal shares as tenants in common. ISSUE Whether the man held the legal title to the property subject to the beneficial interest of the woman and thereby on constructive trust. 12

[18]

BELL GROUP (THE) (IN LIQ) vWESTPAC BANKING CORP (NO 9) (2009) 70 ACSR 1 Supreme Court of Western Australia

Constructive trusts - First limb of the rule in Barnes v Addy Knowing receipt of third parties - Breach of fiduciary duty FACTS In 1987 the Bond Group of companies (the Bond Group) purchased the Bell Group, which was in a precarious financial position. 13

LexisNexis Case Summaries

Trusts

As a result, a number of banks, including Westpac, restructured the financing arrangements of the group, in order to strengthen their securities. In the early 1990s the Bond Group went into liquidation, closely followed by the Bell Group. The liquidators of Bell claimed that the directors of the group had breached their fiduciary duty by allowing the loan restructuring to take place and that Westpac had received property from the group knowing that it had been acquired from a fiduciary in breach of duty. The liquidators further claimed that, as a result, Westpac held the property on constructive trust for the Bell Group pursuant to the first limb of the rule in Barnes v Addy.

survivor undertook to make. The survivor is, however, absolute owner of the property passing under the will of the first to die and may convert it and expend the proceeds if the survivor chooses to do so. His or her obligation is to bequeath what is left in the manner agreed upon. Thus, the obligation is a floating one, suspended during the life of the survivor but one which crystallises into a trust, fixing upon the assets, upon his or her death. As the subject matter of the contract was unascertained at the time of the agreement, it was held not to be a contract for the sale of land and thus outside the Statute of Frauds.

ISSUE Whether the actions of the bank brought it under the first limb of the rule, as a third party in knowing receipt of property acquired from a fiduciary in breach of duty.

[20] BLACK v FREEDMAN (1910) 12 CLR 105; 17 ALR 541 High Court of Australia

DECISION The bank was liable under the first limb of the rule. When the directors of the Bell Group had approved the restructuring of the securities on terms more unfavourable than the previous arrangements, the bank was aware that the directors were in breach of their fiduciary duty to the group. Thus, when it enforced the securities, the bank received the property knowing that it had been acquired by them from the directors in breach. The bank, therefore, held the property on constructive trust for the group.

Tracing - Tracing property into the hands of a third party volunteer

[19] BIRMINGHAM v RENFREW (1937) 57 CLR 666; [1937] ALR 20 High Court of Australia Constructive trusts -

Mutual wills

FACTS A husband and wife each made wills within one day of each other, each leaving his or her respective residuary estate to the other and again, in each case, in the event that the other should die first, a gift of the residue to certain relatives of the wife. In the event the wife died first. The husband took the gift under her will but later changed his own so that the residue went to relatives of his. The wife's relatives challenged this new will. ISSUE As both estates concerned real property and the alleged agreement was verbal, the question arose as to whether it was rendered unenforceable by the Statute of Frauds.

FACTS Black stole money from his employer, Freedman & Co. Black earned £4 per week but moneys totalling significantly more than that were paid into his bank account. He later drew cheques on that account and paid them into an account in the name of his wife. ISSUE Freedman & Co later sought to follow those moneys into the wife's account. DECISION The money could be traced. ' .. . it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had knowledge of the trust or not'.

[21] BRADY v STAPLETON (1952) 88 CLR 322; [1952] ALR 989 High Court of Australia Tracing - Tracing trust property into mixed bundles FACTS A bankrupt, prior to his bankruptcy, transferred 32,000 fully paid shares in a company to Brady, who already held 1300 shares in the same company. Brady knew the transfer had been made to him with the intent of defrauding creditors. After receiving the shares Brady transferred 17,000 of them to the bankrupt's wife. The court found that Brady held the shares on trust for the bankrupt.

DECISION A valid contract had been made under which the husband was bound not to revoke his will after his wife's death provided she died without revoking hers. If he did so, his legal personal representative would become constructive trustee upon the terms of the will which the

ISSUE The question arose as to which of the shares held by Brady and the bankrupt's wife were subject to the trust.

14

15

DECISION Per Dixon CJ and Fullagar J (at 337), that it did not matter into what other form the trust property had been changed as long as it

LexisNexis Case Summaries

Trusts

could be ascertained as such, and the right to trace only ceases when the means of ascertainment fail. Where the trust property, whether it is money or some other form of property, is mixed with other property of the same type, equity would impose a charge on the indistinguishable mass to satisfy the claim.

DECISION The summons was dismissed. Beneficiaries who are together absolutely entitled to trust property are not entitled to control the trustee in the exercise of his fiduciary powers. The beneficiaries may put an end to the trusts but, if they elect to keep them on foot, the trusts must continue to be exercised by the trustees duly appointed under the original instrument.

[22] Re BRITISH RED CROSS BALKAN FUND [1914] 2 Ch 419; [1914-15] All ER Rep 459 Chancery Division Resulting trusts - Surplus of special fund - Trust for subscribers FACTS A fund was raised by public subscription for assisting sick and wounded in the Balkan War. The total amount raised was £28,682 and at the end of the war there was an unexpended balance of £12,655. The Red Cross circularised its subscribers, asking whether the unexpended moneys cou ld be retained for the general purposes of the society. Two thousand, three hundred and ten subscribers of £23,279 consented, 21 of £295 dissented and 923 of £5108 did not reply. ISSUE The question arose as to whether the rule in Clayton's case ( that is, where an account was kept between parties it was presumed the first receipt into that account will be the first payment out) applied. If so, then the balance in hand was derived from donations received after 8 November 1912. DECISION Per Astbury J, that the rule did not apply. The balance of £12,655 belonged to all the subscribers rateably in proportion to their subscriptions. Those who wished their money returned shou ld receive a pro rata rebate.

[23] Re BROCKBANK [1948] Ch 206; 1 All ER 28 Chancery Division Beneficiaries -

Rights against trustee

FACTS A testator settled property on two trustees for the benefit of his widow for life and thereafter for his children. One of the two trustees wanted to retire. The widow and the children demanded that the remaining trustee appo int a bank as trustee. The remaining trustee was unwilling to do so. The widow and the children sought orders from the court directing him to appoint the bank. ISSUE Whether the beneficiaries were entitled to control the trustees' power to appoint new trustees. 16

[24] Re BURTON'S SETTLEMENTS [1955] 1 Ch 82; [1954] 3 All ER 193 Chancery Division Duties of trustees appointment

Duty to consider -

Exercise of a power of

FACTS A testator, by his will, exercised a power of appointment, which power he had conferred on himself by a settlement inter vivas, in favour of the daughters of his second marriage absolute ly. He also gave his residuary estate to the daughters of his second marriage but, if they failed to atta in 21 years of age, to the surv iving daughter of his first marriage. He then imposed a condition that no daughter should be entitled to a share of his residue unless she made a settlement of the property appointed to her under the power of appointment on similar terms to those contained in the trusts conferring the original power. ISSUE The court was asked to determine whether that condition was valid and, in particular, whether it constituted a fraud on the power. DECISION The mere imposition of a condition that the appo intees settle the fund appointed to them in a particular way was not a fraud on the power. The purpose and intention of an appointer in exercising a power of appointment is to be ascertained as a matter of substance and not solely by analysing the effect of the appointment. The court must try to discover the genuine intention.

[25] Re BUSHNELL (DECEASED) [1975] 1 All ER 721; 1 WLR 1596 Chancery Division Charitable trusts community

Trusts for purposes beneficial to the

FACTS A testator who died in 1941 included in his will a gift for the advancement and propagation of socialised medicine. On the termination of intermediate gifts, this gift was challenged in 1975. 17

Trusts

LexisNexis Case Summaries ISSUE Whether the gift was for a purpose beneficial to the community. DECISION This was not a valid charitable gift as it was a gift for a political purpose. Also it could not be said, at the date of death of the testator in 1941, whether a system of socialised medicine would be for the benefit of the public.

[26] CALVERLEY v GREEN (1984) 155 CLR 242; 56 ALR 483; 59 ALJR 111 High Court of Australia

Trusts arising from agreement or common intention trusts

Resulting

FACTS For ten years from 1968 the parties lived together in a de facto relationship. Until late 1973 they had lived in a house owned by the appellant. In that year they purchased a house at Baulkham Hills in their joint names as joint tenants. The purchase price was $27,250 of which the appellant provided $9,000 and $18,000 was borrowed on mortgage to which both were parties. The decision to add the respondent to the title had been made after the appellant had experienced difficulty in obtaining finance in his name alone. The two then lived in the house until April 1978 when the respondent left. The respondent took proceedings seeking to assert her title as one of two joint tenants and have trustees for sale appointed under s 66G of the Conveyancing Act 1919 (NSW).

ISSUE The court was required to determine whether the parties held the property on resulting trust for themselves in proportion to their respective contributions. DECISION When property is conveyed to several purchasers and they have contributed unequally to the purchase price, the presumption is that they hold the property on a resulting trust for themselves as tenantsin-common in shares proportionate to their contributions. In this case the respondent's execution of the mortgage made her a contributor as to half the money borrowed on mortgage. This presumption can be rebutted by a presumption of advancement or by evidence of a contrary intention on the part of the party supplying the greater part of the purchase moneys, including an intention held in common by the parties. However, there was no evidence of any such intention in this case. No presumption arises in favour of a woman living in a de facto relationship with a man in respect of property purchased by him in her name.

18

[27] CHAN v ZACHARIA (1984) 154 CLR 178; 53 ALR 417 High Court of Australia

Constructive trusts - The rule in Keech v Sandford FACTS Chan and Zacharia were general practitioners who conducted their practices in partnership. When the partnership was dissolved, a receiver was appointed to distribute the partnership assets. The lease on the surgery premises was due for renewal, but the receiver declined to exercise the option to renew. Subsequently, before the partnership assets had been completely distributed, Dr Chan renewed the lease in his own name for the benefit of his own practice. Dr Zacharia claimed that, by renewing the lease for his own benefit, Dr Chan had breached his fiduciary duty as a former partner and therefore held the new lease on constructive trust for Dr Zacharia under the rule in Keech v Sandford. ISSUE The High Court considered whether the new lease continued to be 'an asset of the partnership' and therefore whether Dr Chan was in breach of his fiduciary duty to Dr Zacharia. DECISION It was held that any interest Dr Chan had acquired in the lease was held on constructive trust for the former partnership. Because the assets of the partnership had not been completely wound-up, it would be inequitable to allow one party to retain the benefit of the lease.

[28] Re EARL OF CHESTERFIELD'S TRUSTS (1883) 24 Ch D 643; [1881-85] All ER Rep 737 Chancery Division

Duties of a trustee - Duty of impartiality - Reversionary asset

Capital and income

FACTS A testator by his will gave his residuary personal estate to trustees upon trust to convert, with power to postpone if they thought fit, and to invest the proceeds in real estate and to hold that on trust for a life tenant with interests in remainder. The estate included moneys paid under a mortgage which, in fact, were not paid until some seven years after the testator's death. Then, over a period of four years the estate received over £36,000, of which approximately half represented principal and the other half, interest. The estate also received £10,000 on a life policy taken out on the life of the mortgagor 11 years after the testator's death. Those funds were applied in paying outstanding premiums and other charges on the estate, leaving the trustees with £16,400.

19

Trusts

LexisNexis Case Summaries ISSUE The question arose as to how much of the fund was capital and how much was income. DECISION Per Chitty J, in the case of a reversionary asset, such as moneys due under a mortgage which are not payable until some time after the testator's death, the net amount received will be apportioned between life tenant and remainderman by calculating the amount which, if invested at the judicial rate of interest for authorised investments at the date of the testator's death, and accumulated compound interest at that rate thereafter until the date of realisation, would, at that date, produce the amount actually received. The sum so calculated is then treated as capital and the balance as accumulated interest.

[29]

CHICHESTER DIOCESAN FUND v SIMPSON [1944] AC 341; 2 All ER 60 House of Lords

Express trusts power

Certainty of object -

Delegation of will-making

FACTS A testator directed his executors to apply the residue of his estate 'for such charitable institution or institutions or other charitable or benevolent object or objects in England' as they should in their absolute discretion select. ISSUE The question arose as to whether the benevolent objects of the trust had been identified with sufficient clarity so as to give certainty of object to the trust.

[30]

CHIEF COMMISSIONER OF STAMP DUTIES v BUCKLE (1998) 192 CLR 226; 151 ALR 1 High Court of Australia

Rights of a trustee - Right to indemnity against trust fund for liabilities incurred as trustee FACTS The appellant had assessed a supplemental deed relating to the trust as subject to ad valorem duty. Duty was assessed on the 'unencumbered value' of the property conveyed by the deed. ISSUE One of the questions for appeal was whether the trustee's right of exoneration against the trust property constituted an encumbrance over the trust assets. DECISION Although the trustee's claim to exoneration gives rise to an equitable charge, it is not an 'encumbrance' over the trust assets. The trustee has a right of exoneration or reimbursement for liabilities incurred by the trustee to third parties in the course of administration of the trust. The trustee cannot be compelled to surrender the trust property to the beneficiaries until that claim is satisfied. The trustee obtains a priority over the trust fund. While that claim remains, the trust assets cannot be identified. 'The entitlement of the beneficiaries is confined to so much of those assets as is available after the liabilities in question have been discharged or provision is made for them.'

[31]

CHILLINGWORTH v CHAMBERS [1896] 1 Ch 685 Court of Appeal

DECISION This gift was void for uncertainty of object. 'Benevolent' purposes were not necessarily charitable at law, and thus the gift cou ld not be saved as one for charitable purposes. Per Viscount Simon LC: 'The fundamental principle is that a testator must by the terms of his will himself dispose of the property with which the will proposes to deal. With one single exception (ie a gift to charitable purposes), he cannot by his will direct his executors or trustees to do the business for him.' Per Lord Macmillan: 'The testator must define with precision the persons or objects he intends to benefit. This is the condition on which he is entitled to exclude the order of succession which the law oth erwise provides. The choice of beneficiaries must be the testator's own choice. He cannot leave the disposal of his estate to others. The only latitude permitted is that, if he designates with sufficient precision a class of persons or objects to be benefited, he may delegate to his trustees the selection of individual objects or persons within the defined class.'

FACTS Chillingworth and Chambers were joint trustees of a deceased estate. Chillingworth was also the husband of one of the five residuary beneficiaries and, after his wife's death, beneficially entitled to one-fifth of the residue. £8650 of trust moneys was paid into unauthorised investments, in th at those moneys were loaned upon mortgage to a builder who was building houses on land forming part of the estate. Chillingworth took proceedings against Chambers, seeking to have him removed from the trust. Accounts were ordered to be taken and the mortgages were sold, at a loss of £1580. That sum was made good out of Chillingworth's share of the estate and proceedings were subsequently taken to determine how the loss should be borne as between the two

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21

Rights of trustees - Contribution between co-trustees upon breach of trust - One trustee also a beneficiary and implicated in breach of trust

LexisNexis Case Summaries

Trusts

trustees. Chambers had been involved with the builder and had loaned him money which had been repaid out of the advances from the trust. The total was not established but it was more than £1500.

DECISION That the Church of Scientology was a religious institution. Per Mason AC] and Brennan J, the question of whether Scientology was a religion turned on whether the beliefs, practices and observances accepted by Scientologists could be described as a religion according to the following criteria:

ISSUE The Court of Appeal was asked to decide whether and in what circumstances a beneficiary could be liable to the trust estate. DECISION The builder was a mere borrower of trust money and was only

liable to repay it with interest. He could pay on to anyone, and no one taking from him in those circumstances, even with notice of the trust, would incur any liability to the trust as a result. As both trustees were concerned to keep the builder going, the plaintiff to maintain a high rate of interest while his wife was alive and the defendant because he wanted to keep the builder afloat, as between themselves the ordinary right of one trustee to seek contribution for one half of the loss from the other would apply. However, where a beneficiary is a party to a breach of trust, either by instigating it or by acquiescing in it, he will be liable to indemnify the trustee out of his share of the estate for any loss thereby occasioned. In this case the sum received on the sale of the mortgages was applied, first, in paying out the shares properly payable to the four innocent beneficiaries. The balance, £150, was paid to Chillingworth. The fact that Chillingworth did not become a beneficiary until after some of the breaches of trust did not affect that result. At the time the loss was suffered and the money came to be distributed he was a beneficiary. Chillingworth could not require contribution from his co-trustee in those circumstances.

[32]

CHURCH OF THE NEW FAITH v COMMISSIONER OF PAYROLL TAX FOR VICTORIA (1983) 154 CLR 120; 49 ALA 65 High Court of Australia

Charitable trusts Meaning of religion

Trusts for the advancement of religion -

FACTS The Church of Scientology sought exemption from payroll tax on the ground that it was a religious institution. At first instance and on appeal to the Full Court it was held that the religious pretensions of Scientology were a sham and that it had taken on the guise of a religious body to obtain taxation benefits. An appeal against that decision was made to the High Court.

ISSUE Whether the Church of Scientology constitutes a religion and thereby a charity for the purposes of exemption from revenue statutes.

22

a. belief in a supernatural being, thing or principle; and b. acceptance of canons of conduct in order to give effect to that belief. Scientology satisfied the first of these two criteria with its belief in the transmigration or infinite reincarnation of thetans ( the soul or spirit of a person separate from their physical existence) while the acceptance of a connection between those teachings and the supernatural principle by the 5000 or more members of the church in Victoria was enough to satisfy the second criterion. Per Murphy J, religious freedom was a fundamental theme in our society and the truth or falsity of religions was not the business of the courts. If religions had to show their doctrines were true, then all might fail. Apart from extreme cases in which a claim by a body to be religious could be dismissed as a hoax, any body which claims to be religious and whose beliefs or practices are a revival of, or resemble, earlier cults, is religious. Scientology was clearly able to satisfy that test. Per Wilson and Deane JJ, the word 'religion' was not susceptible of any definition which would enable the question of whether a particular system of beliefs and practices is a religion to be determined by the use of the syllogism of formal logic and that that question would ordinarily fall to be determined by reference to a number of indicia: a. that the beliefs, ideas and/or practices involve a belief in the supernatural - that is, a belief that reality extends beyond that which is capable of perception by the senses; 6. that the ideas relate to man's nature and place in the universe and his relation to things supernatural; c. that the ideas are accepted by adherents as requiring or encouraging them to participate in specific practices having supernatural significance; d. that the adherents, despite some variations in practices and beliefs, constitute an identifiable group or groups; and e. that the adherents themselves see the collection of ideas and/or practices as a religion. Their Honours were of the view that Scientology satisfied all five elements.

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LexisNexis Case Summaries

[33]

COMMISSIONER OF STAMP DUTIES (OLD) v JOLIFFE (1920) 28 CLR 178; 26 ALR 210 High Court of Australia

Express trusts -

Certainty of intention to create a trust

FACTS A man opened a bank account in his own name as trustee for his wife. He already had an account in his own name and his intention was to circumvent a statutory prohibition against people having more than one savings account with a state bank. On the death of the wife the commissioner sought to assess duty on the moneys in that account as part of the wife's estate. ISSUE The High Court was required to consider whether the opening of an account as trustee precluded Mr Joliffe from asserting that the account was not held on trust. DECISION Per Knox CJ and Gavan Duffy J, Isaacs J dissenting, that the husband was not precluded from averring that he was not trustee of the moneys in the account, as no use of any form of words could create a trust contrary to the real intention of the person alleged to have created the trust.

[34]

Trusts

COMMISSIONERS FOR SPECIAL PURPOSES FOR INCOME TAX v PEMSEL [1891] AC 531; All ER Rep 28 House of Lords

Charitable trusts - The meaning of 'charitable' at law FACTS Certain land was settled on trust to apply part of the rents for the missionary work of the Moravian Church among heathen nations. ISSUE A reduction of income tax on those rents was sought on the ground that they were being applied to charitable purposes. DECISION This was a valid charitable trust. Lord Macnaghten, having discussed the meaning of the word 'charitable' at law in general terms, said: 'Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not fa lling under any of the preceding heads.'

[35]

CONGREGATIONAL UNION OF NSW v THISTLETHWAYTE (1952) 87 CLR 375; [1952] ALR 729 High Court of Australia

Charitable trusts - Construction of trusts income as gifts of corpus

Absolute gifts of

FACTS A testator left the whole of his estate on trust for his widow for life and thereafter made a number of gifts including one of 5 per cent of the net proceeds of the income of the estate in perpetuity in favour of the Congregational Union. The next of kin argued that the Congregational Union was not a charitable institution and that this gift was, therefore, void as a perpetuity. The Union argued that an unlimited absolute gift of income is a gift of the capital from which the income is derived. ISSUE The High Court was required to decide upon two issues. First, whether the Union was a charity and, second, whether an unlimited absolute gift of income was a valid gift. DECISION The Union's purpose was the advancement of religion and was therefore a charity. In regard to the gift, the court held that while it is a general rule that an unlimited gift of the income of real or personal estate will carry with it an absolute interest in the corpus from which that income is derived, that rule must yield to ev idence of a contrary intention on the part of the testator or settlor. In this case there were clear indications of such a contrary intention. There were directions for the development and use of part of the estate which were inconsistent with the trustees disposing of the capital. There were also other directions concerning the income of the estate, such as the appointment of a manager who was to be paid 12.5 per cent of the income of the estate, that is, the whole estate. The income payable to the Union was also expressed as a portion of the availab le balance of the income and that balance might vary. The majority held, however, that the gift to the Union was a valid charitable gift.

[36]

CONSUL DEVELOPMENTS PTY LTD v DPC ESTATES PTY LTD (1975) 132 CLR 373; 5 ALR 231 High Court of Australia

Constructive trusts -

Second limb of the rule in Barnes v Addy

FACTS Walton, a solicitor, owned and controlled DPC Estates, which was engaged in property redevelopment. Grey was employed as manager 24

25

LexisNexis Case Summaries

Trusts

of DPC and one of his duties was to find suitable properties for DPC to redevelop . Walton employed Clowes in his law practice as a clerk. Clowes's family owned and controlled Consul Developments, which was also in the business of property development. Grey suggested to Clowes that he would pass on to Clowes the details of a number of properties which DPC could not afford to purchase. Consul purchased the properties. DPC claimed that, in acquiring the properties, Consul had knowingly assisted Grey in breaching his fiduciary duty to DPC and, therefore, held the properties on constructive trust for DPC. ISSUE Whether Consul had received the properties knowing that it was assisting Grey to breach his fiduciary duty to DPC. DECISION The High Court dismissed the claim on the grounds that the second limb of Barnes v Addy, knowing assistance, did not extend to constructive knowledge. In order to be caught by the second limb, the third party must have either actual knowledge of the fiduciary's breach or wilfully ignore the facts implied by the behaviour of the fiduciary. Gibbs J noted that the third party could not be liable for innocently failing to make inquiries regard ing the behaviour of the fiduciary.

[37] COWAN v SCARGILL [1984) 2 All ER 750; [1985] Ch 270 Chancery Division Duties of trustees investing trust funds

Duty to preserve trust property -

Duty in

FACTS The pension fund of the United Kingdom National C oal Board was administered by a committee of management-appointed trustees and union-appointed trustees. The union-appointed trustees objected to the fund moneys being invested in overseas investments and in industries which competed with coal. On that basis they objected to a proposed annual investment plan. The dispute came before the court. ISSUE Whether the trustees were in breach of their duty by opposing the investments. DECISION Per Megarry V-C, the actions of the union-appointed trustees were unreasonable. The paramount duty of trustees under a trust to prov ide financia l benefits was to provide the greatest financ ial benefits for the present and future beneficiaries. In the majority of cases that duty wou ld be determined by financial considerations alone. Trustees could not be deflected from that duty merely because the policy of seeking the best financial returns conflicted with their personal opinions.

26

[38]

Re DAWSON (DECEASED) [1966) 2 NSWR 211 Supreme Court of New South Wales Liability of a trustee of trust

Measure of restitution by trustee for breach

FACTS Dawson, in 1939 when trustee of his father's estate, improperly paid £NZ4 700 to an agent who misappropriated the money. By the time action was taken to recoup the loss, the New Zealand currency, which h ad been at par with the Australian in 1939, had been devalued and the sum requ ired in Australian currency to make good the loss was £A5829 8s 3d. ISSUE Whether the trustee's liability to restore the money to the trust should be assessed as at the date of default.

DECISION Per Street J, that the obligation of a defaulting trustee was one of effecting restitution to the estate and was not limited by common law principles governing remoteness of damage. His duty was to put the trust estate in the same position as it would have been in if there had been no default. Monetary compensation is assessed by reference to the value of the assets at the date of restoration.

[39] DELEHUNT v CARMODY (1986) 161 CLR 464; 68 ALA 253; 61 ALJR 54 High Court of Australia Resulting trusts - Presumption of tenancy in common - Trusts arising from agreement or common intention - Certainty of terms of agreement FACTS A house was purchased through the equal contributions of a man and a woman but registered in the man's name only. There had been an express oral agreement between the two that they would own the property in equal shares and that it would be put in th eir joint names in due course. Following the death of the man the woman claimed complete beneficial interest in the property by right of survivorship. The New South Wales Court of Appeal found that there was no provision in their arrangement dealing with the question of survivorship and thus no concluded contract. As a result no express trust was found and a resulting trust was decreed in favo ur of the parties as tenants in common in equal shares by virtue of s 26 of the Conveyancing Act 1919 (NSW) . An appeal was made to the High Court.

27

LexisNexis Case Summaries

Trusts

ISSUE The High Court was required to consider whether the Court of Appeal had erred in holding that s 26 displaced the equitable presumption that where two persons advance purchase money in equal shares they hold the beneficial interest as joint tenants.

her as trustee for her daughter and granddaughter, and that it should not be taken into account in determining her pension entitlement. The word 'trust' was not used, and the property was dealt with in the respondent's will. The Administrative Appeals Tribunal determined that there was certa inty of intention to declare a trust.

DECISION The appeal was dismissed. Generally, equity preferred tenancies in common, on the principle that equity is equality, but, where the parties advanced the purchase money in equal shares, equity wou ld follow the law and presume a joint tenancy. However, equity follows the rules of the law in their present state which means that it follows s 26 and a tenancy in common would be presumed. Gibbs CJ expressed his disagreement with the finding of the Court of Appeal that there was no express trust.

[40) Re DENLEY'STRUST DEED [1969] 1 Ch 373; [1968] 3 All ER 65 Chancery Division Express trusts -

Certainty of object - Trusts for a purpose

FACTS Land was transferred to trustees for 21 years to be used primarily as a recreation and sports ground for the employees of a particu lar firm and secondarily for such other persons as the trustees might allow to use the ground . There was a gift in favour of a hospital on the happening of certain events.

ISSUE Whether the trust was a valid trust. DECISION The trust was a valid private trust. There was no question of perpetuity because of the 21 year limit. The trust also did not offend the beneficiary principle, even though expressed as a trust for a purpose. The beneficiary principle was confined to purpose trusts which were abstract or impersonal, and it did not apply to purpose trusts which provided benefits to individuals, albeit indirectly, who possessed standing to enforce the trust. In this case the employees entitled to enforce the trust were sufficiently ascertainable. The power conferred on the trustees to allow other persons to use the ground was just that, a power, and not a trust, operating in partial defeasance of the trust, and not invalid as it is not necessary that the trustees should know all the objects of such a power.

[41)

DEPARTMENT OF SOCIAL SECURITV v JAMES (1990) 95 ALR 615 Federal Court of Australia

Express trusts -

Certainty of intention -

Constitution

FACTS The respondent had appl ied for an aged person's pension. The respondent contended that one of her assets, a home unit, was held by 28

ISSUES The questions of law raised by the appeal were: (1) whether there was sufficient certainty of intention for a declaration of trust; and (2) as to the proper construction of the Conveyancing Act (NSW) s 23C, Property Law Act (Qld) ss 5, 9), Law of Property Act (SA) s 29, Conveyancing and Law of Property Act (Tas) s 60(2), Property Law Act (Vic) s 53(1), Property Law Act 1969 (WA) s 34(1)(a). DECISION Per Lee J as to (1): There was certainty of intention. When the material was considered as a whole, the material permitted the conclusion by the tribunal that there was certainty of intention. It was possible for the tribunal to conclude that the instructions in the respondent's will merely confirmed the existence of the trust. As to (2): The applicant argued that due to the High Court decision in Adamson v Hayes (1973) 130 CLR 276, s 34(1)(a) requ ired a declaration of trust to be created in writing, by will or by operation of law. His Honour noted that Adamson dealt more generally with the creation of equitable interests, and only Stephen J in that case considered that paragraph (a) of the section applied to declarations of trust. Lee J held that paragraph (a) did not extend to declarations of trust, as 's 34(1)(6) would be either an odd exception or otiose, ifs 34(1)(a) were to be construed as including the declarations of trust specifically provided for ins 34(1)(6)'. Section 34(1)(6) could be satisfied by a combination of documents capable of being read together.

[42) DINGLE vTURNER [1972] AC 601; 1 All ER 878 House of Lords Charitable trusts - Trusts for the relief of poverty -

Public benefit

FACTS Property was left on trust to pay pensions to poor employees of a certain company. ISSUE Whether the gift was valid as a charitable trust. DECISION Despite their obv iously anomalous nature, the 'poor relations' trusts were too well estab lished to be rejected as valid charitable trusts and the same exception applied to 'poor employees' trusts. The distinction between public, or valid, charitable trusts for the relief of poverty and private trusts depended upon whether the gift was for the

29

LexisNexis Case Summaries

Trusts

relief of poverty amongst a particular description of poor people or was merely a gift to particular poor persons.

Where the third party took money out of a mixed account and paid it into a special account he could, thereby, 'unmix' the funds.

[43] Re DIPLOCK'S ESTATE [1948] Ch 465; 2 All ER 318 Court of Appeal Tracing - Tracing trust property transferred to third parties FACTS A testator who died in 1936 left his residuary estate 'for such charitable institutions or other charitable or benevolent object or objects in England' as his executors should in their absolute discretion think fit. The bequest was eventually held to be invalid because of the inclusion of 'benevolent' objects. The executors distributed over £200,000 to 139 charitable institutions over the next three years. In 1944 the House of Lords held the bequest to be invalid. ISSUE Whether the next of kin could trace the funds paid to these various institutions while also seeking orders in personam against the institutions themselves. DECISION The next of kin were entitled to relief in personam against the charities concerned. Their Lordships rejected an argument by the institutions that a third party volunteer receiving trust property paid in breach of trust was only liable to account for it if he could be shown to have acted unconscientiously. The institutions were not ordered to pay interest on the moneys they had received except for those which had invested the money in interest-bearing accounts. The court also considered the claims in rem and laid down some general principles: Where trust property is transferred to a volunteer who takes without notice, and there is no question of mixing, then the volunteer will hold the property on trust for the rightful beneficiaries. Tracing will be available against a third party receiving trust property even though there was no pre-existing fiduciary relationship between that third party and the claimant. Moneys spent by the charities on altering or improving buildings could not be traced. Money used to pay off unsecured debts owed by the charities was gone and could not be traced. Nor could the next of kin be subrogated to the rights of the creditors whose claims had thereby been satisfied. A claim to be subrogated to the rights of a secured creditor who was repaid by one of the charities was also rejected.

30

Where the trust moneys had been paid into a mixed bank account, the rule in Clayton's case was applied so that the first money paid into those accounts would be considered to be the first withdrawn. Where a charity had purchased war stock with the trust money, and with other moneys as well, the trust was allowed a rateable proportion of the war stock held by the charity. If the volunteer purchased property with a mixed fund including trust moneys, then the beneficiary will be allowed a charge over the asset thus acquired to secure repayment of the trust moneys used for the purchase. If such a 'mixed asset' increases in value, the beneficiary will not be entitled to any proportionate share in that increase in value.

[44] DULLOW v DULLOW (1985) 3 NSWLR 531 New South Wales Court of Appeal Resulting trusts -

Presumption of advancement

FACTS Mrs Dullow sought a declaration that two properties in Newtown, the legal titles to which stood in the names of her two sons, were held on trust for her absolutely. In 1971 Mrs Dullow and her husband sold a property in Annandale which had stood in the husband's name alone, and paid for the purchase of a home unit in Glebe in the names of the two sons as joint tenants. The mother and father lived in the Glebe unit until 1975 when the first of the Newtown properties was purchased. The Glebe unit was then let until 1979 when it was sold and the proceeds used to purchase a house in Kingsford in the name of the mother. The first Newtown property, in Chelmsford Street, was purchased in 1975 in the names of the two sons as tenants in common in equal shares for $17,000. The mother provided the whole of the purchase price for that unit. In 1976 another home unit, in Brown Street, Newtown, was purchased for $11,500, again in the names of the two sons as tenants in common in equal shares. The purchase price for the Brown Street property was also paid by the mother. The mother's evidence of her intentions was confused and contradictory, not through any dishonesty but rather because of a lack of understanding of the legal results of her intentions. ISSU E Whether the Newtown properties were held by the sons on resulting trust for Mrs Dullow and whether the resulting trust could be rebutted by the presumption of advancement.

31

LexisNexis Case Summaries

Trusts

DECISION Despite the poor state of the evidence, that Mrs Dullow

that those three were to share equally with five others to whom absolute gifts were clearly given.

intended to reserve a beneficial interest in the properties during her lifetime for herself with the two sons being entitled to fee simple in the properties on her death. In coming to that conclusion, Hope JA expressed the view that a presumption of advancement could arise in the case of a purchase of property by a mother in the name of her child or children.

[46]

EL AJOU v DOLLAR LAND HOLDINGS PLC (NO 2) (1995] 2 All ER 213 Chancery Division

Rights of beneficiaries - Tracing - Tracing into mixed fund

[45] DUNCAN v CATHELS (1957) 98 CLR 625; [1956] ALR 1072 High Court of Australia Express trusts trusts

Construction -

Absolute gifts with engrafted

FACTS By an indenture of settlement, a settlor, who was married and had eight children, declared that he held his interest in a partnership business 'UPON TRUST as to three elevenths ... for the benefit of (his wife] for her life (and thereafter) UPON TRUST for such of [his children] as being males shall attain the age of 21 years or being female shall attain that age or marry in equal shares subject to the provisions and powers hereinafter appearing'. Those provisions and powers affected the shares of three of the children, Charlotte, Peter and Bisset. It was provided that Charlotte's share should be held on trust for her for life, with the annual income to be paid to her, and after her death, in trust for her children as she should appoint, with other provision in default of appointment. It was then provided that the share to which either of Peter and Bisset shall become entitled was subject to the same trusts as applied to Charlotte's share. There was then a proviso 'that if and so long as there is no person entitled to receive the said income of the shares of the said Peter Fenwick and Bisset Fenwick respectively under the trusts hereinbefore declared the same shall be paid to the then survivors of (the settlor's children] in equal shares'. Bisset died unmarried. At first instance it was declared that upon the true construction of the indenture of settlement, the share of Bisset Fenwick was not vested in the executors of his will. Charlotte was then still alive. ISSUE The High Court was required to decide whether the gifts in favour of C, P and B were absolute gifts with engrafted trusts for the surviving children of the testator or whether the gifts failed and the property resulted to the executor. DECISION The rule inLassencevTzemey (1849) 1 Mac&G 551;4 l ER379, should apply. The gifts in favour of Charlotte, Peter and Bisset were absolute gifts in the first instance, a finding made stronger by the fact

32

FACTS A Saudi businessman who had been one of the victims of a massive fraud was able to trace moneys lost to him in the order of £3.25 million into the assets of an English property company. There were many other defrauded investors who might have had a similar claim. ISSUE In view of the number of other defrauded investors, the court was asked to decide whether El Ajou could trace the property into the mixed fund, and, if so, by what means. DECISION Per Robert Walker J, the plaintiff was entitled to a charge over the assets of the land holding company to the full extent of his loss. In coming to that decision his Lordship noted that tracing in equity depended not on the actual imposition of an equitable charge but on equity's capacity to impose such a charge: the charge itself was notional. The rights of third parties, identified or otherwise, could not be raised as a defence to a tracing claim because each case depended on its individual circumstances. In this case none of the other victims who might have had the right to seek to trace into the moneys held by Dollar Land Holdings had done so and, accordingly, that company was ordered to pay the whole sum of £3.25 million plus interest.

[47]

ELDER'$ TRUSTEE AND EXECUTOR CO LTD v HIGGINS (1963) 113 CLR 426; [1964] ALR 408 High Court of Australia

Duties of tru stees invest - Restitution

Duty to preserve trust property -

Duty to

FACTS A testator had carried on a grazing business on two adjoining properties, 'The Brook', which was in his name, and 'Burnt Oak' which stood in his name and those of his two sisters as tenants in common in equal shares. The testator had a lease from his sisters of their shares in 'Burnt Oak', which lease contained an option to purchase the sisters' interests for £4278 at any time during the currency of the lease. After the testator's death, his trustee continued the grazing business. The trustee

33

LexisNexis Case Summaries

renewed the tenancy agreement upon its expiry, including the option to purchase, with a variation under which 'Burnt Oak' was divided into several parcels and the trustee was given the option to purchase those parcels individually as and when it thought fit. The business lacked the capital to take up the option but the trustee had the power to mortgage and the necessary money could have been raised. Upon the expiry of the second agreement, the sisters refused to renew the option to purchase. The testator's widow purchased one lot which was essential for carrying on the business but the others were all sold to strangers at prices far greater than the price fixed in the option. Action was brought against the trustee for breach 'of trust for failing to exercise the option to purchase 'Burnt O ak'. ISSUE Whether the trustee in possession of the 'fullest powers and

discretions' was in breach of duty by failing to exercise the option to purchase. DECISION The trustee had breached its trust by failing to exercise the option. The court rejected an argument that the trustee had acted in good faith in deciding not to exercise a discretion and could, thus, not be held liable. This was not a case of the exercise of a particular discretion but of the general duty of a trustee holding property for persons in succession and carrying on a business. The question was not whether the trust could afford to buy a new asset but whether it could afford not to buy something which was needed to preserve the value of the main asset of the estate. Considering the value of the option by itself, it was not the act of a prudent trustee to let it go. The loss to the trust was measured by the capital loss at the date when the corpus vested in the remaindermen in possession, that is, when the youngest of the testator's children reached 21, at which time the trustee had power to sell the property, with a discount for the one-third share of the proceeds of sale of 'Burnt Oak' and a rebate of a sum representing interest on £4278 from February 1945 until December 1953.

[48]

FARAH CONSTRUCTIONS PTY LTD v SAY-DEE PTY LTD [2007] HCA 22; (2007) 81 ALJR 1107 High Court of Australia

Constructive trusts -

First limb of the rule in Barnes v Addy

FACTS Farah Constructions, which was owned and controlled by Mr Elias, entered into a joint venture agreement with Say-Dee to purchase and renovate certain properties. Say-Dee was to contribute the majority of the funds and Mr Elias was to manage the redevelopment. The local council decided that the land was too small for the proposed

34

Trusts

development and refused the redevelopment application. However, the council indicated that it would reconsider the application if the land area was increased. Mr Elias therefore purchased the properties adjoining the redevelopment site through other companies owned and controlled by his wife and daughters. Say-Dee claimed that Mrs Elias, her daughters and the companies held the properties on constructive trust for Say-Dee pursuant to the first limb of the rule in Barnes v Addy. ISSUE Whether Mrs Elias, her daughters and the companies were in knowing receipt of the properties. DECISION The High Court held that Mr Elias had not been in breach of his fiduciary duty to Say-Dee when the companies owned and controlled by his wife and daughters purchased the properties. Whilst Mr Elias owed a fiduciary duty as a joint venture partner, the scope of this duty did not cover the actions upon which the Say-Dee claim was based. Therefore, there was no necessity to consider whether Mrs Elias and her daughters had been in knowing receipt of the properties. However, the court considered the requirements for the first limb of the rule in Barnes v Addy and affirmed the decision in Consul Development.s Pty Lui v DPC Estates Pty Lui, [35].

[49] Re FAWCETT [1940] Ch 402 Chancery Division Duties of trustee - Duty to act impartially between beneficiaries - Capital and income FACTS A testatrix directed that the balance of her estate was to be invested and the income thereof divided equally between her nephews and niece for their respective lives and thereafter the capital to be divided amongst their lawful children on their attaining the age of 21. At the testatrix's death her estate comprised a number of investments which were not authorised by law as trustee investments. During the first year, some were sold while others were not. T here was no power to postpone realisation in the will. ISSUE A summons was taken out and the court was requ ired to determine certain questions as to the apportionment of the income of the estate between the life tenants and the remaindermen. DECISION Where personal property is willed in succession, that is, to life tenants and then remaindermen, there will be an implied trust for sale of any investments which are not authorised by law, that is, under the Trustee Act or by the terms of the will, and the life tenants will only be entitled to the income from authorised investments. Where there

35

LexisNexis Case Summaries

Trusts

is no power to postpone conversion of unauthorised investments, the executor will obtain a valuation of those investments at the end of the first year of their administration and the life tenants will thereafter only be entitled to income on that value at the approved rate for consols, that is, authorised investments. That rate was 4 per cent. If the actual income received from unconverted investments exceeds that rate, the balance will be added to the capital of the fund and held for the remaindermen (although the life tenants will, obviously, then receive interest on it). Unauthorised investments, whether producing a high income or virtually none at all, will be treated as a whole.

both of his natural sons survive him and attain the age of 21 years his executors would pay to the trustees £60,000 to hold on trust for such of those two sons who survived him and attained that age. One of the sons survived and sought payment of the £60,000 from the executors of the estate. The trustees under the deed said they had not accepted nor acted under the trusts of the deed and that they would not accept or act upon those trusts unless the court was of the opinion that they shou ld do so.

[50]

FLETCHER v COLLIS [1905] 2 Ch 24 Court of Appeal

Rights of trustee - Trustee's right to impound interest of beneficiary consenting to breach of trust FACTS A trustee, with the consent of the life tenant, sold the trust property and gave the proceeds to the life tenant's wife, who spent the money. The trustee was later compelled to make good the loss. That money was paid into court. At the death of the trustee, the cap ital of the trust was still in the court together with a considerable sum of interest. The trustee's personal representative claimed the interest, as did the trustee in bankruptcy of the life tenant. ISSUE The court was required to decide who was entitled to the money and the interest on the death of the trustee.

DECISION The trustee's personal representative was entitled to the

interest, even though the life tenant claiming that interest had not received any benefit from the breach of trust. As a life tenant who concurred in a breach of trust could not require the trustee to make good his life interest, he had no right to anything representing income of the fund replaced by the trustee.

[51] FLETCHER v FLETCHER (1844) 4 Hare 67; 67 ER 564 Court of Chancery The constitution of express trusts covenants

Trusts of the voluntary

ISSUE Whether a trust of the covenant had been created. DECISION The deed created a debt at law and the plaintiff was entitled to recover the sum plus interest and subject to the deduction of sums applied for his maintenance during his minority. There was a validly constituted trust of the benefit of the covenant. The trustees, as parties to the original covenant, could not deny the trust once they had accepted it by executing the deed in the first place. Even though the cestui que trust was a volunteer under the trust and not a party to the covenant, he could sue in the name of the trustee to enforce the covenant. If the plaintiff was not allowed to bring an action in the name of the trustees, his rights would depend upon the caprice of the trustee.

[52] FOSKETT v MCKEOWN [2000] 3 ALL ER 97; [2001] 1 AC 102 House of Lords Rights of beneficiaries - Tracing into a mixed fund FACTS The plaintiffs were a group of investors who had paid money towards a real estate development. Their purchase money was held on an express trust. The trustee misappropriated some of their money and used it to pay two annual premiums on a life insurance policy of his colleague, Mr Murphy, who was also a trustee. Five premiums were paid in total: the first three were paid using Murphy's money, and the last two were paid using the money of the plaintiffs. The insurance policies were held on a separate express trust for Murphy's children. He suicided, and a benefit was paid out on the policy. Due to the nature of the policy, the payment would have been the same, whether or not the last two premiums had been paid. The purchasers claimed to have a proportionate interest in the insurance proceeds. The children claimed that the purchasers had, at most, a right to receive repayment of their premiums plus interest.

FACTS A testator executed a voluntary deed four years before his death under which he covenanted with certain trustees that should either or

ISSUE Resolution of the appeal depended on whether the purchasers' money was to be treated as having been used for improvements to property, and thus could not be traced, or whether it was regarded as deposited into a mixed fund, and therefore traceable.

36

37

Trusts

LexisNexis Case Summaries DECISION (by majority): The appeal shou ld be allowed. The purchasers' money should be regarded as having been paid into a mixed fund, and they are entitled to a proportionate share of the proceeds. Per M illett LJ, tracing is a process whereby the plaintiff identifies his property, and what has happened to it. Tracing is required where the plaintiff's property has been converted into a new asset. The plaintiff's money can be traced into the policy. The policy is a chose in action being the right to payment of a debt payable on a future event, and contingent on payment of premiums. The proceeds of the policy are then the traceable proceeds of the policy once it matures. The insurance proceeds therefore represent property of both parties. The appropriate rule for tracing is: 'Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments ( whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.' The obiter of Jesse l MR in the decision of Re Hallett's Estate (1880) 13 Ch D 696, [5 9], that the beneficiary is confined to a lien in this situation is not part of English law. However, the beneficiary is not entitled to a lien when his or her interests are in competition with other innocent contributors. If the fund is deficient, innocent parties must share rateably.

[53] GARTSIDE v IRC [1968] AC 553; 1 All ER 121 House of Lords Rights of a beneficiary discretionary trust

Nature of interest of an object of a

ISSUE The nature of the interest of a beneficiary under a discretionary

trust. DECISION That the son had not had an 'interest in possession' in the fund settled in 1962 at the time of the settlement as his only 'interest' in that fund had been that of a discretionary beneficiary of a trust of income and that the only right of such an object was a right to require the trustees to consider whether to exercise their discretion.

[54]

Re GILLINGHAM BUS DISASTER FUND [1958] 1 Ch 300; 1 All ER 37 Chancery Division

Resulting trusts -

Surplus after fulfilment of purpose

FACTS A memorial fund was raised by donations in response to a letter by local mayors published in the newspapers following a bus crash which claimed the lives of a number of Royal Marine cadets and injured several others. The total raised came to nearly £9000. After expenditure on funeral expenses and care for the disabled, there was a surplus of over £6000. ISSUE The manner in which the surplus funds sh ould be disbursed. DECISION Per Harman J, the trust fai led for uncertainty as a trust for charity and ought not to be applied as a gift to charity under a cy-pres scheme. Instead his Lordship applied the general principle that where money was held upon trust and the trusts declared do not exhaust it, the fund will revert to the donor or settlor under a resulting trust. In doing so he rejected a submission that the moneys were bona vacantia because some donors could not be found and directed that there should be an inquiry to ascertain their identity.

FACTS A testator gave part of the residue of his estate on trust, the income to be applied at the discretion of the trustees for the maintenance or benefit of all or any of his son, his son's wife or children, with surplus income to be accumulated, with power to apply such accumulations as current income. After the son's death the capital and any undistributed income was to be held on trust for such of the son's children as attained 21 years of age. The trustees were given power to make advancements of up to half the fund in favour of grandchildren. In 1962 the trustees exercised that power of advancement to set up a trust for the two grandchildren. The son died in 1963 and the Crown claimed estate duty on the funds advanced in 1962 on the ground that the fund had been property in which the son had had an 'interest in possession' under s 43 of the Finance Act 1940 (Imp).

FACTS The appellant and second respondent were trustees. The second respondent breached his duty by using the trust funds in a manner which benefitted him personally. At trial the appellant was held jointly and severally liable due to her own breaches of trust in improperly delegating her duties, fa iling to exercise care to prevent the second respondent's

38

39

.•

[55] GOODWIN v DUGGAN (1996) 41 NSWLR 158 New South Wales Court of Appeal

Rights of a trustee breach.

Right to contribution from co-trustees upon

Trusts

LexisNexis Case Summaries breaches, and in failing to take action to compel reinstatement of the property. It was held that she was an honest but passive trustee. ISSUE On appeal, the appellant sought an order that she was entitled to be fully indemnified by her co-trustee. DECISION The fundamental principle is that where two or more trustees have committed breaches of trust, all are equally liable even though one was more active, and one has received the trust money or misapplied it. But a right of indemnity exists against a defaulting trustee in limited circumstances. If the co-trustee has obtained the benefit of the breach, the other trustee has an equity to be indemnified. Relief in specie is also available if the funds are still in the hands of the defaulting trustee.

[56) Re GRANT'S WILL TRUSTS [1979] 3 All ER 359; [1980] 1 WLR 36 Chancery Division Express trusts - Purpose trusts for unincorporated associations

Certainty of object -

Trusts

FACTS A testator appointed a Constituency Labour Party as his executors and gave all of his estate to the 'Labour Party property committee' for the benefit of the Chertsey headquarters of the constituency party, provided that such headquarters remained in Chertsey, with a gift over in default of that condition to the National Labour Party. ISSUE Whether the gift to the benefit of the Chertsey constituency was a valid gift. DECISION The gift was invalid as it could not be construed as a gift to the members of the Chertsey constituency party as a collection of individuals as they did not control the property: the rules of the constituency party were capable of being altered by an outside body; and because the gift, having been made to trustees to hold on behalf of the constituency party was not, in itself, a gift to the members of the party.

[57) Re GREEN [1970] VR 442 Supreme Court of Victoria Charitable trusts community

Trusts for purposes beneficial to the

FACTS A testator left a gift for the purchase of an area of land for the establishment and preservation of native flora and fauna . 40

ISSUE Whether the gift was for a purpose beneficial to the public. DECISION The gift was not a valid charitable trust. No benefit to the community would necessarily result from it, as the public was not to be allowed access to the area.

[58)

Re GULBENKIAN'S SETTLEMENTTRUSTS [1970] AC 508; [1968] 3 All ER 785

House of Lords Trusts and powers of appointment power of appointment

Certainty of object for mere

FACTS Calouste Gulbenkian made certain settlements providing that the trustees 'shall' during the life of his son Nubar 'at their absolute discretion pay all or any part of the income' of the fund settled to or apply the same for the maintenance and personal support or benefit of all or any one or more to the exclusion of the other or others of the fo llowing persons ... '. The persons designated included 'any person or persons in whose house or apartments or in whose company or under whose care or control or by or with whom the said [Nubar] may from time to time be employed or residing ... '. ISSUE The question arose as to whether that class of potential beneficiaries was described with sufficient certainty for the trustees to operate the power. DECISION The clause was sufficiently certain. The test to be applied was that, provided there was a valid gift over or trust in default of appointment, a mere or bare power of appo intment among a class would be valid if it could be said with certainty whether any given individual was or was not a member of the class.

[59)

Re HALLETT'S ESTATE (1880) 13 Ch D 696 Court of Appeal

Tracing - Tracing moneys into a mixed fund withdrawals

Effect of

FACTS A solicitor, to whom two parcels of bonds had been entrusted, sold them and deposited the proceeds in his own account. One parcel had been received from a client while the oth er was an asset of his marriage settlement which the trustees of that settlement had placed under his control. When the solicitor died insolvent the client and the 41

Trusts

LexisNexis Case Summaries trustees sought to trace into the account. The solicitor had continued to make deposits and withdrawals from the account but at no stage had the credit balance in that account fallen below the sum of the proceeds of sale of the bonds. ISSUE Which of the parties were entitled to trace their funds into the account of the solicitor. DECISION Both claimants were allowed a charge over the account for the entire proceeds of sale of the bonds. Sir George Jessel MR stated these principles:

Drake died without issue. The gift to Charles's children failed under the Rule against Remoteness of Vesting. The testator's next of kin claimed the property was held on a resulting trust for them. ISSUE Who was entitled to the property? DECISION As the gift to Susan in the first place had been absolute, failure of the trusts engrafted onto that gift did not give rise to a resulting trust in favour of the testator's next of kin; the property passed to Susan's heirs.

[61]

HAR DOON v BELILIOS [1901]AC118 Privy Council

Where a trustee or fiduciary wrongfully disposes of property entrusted to him, the beneficial owner has the right to elect to take either the property purchased or to hold that property as security for the amount of trust money paid out.

Rights of a trustee liabilities of the trust

Where a trustee has mixed money with his own, there is a distinction - the cetuis que trust cannot elect to take the property because it was not purchased with trust money purely and simply but with a mixed fund. He is, however, entitled to a charge on the property purchased for the amount of the trust money laid out on the purchase.

FACTS The plaintiff was the registered holder of certain partly paid shares in a Hong Kong bank. He held only the legal title and the beneficial interest rested with the defendant. On the winding up of the bank the plaintiff sought an indemnity from the defendant for the moneys he was called upon to pay in respect of the shares.

Where the trust moneys are paid into a mixed fund and the trustee makes withdrawals from that fund he wi ll be presumed to be acting honestly and withdrawing his own money first, thus displacing the general rule, that in Clayton's case, that the first money into an account is presumed to be the first withdrawn.

ISSUE Whether in all of the circumstances the trustee had a right to be indemnified by the beneficiaries.

[60] HANCOCK v WATSON [1902] AC 14; [1900-03] All ER Rep 87 House of Lords Express trusts - Construction - Absolute gift subject to engrafted trusts - Effect of failure of engrafted trusts FACTS A testator gave his estate to trustees to pay the income to his widow during her life and, upon her death, to divide the estate into five equal portions. Two of those portions were to be held under a trust of income for Susan Drake and after her death in trust for any child or children as might survive her, and, in the case of sons, attain the age of 25, and in default of any such issue the shares to be distributed amongst such of the children of the testator's brother Charles as the testator's widow might appoint and, failing such appointment, to be equally divided amongst Charles's children and payable, in the case of sons, on their attaining 25 years of age. The testator's widow died without making any appointment. Susan 42

Right to an indemnity from beneficiaries for

DECISION A trustee's right to indemnity included a right in personam against the beneficiary as well as a right in rem against the assets of the trust, at least where the beneficiary is sui juris and absolutely entitled. It was also suggested that this would extend to multiple beneficiaries, provided all were sui juris. This right to indemnity against the beneficiary was said to be based not on any consent or request by the beneficiary, expre,j,s or implied, but on 'the plainest principles of justice [that] require that the cestui que trust who gets all the benefit of the property should bear the burden': per Lord Lindley at 125.

[62]

HARRIES v THE CHURCH COMMISSIONERS FOR ENGLAND [1992] 1 WLR 1241; [1993] 2 All ER 300 Chancery Division

Duties of trustees investing trust funds

Duty to preserve trust property -

Duty in

FACTS The defendants were trustees of a large charitable trust. The investment income from the trust was used to pay stipends for clergy, 43

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Trusts

their housing costs and pensions. The plaintiff sought declaratory relief that the investment policy adopted by the commissioners was too focused on financial considerations, with insufficient regard paid to moral and ethical concerns. The commissioners' investment policy excluded investment in companies whose main business was armaments, gambling, alcohol, tobacco or newspapers. Further, as this was the period of apartheid in South Africa, the policy also excluded investment in South African companies, or companies who had more than a small part of their business in South Africa.

were to hold the trust fund on trust to pay unappointed income 'to or for the benefit of any person or persons whatsoever or to any charity', with the exception of the same small group.

ISSUE Whether the investment policy of the commissioners breached the duty of the trustees to exercise care in investing trust funds. DECISION The commissioners have not committed any error of law in the adoption of their investment policy. Per Sir Donald Nicholls VC, where charity trustees hold property for investment, 'prima facie the purposes of the trust will be best served by the trustees seeking to obtain therefrom the maximum return, whether by way of income or capital growth, which is consistent with commercial prudence'. There may, however, be cases where the objects of the charity would conflict with a particular type of investment. If the trustees were satisfied that investment in this business would conflict with the objects the charity sought to achieve, the trustees shou ld not make that investment, even if this resulted in significant financial detriment. There may also be other cases where a certain type of investment may make it more difficult for the charity to conduct its work. In these cases the trustees would need to balance the risk of loss from maintaining the investment, compared to the financial detriment likely to be suffered if the investment were not made.

ISSUE The validity of the power of appointment under the original deed, and thus of the appointment in 1969, was challenged. DECISION Per Megarry V-C, that the duties of a trustee upon whom a discretionary or mere power of appointment had been conferred were, 'Apart from the obv ious duty of obeying the trust instrument, and in particular making no appointment that is not authorised by it, the trustee must, first, consider periodically whether or not he should exercise the power; second, consider the range of objects of the power; and third, consider the appropriateness of individual appointments'. In this case the power was an intermediate or hybrid power. His Lordship held that it was not void for linguistic or semantic uncertainty. Nor could he see that it was administratively unworkable, or capricious, or too vague. The subsequent deed of appointment was, however, void, because it did not effect an appointment, it merely created a mechanism whereby persons in whose favour an appointment might be made could be selected. This was an invalid delegation of the power of appointment.

[64] HEAD v GOULD (1898] 2 Ch 250 Chancery Division Duties of trustees trustee~

Duty to preserve trust property -

Retiring

shall by any deed ... executed within 21 years from the date hereof appoint', and in default of such appointment on trust for the nieces and nephews of the settlor then living, in equal shares. The clause precluded appointment to the settlor, any past husband of hers and to any trustee or past trustee of the settlement. In May 1969, by a deed of appointment expressed to be in exercise of the power of appointment, the trustees

FACTS A marriage settlement was established on the usual trusts for the benefit of a husband and wife during their joint lives with powers of appointment in favour of children, which were never exercised and, in default of appointment, for the children of the marriage in equal shares upon attaining the age of 21. The husband died in 1881. There were three children of the marriage then alive, one of whom was still an infant. From about 1883 the widow began to experience financial difficulties and she and one of the children pressed the trustees to make advances to them from the trust to maintain their social position and to educate the children. In 1893 the trustees paid out a debt of £1500 owed by the widow in return for a transfer of certain securities which were not authorised investments under the trust. By August 1894, in response to urgent entreaties from the widow and the two eldest children, the trustees had paid out all the trust moneys except for the share of the youngest child. In response to further requests they said they had made all the payments they could and that the only suggestion they could

44

45

[63]

Re HAY'S SETTLEMENT TRUSTS (1982] 1 WLR 202 Chancery Division

Trusts and powers of appointment a power of appointment

Duties of trustee exercising

FACTS By a deed of settlement executed in May 1958, trustees were to hold the trust fund 'for such persons or purposes ... as the trustees

LexisNexis Case Summaries

Trusts

make was that they be released from their trusteeship. As a result the two trustees retired and the eldest daughter and an old family friend, who was an impecunious managing clerk, were appointed trustees in November 1894. The daughter lived at home and was under the influence of her mother, facts which the retiring trustees well knew. Subsequently the whole of the remaining trust property disappeared.

sale as vendor. He took no part in instructing the valuer who fixed the reserve prices nor in the preparations for the auction. His intervention in the estate was restricted to signing a few cheques for trivial sums and endorsing some insurance policies. He managed the farms but did so as a tenant and not as executor. There was no conflict of interest. This was not a case like Ex parte James where a trustee had acquired special knowledge of a bankrupt estate of which he could make use at an auction. The knowledge Victor had of the farms had been acquired through his position as tenant, not as a trustee.

ISSUE The infant beneficiary took proceedings against the present and former trustees seeking restitution of moneys wrongfully paid away. DECISION The later trustees were clearly liable for the money lost in breach of trust. Miss Head could not claim an indemnity from Mr Gould simply because he was a solicitor and she had not understood the nature of her duties as trustee. The former trustees were clearly liable to account for the £1500 advanced in 1893. They were, however, not liable for the losses sustained by the trust after their retirement. It is part of the trustee's duty in preserving the trust fund not to part with the trust property in circumstances where there is a reasonable belief that the funds are not properly secured. In this case, while the appointment of the daughter as a trustee was questionable, her appointment along with Mr Gou ld was sufficient to show that the retiring trustees had no contemplation of the breach of trust which was later committed. Had an order been made against them, allowance would have been made for moneys actually advanced by them for the benefit of the infant beneficiary, which would not include moneys paid to the mother or daughter supposedly for that purpose.

[65)

HOLDER v HOLDER

[1968] Ch 353; 1 All ER 665

Court of Appeal Duties of trustees -

Duty not to profit from the trust

FACTS A testator, Frank Holder, named his widow, his daughter and

his youngest son, Victor, as his executors. The widow and daughter subsequently obtained probate of the will. The estate included two farms which the executors sold to Victor. ISSUE The testator's eldest son brought an action seeking to set aside that sale on the grounds that Victor's renunciation of probate was ineffective and that he had intermeddled in the estate and that the sale was, therefore, a sale to a trustee.

DECISION The sale to Victor was not wrongful. Even though it was admitted that his renunciation was ineffective and that he had intermeddled in the estate, he had been involved in the matter of the

46

[66)

Re HOPKINS' WILL TRUSTS [1965] Ch 669 Chancery Division

Charitable trusts - Trusts for the advancement of education FACTS A testatrix left one-third of the residue of her estate to the Francis

Bacon Society Inc for the purpose of 'finding the Bacon-Shakespeare manuscripts'. The validity of the gift was challenged. ISSUE Whether the gift was a charitable gift for the advancement of education. DECISION A gift for a search for or research into the original manuscripts of England's greatest dramatist was a valid charitable trust. A gift for research purposes will be valid as a gift for the advancement of education if the research is of educational value to the researcher or will otherwise lead to something which will pass into the store of educational material or improve the sum of communicab le knowledge in an area which education may cover.

[67) HORAN v JAMES [1982] 2 NSWLR 376 New South Wales Court of Appeal Trusts and powers of appointment - Testamentary gifts Delegation of testamentary power- Hybrid powers of appointment - Certainty FACTS A testator gave the residue of his estate to his two trustees with power to pay and/or transfer it to whomsoever they selected, with each having power to dispose of half in the event that they could not agree. The will then gave a special direction that no benefit should thereby be conferred on the testator's wife, as well as an expression of hope and expectation that none of the estate subject to the power should be

47

LexisNexis Case Summaries appointed to his two sons. The next of kin challenged the validity of the power.

Trusts

[69)

INCORPORATED COUNCIL OF LAW REPORTING

v FEDERAL COMMISSIONER OF TAXATION (1971) 125 CLR 659; [1972] ALA 127 High Court of Australia

ISSUE The nature of testamentary powers and whether the exercise in this case was valid. DECISION This was a hybrid power of appo intment in the nature of a trust and that such powers satisfied the test for certainty laid down in McPhail v Daulton (1 971] AC 424, namely, that it can be said with certainty whether a given individual is or is not a member of the class of objects. However, while hybrid powers of appointment may be validly created by settlement inter vivas, the court was obliged to fo llow the dicta of the High Court in Tatham v Huxtable (1950) 81 CLR 639, (131] and Lutheran Church v Farmers ' Co-operative (1970) 121 CLR 628, (84], which would set aside such powers as delegations of will-making power. Hutley JA noted the dubious foundations of the so-called rule aga inst delegation of testamentary power. In coming to this decision the Court of Appeal overruled the decision of Helsham CJ in Eq at first instance who held the power to be valid. The creation of a hybrid power of appointment in a will was not, in his Honour's view, a delegation of testamentary power but an exercise of it. If the so-called cardinal rule had any scope for operation at all it was to strike down gifts in favour of a range of objects defined with insufficient certa inty. Powers of appointment were too we ll estab lished as devices for disposing of property to be struck down as delegations of will-making power. Helsham CJ distinguished Tatham v Huxtable as that case had not actually concerned a hybrid power.

Charitable trusts community

FACTS The council had as its sole purpose the production of law reports and was prevented by its articles of association from applying its income in any other way. ISSUE The question arose as to whether its income was thus exempt from income tax as income of a charitable institution. DECISION The council was a charitable institution and its work in producing law reports was a charitable purpose at law, being within the spirit and intendment of the preamble to 43 Eliz I c 4. Barwick CJ (at 669) considered the concept of objects of public utility which would satisfy the quality of charity. Having noted that any notion that the concept was one of an eleemosynary nature, it was seen to be untenable by some of the instances c ited in the preamble to the Elizabethan statute, such as the repair of bridges and so forth; those instances suggested, in his Honour's view, that the provision of some of the indispensables of a settled community_was charitable in the eyes of the law.

[70) [68) HUNTER v MOSS (1994] 3 All ER 214; 1 WLR 452 United Kingdom Court of Appeal

Express trusts -

Certainty of subject matter

FACTS Moss declared himself trustee of 5 per cent of the issued share capital of Moss Electrical Co Ltd (MEL). There were 1000 issued shares in this company. ISSUE The question on appeal was whether there was suffic ient certainty of subj ect matter, given that there was no identification of which 50 shares (equating to the 5 per cent) were held on trust. DECISION By Dillon LJ, Mann and Hirst LJJ agreeing, that the subject matter was certain. All of the shares are of the one class, in the same company. A bequest or gift of 50 ordinary shares in MEL would be valid without the need for the shares to be separately identified from the greater number of shares owned by the transferor. A declaration of trust over the subject matter is also effective. 48

Trusts for purposes beneficial to the

J W BROOMHEAD (Vic) PTY LTD (IN LIQ) v J W BROOMHEAD PTY LTD (1985] VR 891 Supreme Court of Victoria

Rights of trustees trust

Right to indemnity from beneficiaries -

Unit

FACTS From May 1976 the plaintiff company conducted its business as trustee of a unit trust. Under the trust deed, the units were held as to 42 per cent by the first defendant, 10 per cent by the second defendant, 24 per cent by the third and fourth defendants and 24 per cent by the fifth defendant. In September 1977 the plaintiff company went into a creditors' voluntary winding up. The fourth defendant only became aware of the trust shortly before giving evidence in the proceedings and disclaimed any beneficial interest in the trust. At the time of the hearing, the fifth defendant was in liquidation. The liquidator brought proceedings against all the defendant unit holders, except the fifth, seeking indemnity for debts incurred in the course of the business of the trust.

49

Trusts

LexisNexis Case Summaries ISSUE The court was required to consider whether the beneficiaries

were liable to indemnify the trustee, even if they held units themselves as trustees. DECISION The principle in Hardoon v Belilios applied to a unit trust and the unit holders who were sui juris and who had not disclaimed the trust were bound to indemnify the trustee in respect of a liability incurred by the trustee in the course of carrying out the trust, to the extent of each unit holder's proportion of the beneficial interest in the trust. The liability to indemnify the trustee attached to unit holders who were themselves trustees of other trusts, as some were of discretionary trusts. Those unit holders were, presumably, entitled to be indemnified out of the assets of the trusts for which the units were held and thus the trustee of the unit trust had access to the assets of those discretionary trusts by way of subrogation to the rights of the unit holder/trustee. The fourth defendant was not liable to indemnify the trustee, having disclaimed her interest once she learned of it. Infant unit holders were also not liable to indemnify the trustee. That meant that the trustee was not indemnified for the whole of the loss by the unit holders. It was only reimbursed for a proportion of the loss representing the proportion of unit holders liable and able to pay. Where a unit holder, such as the fifth defendant, was insolvent, that unit holder's proportion remained unpaid; it was not spread amongst the solvent unit holders.

[71]

Tracing -

JAMES ROSCOE (BOLTON) LTD vWINDER [1915] 1 Ch 62 Chancery Division

fund after the trust moneys are paid into it. If the trustee continues to draw on the account and exhausts it, the trust funds will be gone. It will not matter that he later pays in further funds. The right to trace into a fund into which trust moneys had been paid only applied 'to such an amount of the balance ultimately standing to the credit of the trustee as did not exceed the lowest balance of the account during the intervening period'.

[72]

KARGER v PAUL [1984] VR 161 Supreme Court of Victoria Duties of trustees appointment

Duty to consider -

Exercise of a power of

FACTS Under the will established by Mrs Smith, her husband and the defendant were appointed trustees. Pursuant to the will, Mr Smith was given a life tenancy. The residue went to the plaintiff. The trustees had power to appoint any or all of the capital to Mr Smith. Mr Smith asked the defendant to exercise his option. The defendant explained that the trustees had a discretion. The discretion was exercised and all of the capital was appointed to Mr Smith. No information was obtained from the plaintiff as to her financial position. Both trustees relied on Mr Smith's knowledge of Mrs Karger's circumstances in making their decision. The evidence also showed that Mr Paul was wrong in some of his beliefs regarding Mr Smith's circumstances. ISSUE Mrs Karger commenced proceedings, argu ing that the trustees acted in breach of trust by improperly exercising their d iscretion.

Tracing into a mixed fund

FACTS The purchaser of a bus iness agreed to collect the book debts

of that business and to pay to the vendor all moneys collected on that account. The purchaser duly collected £623 and paid £455 of that amount into his private bank account. Thereafter he withdrew all but £25 of the money in that account which he used for his own purposes. He later paid other moneys into the account and, at his death, the account had a credit balance of £358. ISSUE The plaintiff, the vendor of the business, sought a declaration that it was entitled to a charge over the credit balance of £358 in part payment of or as security for the £455 received by the deceased on trust for it. DECISION The plaintiff was only entitled to £25 from the account. The right to trace into a mixed fund will depend upon what happens to that

50

DECISION That there was no breach of trust, and there were no grounds to challenge the exercise of discretion. McGarvie J said that the exercise of a discretion will not be examined by the courts if three essential elements are satisfied. There will be no review if the discretion is 'exercised (1) in good faith; (2) upon real and genuine consideration; and (3) in accordance with the purposes for which the discretion was conferred'. Acting honestly equates to acting in good faith. But, if reasons are disclosed, the court will examin e the reasons for a decision. The court will only look to 'evidence of the inquiries made by the trustees, the information they had, and the reasons for, and manner of, exercising their discretion' in order to decide if the three elements are present. 'It is not open to the Court to look at those things for the independent purpose of impugning the exercise of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of that discretion, fell short of what was appropriate and sufficient'. The trustees

51

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Trusts

had acted honestly, for proper purposes and had given real and genuine consideration to the issues. The fact that Mr Smith may have formed a view when he exercised the discretion did not invalidate it on the grounds that he had not given real and genuine consideration. Further, the fact that Mr Paul had gaps or errors in his knowledge did not prevent him from having acted on real and genuine consideration, although if such gaps and errors had been sufficiently extensive they could 'found an inference' that Mr Paul 'had not been in a position to give real and genuine consideration'.

[75] KEARINS v KEARINS (1956) 57 SR (NSW) 286 Supreme Court of New South Wales Charitable trusts - Trusts for the advancement of education FACTS A testatrix bequeathed the sum of £2000 to the Sydney University Amateur Rugby Union Football C lub for the purposes of the club and to foster the sport of Rugby Union at Sydney University. ISSUE A summons was brought to determine the validity of this gift.

[73]

KAUTER v HILTON (1953) 90 CLR 86 High Court of Australia

Certainty of intention to create a trust

DECISION The bequest was a valid charitable gift. Participation in the sporting activities of the university being, in the view of Mclelland J, an important element in the development of men and women at university, not only in respect of bodily and physical development but also as part of the training of a well-balanced student.

FACTS A man opened a bank account under the title of 'Frank Hickey - trustee for Miss Alfreda Hilton' and consulted the beneficiary in his dealings with the account, even to the point of handing her the passbook. ISSUE Whether the opening of the bank account in the name of anothe"r had created a valid trust in favour of that person. DECISION This was a valid trust. Where the person opening such an account handed the passbook to the purported beneficiary and thereafter consulted the beneficiary in dealings with the account, the evidence would tend strongly toward establishing an intention to create an immediate trust in favour of the other person.

[74] Re KAYFORD [1975] 1 All ER 604; 1 WLR 279 Chancery Division Express trusts - Certainty of intention to create a trust

[76] KEECH v SANDFORD (1726) Sel Cas T King 61; 25 ER 223 Court of Chancery Constructive trusts - Duty of trustee holding a lease on trust - Breach of fiduciary duty FACTS A lease was held upon trust. The lessor refused to renew the lease to the trust. The trustee sought and was granted a renewal of the lease in his own name. ISSUE The plaintiff claimed that, in renewing the lease for his own benefit, the trustee was in breach of trust. DECISION The trustee held the new lease upon trust for his beneficiary. Despite the rigour of the rule, Lord Chancellor King said that it was better that the lease be allowed to run out than to allow a trustee to have the lease on refusal to renew to the cestui que trust.

FACTS A mail order company set up an account into which it deposited customers' payments pending receipt by them of the goods ordered.

[77]

ISSUE On winding up, the question was raised as to whether the money in that account was held on trust for the customers who had placed orders or whether it was the property of the company and thus available for the general creditors of the company.

Duties of a trustee -

KELLYv PERPETUAL TRUSTEE CO LTD (1963) 109 CLR 258 High Court of Australia Duty of impartiality -

Capital and income

customers and did not form part of the general assets of the company, even though the 'trust' was created unilaterally by the company.

FACTS Trustees of a deceased estate carried on a tin smelting business from 1917 until 1950 when the business was sold. The sale included a quantity of surplus tin which had never been brought into the profit and loss account of the company and which was sold for over £184,000.

52

53

DECISION The moneys in the account were held on trust for the

LexisNexis Case Summaries

Trusts

ISSUE The question arose as to whether those moneys represented capital or income.

of the trust remained the property of the parties to the marriage for the purposes of s 79.

DECISION The surplus tin recovered each year was a profit of the business

to which the life tenant was entitled. The fact that the tin had not been entered in the accounts of the company as profit was irrelevant. In coming to that decision the High Court rejected an argument that there was a difference between a gain made in the ordinary course of business and the proceeds of realisation on the closing down of the business, saying that an item of profit does not lose its character merely because it is sold otherwise than in the course of business.

[78] KENNON v SPRY [2008] HCA 56; (2008) 238 CLR 366 High Court of Australia

Discretionary trusts -

Nature of the interest of a beneficiary

FACTS In 1968 Dr Spry made an oral declaration of discretionary trust of which he was trustee over certain property. In 1981 the terms of the oral declaration were recorded in a deed of trust. The beneficiaries were all of Dr Spry's siblings, their children and spouses and included Dr Spry's wife and daughters. In 1983 Dr Spry removed himself as trustee. In 1998 Dr Spry's marriage was in difficulties and he made further variations to the trust which excluded both himself and his wife as capital beneficiaries. Dr Spry and his wife separated in 2001. In 2002 Dr Spry created a second discretionary trust in favou r of his four daughters and appointed Mr Kennon as trustee. He then applied all of the capital and income from the first trust to the second trust, together with a parcel of shares, ostensibly pursuant to his powers as discretionary trustee . Mrs Spry applied to the Family Court to have the 1998 document set aside. The application was granted at first instance, and an appeal to the Full Court was dismissed. ISSUE Whether the interests of Dr and Mrs Spry in the first trust were 'property' for the purposes of s 79 of the Family Law Act 1975 (Cth).

[79]

LE CRAS v PERPETUAL TRUSTEE CO LTD [1969] 1 AC 514 Privy Council

Charitable trusts -

Relief of the aged, impotent and poor

FACTS Income from certain property was given on trust for the general purposes of St Vincent's Private Hospital. ISSUE The validity of that gift as a valid charitable trust was challenged. DECISION It was a valid charitable trust. The provision of medical care for the sick was prima facie a charitable purpose, being a matter of the relief of the 'impotent' within the preamb le to 43 Eliz I c 4 and, while not all hospitals could be regarded as charitable institutions as some were conducted principally for the purpose of making a profit for their proprietors, or their faci li ties were not ava ilab le to a sufficient section of the public, this did not apply to St Vincent's. The charging of fees for medical services was not enough, of itself, to disentitle a hospital from recognition as a charitable institution and, in this case, St Vincent's was operated as a non-profit venture. As the validity of providing relief to the sick as a charitable purpose was not dependent upon those sick people also being poor, the fact that the class of people likely to be treated in the hospital was restricted to those who could afford to pay the fees did not, of itself, rob this gift of the quality of ch arity.

[80] LEAHY v A-G (NSW) [1959] AC 457; (1959) 101 CLR 611; [1959] 2 All ER 300 Privy Council

Charitable trusts - Trusts in favour of unincorporated associations - Trusts for the advancement of religion

DECISION The High Court, by a majority decision, upheld the decision of the judge at first instance and the Full Court. Further, French CJ found that the property of the marriage for the purposes of s 79 consisted of the trust property together with the right of the beneficiaries to be considered by the trustee fo r a distribution from the trust. Also, where property has been acquired by one or both parties to a marriage, the property does not cease to be 'property of the parties to the marriage' merely because it has been settled on trust. Thus, whilst Dr Spry continued as trustee of the trust fund with the power to appoint beneficiaries, the property

FACTS A testator, by cl 3 of his will, made a gift of a grazing property upon trust 'for such order of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select'. As that expression included contemplative, or closed orders of, nuns, the gift could only be upheld as a valid charitable trust by the operation of s 37D of the Conveyancing Act 1919 (NSW), which would have restricted the gift to active orders.

54

55

LexisNexis Case Summaries

Trusts

ISSUE The trustees wished to retain the right to select closed orders and argued that cl 3 was valid as an absolute gift to the order selected.

deed provided that on dissolution of the fund the surplus should be distributed amongst the members, Waddell J did not think that meant that the surplus should be held on an irrevocable trust to provide defined benefits and to await the possibility of a dissolution of the fund . Waddell J rejected a submission that in a defined benefit scheme, once the defined benefits had been provided for, the company was precluded by some fiduciary obligation from acting in its own interests with respect to the surplus in the fund. In exercising powers with respect to a superannuation fund, a company is under a duty to act in good faith as it is in its other dealings with its employees, but it is not subject to any fiduciary obligation, beyond securing the benefits defined by the scheme. His Honour held that the trustees had also not acted in breach of duty by consenting to the amendment. They were entitled to consider whether the amendment was in the interests of the members and the bank as a whole.

DECISION As a gift to a contemplative order of nuns, it would fail as a charitable gift for the advancement of religion. However, a gift on trust for an unincorporated association would, prima facie, be valid as a gift for the individual members. That presumption would be overturned, and the trust would fail, if on proper construction the gift was for present and future members, in which case it failed as a gift in perpetuity, or if it was a gift for the non-charitable purposes of the association. Accordingly, this gift failed as a private trust because the subject matter and the intended object indicated that the testator did not intend to make an absolute gift to the individual members of any order selected.

[81]

LOCK vWESTPAC BANKING CORPORATION (1991) 25 NSWLR 593 Supreme Court of New South Wales •

Variation of trusts - Superannuation fund trust - Variation to allow payment of surplus in defined benefit scheme to employer FACTS A member of the Westpac Staff Superannuation Scheme challenged a resolution of the board of the bank amending the deed to allow the repayment to the bank of the surplus in the fund over the amount required to meet the fund's liabilities, including benefits secured to members. The scheme was a defined benefit scheme, that is, one in which the rules specified the amount of benefits payable to members, the circumstances in which those benefits would be payable, and the contributions payable by members and by the bank to the fund. The trust deed governing the scheme contained a variation clause giving the board of the bank, with the consent of the trustees of the fund, power to alter or replace the provisions of the deed and rules provided that the value of the rights of members and their dependants accrued at the date of alteration were not thereby reduced without the written consent of at least 75 per cent of the members. The extent of members' rights was to be certified by an actuary. The amount of the surplus available came to $300 million. ISSUE Whether the variation of the trust deed to allow payment of the surplus to the bank was valid. DECISION The variation to allow the repayment to the bank of the surplus was not invalid. The bank was not precluded from exercising the power of amendment in the manner proposed. Even if the

56

[82]

Re LONDONDERRY'S SETTLEMENT; PEATvWALSH [1965] Ch 918; [1964] 3 All ER 855 Court of Appeal

Discretionary trusts -

Duty of trustees in exercising a discretion

FACTS Trustees of a discretionary trust decided to exercise their discretion and distribute the entire fund, thus bringing the trust to an end. One beneficiary who was a member of the class of income and capital beneficiaries under the discretionary power, and who was also entitled to the income in default of appointment, objected to this decision and sought copies of certain documents including the minutes of meetings of the trustees, the agenda and other papers prepared for the meetings and correspondence between the trustees relating to those meetings. The trustees objected to that demand. ISSUE Whether the trustees had a duty to disclose documents detailing the substance of their deliberations. DECISION The trustees were not obliged to disclose their reasons for exercising a discretion. So long as the trustees exercise their power, that is their absolute discretion to appoint, bona fide with no improper motive, their exercise of that power cannot be challenged in the courts. Their reasons for acting as they decide are, accordingly, immaterial. Trustees exercisi~g a discretion are not obliged to disclose their reasons. The mere fact that those reasons are reduced to writing does not change that.

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LexisNexis Case Summaries

[83] Re LOWIN [1965] NSWR 1624; [1967] 2 NSWR 140 New South Wales Court of Appeal Charitable trusts - Trusts for the advancement of education FACTS A testator left a bequest, which his next of kin challenged, for a competition for the best composition by a Viennese or Austrian composer of a song cycle to be conducted in Vienna. Both the trust fund and the trustees were in Australia. ISSUE Whether a gift to establish a trust to fund an overseas competition was a valid charitable trust, DECISION The gift was a valid charitable trust. While the 'public' to be benefitted by any gift was not that of New South Wales or Australia, the implementation of a gift outside the jurisdiction could satisfy that requirement if there was a moral sense of obligation in the local community towards those in 'need' overseas. Some gifts, such as trusts for the relief of poverty or 'famine, were obviously good, while others, such as a trust for the military training of the army of a hostile state, were clearly bad. Because of the universal appeal of music, its advancement in Austria was considered to have sufficient nexus with the benefit of a substantial section of the local public.

[84]

LUTHERAN CHURCH v FARMERS' CO-OPERATIVE (1970) 121 CLR 628; [1970] ALR 545 High Court of Australia

Trusts and powers of appointment power

Delegation of testamentary

FACTS A testatrix, after bequeathing certain legacies, made the following gift: '6. My Trustees have discretionary power to transfer any mortgages and property, and shares in companies invested in my name to the Lutheran Mission [at a stated address] for building homes for Aged Blind Pensioners after all expenses paid .... ' The will contained no other provision. ISSUE The question arose as to whether that clause created a valid disposition, or constituted a valid charitable trust or whether it was void for uncertainty. DECISION The court divided, 2:2, which meant that the decision of

the Supreme Court of South Australia, that there was no gift because the 'discretionary power to transfer' made no gift to the objects of the power, and that thus the testatrix had merely delegated discretionary 58

Trusts powers to her trustees, was upheld. Barwick CJ was of the view that the creation by will of a general or special power of appointment constituted a disposition of the property the subject to the power and, unless the power was a trust power, the holder would necessarily have a discretion not to exercise it. Provided the subject matter and the appointees were indicated with sufficient certainty, the gift would be valid, even though it created no beneficial interest in the objects unless and until it was exercised in their favour. Here there was no question of certainty of obj ect. The absence of any specific gift over in default of appointment would not invalidate the power as there would be one by operation of law in the event of non-exercise . McTiernan and Menzies JJ considered that the use of the words 'discretionary power' negatived the gift and that a mere special power without any gift over in default offended the rule against delegation of will-making power discussed in Tatham v Huxtable (1950) 81 CLR 639,

[131] . Windeyer J said that such a power could be validly created and that the trustees would be under a duty to cons ider whether to exercise it. If they refused to consider the matter, the court could remove them and appoint new trustees. This was also not a case in which a testator had given his executor a power to dispose of the estate in favour of such other people as he chose. The lack of a gift over was not crucial as the next of kin would take in such an event.

[85] Re LYSAGHT [1966] Ch 191; [1965] 2 All ER 888 High Court of Chancery Charitable trusts - General and particular charitable intention - The application of schemes FACTS A testatrix bequeathed moneys to the Royal College of Surgeons to provide student scholarships for British-born students provided they were 'not of the Jewish or Roman Catholic faith' . The college refused to accept under those terms. ISSUE Whether the testatrix had displayed a general charitable intention which would permit the application of a scheme. DECISION Per Buckley J, that the refusal of the college created an initial impossibility but that the testatrix had evinced a general charitable intention, as religious discrimination provision was not essential to her intention, and applied the gift by way of a scheme by excising the offending provision.

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LexisNexis Case Summaries

Trusts

(86) McBRIDE v HUDSON (1962) 107 CLR 604; (1963] ALR 226 High Court of Australia

(88) Re MANISTY'S SETTLEMENT [1974] Ch 17; (1973] 2 All ER 1203 Chancery Division

Duty of a trustee to act impartially -

Capital and income

FACTS A pastoral property was left to the testator's widow and son as tenants-in-common during the life of the widow and thereafter to the son and the testator's daughter. During the widow's lifetime the number of sheep on the property rose from 1859 to 4346 by natural increase. ISSUE The daughter questioned how many of those sheep were the property of the estate, that is, how many were capital. DECISION All the sheep were capital. Taylor J observed that the meaning of the word 'profits' in any case will depend upon the nature of the business concerned and the manner in which it is customarily carried on and, if in carrying on a business trustees adopt a conventional and appropriate method of accounting to determine the profit for any period, no exception can be taken. In this case, there was nothing in the terms of the will, nor in the nature of the business, which could justify a claim by the life tenant to ur,realised book profits.

(87) MANFRED v MADDELL (1950) 51 SR (NSW) 95; 68 WN (NSW) 80 Supreme Court of New South Wales Beneficiaries -

Right to extinguish the trust

FACTS A testator gave his residuary estate upon trust to divide into three equal shares to be held respectively for his widow and two daughters. The estate comprised mortgages, Commonwealth War Bonds and cash. The daughters demanded that the trustee pay two-thirds of the money and securities. Their mother opposed such a distribution.

Trusts and powers of appointment -

Hybrid powers

FACTS A settlor conferred on his trustees a power to apply trust funds for a class made up of his infant children, his future children and remoter issue, and his two brothers and their future issue born before a closing date defined as 79 years from the date of settlement. An 'excepted class', consisting of the settlor, his wife for the time being, and any other person settling property on the trust, was excluded from benefit. The trustees were given power at their absolute discretion to declare that any person, corporation or charity other than a member of the excepted class or a trustee be included in the class of beneficiaries. In 1972 the trustees exercised that power to add the settlor's mother and any widow of the settlor to the class of beneficiaries. ISSUE A summons was taken out to determine whether the power to add beneficiaries was valid. DECISION The power was valid. The principle of non-delegation did not apply where a settlor or testator conferred an intermediate (or hybrid) power on his trustees. The power was also not void for uncertainty. Such a power or trust will be valid if it can be said with certainty whether a given individual is or is not a member of the class (of objects). Having regard to the definition of the excepted class, it can be certain in this case whether any given individual is or is not a member of the class. The conduct and duties of trustees, and the rights and remedies of any person who wishes the power to be exercised in his favour, are the same for both intermediate and special powers. Where a settlor gives his trustees a power which enables them to take into account all contingencies, the court will not strike it down unless it is capricious, that is, where the terms of the power negative any sensible consideration of the objects by the trustees. A power will not be uncertain merely because it is wide in ambit.

ISSUE The right of beneficiaries to extinguish the trust.

DECISION Two-thirds of the bonds cou ld be distributed but not the

(89) Re MAYO [1943] Ch 302; 2 All ER 440 Chancery Division

mortgage debt. The right of a beneficiary entitled to an immediate, absolute and indefeasible interest in some fund, and thus to demand present enjoyment of his or her share in that fund, is governed by practical cons iderations, particu larl y where the trust investments are not conveniently divisible into shares. Thus, the transfer of part of a trust fund to one of a number of beneficiaries who demands his or her undivided share wou ld prejudice the interests of others.

FACTS A testator, who died in 1936, appointed his son, his daughter and another person as executors and trustees of his estate and trustees for

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Powers of trustees - Effect of disagreement between trustees over exercise of a power

LexisNexis Case Summaries

Trusts

the purposes of the Settled Land Acts. The will devised freehold lands to the trustees upon trust to pay the income to the testator's widow for life and then to hold for the son and daughter in undivided shares. The widow died in 1939. The son requested the other trustees to exercise the statutory powers of sale over the land but they refused. The son then took out a summons seeking orders directing the other two to join with him in offering the property for sale.

[91 ] MORICE vTH E BISflOP OF DURHAM (1805) 9 Ves 399; 32 ER 656; 10 Ves 522 ; 32 ER 539 Court of Chancery

ISSUE Whether the other trustees could be directed to join with the son in the sale. DECISION The statutory power for sale under the Settled Land Acts is subject to a statutory power of postponement. As the power to postpone is discretionary, the statutory trust for sale will prevail unless all three trustees agree to exercise the power to postpone. That rule could only be disturbed if the trustee refusing to concur could be shown to be acting mala fide. Accordingly, the other two trustees were directed to join with the son in taking all necessary steps to sell the property.

[90]

MONTY FINANCIAL SERVICES LTD v DELMO [1998] 1 VA 49 Supreme Court of Victoria

Beneficiaries -

Right to remove trustee

FACTS The defendapt was executor and trustee of his mother's will. He and his sister were the only beneficiaries under their mother's estate. The defendant claimed to be owed money by the estate, but had no proof of his claim. The second plaintiff was trustee in bankruptcy of the sister, and succeeded to her rights as beneficiary under the estate. The suit was commenced seeking removal of the defendant on the grounds that he was unfit to act and ought to be removed. ISSUE The power of the court to remove a trustee from office.

Certainty of object in trusts non-charitable purposes

Trusts for mixed charitable and

FACTS A testatrix bequeathed all her personal estate to the Bishop of Durham upon trust to pay her debts and legacies and to apply the residue in favour of such objects of benevolence and liberality as the bishop in his own discretion should approve . The bishop was appointed sole executor. Her next of kin sought to have this residuary bequest declared void.

ISSUE Whether the residuary gift was void for uncertainty. DEC IS ION Per Sir William Grant MR, the rule for private trusts was that a trust for uncertain objects would not effect a disposition of the property subject to the trust. Every trust had to have a definite object somebody in whose favour the court could decree performance. Where the trust was for a charitable purpose it would not fail for uncertainty even though the court might have to give directions as to the mode of its application. Per Lord Eldon ( 10 Yes at 539): 'As it is a maxim that the execution of a trust shall be under the control of the court, it must be of such a nature that it can be under that control so that the administration can be reviewed by the court; or, if the trustee dies the court itself can execute the trust ... and then unless the objects can be ascertained, upon principles familiar in other cases, it must be that the court can neither reform maladministration nor direct due administration.'

[92] MUSCHINSKI v DODDS (1 984) 160 CLR 583; 62 ALA 429 High Court of Australia

DEC ISION Per Ashley J, that the defendant should be removed as executor and trustee. The court has an inherent jurisdiction to remove a trustee, in addition to the statutory jurisdiction. The defendant was in a position where his duty as executor and trustee was in conflict with his personal interest in payment. The statutory jurisdiction to remove a trustee who is unfit to act comprehends the situation of conflict of interest by an executor. The inherent jurisdiction clearly also enables the court to remove a trustee where there is a conflict of duty and interest. Not every conflict should result in removal of the executor; however, this conflict would require the defendant to make a decision regarding his own truthfulness and it would be wrong for him to resolve this conflict.

FACTS Mrs Muschinski and Mr Dodds had lived together since 1972 and, in 1975, decided to purchase together a property on which they planned to restore a cottage, which they would use as an arts and craft centre, and to erect a pre-fabricated house in which they wou ld then live. Mrs Muschinski was to provide the purchase price of $20,000 from the sale of her home while Dodds was expected to pay the construction and improvement costs from $9000 which he anticipated from the settlement of his divorce, and from bank loans. Upon legal advice, and in

62

63

Constructive trusts -

Unconscionable retention of benefit

LexisNexis Case Summaries

Trusts

accordance with their instructions, particularly those of Mrs Muschinski, the property was conveyed to them as joint tenants. In the event, they failed to obtain council approval to build the house; Dodds only received $3500 from his divorce settlement, most of which was spent on holidays for the pair, and the ir personal relationship broke down. In July 1980 the appellant commenced proceedings seeking a declaration that she was beneficial owner of the whole of the land. Apart from labour, their respective contributions to the purchase and improvement of the property were $25,259.45 to $2,549.77, or approximately 91 per cent to 9 per cent.

Brennan and Dawson JJ considered it unnecessary to take the matter any further other than to say that the gift had been made on terms of the assurances by Dodds and that, on the partial non-fulfilment of those assurances, Mrs Muschinski might have made a claim in equity for compensation, but she had not done so, insisting on bringing a proprietary claim only.

ISSUE Whether Mr Dodds held the property on constructive trust for Mrs Muschinski and if so, in what proportion.

Express trusts - Certainty of intention and subject matter - Words of precation

DECISION Reversing the decision of the New South Wales Court of Appeal that Mrs Muschinski had intended, and made, a gift of one half of the beneficial interest in the property to Dodds and that nothing in the conduct of the latter constituted equitable fraud or any other ground which could give rise to a constructive trust in the appellant's favour of any part of that half share, that the parties held their respective legal interests upon trust to repay to each his or her respective contribution with any residue to be held in equal shares. Gibbs CJ noted that the appellant was entitled to contribution for the excess she had paid over and above her proper share, because the parties were joint and several debtors in respect of the purchase price for the Picton property. Deane J ( with whom Masqn J agreed) applied, by analogy, the principles applicable to the rights and duties of a failed partnership or joint venture where, in the absence of express contractual provisions dealing with such circumstances, and in the absence of any attributable blame, the partners or joint venturers are entitled to proportionate repayment of their capital contributions to the fai led venture and held that, in the circumstances, it was unoonscionable for D'odds to retain full beneficial ownership of one half of the property and decreed a constructive trust in favour of Mrs Muschinski securing the return to her of her initial investment. His Honour acknowledged the remedial character of the constructive trust but stated that it was only available when warranted by established equitable principles, whether presently stated or determined by legitimate processes of legal reasoning, by analogy, induction and deduction. Such a trust could not be decreed on the basis of what is 'fair' in the circumstances, although general notions of fairness are relevant to the traditional equitable notion of unconscionable conduct. The appropriate order to give effect to these findings was to impose a constructive trust on the legal interests of the parties as tenants-in-common to repay each other their respective contributions with the residue to be shared equally. In view of the latter part of that order, his Honour considered it unnecessary to give consideration to any contributions in the form of labour.

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[93)

MUSSOORIE BANK v RAYNOR (1882) 7 App Cas 321 Privy Council

FACTS A testator left property to his wife 'feeling confident that she will act justly to our children in dividing the same when no longer required by her'.

ISSUE Whether the language of the will expressed the necessary certainty of intention to create a trust. DECISION No trust in favour of the children was created. Apart from the precatory words, it was not clear what property was intended to be the subject of such a trust.

[94)

Resulting trusts -

NAPIER v PUBLIC TRUSTEE (WA) (1980) 32 ALR 153; 55 ALJR 1 High Court of Australia

Presumption of advancement

FACTS A man and a woman had lived together for 14 years as de facto man and wife in a house owned by the man. In 1969 a h ouse was purchased with money provided by the man and, at his direction, was transferred into the name of the woman. Thereafter the property was let and the rents were received by the woman, who also paid the rates. The understanding between the two was that the property was an investment 'for her as long as she lived', and that it would then revert back to the man's fam ily, that is, himself, if he survived her, or his two sons ifhe did not. After the woman's death, the man sought an order that the property was held on trust for him. ISSUE Whether the presumption of a resulting trust h ad been raised in favour of the man. DECISION While the presumption of a resulting trust was rebutted as to a life interest in favo ur of the woman, there was a resulting trust in remainder in favour of the man. Aickin J stated the rule: 'Th e law with 65

Trusts

LexisNexis Case Summaries

respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child ( including someone with respect to whom the transferor stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence. It is however well established that no presumption of advancement arises in favour of a de facto wife'.

[95]

NATIONAL ANTI-VIVISECTION SOCIETY v IRC [1948) AC 31; [1947) 2 All ER 217 House of Lords

Charitable trusts - Trusts for a political purpose purposes beneficial to the public

Trusts for

FACTS The society claimed exemption from income tax on the ground that it was a charitable body. The aims of the society included lobbying parliament to change the law governing the use of animals in scientific experiments. ISSUE Whether the society was a charity for a purpose beneficial to the

public. DECISION The society was not a valid charity. As its main object was to obtain the abolition of vivisection by law, and thus an alteration of the law, its objects were clearly political. A trust for political objects could not be upheld as a valid charitable trust. Furthermore, the assumed . public benefit which might be derived from the advancement of morals and education thrpugh the abolition of vivisection was far outweighed by the detriment to medical science and public health which would result if the society obtained its object.

[96]

NATIONAL TRUSTEES CO OF AUSTRALASIA LTD

v GENERAL FINANCE CO OF AUSTRALASIA LTD [1905) AC 373 Privy Council Liabilities of trustees -

Relief of trustees from liability

FACTS A trustee company wrongly paid away trust moneys. It did so after receiving the advice of competent legal advisers. The company

66

sought relief on the ground that it had acted honestly and reasonably and ought fairly to be excused (Trustee Act 1925 (NSW) s 85; Trusts Act 1973 (Qld) s 76; Trustee Act 1936-68 (SA) s 56; Trustee Act 1898 (Tas) s 50); Trustee Act 1958 (Vic) s 67; Trustee Act 1962-78 (WA) s 75. ISSUE Whether the trustees were liable for the wrongful payment. DECISION The trustee company had acted honestly and reasonably but, in the circumstances, it could not be fairly excused. It was a trustee company authorised to so act by statute, and to take a commission for doing so. While the Judicial Committee would not go so far as to say that the remedial provisions of this section shou ld never be applied to a trustee company, its position was widely different from that of a private person acting as a gratuitous trustee. Here there was no fair excuse for the breach of trust nor any reason why the loss should be thrown onto some other party who was not at fault.

[97] NATIONAL TRUSTEES EXECUTORS AND AGENCY CO OF A' ASIA LTD v BARNES (1941) 64 CLR 268; [1941] ALR 58 High Court of Australia Rights of trustees -

Right to indemnity for costs of administration

FACTS A deceased estate included amongst its assets the balance of purchase moneys owing under a contract for the sale ofland. The purchaser was unable to meet the debt on the due date and the trustees gave him certain extensions of time to pay. There were 3 7 beneficiaries of the estate and nine of them took out a summons alleging breaches of trust and seeking an order for administration and for the removal of the trustees on the ground that the trustees h ad committed a breach of duty in fa iling to get in the balance of the purchase money on the due date. The summons was dismissed and the plaintiffs ordered to pay the trustees' costs. ISSUE The question then arose as to whether the trustees were entitled to be indemnified out of the estate for their solicitor-client costs. DECISION The trustees were entitled to be indemnified out of the trust for their costs as they were costs properly incurred by them as an incident of their administration. The fact that they would have been personally liable had they been found to be in breach of trust did not change that. It was not necessary to show some benefit to the trust before the trustees cou ld be reimbursed for the costs of defending their adm inistration. Defending their conduct against some claim of wrongdoing by a beneficiary was an incident of the trustees' administration. As this action was brought by only nine out of the 3 7 beneficiaries, the costs should fall

67

LexisNexis Case Summaries

Trusts

on their share of the estate first and those shares exhausted before any charge is made on the shares of the other 28.

in her own name with the assistance of a Defence Service Homes loan. In applying for that loan she signed a declaration saying that she had no financial interest in any house or dwelling other than the one for which the subsidised loan was sought. On the sale of the first property, the woman and her son sought declarations that the property and the proceeds of its sale were held on trust for her. The daughter argued that the presumption of advancement applied in her favour or, alternatively, that the trust asserted was vitiated by illegality.

(98] NEILL v PUBLIC TRUSTEE [1977] 1 NSWLR 290; [1978] 2 NSWLR 65 New South Wales Court of Appeal Trusts and powers of appointment - Time for exercise of a power FACTS A testator who died in 1942 provided by his will that, subject

to certain limited interests which ceased when the testator's youngest grandson reached 21 in 1951, his trustees might appoint property to any or all his sons and grandsons, and in default of appointment the property should pass to a particular son. In 1975 the trustees appointed the property to two grandsons and obtained a declaration that the appointment was valid. ISSUE The administrator of the estate of a deceased residuary beneficiary appealed against that decision, arguing that the appointment had not been effected within a reasonable time after the death of the testator or the cesser of the limited interests. DECISION Subject to any contrary intention in the instrument creating the power, and there was no such intention here, no rule that the power must be exercised within a reasonable time could be implied in the case of a power of appointment authoris ing the creation of beneficial interests. Hope JA expressed the view that it would be 'somewhat astonishing' if provisions creating special powers of appointment under which beneficial interests in property can be created should be subject to the same rules as to the time of their exercise as those applicable to administrative powers, such as powers of sale or trusts of sale. Trustees for sale cannot so exercise their powers as to vary the relative rights of the beneficiaries while powers of appointment authorise the creation of beneficial interests.

ISSUE Whether the son and daughter held the property on resulting trust for Mrs Nelson, or whether the resulting trust was vitiated by illegality. DECISION The property was held on trust in the woman's favour, on condition that she repay to the Commonwealth the difference between the subsidised rate of interest she had been paying under the Defence Service Homes mortgage and the rate she would have been paying without the subsidy over the term of the mortgage. Deane and Gummow JJ acknowledged that the trust which the woman sought to enforce was tainted by illegality but said that the trust created was, nonetheless, enforceable, but on terms which made good the concern of the Commonwealth, the party misled into granting subsidised interest by the woman's fraudulent statement. Deane and Gummow JJ rejected the old policy approach of letting the loss lie where it might fall , saying instead that the question of illegality had to be considered in the light of the underlying policy of the legislation in question. McHugh J said that courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with some unlawful purpose unless the statute concerned showed an intention that such rights should be unenforceable, or where the imposition of the sanction was either not disproportionate or otherwise necessary in the circumstances. Dawson J held that the trust was not vitiated by illegality and was prepared to uphold it without conditions on the basis that the Commonwealth cou ld pursue its own remedies against the woman.

(100] (99] NELSON v NELSON (1995) 184 CLR 538; 132 ALR 133 Higtl Court of Australia Resulting trusts - Presumption of advancement - Illegal trusts - Circumstances in which a trust may be set aside for illegality FACTS A woman purchased a house in the names of her son and daughter with moneys provided by the woman from her own resources and from her late husband's estate. The woman later purchased another property

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NESTLE v NATIONAL WESTMINSTER BANK [1994] 1 All ER 118; [1993] 1 WLR 1260 English Court of Appeal

Duty of trustees - Duty to preserve trust property properly invest trust funds

Duty to

FACTS The granddaughter and residuary beneficiary of the trusts established by the will of William Nestle, who died in 1922, complained that the trustees had committed breaches of trust in fai ling to properly invest the fund entrusted to them. The trust in her favour was subjected

69

LexisNexis Case Summaries

Trusts

to intermediate trusts, an annuity in favour of Sir William Nestle's wife and life interests in favour of his two sons. Under the will the trustee had a discretion to make advancements of capital to either son. The trustee also had power to retain existing investments even though they may be 'wasting, speculative or revisionary'. The trustee was authorised otherwise to invest the trust moneys in any securities or investments of the same or similar nature to those held by Nestle at his death, government guaranteed stocks or securities, railway or municipal stock, bonds or debentures or by way of mortgage on real property. In 1922 the Nestle estate had been worth £50,000. With adjustments for the retail prices index, that sum was equivalent to £1 million in 1988. In 1988 the capital of the fund amounted to only £269,203. The index of ordinary shares which stood at 119.8 in 1922 had, by November 1986 reached 6352.2. On those figures, had the trust been invested in ordinary shares in 1922, it would have been worth £1.8 million in 1988. Miss Nestle relied on those figures as the basis of her claim.

that account and invested and the rest later dissipated, the trustee cannot maintain that the investment which remains represents his money alone.

ISSUE Whether the trustee had acted in breach of trust, thereby causing a loss to the trust estate. DECISION A lthough the trustee had committed errors of judgment, particularly in failing to consider the breadth of its powers of investments and, in the light of such consideration, to review the investments from time to time, it was not guilty of any breach of trust resulting in loss to Miss Nestle. The Court of Appeal considered that the trustee's failings were not sufficient to render the trustee liable to the plaintiff. Miss Nestle had not proved that the trustee's fa ilure to diversify the equities between 1922 and 1960 had caused her loss. Although the trustee had not been an effective manager of the trust investments under its control, it had not been shown to h ave committed any breach of trust resulting in loss.

[101] Re OATWAY [1903] 2 Ch 356 Chancery Division Tracing - Tracing assets purchased with money drawn from a mixed fund FACTS A solicitor paid £3000 of trust funds into his own account. He then purchased £2000 worth of shares with that fund and dissipated the rest. He died insolvent. ISSUE Whether the trust funds could be traced into the shares. DECISION The shares were treated as trust property even though purchased with an early withdrawal. Where a trustee mixes his own money with trust money in an account, and money is drawn out from 70

[102]

OCTAVO INVESTMENTS PTY LTD v KNIGHT ( 1979) 144 CLR 360; 27 ALR 129 High Court of Australia

Trust property trustee

Bankruptcy of trading trust -

Creditors of

FACTS Coastline Distributors Pty Ltd (Coastline), which acted as trustee of a trust of which the beneficiaries were five named companies including Octavo Investments Pty Ltd (Octavo), had made payments of $49,750 to Octavo in the six months before a winding-up order was made against Coastline. The liquidator obtained orders that those payments were void as preferences.

ISSUE Octavo appealed on the ground that the money was property held in trust by Coastline and thus not subject to any bankruptcy. DECISION That as a trading trustee was personally liable for any debts incurred in carrying on the business, and was entitled to be indemnified for those liabilities from the assets of the trust in priority to the beneficiaries, the rights of creditors to be subrogated to the trustee's indemnity fell within the definition of 'property' and 'property of a bankrupt' under the Bankruptcy Act, thus making the payment to Octavo voidable by the liquidator. For these same reasons the court held that the assets of a trading trust could not be simply described as 'trust property' as the trustee had a right, which could be described as a proprietary right, to be indemnified out of those assets for debts incurred in the business giving him a beneficial interest in those assets which took priority over any claim by the beneficiaries.

[103]

OPPENHEIM v TOBACCO SECURITIES TRUST CO LTD [1951] AC 297; (1951) 1 All ER 31 House of Lords

Charitable trusts - Trusts for the advancement of education Requirement of public purpose- Meaning of 'public' or 'community' purpose FACTS A testator left a fund in his will to be held on trust for the education of children of employees, ex-employees of a company and its subsidiaries. There were 110,000 potential beneficiaries. 71

LexisNexis Case Summaries

Trusts

ISSUE The House of Lords was required to determine whether the trust was a charitable trust for the purpose of the advancement of education and for a public purpose.

agreed to transfer her interest in the joint tenancy to her husband, provided that he agreed to hold that interest on trust for their children. In 1999 a memorandum was drafted which stated that the property was held on trust for the Boensch family. The wife executed a transfer of her interest, but the mortgagee refused to consent to the registration of the transfer. In 2005 Mr Boensch was declared bankrupt, and the trustee in bankruptcy claimed the property as part of the bankrupt estate.

DECISION The trust was not a charitable trust. In addition to being for a charitable purpose, such as the advancement of education, a charitable trust must also be for a public as opposed to a private purpose. Although there were a large number of potential beneficiaries, this did not mean that the trust was available to the public in general. To be for a public purpose the beneficiaries of the trust must not derive their entitlement from their relationship with a particular individual or organisation.

DECISION The trust was a valid trust. The memorandum satisfied the requirement of writing for the disposition of an interest in land pursuant to s 23C of the Conveyancing Act 1919 (NSW). It also displayed the required intention to create a trust on the part of Mr Boensch and inferred that Mr Boensch intended to transfer the property to the children at some time in the future.

[104] OTTAWAV v NORMAN [1972] Ch 698; [1971] 3 All ER 1325 Chancery Division Express trusts trusts

Certainty of intention to create a trust -

Secret

FACTS A testator devised his house to his housekeeper absolutely, as well as giving her a legacy of £1500 and one half of the residuary estate. The housekeeper later left the house in her last will to the defendant and not to the testator's son and daughter-in- law. ISSUE The son and daughter-in-law sought a declaration that the housekeeper had not received the house absolutely but on a secret trust for them. DECISION They were entitled to the house but not the money derived by the housekeeper from the will. Brightman J said that the essential elements for a wholly secret trust were: (i) the intention of the testator to subject the primary donee (the party actually named as recipient in the will) to an obligation in favour of the secondary donee (the party actually intended to benefit); (ii) commun ication of that intention to the primary donee; and (iii) acceptance of that obligation by the primary donee, either expressly or by acquiescence.

[105] PASCOE v BOENSCH [2008] FCAFC 147; (2008) 250 ALA 482 Full Court of the Federal Court Express trusts -

Creation -

Requirement of writing

FACTS Mr and Mrs Boensch were joint tenants of a property. In 1998 they divorced and, as part of the property settlement, Mrs Boensch

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ISSUE Whether the creation of the trust of the house had satisfied the requirement of writing.

[106] PATEMAN v HEYEN (1993) 33 NSWLR 188 Supreme Court of New South Wales Duties of trustees insure

Duty to preserve trust property -

Duty to

FACTS A claim was brought against the trustee of a deceased estate seeking compensation for the loss resulting from a fire which destroyed the house which was the major asset of the estate. The deceased was a fisherman living on the north coast of New South Wales. He appointed the defendant as his executor. The sole beneficiary was the plaintiff who was aged 13 at the death of the deceased. After giving consideration to selling the house, the defendant leased it for the purpose of preserving the assets while waiting fo r the plaintiff to come of age. The defendant insured the property initially but later overlooked a renewal of the insurance with the result that the insurance lapsed on 1 September 1985. The property was not insured when it was destroyed by a fire in July 1987. ISSUE The court considered the duty of the trustee to insure trust property. DECISION Per Cohen J, the trustee was under a duty to insure but only for present value and thus liable to compensate the estate for the value of the house as it was at the date of the fire, the difference between the improved and the unimproved value of the property. A trustee should act in respect of insurance in the same way as a prudent person would be expected to act in respect of his or her own property. That duty extended in appropriate cases to insuring the property for its full replacement value, 73

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Trusts

while in other cases it may be sufficient to insure for the present value of the property. Cohen J postulated that there may be circumstances in which it would not be reasonable to expect a trustee to insure; for instance, where there was no income available to pay premiums.

form in which evidence was presented but otherwise the content of such evidence was not limited and could include direct evidence of the wishes or prejudices of the testatrix. When the directions of the testatrix are impracticable and consideration has to be given to the implementation of a scheme, the court is no longer construing the will; it is engaged in an administrative task.

[107]

PAUL A DAVIES (AUSTRALIA) PTY LTD v DAVIES [1983] 1 NSWLR 440 New South Wales Court of Appeal

Rights of beneficiaries - Tracing FACTS A fiduciary used trust moneys as a deposit for the purchase of a property. The rest of the purchase money was obtained by way of a mortgage loan secured on the property. The beneficiary sought to trace the funds. ISSUE The court considered the entitlements of a beneficiary on breach of duty by a fiduciary. DECISION The beneficiary was entitled to the whole property subject only to the mortgage. This was not an appropriate case in which to award the beneficiary only a proportion of the value of the property that had been purchased, in part, with trust moneys, as no part of the purchase price had been paid for by the trustee with his own money.

[108] PHILLIPS v ROBERTS [1975] 2 NSWLR 207 New South Wales Court of Appeal Charitable trusts -

[109] PILKINGTON v IRC [1964] AC 612; [1962] 3 All ER 622 House of Lords Powers of trustees -

Power of advancement

FACTS Trustees of a settlement under which R G Pilkington was entitled to a life interest in the income of the corpus, with contingent reversionary interests in favo ur of his children on attaining 21 years of age, in equal shares, proposed to make an advancement of £7600 in favour of one daughter, Miss Penelope Pilkington, then aged five. That sum was to be settled on trust with the income being applied fo r the maintenance and benefit of Penelope until she turned 30, at which time the capital and income wou ld become hers absolutely. That would also change her contingent defeasible interest in the trust into a vested interest. Considering the disadvantages, particularly liability for death duties, which would flow from leaving the trust in its original state, the trustees argued that this was clearly for Penelope's benefit. ISSUE The House of Lords considered the grounds for the exercise by trustees of the power of advancement.

Effectuation by way of cy-pres schemes

FACTS A testatrix left property to improve biblical knowledge by establishing a new church. That purpose was found to be impracticable, although the testatrix had displayed a general charitable intention. Two schemes were prepared for the court's consideration, one by the trustees in favo ur of archaeology and another by the Attorney-General for theological seminaries. Helsham J chose the first and, in doing so, heard evidence from a friend of the testatrix that the last thing she would have wanted was the use of her money to train priests. ISSUE The grounds upon which a cy-pres scheme could be imposed by the court. DECISION That, in receiving evidence when carrying out its duties settling a scheme, the court was bound to observe the rules as to the

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DECISION This was a proper exercise of the power. Viscount Radcliffe said of powers of advancement: '... such a power was frequently conferred on trustees under settlements of personalty and that its general purpose was to enable them in a proper case to anticipate the vesting in possession of an intended beneficiary's contingent or reversionary interest by raising money on account of his interest and paying or applying it immediately for his benefit'. Even though there was the poss ibility, through failure of the contingency upon which the vesting of the beneficiary's title depended or, in some cases, a great shrinkage in the value of the remaining trust funds, those matters were recognised and accepted as an incidental risk attendant upon the exercise of a power of advancement, whose presence was felt on the whole to be advantageous in a system in which the possession of property was deferred long beyond adult years.

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LexisNexis Case Summaries

[110]

Trusts

DUKE OF PORTLAND v LADY TOPHAM (1864) XI HLC 32 House of Lords

Duties of trustees - Power of appointment Exercise of discretion

power.' Per Lord St Leonards: 'A party having a power like this must fairly and honestly execute it without having any ulterior obj ect to be accomp lished. He cannot carry into execution any indirect object or acquire any benefit for himself, directly or indirectly.'

Duty to consider -

FACTS The Duke of Portland held a power of appointment over two

funds invested on trust by his father, the former duke, in favour of Lady Harriet Bentinck and Lady Mary Bentinck. The power entitled him to appoint the income of the funds to both or to one of them to the exclusion of the other, subject to such restrictions as the then duke, during his lifetime, or, after his death, the person who was Duke of Portland during the joint lives of the two daughters, might think fit. In default of such appointment the trustees were to pay the dividends to the two daughters as tenants in common and, upon the death of one, to pay the whole of the dividends to the survivor, and, after the death of the survivor, the trust fund and dividends were to go to whomever was then Duke of Portland. After the death of the former duke in 1854 the new Duke of Portland purported to exercise the powers of appointment under both settlements to settle all dividends and interest in favour of Lady Harriet. Harriet, at the behest of a close adviser of the duke her brother, unaware that she had been made absolutely entitled to the income of both funds by the deed of appointment executed by her brother, and believing that she was carrying out her father's wishes for the disposal of the fund, signed a direction to her bankers to invest the other half into a joint account in the names of herself, the duke and another of her brothers, Lord Harry Bentinck. In 1860, Lady Mary, who had fallen into disfavour by marrying Colonel Topham, filed a bill seeking orders that she was, amongst other things, entitled to investments representing one half of the dividends and interest paid under both settlements. ISSUE Whether the trustee had properly exercised his power of

appointment by settling all of the property on only one of the two beneficiaries.

[111] Re PRYCE [1917] 1 Ch 234; [1916-17] All ER Rep 573 Chancery Division Trust of a voluntary covenant -

Constitution of an express trust

FACTS A marriage settlement required the wife to settle after- acquired property on the trustees of the settlement and the husband to do likewise with any sums to which he might become entitled under his fathe r's will. The husband later acquired and spent moneys falling under the description in the deed and also made gifts of certain reversionary interests to his wife. After the husband's death the trustees took out a summons seeking directions. ISSUE Whether the trustees ought to sue the husband's estate for breach of the covenant. The marriage had produced no children and the beneficiaries, apart from the wife, were her next of kin.

J, the trustees ought not to take proceedings under the covenant. The next of kin were volunteers and as such have no right to obtain specific performance of a voluntary covenant which has remained a covenant and has never been performed. Damages were also not available because, in his Lordship's view, after the Judicature Act the same defences which could be raised at law were available in equity. DECISION Per Eve

[112)

QUINTON v PROCTOR [1998] VR 469 Supreme Court of Victoria

DECISION The deed of appointment exercising the power was set as ide,

Rights of beneficiaries -

Right to extinguish trust

although that order did not affect future appointments made under the power. Per Lord Westbury LC: ' ... the donee, the appo intor under the power, shall, at the time of the exercise of the power, and for the purpose for which it is used, act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power, and not for the purpose of accomplishing or carrying into effect any bye or sinister object (I mean sinister in the sense of its being beyond the purpose and intent of the power) which he may desire to effect in the exercise of the

FACTS The testator's estate was left to his wife for life, and then to her children as tenants in common in equal shares. The residuary beneficiaries were of full age and capacity at the time of the action. The trust fund consisted of two investments. One was an amount which had been put into a trust account when another investment matured. The beneficiaries did not want this amount reinvested, and sought to have it paid to them in full in equal shares. The defendant trustee refused to pay out the sums.

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ISSU E Whether the beneficiaries had the right under the circumstances to terminate the trust.

They failed to effect such a conversion for nine years. When they did sell the stocks which formed the estate, they made a greater profit than they wou ld have done if they had converted them at the proper time, that is, one year after the testator's death. By that time, however, the purchase price of parliamentary stocks was also higher and the increase in the sale price of the estate stocks was insufficient to make up for the rise in the price of the parliamentary stocks.

DECISION Per Kellam J, the money sho uld be transferred to the beneficiaries. There appears to be no authority directly on point. This is not a situation where a sui juris beneficiary seeks transfer of his entire share of the trust assets, as in Stephenson v Barclays Bank Trust Co Ltd [1975] 1 All ER 625. The question is whether the rule permitting a beneficiary to have a transfer of his entire share extends to permit all of the beneficiaries to require transfer of one asset in the fund, while leaving the trust on foot in relation to the other asset. This seems to be no different in principle from Re Marshall [1914] 1 Ch 192. If the beneficiaries are entitled to terminate the trust in its entirety, there seems no reason why they should not also be able to terminate the trust in respect of part of it. There will, of course, be cases where it would be inappropriate to transfer property and the court retains a discretion to refuse transfer.

[113] Re RAYBOULD [1900] 1 Ch 199 Chancery Division Rights of trustees - Right of indemnity against trust fund when operating a business on behalf of trust FACTS A judgment was obtained against the trustee of a deceased estate, the assets of which included certain collieries, for damages arising from subsidence at one of th e collieries. ISSUE The trustee's righ t of indemnity from the trust estate.

•

DECISION Prov ided the damage had not been caused by any reckless or

improper working of the business by the trustee, h e would be entitled to be indemnified out of the trust estate for any damages and costs awarded against h im.

[114] ROBINSON v ROBINSON (1851) 1 DeG M & G 247; 42 ER 547 Court of Appeal in Chancery Liabilities of trustees - Extent of trustee's liability to make good a loss arising from a failure to invest in accordance with the terms of the trust

ISSUE Whether a trustee with a direction to invest a trust fund in a certain way is liable to reimburse the trust estate if the funds are not invested as directed. DECISION Where a trustee is directed to invest the trust funds in a part icular mann er and invests them instead in some other unauthorised manner, and makes a greater profit than the trust would have otherwise enjoyed had the trustee obeyed his instructions, the cestuis que trustent will be entitled to elect whether to demand restitution of the sums the trust would have rece ived had the funds been invested properly or to demand the profits actually made by the trustee. However, where a trustee is directed to invest in one of two fo rms of investment, and invests in neith er, th e cestuis que trustent will only be entitled to demand restitution of the product of the lesser of those two forms of investment. They cannot compel the trustee to do what he is not bound to do and they cannot retrospectively deem him to have made the best investment of those available and authorised and thereby compel him to reimburse the trust to the extent of the maximum of the profit it might have made from authorised investments. Accordingly, the trustees were not liable to make any payments to the trust as the funds they h ad in hand were suffic ient to cover the amount the trust would have had if the trust fund had been invested at interest at the proper t ime, even though they did not h ave as much as would have been the case if they had invested in parliamentary stocks at that time.

[115]

ROCHEFOUCAULD v BOUSTEAD [1897] 1 Ch 196 Court of Appeal

Constructive trusts instrument of fraud

Statute of Frauds not to be used as an

into money and invest it in either parliamentary stocks or in mortgages.

FACTS The plaint iff owned estates in Ceylon, as it then was, subject to a considerable mortgage. T he mortgagee exercised its power of sale and sold the estates to the defendant who, as it was found, had, in fact, purch ased them as trus tee for the plaintiff, subject to a lien for the moneys h e had paid to purchase them and which he had expended in managing

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FACTS Trustees under a will were requ ired to convert the residuary estate

LexisNexis Case Summaries

Trusts

them. The defendant argued that this trust was not enforceable as it was not evidenced in writing.

[117) ROYAL NATIONAL AGRICULTURAL AND INDUSTRIAL ASSN v CHESTER (1974) 3 ALR 486; 48 ALJR 304 High Court of Australia

ISSUE Whether a trust which does not comply with the writing requirement of the Statute of Frauds is enforceable.

DECISION The trust was enforceable notwithstanding the failure to comply with the Statute of Frauds as the statute cannot be used as an instrument of fraud and it was such a fraud for someone to whom land is conveyed as a trustee, and who knows it is so conveyed, to deny the trust and claim the land for himself.

[116)

ROUSE v IOOF AUSTRALIA TRUSTEES LTD (1999) 73 SASR 485 Supreme Court of South Australia (FC)

Beneficiaries -

Right to inspect trust documents

FACTS The appellants were investors in a managed investment scheme established under a trust. The respondent was the trustee. The trustee was suing the scheme manager, and others, for breach of duty under the agreements governing the scheme. The appellants sought access to documents held by the trustee, some of which related to the litigation with the scheme manager. ISSUE This appeal related to the right of the beneficiaries to inspect

documents comprising 'witness statements, expert reports, legal advice instructions to legal representativest assessments of prospects of success and other documents forming part of the trustee's brief to counsel' in the dispute with the manager. DECISION The trustees were entitled to refuse inspection of the

Charitable trusts - Trusts for the benefit of the public FACTS Edward Chester, a retired poultry farmer and pigeon fancier, left a will bequeathing the residue of his estate to the appellant association to apply the income 'in improving the breeding and racing of Homer Pigeons'. The validity of that gift was challenged by Mr Chester's next ofkin. ISSUE Was the gift for a purpose beneficial to the public and therefore

valid? DECISION Per Barwick CJ, Menzies and Mason JJ, that for such a gift to be charitable it must be both beneficial to the community and within the spirit and intendment of the preamble to the statute 43 Eliz I c 4. While the breeding of pigeons for racing might be described as being beneficial to the community in a very general way, there was no justification for deciding that it was a purpose instanced in the preamble to the statute of Elizabeth I.

[118)

RUSSELL v PERPETUAL TRUSTEE COMPANY LTD (1956) 95 CLR 389 High Court of Australia

Express trusts -

Construction - Absolute gifts with engrafted trusts

FACTS A testatrix, exercising a power of appointment conferred on her by her late husband's will, made the following gift in her own will: 'upon trust (subject as hereinafter provided)', for A, B and C as tenants in common in equal shares, 'Provided that the share of each of the three' was to be held on trust to pay the income of each one's share to him or her during his or her lifetime, and, upon the death of any one, the capital of that one's share was to be held for such of his or her children (living at the date of the testatrix's death) as survived the parent and attained the age of 21.

documents. Doyle CJ assumed that the documents in question were trust documents, as they related to the administration of the trust, and would have to be passed on to a successor trustee. The right of a beneficiary to inspect trust documents is not unqualified. The trustee has a discretion to refuse inspection on the grounds of confidentiality. This ground may arise if documents have been given to the trustee in confidence. It may also arise where to permit inspection would put the trustee in an impossible position. The duty of the beneficiaries to have access to documents must be reconciled with the need to permit the trustee to conduct the trust. Where the trustee has reasonable grounds for considering that inspection 'will not be in the interests of the beneficiaries as a whole, and will be prejudicial to the ability of the trustee to discharge its obligations under the trust', the trustee may be entitled to exercise the discretion to refuse inspection. In the circumstances of this case, to require the trustee to make disclosure would be prejudicial to its ability to act as trustee.

ISSUE The gift in favour of the children was void as they were outside the power. The question then arose as to whether there was an absolute gift to A, B and C as tenants in common. At first instance it was held that the gift in favour of A, B and C conferred a life interest on them as the gift to them as tenants in common was tied to what followed so that it was necessary to look at what was in fact later provided in order to determine the limits of the trust.

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LexisNexis Case Summaries DECISION Per Dixon CJ and Williams J, that the gift to A, B and C as tenants in common was an absolute gift and fell within the rule in Lassence v Tierney (1849) 1 Mac & G 551; 41 ER 1379: that where there is an absolute gift to a legatee in the first instance, and trusts are engrafted or imposed on that absolute interest which fail, either from lapse or invalidity or any other reason, then the absolute gift takes effect so far as the trusts have failed to the exclusion of the residuary legatee or next of kin as the case may be. Their Honours held that it is only necessary to have regard to the whole of the will when considering whether the first gift is absolute, when the wording of that gift was ambiguous. When the first gift is, in its own terms, absolute, it is unnecessary to have regard to any later words in determining whether the initial gift is absolute. Their Honours were firmly of the view that the initial gift in this case was 'plainly a gift which by its language is an absolute gift in the first instance. The trustees are directed by the will of the widow to hold the thirty-four parts in trust for the three appellants as tenants in common in equal shares. These are most definitely words of gift'. Imperative words of trust must be given their full beneficial and not merely administrative operation. Fullagar J preferred to treat the gift as one in which the testatrix intended the gift to take effect as an absolute gift if the subsequently imposed trust failed.

[119]

SAINSBURV v INLAND REVENUE COMMISSIONER [1970] 1 Ch 712; [1969] 3 All ER 919 Chancery Division

Beneficiaries - Nature of the interest of a beneficiary of a discretionary trust FACTS Under a discretionary trust, the trustees were obliged to distribute all the income in favour of one or more of the objects uport the death of one of the objects as 'an interest limited to cease on a death' under s 43 of the Finance Act 1940 (UK) . Trustees took out a summons for a determination whether estate duty was payable on the entitlements held on trust for the beneficiaries. ISSUE The court was required to consider the nature of the interest of a beneficiary of a discretionary trust. DECISION No duty was payable. Under an exhaustive discretionary trust where the trustees were required to distribute the whole of the income, the only right which any object had was to have the trustees exercise the ir discretion and to be protected in that right and that an object of a discretionary trust did not have in possession a quantifiable interest and

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Trusts that the totality of separate unquantifiable interests did not constitute separate quantifiable interests nor one quantifiable interest.

[120] SAUNDERS v VAUTIER (1841) 4 Beav 115; 49 ER 282 Court of Chancery Beneficiaries -

Right to extinguish the trust

FACTS A testator bequeathed to his executors all the East India stock standing in his name at the time of his death, upon trust to accumulate interest and dividends until Daniel Vautier attained the age of 25 years and then to pay the capital of the stock together with accumulated income to Vautier, his executors, administrators and assigns absolutely. When he turned 21, Vautier presented a petition seeking to have the whole of the fund transferred to him. ISSUE Whether a beneficiary who is sui juris is entitled to require that the trust be terminated and the trust property transferred to him abso lutely, thereby terminating the trust. DECISION Vautier was entitled to have the fund transferred. A person holding an absolute vested interest in some legacy in which the payment is postponed is not bound to wa it until the expiry of the period. He may requ ire payment the moment he is legally competent to give a valid discharge. A beneficiary who is of age and otherwise legally capable and who is absolutely entitled can call upon the trustee to transfer the trust property to him, thereby extinguish ing the trust.

[121] SCOTT v SCOTT (1962) 109 CLR 649; [1964] ALR 946 High Court of Australia Beneficiaries - Tracing FACTS A trustee of a deceased estate used trust moneys, together with some of his own money, to purchase a property in which he lived until his death. Shortly before his death he repaid to the trust the moneys he had used for the purchase. The property purchased had increased substantially in value in the meantime. ISSUE Whether the trust was entitled to a proportion of the increased value of the property.

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DECISION The trust was entitled to a share in the increase in value in proportion to the amount of trust funds applied for the original purchase.

period, there was the possibility of a resulting trust to the estates of the settlers.

[122]

SCOTTISH BURIAL REFORM AND CREMATION SOCIETY v GLASGOW CORPORATION [1968] AC 138; [1967] 3 All ER 215

Charitable trusts - Trusts for the benefit of the public FACTS The plaintiff society promoted cremation as an inexpensive and effective alternative to internment as a means of disposing of the dead. It sought exemption from local rates for certain land it held on the ground that it was a charitable body.

ISSUE Whether the purpose of the society was a charitable purpose being beneficial to the public, and the society a valid charity. DECISION It was a valid charity. The purpose of promoting cremation was seen as a proper extension of the 'repair of churches' listed in the preamble to the Statute of Charitable Uses of 1601, which had been extended to the repair of burial grounds attached to churchyards. As a matter of public utility, cremation was seen as a purpose consistent with such things as the 'repair of bridges, ports, havens, causeways, churches, sea banks and highways'.

[123]

SIR MOSES MONTEFIORE JEWISH HOME v HOWELL & CO (NO 7) PTY LTD [1984] 2 NSWLR 406 Supreme Court of New South Wales

Extinguishment of trusts trusts

Discretionary trusts -

Charitable

ISSUE Whether the objects of a discretionary trust are able to invoke the rule in Saunders v Vautier to terminate the trust. DECISION Where the objects of a discretionary trust constitute the entire range of persons entitled to call for due administration of the trust, they can collectively invoke the rule in Saunders v Vautier. Kearney J also held that this was a gift to the charitable purposes of these institutions and not to the institutions themselves and that that view would apply regardless of whether the institutions in question were incorporated or not. As this was, therefore, a gift on trust for purposes, it could not be extinguished by the objects themselves. The plaintiff would need to take proceedings under s 17 of the Imperial Acts Application Act 1969 (NSW) concerning the administration of charitable trusts and would need to join the Attorney-General as a party.

[124] Re SMITH [1928] Ch 915 Chancery Division Rights of beneficiaries trusts

Rights of beneficiaries of discretionary

FACTS A testator who died in 1905 gave one-fourth of his residuary estate on a discretionary trust under which, during the lifetime of the defendant, Mrs Aspinall, the trustees, at their absolute discretion, were to apply the income, or so much of it as they thought fit, for the maintenance and benefit of Mrs Aspinall, or for the maintenance, benefit and education of all or any of her children. The trustees also had a discretion to make advancements for Mrs Aspinall's benefit from the capital. Surplus income was to be accumulated for up to 21 years after the death of the testator, providing Mrs Aspinall survived him for that time. After Mrs Aspinall's death the trustees were to hold the balance of the capital and any income on trust for any of her children who attained the age of 21 and, if more than one, in equal shares as tenants in common. After Mrs Aspinall had passed child-bearing age, having produced three children, two of whom were still alive, she and the children assigned all the interests which they took under the will by way of mortgage.

FACTS A trustee of a discretionary charitable trust sought to extinguish the trusts and have the funds in each of them transferred under the rule in Saunders v Vautier. The beneficiaries named in the deed were two charitable institutions although the settlers had a power to add or substitute other charitable bodies. Upon the expiry of a perpetuity period fixed by reference to certain royal lives plus 21 years, the trustee was directed to hold the capital upon trust for the members of the class of objects subsisting at that time in equal shares. The settlers died before these proceedings without nominating any further beneficiaries. The deed did not confer any power of accumulation so that all the income had to be distributed. The defendants argued that, as there was a possibility that both homes might not be 'subsisting' at the end of the perpetuity

ISSUE The trustee of the estate sought directions as to whether it was bound to pay the whole of the income of the one-fourth part of the estate to the mortgagee or whether it retained a discretion to apply all or any part of the income or capital for the maintenance or personal support or benefit of Mrs Aspinall.

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DECISION The trustee was bound to pay the whole of the income

the investment. It is not enough either to show that the beneficiary had constructive or even actual notice of the breach of trust- he must have instigated or requested it or consented to a departure by the trustees from the terms of the trust (see Trustee Act 1925 (NSW) s 86; Trusts Act 1973 (Qld) s 77; Trustee Act 1936-74 (SA) s 57; Trustee Act 1898 (Tas) s 53; Trustee Act 1958 (Vic) s 68; Trustees Act 1962-72 (WA) s 76).

to the mortgagee. Mrs Aspinall, the two surviving children and the representatives of the de~ased child (who had been a party to the

mortgage) were, between them, entitled to the whole fund. Therefore, notwithstanding the discretion vested in the trustees, those people could, together, demand that the trustee hand over the fund to them. Accordingly, their assignment of their interest by way of mortgage gave the mortgagee the right to demand that the trustee pay the whole of the income to it. This principle only applies where the trustee holds under a discretionary trust, that is, where he is obliged to pay out the whole of the fund, even though he h as a discretion as to the manner and the proportions of that payment, and not where the trustee has a discretionary power, that is, where he is not obliged to make a distribution in favour of any object.

[125]

Re SOMERSET; SOMERSET v PAULETT [1894] 1 Ch 231 Court of Appeal

Rights of trustees- Right of indemnity from beneficiary consenting to breach of trust FACTS Trustees under a marriage settlement held certain bonds on trust for Vere Somerset and his wife for life in succession and thereafter for their children in remainder. The trustees were empowered, with the written consent of Vere Somerset and his wife, to realise the bonds and invest the proceeds in real securit i s. Vere Somerset and his father-inlaw, Colonel Hill, wanted the bonds realised so that the proceeds could be advanced by way of mortgage on an estate owned by Lord Hill. The written consent of Vere Somerset and his wife was obtained and the moneys advanced. The security proved inadequate and Vere Somerset and his children, the wife having died, brought proceedings to compel the trustees to make good the shortfall on the investment. ISSUE The trustees claimed that they were entitled to be indemnified by Vere Somerset for any liability they might have incurred.

[126] Re SPEIGHT; SPEIGHT v GAUNT (1 883) 22 Ch D 727; 9 App Cas 1 Court of Appeal Duties of trustees - Duty to preserve the trust property Powers of trustees - Power to employ an agent FACTS A trustee employed a stockbroker to make some investments for him. The broker fraudulently misappropriated the funds and the beneficiaries sought to hold the trustee personally liable for the loss thus arising. ISSUE The duties and powers of trustees who are charged with carrying on a business. DEC ISION The trustee was not liable for breach of trust. In coming to that decision Sir George Jessel MR said, of the obligations of a trustee conducting a business, that, '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'. To the attitude of the court: 'where you have an honest trustee fairly anxious to perform his duty and to do as he thinks best for the estate, you are not to strain the law against him to make him liable for doing that which he has done and which he believes is right in the execution of his duty, without you have a plain case made against him ... I think it is the duty of the court in these cases where there is a question of nicety as to construction or otherwise to lean to the side of the honest trustee, and not be anxious to find fine and extraordinary reasons for fixing him with any liability upon the contract.'

DECISION The statutory protection afforded to trustees in breach of trust which entitles them to an indemnity from a beneficiary where the breach of trust is committed at the instigation, request, or consent in writing of the beneficiary, does not apply to some act or omission which is not in itself a breach of trust but only becomes one by reason of want of care on the part of the trustee. Where a beneficiary instigates, requests or consents in writing to an investment which is authorised by the terms of the power, he is entitled to expect that the trustee will act with proper care in making

FACTS The plaintiff alleged breaches of duty by the trustee. The trustees argued that the beneficiary had concurred in the breach of duty, and

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[127] SPELLSON v GEORGE (1 992) 26 NSWLR 666 New South Wales Court of Appeal Liability of trustees -

Defences -

Beneficiaries

LexisNexis Case Summaries

Trusts

the action was summarily dismissed . The plaintiff appealed from the summary dismissal.

the cestuis que trustent, so that the first trust money paid in will be deemed to be the first trust money paid out. Further moneys paid into the account by the trustee could not be said to create a new trust.

ISSUE Whether the beneficiary was entitled to bring an action against the trustee for breach of duty. DECISION The plaintiff could bring an action for breach of duty against the trustee. The plaintiff had an arguable case, and the action should not have been summarily dismissed. Per Young AJA, there are six categories of conduct by a beneficiary which may disentitle the beneficiary from bringing an action for breach of duty. This conduct can occur before the breach, simultaneous with it, or afterwards. The categories are (1) acquiescence; (2) connivance; (3) election; (4) estoppel; (5) waiver; and (6) consent. Knowledge of a pending breach of trust without protest is not operative consent to or participation in the breach until the beneficiary is called upon to make some election. There was no clear case of concurrence which warranted dismissal of the action. Per Hope JA and Handley JA, even where the trustee can establish consent by the beneficiary to the breach of duty, this is only part of the defence. The court 'must consider all the circumstances of the case and decide whether it is fair and equitable that the beneficiary should sue the trustee'.

[128] Re STENNING [1895) 2 Ch 433 Chancery Division Tracing - Tracing into a fund of mixed trust moneys FACTS A solicitor operated a bank account into which he paid his own moneys and his clients' trust moneys. At the date of his death, that account had a credit balance of £444 3. One client, a Mrs Smith, claimed a sum of £448 from that account, being moneys held on trust for her which the solicitor had paid into the account. After paying Mrs Smith's money into the account, the solicitor had deposited, in sequence, sums of £999, £1094, and £500, which he held on behalf of three other clients respectively. Thereafter the balance of the account always exceeded £448 but did drop as low as £1088, that is, less than the sum of the trust moneys paid in, at one point. ISSUE Whether Mrs Smith was entitled to trace the money held for her on trust into the account of the solicitor. DECISION Mrs Smith was not entitled to any of the money standing in the account at the solicitor's death. The rule in Hallett's case applies only between trustee and beneficiary. Where a trustee mixes the money of more than one beneficiary, the rule in Clayton's case applies as be.t ween

88

[129] Re STONE (1970) 91 WN (NSW) 704 Supreme Court of New South Wales Charitable trusts Trusts for purposes beneficial to the community - Foreign trusts FACTS A testator left part of his estate on trust for the Jewish National Fund of New South Wales. The main purpose of that fund was to provide financial support for Keren Kayemeth Leisrael, a company incorporated in Israel whose principal object was the acquisition of land in Israel for the purpose of settling Jews there. ISSUE The court considered whether the trust was for a purpose beneficial to the public and thereby charitable. DECISION The gift was a valid charitable trust, even though the purpose of the trust was to be carried out outside the jurisdiction, and even though the community to benefit was Israel and not the local community. Helsham J said that, in determining the validity of such a gift as a valid gift to charity, the court would consider whether the intended purpose was beneficial to the foreign community and whether or not it was inimical to the legal concept of charity in our law.

[130] Re SUCO GOLD PTY LTD (1983) 33 SASR 99; 7 ACLR 873 Supreme Court of South Australia Trustees - Rights and liabilities - Right of a liquidator of a corporate trustee to be paid costs and expenses out of the assets of the trust FACTS A company was trustee of two unit trusts, the main object of which was certain mining ventures. In carrying out the trusts, the company acquired certain mining interests and became engaged in certain mining operations. In the process it incurred debts and, ultimately, was wound up on a creditor's petition. The company's issued capital was $2. It had no assets other than a right to be indemnified out of the assets of the trust for debts incurred in carrying out the trusts. The assets of the trusts were insufficient to cover the debts owed by the company.

89

LexisNexis Case Summaries

Trusts

ISSUE The liquidator applied to the court for directions as to whether he would be entitled to his costs and expenses incurred in the winding up of the company.

which, using hindsight and common sense, can be seen to have been caused by the breach'.

DECISION The liquidator was entitled to apply trust moneys in paying costs and expenses, including remuneration of the liquidator_ for costs properly incurred by him in the winding up of the company, mcludmg the costs of the petitioning creditor. The balance of the trust moneys would be applied in discharging the liabilities of the company incurred in carrying out the trusts. King CJ found that there were strong practical reasons for this decision. Unless the liquidator can be paid out of the assets of the trust, the liquidation of a trustee company could not proceed. It is the duty of a trustee who has incurred debts to pay those debts. Upon winding up, the debts of a company can only be paid in accordance with the provisions of the Companies Act (now the Corporations Act). That necessarily requires that there be a liquidator and that the costs and expenses, including remuneration, of the liquidator be paid in priority to other unsecured creditors in accordance with the statutory order.

[132] TATHAM v HUXTABLE (1950) 81 CLR 639 High Court of Australia

[131] TARGET HOLDINGS LTD v REDFERNS (A FIRM) [1996] 1 AC 421; [1995] 3 All ER 785 House of Lords Liability of a trustee -

Date of assessment of compensation

FACTS The defendant firm held moneys in its trust account. The money was payable by Target in settlement of a complex transaction in which Target was to become mortgagee of a property. The money was paid out of the account in breach of trust, prior to settlement. The transaction involved a fraud on Target and the solicitor acting for Target was aware of the fraud. However, Target did ultimately obtain its security, although the property was worth much less than Target had been led to believe. Target sought compensation for breach of duty. ISSUE The question was whether there was any causal link between the breach of duty and the loss suffered. Trial of the issues had not yet occurred.

Trusts and powers of appointment power

Delegation of will-making

FACTS A testator included a provision in his will empowering his executor 'to distribute any balance of my real and personal estate ... to the beneficiaries of this my wilt and testament . .. or to others not otherwise provided for who in my opinion have rendered service meriting consideration by the trustee' ('In my opinion' was taken to mean 'in the op inion of the trustee'). ISSUE The validity of the clause was challenged. DECISION The gift failed fo r uncertainty. While this clause did not purport to create a hybrid power of appointment, Fullagar J said that such powers would not be valid if contained in a wilt as they constituted a delegation of testamentary power, a rule which was not infringed by general and special powers. However, in the case of a special power, he said that unless there was a class designated with certainty, to say that the creation of a power to select beneficiaries amounts to a testamentary disposition of property is not merely to relax the principle (against delegation) to meet an exceptional case but to deny the principle absolutely. Accordingly, his H onour rejected the approach taken in English cases such as Re Park upholding hybrid powers in wills. Kitto J found that the clause conferred a special power which failed for lack of certa inty. He also accepted the 'card inal rule against delegation of willmaking power'.

[133] THOMPSON v FEDERAL COMMISSION OF TAXATION (1959) 102 CLR 315 High Court of Australia

DECISION The breach wilt not have caused the loss unless 'but for the breach' the transaction would not have occurred. A trustee who commits a breach of duty in paying away money is under an immediate duty to restore that money to the fund. However, the existence of an accrued cause of action does not mean that the quantum of compensation is fixed at the date of breach. Compensation is assessed at the date of judgment by determining the amount necessary to restore the estate. The remedy is designed to 'make good a loss in fact suffered by the beneficiaries and

FACTS A testatrix left property on trust fo r sch ools for the education of children of brethren and deceased brethren of the Masonic Order in New South Wales.

90

91

Charitable trusts -

Public benefit -

Section of the public

Trusts

LexisNexis Case Summaries ISSUE Exemption was sought from estate duty on the ground that this was a gift for 'public educational purposes'.

DECISION This was not a trust for the benefit of the public. To be for the benefit of the public a trust must benefit the public at large or a class or section of the public. A section of the public may be defined by reference to some geographical area or by adherence to some particular faith or by some other characteristic provided there is no bar which admits some members of the public but rejects others. In this case, membership of the section of the public to be benefited was determined by their relationship to a member of a group determined by the rules of a voluntary association which, amongst other things, restricted membership to those elected by the existing members.

[134] TRUSTEES OF THE ESTATE MORTGAGE FIGHTING FUND TRUST v COMMISSIONER OF TAXATION (2000) 102 FCA 15; 175 ALA 482 Express trusts beneficiaries

Discretionary trusts -

Nature of the interest of

FACTS The Estate Mortgage Fighting Fund Trust had been established

to provide funding for litigation in regard to the collapse of the Estate Mortgage property group. An initial amount was provided by the settler and the rest of the fund was contributed by persons who had lost money in Estate Mortgage investments. The contributors to the fund became beneficiaries of the Trust. There were tens of thousands of beneficiaries. The trustees of the fund made decisions as to the timing and nature of the litigation. The trust fund was held on deposit and the commissioner assessed the Trust as owing some $90,000 in income tax on the interest earned by the fund, payable by the trustees. The trustees argued that the taxation owing was payable by each of the beneficiaries on the basis that they were all 'beneficially entitled' to the trust estate and were therefore liable to pay the tax pursuant to s 95A of the Income Tax Assessment Act 1936 (Cth). ISSUE Whether the beneficiaries were •~eneficially entitled' to the trust

estate.

[135]

Rights of a trustee - Trustee carrying on a business in carrying on the business, for those debts

92

Authority

FACTS A man had carried on a business as a service station proprietor prior to his death in 1932, at which time he owed Vacuum Oil £575 . Despite a lack of power to do so, his executor carried on the garage business after the man's death. In December 1933 the executor obtained an order from the court authorising him to carry on the business for another three months. In the event, he carried it until October 1936. By that time the £575 had been reduced to £431 but a further debt of £36 had been run up with Vacuum. A trustee was appointed to administer the estate in bankruptcy. ISSUE Vacuum disputed that trustee's decision to rank it with general creditors of the estate on the ground that Vacuum had assented to the executor's continued trading after the expiry of the court order in 1934. DECISION Per Latham CJ and Dixon J, Starke and McTiernan JJ dissenting, with the result that the decision of the court fo llowed the opinion of the Chief Justice, that Vacuum's conduct did not amount to assent to the postponement of its claim pending the outcome of the attempt to trade out of difficulties, and that its claim should not, therefore, be postponed to that of other trade creditors. Latham CJ laid down certain principles governing the rights of a trustee in such circumstances:

1.

An executor is entitled to carry on a business, subject to any express power in the will , for the purpose of realising that business and only for that purpose. If he incurs debts in doing so, they are his debts, not the debts of the testator. But, as against both creditors of the business and beneficiaries of the estate, he is entitled to an indemnity out of the assets of the estate.

2.

If an executor is authorised to carry on a business, then he is still personally liable for any deb ts incurred, although, as against the beneficiaries, he will be entitled to an indemnity out of the estate, and from any assets acquired in carrying on the business, for those debts.

DECISION Hill J found that the beneficiaries were beneficially

entitled to the trust estate. Pursuant to the rule in Saunders v Vautier the beneficiaries were entitled to require the termination of the trust, prov ided that all were sui juris, they constituted a closed group and they were all in agreement. Because they were entitled to terminate the trust and require the distribution of the fund according to their aliquot shares, they were beneficially entitled to the trust estate.

VACUUM OIL CO PTY LTD vWILTSHIRE (1 945) 72 CLA 319; [1 946] ALA 50 High Court of Australia

3.

If an executor, without express power to do so, carries on a business otherwise than for the purpose of realisation, the debts are his debts and he has no rights, as aga inst either the creditors or the beneficiaries, to meet them out of th e trust assets. 93

LexisNexis Case Summaries

4.

5.

6.

7.

8.

9.

If a beneficiary, or a creditor, authorises him to carry on the business, the executor will be entitled to an indemnity, as against that beneficiary or creditor. Such an authorisation can be construed from assent of the beneficiary or creditor concerned, although it is not easy to determine what conduct amounts to such assent. Mere knowledge that the business is being carried on otherwise than for the purposes of realisation, and subsequent inaction, will not amount to assent. This principle is not an example of the equitable doctrine of acquiescence. A person acting in infringement of the rights of another under that doctrine should be acting under a mistake as to his own rights. Assets acquired by the executor in carrying on the business are assets of the estate and will be available to estate creditors on the same basis as assets held by the testator at the date of his death. Where an estate is administered in bankruptcy no distinction will be drawn between assets acquired before and after death.

10. While creditors, whose debts are owed by the executor personally, are not, strictly speaking, creditors of the estate, they will still be allowed to prove in the bankruptcy of the estate because the executor may be entitled to an indemnity from the estate, and those creditors will then be entitled to access to the estate through the executor.

[136] VATCHER v PAULL [1915] AC 372; [1914-15] All ER Rep 609 Privy Council

Trusts and powers of appointment -

Trusts

denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power. It is enough that the appointor's purpose and intention is to secure a benefit for himself, or for some other person not an object of the power.

VOGES v MONAGHAN (1955) 94 CLR 231 High Court of Australia

[137]

Express trusts trusts

Certainty of intention to create a trust -

Secret

FACTS A testator left the whole of his estate to a woman who had handled his affairs. He was survived by his widow as well as a niece by marriage and a servant who had worked in his household for over 30 years for little remuneration. After making his will, in the year before his death, the testator asked the beneficiary to look after his widow, to which she agreed. He also said that, subject to her discretion, she was to pay £3 per week to the niece and to the servant. After the testator's death the woman made these payments but, after the estate was called upon to pay a large income tax bill, she stopped. ISSUE Whether the woman was obligated to continue the payments pursuant to the terms of the trust. DECISION The woman was under a binding obligation to make the payments of £3 per week. Comment was made on the evidentiary difficulties in such a case.

Fraud on a power

FACTS A husband and his second wife exercised a power of appointment under a marriage settlement in favour of their family, with a proviso that if the children of the husband's first marriage shou ld abandon their rights to his real estate, the appointment would be void. The husband also held land on Jersey. Under the law of that island no person dying before 1891 had any power to alter the devolution of his real estate on death.

[138] WALKER v CORBOY (1990) 19 NSWLR 382 New South Wales Court of Appeal

Express trusts Quistclose trusts

Certainty of intention to create a trust -

DECISION The appointment was a valid exercise of the power. The term 'fraud' in connection with frauds on a power does not necessarily

FACTS Fruit and vegetable growers who sold their produce through Lojon Pty Ltd ('Lojon') claimed that moneys representing the proceeds of sale of their produce was held on trust for them by receivers of Lojon's business. Lojon went into liquidation in August 1989. The appellants were appointed receivers ofLojon's business shortly before that. Moneys collected by the receivers from sales of produce were paid, by agreement

94

95

ISSUE The validity of the purported exercise of the power of appointment was challenged.

Trusts

LexisNexis Case Summaries between the receivers and the growers, into a separate account, which at the date of hearing totalled $326,000. Under the Farm Produce Act 1983, Lojon was required to account to growers for produce sold, although the Act did not stipulate that the growers be paid out of the proceeds of sale of their produce; it would suffice if the seller paid them out of its general funds. All payments made by purchasers were paid into the agent's general account, and all payments to growers were made from that account. The agents made no attempt to separate the proceeds of sale of growers' produce from their other funds, and no attempt was made to separate funds referable to the sale of the produce of one grower from another. ISSUE The court considered whether the receivers held the proceeds on trust for the growers. DECISION The receivers did not hold the proceeds of sale on trust for the growers; the proper relationship between the parties was that of debtor and creditor. Meagher ]A noted that the growers remained owners of the produce until it was sold, but also that the Act did not require the seller to keep the proceeds of sale separate from its general funds. The only protection afforded to growers by the Act was a requirement that they be paid within a specified time regardless of whether the agent had been paid by the purchaser.

[139] Re WEIR'S SETTLEMENT TRUSTS [1971] 1 Ch 145; [1970] 1 All ER 297 Court of Appeal Rights of beneficiaries - Interest of a beneficiary of a discretionary trust FACTS Fifty thousand pounds was settled on trusts under which the trustees were required to pay out the whole of the income for the benefit of all or such one or more to the exclusion of the others or other of the settlor's daughter, her husband, or their children or remoter issue as in their absolute discretion the trustees thought fit. The daughter and her husband had no children. ISSUE The Inland Revenue claimed estate duty on the death of the husband in 1961 as property in which the deceased had an interest ceasing on his death to the extent that a benefit accrued or arose in favour of another by virtue of that cesser of interest.

[140]

WEST v FEDERAL COMMISSIONER OF TAXATION (1949) 79 CLR 319 High Court of Australia

Certainty of intention to create a trust -

Precatory trusts

FACTS A testator left a will declaring trusts in specified shares in favour of his sons and daughters with a proviso that shares in the estate should not vest in favour of the daughters until they attained the age of 40 or married under that age. The share of each daughter was to be enjoyed free from the control of her husband. The will then added: ' ... and it is my will and desire . .. that the share of every daughter about to be married under 40 ... shall be settled on her and her children ... in such manner as my trustees shall think fit ... but so as not to deprive her of the annual income from that share during her life .... ' ISSUE The question arose as to whether the words were imperative or precatory. DECISION Per Dixon J, with whom Latham CJ and Rich J agreed, that the words 'will and desire' were imperative in this case.

[141]

WESTDEUTSCHE LANDESBANK GIROZENTRALE v ISLINGTON LONDON BOROUGH COUNCIL [1996] AC 669; 2 ALL ER 961 House of Lords

Resulting trusts -

Effect of void agreem ent

FACTS The plaintiff bank and the council entered into an interest rate swap agreement. The transaction was subsequently held to be void, and the council stopped making payments under the agreement. The bank sought recovery of its principal plus compound interest. Compound interest was awarded at trial and the order was approved on appeal. One ground for the granting of compound interest was that the council held the moneys from the void agreement on resulting trust for the bank. ISSUE Whether the council held the payments plus interest on resulting trust for the bank.

DECISION That where the penultimate member of a discretionary class died, no such interest passed and the survivor was entitled to receive the income under the same continuing trust, and not as a tenant for life or under any new trust.

DECISION The council did not hold the money on a resulting trust. There was only a personal liability to repay. The bank had argued that there was a trust, as the void contract did not pass the equitable interest. This submission was based on the decision of Sinclair v Brougham (1914] AC 398. The decision in Sinclair v Brougham was not followed. Per Lord Browne-Wilkinson, a resulting trust in this case would be inconsistent with principles of trust law. The fundamental principles are:

96

97

LexisNexis Case Summaries

Trusts

( 1) Equity operates on the conscience of the owner of the legal interest; (2) A person cannot be a trustee while ignorant of the facts alleged to affect his conscience; (3) There must be identifiable trust property for a trust to be established; ( 4) The beneficiary has an equitable proprietary interest from the date the trust is established. This interest is enforceable against third parties, although not a purchaser of the legal estate for value without notice. On the facts, when the council knew the agreement was void, there was no longer any identifiable trust property, as the moneys had been deposited into an ·overdrawn bank account and were not traceable . Further, as to a resulting trust, His Lordship stated the two classes of cases in which a resulting trust can arise. First, 'where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B' there is a presumption of resulting trust. The presumption can be rebutted. The second case is where 'A transfers property to Bon express trusts, but the trusts declared do not exhaust the whole beneficial interest'. This case did not fit into either of these categories.

business would take if he had only himself to consider; the duty is rather to take such care as an ordinary prudent man would take if he were minded to make such an investment for the benefit of other people fo r whom he felt morally obliged to provide. His Lordship also added that while the court ought not to encourage laxity and want of care, it should not convert honest trustees into insurers of the moneys committed to their care.

[142] Re WHITELEY; WHITELEY v LEAROYD (1886) 33 Ch D 347; (1887) 12 App Cas 727 Court of Appeal Duties of trustees -

Duty to preserve trust property

FACTS Trustees were authorised under a will to invest in 'real securities in England or Wales'. They invested £3000 upon mortgage in a freehold brickfield on which a brickmaking business was being conducted and on four freehold houses. The owners of all five properties were subsequently liquidated and the proceeds of sale were insufficient to repay the money advanced by the trustees.

[143]

WYMAN v PATERSON [1900] AC 271 House of Lords

Trusts - Duties of trustees - Duty to act personally trustees - Power to delegate

Powers of

FACTS Trustees allowed a solicitor to receive trust moneys and to hold them thereafter for over six months. The solicitor was then declared bankrupt and the trust moneys were lost.

ISSUE Whether the trustees were liable for the loss. DECISION The trustees were liable to make good the loss suffered by · the trust. Their liability, however, arose from the fact that they had left the money with the solicitor for such a long time, without investing it elsewhere, rather than their action in allowing the solicitor to receive the money in the first place.

[144] YOUNG v MURPHY (1994) 13 ACSR 722; 12 ACLC 558 Supreme Court of Victoria

ISSUE Beneficiaries of the estate sought restitution from the trustees.

Duties of trustee -

DECISION Even though the investments were investments in real securities, the trustees were not, therefore, free from liability. It was open to the court to consider whether this was a proper investment in the circumstances. Cotton LJ said trustees must take such care in conducting the business of the trust as a reasonably cautious man would use, having regard not only to the interests of those entitled to the income but also to the interests of those who will take in the future. In this case, as the value of the brickfield depended upon it being sold as a going concern, and the value of the land was otherwise less than the amount advanced, the prudent man wou ld not have lent so much on it. The trustees were not, however, liable for the loss on the residential properties. Lindley LJ said the duty of a trustee is not to take such care as only a prudent man of

FACTS The respondents were appointed by the Supreme Court of N ew South Wales as new trustees of investment trusts. The previous trustee had become insolvent and gone into liquidation. The respondents commenced litigation against the persons formerly involved in the administration of the trust, alleging breaches of trust.

98

Duty to sue former trustee

ISSUE The fo rmer trustee alleged that the new trustees had no right to sue. DECISION The new trustee had standing to sue the former trustee. The defaulting trustee can be sued by a beneficiary, co-trustee or successor trustee. The successor trustee is, in fact, potentially committing a breach

99

LexisNexis Case Summaries

Index

of duty itself if it does not take action against a defaulting former trustee. This is part of the trustee's duty of getting in the trust estate. The beneficiaries do not need to be made parties to the action.

References are to case numbers B Beneficiary discretionary trust .. .. 53, 78, 119, 123, 124, 134, 139 powers of .... 23, 90 rights of see Rights of Beneficiaries termination of trust Breach of Trust contribution for .. .. 55 indemnity from .... 12, 61, 70, 125 liability for .... 5, 38, 96,127,131, 143 misappropriation of funds .... 38

D Discretionary Trust interest of beneficiary .... 53, 78, 119, 123, 124, 134, 139 Duties of Trustee to act personally .... 143 compliance with terms of trust .... 6 to consider .... 24, 72, 110 exercise of .... 135, 144 fiduciary duties .. .. 65 impartiality .... 28, 49, 77, 86 to insure ... 106 to preserve trust property .... 15, 3 7, 47,62,64, 100,106,126,142 to properly invest trust property .... 15, 37, 47, 62, 100

C Certainty intention .. .. 3, 7, 9, 33, 41, 73, 74,93, 104,137,138,140 object .... 11, 29, 40, 56, 58, 91 subject .... 68, 93 Charitable Trust beneficial purpose .... 57, 69, 112, 129 charitable intention .... 8, 85 educational advancement .... 66, 75, 83, 103 enforcement of .... 16, 108 meaning of 'charitable' at law .... 34 mixed purpose .. .. 91 public benefit .... 25, 42, 57, 95, 103,117,122,133 relief of aged, impotent and poor persons .... 42, 79 religious purpose .... 32, 80 validity .. .. 35, 117

E Express Trust construction .... 45, 60, 119 creation of .... 51, 68, 105, 111 express intent to create .. .. 2, 9, 13,33,41, 74,93, 104,137,138 validity .... 40, 51, 56, 68, 118

p Power of Appointment exercise of .... 4, 11, 22, 23, 24, 58, 63, 72,88, 110,136 testamentary .. .. 1, 67, 84, 98, 132 Powers of Trustee advancement .... 109 discretionary .... 6, 82, 110, 124 exercise of .. .. 89, 126, 135

Constructive Trust accessory liability .... 36 breach of fiduciary duty .... 18, 76

100

operation of law .... 19, 115 recipient liability .. .. 18, 48 remedial .. .. 16, 17, 27, 92

101

LexisNexis Case Summaries

T

Purpose Trust charitable see Charitable Trust mixed purpose .... 91 non-charitable purpose .. .. 7, 10, 40,56 political purposes .... 10, 25, 95

Tracing asset .... 101, 107 mixed funds .... 21, 46, 52, 59, 71, 101, 121, 128 third party volunteer .... 20, 43

R

Trust breach of see Breach of Trust charitable see Charitable Trust express see Express Trust illegal .... 99 termination by beneficiary ... . 134 variation .... 6, 81

Resulting Trust common intention .... 2, 26, 39 presumption of advancement ... 44, 94,99 surplus funds .... 22, 54 unequal contributions .. .. 26 validity ... . 141 Rights of Beneficiary access to information .. .. 116 extinguish the trust .... 87, 112, 120, 123 tracing .... 14, 46, 52, 107, 121

Trustee appointment of .. . 4 duties see Duties of Trustee indemnity from liability .... 12, 70 liability of .... 5, 38, 114, 130, 131, 143 powers see Powers of Trustee relief from liability .... 5, 96, 125 rights see Rights of Trustee

Rights of Trustee contribution .... 31, 55 impound beneficiaries interest .... 50 indemnity .... 30, 61, 70, 97,113, 125

s

Trust Property classification of .... 102

Statute of Frauds effect of .... 19, 115

References are to case numbers

102