EQUITY & TRUSTS (70516) – Autumn 2003



INTRODUCTION TO TRUSTS

1. DEFINITION & HISTORY OF TRUSTS

Definition:

A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) either for the benefit of persons (who are called the beneficiaries or cestuis que trust) of whom he may himself be one, and any one of whom may enforce the obligation, or for a charitable purpose, which may be enforced at the instance of the Attorney General, or for some other purpose permitted by law though unenforceable (Philip H. Pettit, Equity & the Law of Trusts, 7th ed. 1993, p.23).

• Trustee – has L title over Prop

• Ben – has E interest in Prop

History:

• 13th C (feudal times)

o Practice of conveying land to “feoffees to use” (“trustees”) to be held by them “to the use of the cestui que” (“beneficiaries”)

o Used to get around succession laws (Primogeniture meant that 1st born gets all Prop and other children gets nothing – to make sure ALL children get it, used trust) and taxes.

o Ben held NO estate – only binding in honour.

• 15th C:

o Chancellor began enforcing obligation on conscience of T (Ben’s right treated as estate on land)

o King tried to get taxes – on any trust uses: Statute of Uses 1535 – operated to execute the use so that the cestui que became seised of a legal estate equivalent to the estate held under the use

• 16/17th C:

o To avoid tax again – made trusts on trusts

o Lord Nottingham LC (1673) eventually enforced a second use (“trust”) and his decisions established the Trust along modern lines: Cook v. Fountain (1676)

The Four Indicia – Essential Elements of Trusts:

o Applies to all 3 types of trust.

• legal or equitable title vested in Trustee;

• that equitable / fiduciary obligation relates to the Trust property held by trustee

• there must be a cestui que trust or beneficiary

• the obligation is annexed to the property; i.e., breach attracts proprietary remedies

2. CLASSIFICATION OF TRUSTS

1) Express Trusts

o Definition: trust set up in way that EXPRESSES INTENTION of settlor either to

o Private individuals (eg. Children) ( private express trust; or

o Benefit charitable cause ( public express trust.

o To create trust, T either:

o Declares himself as Trustee (keeps L title); or

o Transfers to Trustee (via assignment – subject to assignment rules)

o Intention is considered by reference to the “3 certainties”:

- intention;

• word “trust” doesn’t need to be used and doesn’t itself prove intention: Commissioner of Stamp Duties v. Jolliffe (1920) 28 CLR 178

- subject matter – identifiable, tangible

- object – identifiable Ben: Knight v. Knight (1840) 49 ER 58; Re Williams [1897] 2 Ch 12

o If fail the above ( change to Resulting Trust

2) Resulting Trusts

(a) automatic resulting trust;

o Automatically fills what would otherwise be a gap in Ben ownership.

o Example: in will, gift is denied or express trust fails ( reverts back to T under Automatic Resulting Trust.

(b) presumed resulting trust

o Example: A give B money to buy Prop in B’s name. In absence of expression of A’s intention – B will hold Prop on trust for A.

3) Constructive Trusts

o Discussion: created or just remedy.

o Arises by operation of law (no need for intention)

o Usually independent of wishes of parties – imposed as remedy eg. Breach of fid duty

o 3rd party liability – will be held on Con T.

Other minor classifications of Trusts:

Simple (“bare”) Trust: Herdegen v. FCT (1988) 84 ALR 271, at 281-2

Remedial Trusts: (e.g., Constructive Trust imposed for breach of Fiduciary duty).

3. DISTINCTION BETWEEN TRUSTS AND OTHER LEGAL RELATIONSHIPS

i) Trust – Fiduciary obligation:

• SIM: to act in best interests of Ben/Principle (trust IS a fid rel)

• DIFF: Not every fid rel is a Trust – wide variety.

• Re International Vending Machines Pty Ltd [1962] NSWR 1408 per Jacobs J:

• Distinction between comp director and T.

• T – obliged, primarily, to keep T Prop safe.

• Comp director – commercial man and any duty re dealings with prop on behalf of comp, is looked at in regards to his position in commerce.

• Thus: tests of prudence are different.

ii) Trustee – Executor:

• SIM: Executor is like a Trustee. Both fid rels.

• DIFF:

o Trustee – only has L title (not E).

o Exec has L/E (during admin), then may become Trustee (after probate): Commr of Stamp Duties (Qld) v. Livingston [1965] AC 694

iii) Trust – Bailment:

• DIFF: bailment does not create a T.

o Bailee (L) – only has possession (no title), can’t pass interest to someone else, is enforceable by Bailor, only apply to tangible prop.

o Trustee (E) – Settlor cannot enforce, only Ben, apply to any prop.

iv) Trustee – legal Mortgagee:

• SIM: Mgee and both have L title.

• DIFF:

o Mgee can purchase Prop, holds EOR, has security interest.

o T cannot purchase and doesn’t have E interest (only holds for Ben).

v) Trust – Agency:

• DIFF:

o Agency – contractual rel (often treated as fid rel). Arises when A has express/implied authority to act for Princ.

o Trust – E rel.

• ISSUE: Is Agent in sale of goods (SOG) a T for the proceeds of SOG? (accountable in contract AND in E too?)

Palette Shoes P/L (in liq) v. Krohn (1937) 58 CLR 1 at 30, per Dixon J

• In E, Agency – duty to account AND, if monies received during Agency, to hold for Principal (auto Con T).

CF: Walker v. Corboy (1990) NSWCA:

• Trust may be normal result for SOG BUT not universal – Ct must look at intention and all facts.

vi) Trust – Debt

• DIFF: Debtor – CL duty to repay money to Creditor, but is NOT a T for the creditor: Cohen v. Cohen (1929) 42 CLR 91

o Insolvency example: comp has no money to pay debt. Any unsecured Creditor must lodge proof of debt to receive rateable contribution of bankrupt estate. ANY TRUST PROP in bankrupt estate is EXEMPT from bankruptcy.

o THUS: important to distinguish Trust/Debt.

Re Kayford [1975] 1 All ER 604

• FACT: mail order comp. Any cheques paid into separate accn (not main accn). Only move there once goods dispatched. Liquidation – cheques in separate accn (undelivered prop) ( Trust Prop (not their’s wholly yet) ( not subject tot bankruptcy.

• HELD: Trust prop – sufficient interest to create T manifested (3 certainties).

Barclays Bank Ltd v. Quistclose Investments [1970] AC 567

• FACT: similar to Re Kayford

• HOL: if purpose not satisfied (undelivered) ( will NOT form part of bankrupt estate.

• NOTE: trust/debt NOT mutually exclusive (can be either depending on construction).

Carreras Rothmans Ltd v. Freeman Mathews Treasure Ltd [1985] Ch 207

• FACT: C (debtor) to F. Discharge debt to F on terms that F hold on Trust for F’s Creditor (as nominated by C).

• HELD: Trust enforceable by Debtor even if F wind up.

vii) T – Gift subject to equitable Charge:

• Equitable charge: Testator devises Prop to A, then charge Prop – to pay T’s debt etc.

o NOT a T – A has no personal obligation to hold Prop for benefit of another.

o E interest goes to person that it is charged for (similar to Ben), but it is only a security interest (not E ownership).

o If A pay off charge ( Prop is then beneficially theirs.

o Remedy: in E, sell Prop and get payment out of proceeds.

• Trust:

o Remedy: performance of T.

• King v. Denison (1813) 1 Ves & B 260:

o If devise to A for particular purpose, but not just for that purpose ( gives ben interest subject to particular purpose ( rest, after purpose, goes to A.

o If devise to A for particular purpose and nothing more ( no intention to give ben interest ( rest, after purpose, goes to heir.

viii) T – Gift subject to a Condition:

• Prop given on condition that A pay B $X or undertake some other obligation to B ( no T.

o DIFF: personal obligation of A is not annexed to Prop. B cannot exercise any rights against Prop.

• Condition precedent:

o Prevent A from taking Prop until condition fulfilled

Re Turton [1626] Ch 96

Re Wolffe [1953] 1 WLR 1211

o Condition subsequent

o Prop is forfeited if not performed.

Egerton v. Earl Brownlow (1853) 4 HL Cas 1

• If condition is for A to pay B $X ( more likely to be T or equitable charge.

o Reason: if condition and A fail, B would also lose benefit: Re Oliver (1890) 62 LT 533

• Example: Re Gardiner [1971] 2 NSWLR 494: Provision “I give devise and bequeath all my estate both real and personal unto my son Ivor…subject to my said son paying the sum of $1000 within 2 years of my death to my son Albert”.

o HELD: condition. Non payment ( Ivor forfeited interest.

ix) T – gift subject to a equitable personal obligation

o Gift with condition that relates to enjoyment of Prop after acceptance eg. A has personal e obligation to pay B (personal e obligation coupled with charge)

o B can directly enforce A in E – personal right against A

o B has no rights in rem – against prop (unlike Ben/chargee)

o B is not left without remedy when condition fails (unlike JUST condition)

Muschinski v. Dodds (1985) 160 CLR 583

o FACT: M/D have RP as TIC. Fall out – D seek sale in ½ equal shares. M claim absolute Ben owner – D on Trust for her. M entire purchase price (25,000). D promise to improve house and run business in house with M (2,500).

o MIN (Brennen):

o Brennen:

▪ D got L interest in Prop as result of promise ( so bound by personal E obligation to comp M for failed promise.

▪ Personal E obligation is NOT prop right (cannot use CT) then.

▪ M could have pursued personal E obligation claim.

o Gill v. Gill (1921) 21 SR (NSW) 400:

o FACT: farm devised to son “on condition that he keep the homestead as home and provide board and residence for his sisters...and that he shall pay all my funeral, medical and testamentary expenses, as well as all my debts not otherwise provided for”

o Harvey J: not JUST condition (no forfeiture if condition fail) and no T.

▪ Distinction between true conditions (merely operate to divest an estate) and conditions for benefits of 3rd parties attached to possession of prop.

▪ Latter – quasi contractual rel is created ( obliged to carry out condition as if he was contracted to do so.

▪ THUS: condition enforced by personal action (for comp) AND against prop ( both personal E oblig and charge.

o Re Hodge [1940] Ch 260:

o FACT: Devise to H (executor and legatee) Prop in consideration of him paying W’s sister 2pd a week for life. Condition introduced by words “in consideration of”.

o HELD: personal E oblig – little diff between “in consideration of” and “subject to”

o Re Lester [1942] Ch 324; [1942] 1 All ER 646

o FACT: bequeat certain shares in limited liability comp to Son1 on condition he pay weekly sums to Son2. Son1 legatee of shares. Personal E oblig with charge, or just personal E oblig?

o HELD: just personal E oblig.

▪ Matter of construction of each case.

▪ If no reference to legatee as person by whom payment is made (prop just given subject to payment of certain sum) ( no personal oblig on legatee.

x) Trust and Powers of Appointment

o Power: auth to take step to affect rights/obligations.

o Settlor (donor) vest A (donee) with power to appoint Prop (subject) to 3rd parties (objects).

o Diff:

o T is imperative. No T if no Prop vested in T.

o P is permissive. No need for Dee to have title to Prop. Auth to deal with Prop is sufficient.

Re the Will of McCraken; Webb v. McCraken (1906) 3 CLR 1018

o R & I Bank of Western Australia Ltd v. Anchorage Investments P/L (1992) 10 WAR 59 at 81, per Owen J:

1. general powers:

o Allows Dor to exercise in favour of any person, including Dee. Indistinguishable from ownership and no parties that E can intervene on behalf of.

2. special powers:

o 3rd parties (objects) are a limited class. Need to determine if bare power or trust power.

3. hybrid powers:

Re Manisty’s Settlement [1974] Ch 17

4. intermediate powers:

o Can appoint to all of the world except some excluded class: Re Manisty’s Settlement [1974] Ch 17 – normally a bare power.

NATURE OF POWERS:

Re Leek Dec’d [1967] 2 All ER 1160; [1968] 1 All ER 793

• BP: T may/may not exercise power to select. No obligation to select anyone.

• TP: obliged to choose Ben out of class, but discretion as to who. Ben can demand selection, but not of himself.

Gartside v. IRC [1968] AC 553:

• TP Ben have better rights than BP Ben – right to be considered by T, right to compel T to exercise power properly.

Hourigan v. Trustees Executors and Agency Co Ltd (1934) 51 CLR 619

• Identify power as either BP or TP ( matter of constructions.

4. INFERRING THE TRUST

• ISSUE: how do Cts determine the 3 certainties?

Re Kayford [1975] 1 All ER 604

Paul v. Constance [1977] 1 All ER 195

Rules of construction used by courts:

(i) precatory words

• Words indicating hope/expectation that certain things occur.

• Not necessary to use word “trust”

(ii) failure to comply with formalities of Transfer:

Jones v. Lock (1865) LR 1 Ch 25

(iii) contract to benefit third parties:

• May infer from contract.

• Ct is wary of importing E principles into contract.

Re Schebsman [1944] Eng CA

Wilson v. Darling Island Stevedoring (1956) 95 CLR 43

Trident General v. McNiece Bros (1987) 8 NSWLR 270; (1988) 165 CLR 107

Bahr v. Nicolay (No 2) (1988) 164 CLR 605

Winterton Constructions v. Hambros (1991) 101 ALR 363

(iv) promise to create a Trust

Fletcher v. Fletcher (1844) 4 Hare 67 Chancery Division

Part B

• CAPACITY TO BE TRUSTEE

• APPOINTMENT & REMOVAL OF TRUSTEES

• RIGHTS, DUTIES & POWERS, LIABILITY OF TRUSTEES

• RIGHTS OF BENEFICIARIES

1. CAPACITY TO BE A TRUSTEE

• Any person capable of hlding Prop in own right (of legal age/mind).

• May be a corp: A-G v. Landerfield (1744) 9 Mod 286; 88 ER 456, per Lord Hardwick

• Provided it has power to be Trustee (look at Memorandum of Association): Re Thomson’s Settlements; Thompson v. Alexander [1905] 1 Ch 229

IF T cannot legally hold it, does not necessarily invalidate T: Sonley v. Clockmakers’ Co (1780) 1 Bro CC 81; 28 ER 998:

Trustee Companies (Amendment) Act 1964 (NSW):

• set up T Comps to act as Exec, Admin, Trustees for a fee.

• Regulated by:

o Public Trustee Act 1913 (NSW)

o Trustee Act 1925 (NSW)

o Conveyancing Act 1919 (NSW)

2. APPOINTMENT, RETIREMENT & REMOVAL OF TRUSTEES

• Once est CAPACITY – look at this.

A. APPOINTMENT

Original Trustee

s. 5 Trustee Act 1925 (NSW): by being specially appointed in Trust instrument + if they accept.

Soar v. Ashwell [1893] 2 QB 390; Perpetual Trustee Co Ltd v. Thomas (1903) 3 SR (NSW) 277:

• If person starts acting like Trustee – become Trustee (without appointment) by own fault/action.

• Will be subject to same liabilities of any express Trustee

No Trustee

• Lack of Trustee will not always fail – Ct try to give effect to Settlor’s intention.

• If Trustee fail to act, die etc – Ct will appoint a T if all other things were done properly: A-G v. Downing (1767) Wilm 1; 97 ER 1

Appointment of new Trustees

NT – anyone appointed subsequent to OT.

(i) Appointment in accordance with provisions made in the Trust instrument

• Primary importance – power to make NT.

• Settlor may provide spec person to appoint NT when necessary.

(ii) Appointment under Statutory power

• Only if T instrument is silent.

s. 6(4) Trustee Act 1925 (NSW): certain persons have power to appoint NT when expedient (eg. Ct)

Refusal to act / Disclaimer:

9 Trigger appointment of NT.

Re Birchall; Birchall v. Ashton (1889) 40 Ch D 436

o FACT: OT not act for several years ( Ct appoint NT.

Re Lord and Fullerton’s Contracts [1896] 1 Ch 228:

o If disclaim, must disclaim totally or remain a T to all – partial disclaimer not possible.

Mode of appointing a new Trustee

s. 6(1) Trustee Act 1925: must be recorded by reg Deed.

Number of new Trustees

o Depend on T instrument terms.

Additional Trustees

s. 7 Trustee Act 1925 (NSW): Ct can appoint even if not in T instrument.

Powers of new Trustees

s. 6 Trustee Act 1925 (NSW): same as OT.

Costs & Reimbursements

s. 59(4) Trustee Act 1925 (NSW):

o T may reimburse (or pay out of T Prop) monies incurred in execution of T powers.

Harvey v. Olliver (1887) 57 LT 239:

o Allowed: costs paid to past Ts to settle their costs before transfer made, costs of getting transfer of T prop, costs of examination by NT of what T Prop consisted of, costs of the Dee of a Power of Appointment in connection with appointment.

Re Raybould [1900] 1 Ch 199:

o FACT: T do colliery bus as part of T estate. In bus, caused damage to neighbour land and buildings.

o HELD: T’s personal liability in damages covered by T costs.

Vacuum Oil Co P/L/ v. Wiltshire [1945] 72 CLR 319

o Includes expenses all properly incurred (eg. all damage/liabilities, cost of taking D to Ct).

(iii) Appointment by Court

• Inherent E jurisdictional powers (to remedy if breach).

• Miller v. Cameron (1936) 54 CLR 572 per Dixon J at 580-1:

o FACT: tried to appoint infant as T.

o Ct general juris – where expedient to appoint, regard to Ben interest, security of T Prop, faithful execution of T terms.

s. 70 Trustee Act 1925 (NSW)

a) Persons appointed by Court

Re Tempest (1866) LR 1 Ch App 485:

• FACT: Ct refuse to appoint A nominated by SOME members of Testator’s family. A specifically excluded by Settlor from being Trustee.

• HELD: will not appoint a controversial Trustee

o Regard to Settlor.

o Even though nominated – not by ALL family.

b) Vesting of property in new Trustees (appointed by Court)

B. ACCEPTANCE & DISCLAIMER OF TRUST

Acceptance

• Must accept to receive Prop and assume office.

• Can be express/implied + any conduct inconsistent with disclaimer: Montford v. Cadogan (1816) 34 ER 651 at 652 per Lord Eldon LC

• If Prop is transferred to NT (who does not know) – NT has right to refuse (not liable).

Disclaimer:

• Refuse – usually by Deed, orally, conduct

• Does not affect Trust – will just vest in Ts who consent to act, or settlor, or settlor’s personal representatives, until NT is appointed: Mallot v. Wilson [1903] 2 Ch 494

C. CEASING TO BE A TRUSTEE

1) Death of a Trustee

• Trustee office does NOT devolve on his legal rep (not inherited by successors): Re Crunden and Meux’s Contract [1909] 1 Ch 690

A sole / last surviving Trustee

o Office vacant ( look a procedure for making NT.

a) Surviving co-Trustee/s

o Can still exercise powers unless contrary intention in T instrument.

➢ s. 57 Trustee Act 1925 (NSW)

2) Retirement of Trustees

A Trustee who has not disclaimed the Trusts cannot retire from the office unless:

a) Trust instrument provides for retirement in clause

• If so – T instrument is strictly construed.

General Investment P/L v. Tyson [1967] Tas SR 96: T empower T to retire at any time without any reason or cost. Held to be right to demand Ben to make arrangement for NT and transfer T’s prop rights to NT.

b) Retirement on the appointment of new T out of court (stat power)

b) Retirement out of court without the appointment of new T

• s. 8 Trustee Act 1925 (NSW): 4 conditions: consent of continuing Ts, minimum no of Ts maintained…

c) Retirement by Court (inherent juris)

• Apply to Ct if stat power fail, fail stat criteria or if no provision.

• May put Trustee to costs for retirement: Re Eggleston [1940] VLR 474

3) Removal of Trustees

A Trustee may be removed from the office in the following circumstances:

a) Pursuant to an express power contained in the T instrument

b) Pursuant to Statutory powers for appointing new trustees out of court (if expedient)

c) By the court pursuant to the statutory power

d) By the Court, pursuant to the Court’s inherent jurisdiction

• Only if positive misconduct/abuse, dishonesty, endangered Prop, living permanently overseas, impedes other Ts.

Letterstedt v. Broers (1884) 9 App Cas 371:

o Friction/hostility with Ben (not reason itself)

o But if it impacts neg/adversely on Trust and becomes detrimental on Trust.

Guazzini v. Patterson (1918) 18 SR (NSW) 275 at 294 per Street CJ in Equity

o Consider what is in best interest of Trust as whole.

A-G v. Murdoch (1856) 2 K & J 571 at 573; 69 ER 910 at 911 per Wood V-C

o When removed – not entitled to his cost + may be ordered to pay ALL costs of removal.

4) Complete/fully execute Trust

o Extinguishes Trust eg. Ben demand Transfer (L/E title) to become absolute owner.

3. DUTIES, POWERS & DISCRETIONS, RIGHTS & LIABILITIES OF A TRUSTEE

A. DUTIES of Trustee

• 2 types: express (in T doc) or generally impled by law (eg. Bound to comply with T).

(i) Duties

MG Jacob’s Law of Trusts 6th ed. (1997), Ch. 17:

- To acquaint with terms of T

➢ Be aware of terms, documents, deeds relating to T Prop; Hallows v. Lloyd (1888) 39 Ch D 686

➢ Nature/circumstances of T Prop & obligations: Harvey v. Olliver (1887)

➢ Full/exact knowledge – forgetting is not excuse: Turner v. Turner [1983] 2 All ER 745;

➢ Nestle v. National Westminster Bank [1994] 1 All ER 118: 50yrs, T never understand clause. Didn’t review or seek advice to understand ( breach, even though didn’t result in loss.

- Not to impeach the validity of the T instrument or the title of Beneficiary

➢ Once T office accepted ( cannot challenge the T: McGregor v. McGregor [1919] NZLR 286

- To strictly adhere and carry out T terms

➢ This is subject to contrary stat or Ct order.

➢ Must look at all things great and small, important and seemingly unimportant: A-G v. Downing (1767) Wilm 1; 97 ER 1

➢ If T finds it necessary/beneficial to deviate, apply to Ct.

- Ct’s power to authorize deviations:

• Inherent jurisdiction: Re New [1901] 2 Ch 534;

• s. 81 Trustee Act 1925 (NSW) (more extensive)

- To act impartially between the Bens

➢ Means perfect impartiality: Knox v. McKinnon (1888) 13 App Cas 753

➢ But this is considered in the light of the circumstances at the time of act (a bit lenient)

- Properly to invest the T funds

➢ cf. s. 14 Trustee Act 1925 NSW

- To keep/ render proper accounts, give full info when required by Ben (transparency)

➢ S.51 Trustee Act 1925 (NSW)

- To exercise reasonable care

➢ Test: in management of T business: exercise same diligence and prudence as “an ordinary prudent man of business would have exercised in conducting his own business”: Charitable Corporation v. Sutton (1742) 26 ER 642

- Not to delegate Powers or Duties

➢ Adams v. Clifton (1826) 1 Russ 297; 38 ER 115

➢ (cf. s. 53 Trustee Act 1925 (NSW)

➢ Exception: permitted by T instrument or stat. BUT cannot delegate discretion – only ministerial acts.

- To pay/transfer the T Prop and the income thereof to the right persons

➢ Prev: no excuse that T made BF mistake.

➢ Now: some protection to T (if follow particular procedure): Cf. Trustee Act 1925 (NSW) ss. 58, 60-1

- To act gratuitously (unless: term of T instrument, or agreement)

➢ No right to seek remuneration except for expenses/disbursements.

➢ Exceptions: to receive remuneration: if

• Expressly/impliedly provided for in the T instrument

• Special agreement between T & Beneficiaries

• Court allowed (inherent jurisdiction); s. 81 Trustee Act 1925 (NSW)

- Not to deal with T Prop for own benefit, profit directly/indirectly

➢ T must account for benefits received:

Regal Hasting v. Gulliver [1967] 2 AC 134 (n); [1942] 1 All ER 378

Boardman v. Phipps [1967] 2 AC 46

• Cannot purchase of T Prop

• Cannot buy either from himself or other Ts – even at auction, irrespective of fair price.

• Effect: void/voidable

• UNLESS Ct consent or all Bens assent or pursuant to powers of T.

• Purchase from Ben the beneficiary’s interest

• Transaction open to review:

• Onus on T:

- To prove full value; or

- Gift – Ben knew value of gift and T disclosed all info so Ben made an informed judgment.

(ii) Trustee

• Can depart from duty either by Ct order or directed by ALL Ben (suri juris + absolutely entitled to E interest).

• Fail duty ( Ct compel T to perform or do it themselves (eg. Remove/appoint NT)

(iii) Beneficiary

Right to injunction to restrain T from committing breach if reason to suspect so: Balls v. Strutt (1841) 1 Hare 146; 66 ER 984

(iv) Court

s. 85 Trustee Act 1925 (NSW)

• Stat juris to relieve T entirely/partly from consequences of breach IF T acted honestly, reasonable and ought to be fairly excused and omitted from costs.

(v) Duty or Power?

• Duty: compulsory

• Power: permissive and determine by terms of T.

B. POWERS of Trustee

Powers = acts which a Trustee may do if he thinks fit (active discretion)

• Auth derives from:

• expressly from instrument or

• implied by Statute/law (see s. 43-4 Trustee Act 1925 (NSW)

• E.g.:

• Power of maintenance (periodic payments to Bens if Prop settled and have no access to income): s. 43 Trustee Act

• Power of advancement (lump sum to Ben): s. 44 Trustee Act

• All T powers must be exercised in good faith: Molyneux v. Fletcher [1898] 1 QB 648

Breach of Trust in exercise of a Power:

Breach – fail to honestly exercise judgment re whether to exercise power: Partridge v. Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149

National Trustees Executors and Agency Co of Australasia v. Dwyer (1940) 63 CLR 1: T did not exercise power but NOT breach – had thought about it and decided NOT to.

• KEY: did T exercise discretion? If so, duty discharged – even if incorrect decision.

• Approved and applied in Parkes Management Ltd v. Perpetual Trustee Co Ltd [1977] ACLC 29,545 (NSWCA)

Regarding the Trustee’s proper exercise of a Power:

i) to “act honestly and in good faith”

• No distinction between the two: R v. Holl (1881) 7 QBD 575

• Mere carelessness or honest blundering does not breach: Jones v. Gordon (1877) 2 App Cas 616

(ii) to act “upon genuine consideration”

Partridge v. Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149

(iii) to exercise the power with due consideration for power’s purpose

• For that purpose and not some ulterior purpose: Re Pauling’s Settlement Trusts (no 1) [1964] Ch 303

Re Bryant [1894] 1 Ch 324: aftermath of decision (beneficial or prudent) is irrelevant so long as considered.

• Re Manisty’s Settlement [1973] Ch 17 at 26 per Templeman J: though irrelevant if action ultimately prudent, if result is grotesquely bad ( may be evidence of lack of due consideration.

• Re Londonderry’s Settlement [1965] Ch 918: irrelevant if Ct would exercise power in same way.

Examples of “scope”:

• Rowells v. Bebb [1900] 2 Ch 107:

o FACT: discretionary power to postpone conversion for such period as T shall seem expedient.

o HELD: did not mean that T could postpone (to prefer RM’s interest of LT’s) – still had to be evenhanded.

• Elders’ Trustee and Executor Co Ltd v. Higgins (1963) 113 CLR 426:

o FACT: T doing pastoral bus with “the fullest powers and discretions as to the mode of conducting my said business…and otherwise in relation thereto as if the T were the absolute owner therof.

o HELD: still had to exercise due diligence, care and prudent.

Bona fides / onus

• Aftermath does not matter – just if it was BF: Garrett v. Noble (1834) 6 Sim 504; 58 ER 683

• Presumption of BF. Onus on party challenging T’s actions: Gordon v. Australian and New Zealand Theatres Ltd (1940) 40 SR (NSW) 512

All Trustees to concur

• If 1+ T – must ALL actively concur on powers. Must be unanimous to be binding.

• BUT compromise with dissenting Ts may occur in certain circ: s. 49 Trustee Act 1925 (NSW)

C. DUTY COUPLED WITH A POWER

• Duty – compulsory.

• Power – usually limited to manner or time of exercise of duty.

5 Eg: T duty to sell RP with power as to HOW and WHEN to sell: Re Hammond (1903) 3 SR (NSW) 270

• Ct is not concerned with power, only duty

o If 1+ T and disagree over power – Ct will not interfere. Only concerned that duty performed.

o Eg: Power to pay annual income to H. Duty to hold it on Trust for 2 other Ben. Ts not agree as which to do. HELD: bound by duy to ultimately pay Ben (whilst they cannot decide): Re Allen-Meyrick’s Will Trusts [1966] 1 WLR 499

D. LIABILITY OF TRUSTEES

• Breach of duty by positive act or omission.

• Liability extends to all loss directly/indirectly caused: Elders Trustee and Executor Co Ltd v. EG Reeces P/L (1987) 78 ALR 193

• If Ben consent/acquiesce to breach ( cannot go to Ct for comp: Chillingworth v. Chambers [1896] 1 Ch 685

• If 1+ T, liability is joint/several:

o Eg. if 2 T run off ( 3rd T will not be 1/3 liable, but FULLY liable.

o Eg. if 1 T make good the loss – entitled to contribution from other Ts, unless that T caused breach by fraud.

4. RIGHTS OF BENEFICIARIES

A. TO POSSESSION OF THE TRUST PROPERTY

• Turner v. Noyes (1903) 20 WN (NSW) 266

- If bare trust (T has not active duty to perform, only those implied by law) + Ben suri juris + ONLY Ben + absolute E interest ( Ben entitled to possession and indicia of T Prop.

- If special trust (T has active duty)

➢ Eg. Manage T for successive Ben. Current Ben only have life interest (not absolute) ( may get possession if give security/undertaking for future Ben.

➢ Jenkins v. Milford (1820) 1 J & W 629; 37 ER 508: LT (Ben with life interest) allowed to possess Prop as long as they do Ct undertaking as to repairs of Prop.

B. TO COMPEL PERFORMANCE OF THE TRUST

• Personal right against T to compel duty – enjoyed by Ben with full and life interests: Bartlett v. Bartlett (1845) 4 Hare 631; 67 ER 800

Sharpe v. San Paulo Railway Co (1873) LR 8 Ch App 597: Ben cannot sue Debtor to T just on allegation that T not sue. Must sue T, then apply to sue in T’s name.

• Howden v. Yorkshire Miners’ association [1903] 1 KB 308; [1905] AC 256 HL: T of union refuse to take legal proceedings. 1 member of union could sue in own name and sue Ts as added Ds.

C. TO RESTRAIN BREACH OF TRUST (injunction)

Wylde v. A-G (1948) 78 CLR 224: Prop of Church of Eng to be admined for CoE Trust. Got injunction to stop Anglican Archbishop authorizing service/ceremonies in Prop.

• Scandrett v. Dowling (1992) 27 NSWLR 483: Anglican Church fail to get injunction to restrain Bishop from ordaining women as priests.

Fox v. Fox (1870) LR 11 Eq 142: injunction granted to stop T dividing estate contrary to T.

D. TO APPROACH COURT FOR DETERMINATION OF QUESTIONS OF CONSTRUCTION AND ADMINISTRATION

• Ben can approach Ct if confused.

McLean v. Burns Philp Trustee Co P/L (1985) 2 NSWLR 623, at 636 per Young J:

“if [the beneficiary] complains to the court about the administration of a trust, [the beneficiary] is, as a matter of course, entitled to the appropriate order, either to answer his question as to the construction of a trust instrument, or to settle a dispute as to the administration of the trust in whole or in part under the authority of the court, unless the court is satisfied that there is no question which requires its decision.”

• Cf. s. 63 Supreme Court Act 1970 (NSW): stat procedure of orig summons to ask q re construction.

E. TO EXTINGUISH THE TRUST

• Sole Ben (suri juris) can end T by directing T to transfer Prop to Ben (L interest). Unite with E interest ( full ownership: Saunders v. Vautier (1841) Cr & Ph 240; 49 ER 282

• If 1+ Ben ( all must agree.

• If Ben want to direct remaining Ts as to exercise power to appoint NT – must put end to T: Re Brockbank [1948] Ch 206

F. TO FOLLOW/TRACE THE TRUST PROPERTY

• Personal right may not get anything eg. T bankrupt.

• In rem right (prop right) – follow Prop to 3rd party or in other Prop: Boscawen v. Bajwa [1995] 4 All ER 769, at 776-7 Millett LJ

G. TO CLAIM IN PERSONAM AGAINST 3RD PARTY WHO HAS RECEIVED TRUST PROPERTY IN BREACH OF T

• 3rd party must have some requisite degree of knowledge – constructive Tship.

• Ministry of Health v. Simpson [1951] AC 251 – CON T

• Re Diplock’s Estate [1948] Ch 465 – CON T

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