Incorporated Council of Law Reporting of the State of Queensland v Federal Tax Commissioner (1971) – in relation to the fourth of the above heads the court needs to be satisfied that the purpose is both of benefit to the community and falls within the spirit and intendment of the preamble.
Leahy v Attorney-General (NSW) (1959) – at general law trusts with mixed charitable and non-charitable purposes are void. However, legislation has been introduced to save such trusts. S69A of the Trustee Act 1936 (SA).
Gilmour v Coats (1949) – public benefit refers to both the qualitative benefit and its public nature. It is also a question for the court to decide not the settlor.
Re Compton (1945) & Oppenheim v Tobacco Securities Trust (1951) – if the proposed charitable trust is dependent upon bloodline or employment at a certain company then it will fail. Although the dissenting judgment in the latter of these two cases suggested that a broader view should be taken that looks at the degree of benefit overall to the community as a whole.
Thompson v Federal Commissioner of Taxation (1959) – section of public is defined as any group that a member of a public could join if they chose to live in a particular area or adhere to a particular religion. An association that has power to admit or exclude on the basis of an arbitrary test is not section of the public.
Dingle v Turner (1972) – the requirement for public benefit does not apply to gifts for the relief of poverty.
Cy-Pres Scheme
A purpose as near as possible to the settlor’s intention will be imposed by the court where the initial purpose fails due to initial impossibility or impracticability.
Attorney-General (NSW) v Perpetual Trustee co (1940) – farming property left to be used for the rural training of orphan lads. However, the farmhouse was in a state of disrepair and no capital had been set aside for its maintenance. The court concluded that where as there was here the settlor had shown a general charitable intention then the court would impose a cy-pres scheme. The test is whether or not the impractical direction in the trust in indispensable or not.
Resulting Trust
Resulting trusts arise in 2 situations
- Where the beneficial interest in property has not been completely disposed of (automatic resulting trust)
- Where title to property is vested in another but it was intended that the beneficial interest would result back (presumed resulting trust)
Calverly v Green (1984) – where the legal ownership of property does not accurately reflect the direct contributions to the purchase of that property, it is presumed that a resulting trust arises in favour of the purchaser or purchasers in the proportions to which they contributed to the purchase money.
The presumption may be rebutted by the transferee proving that the transferor had a contrary intention, for example, by showing a gift or loan was intended, or by raising a presumption of advancement.
Presumption of advancement only arises in certain relationships.
Nelson v Nelson (1995) – parent to child or other loco parent situations and between husband and wife not vice versa and not between de facto partners (Calverly v Green)
In these specific relationships it is presumed that the transferred property was a gift for the transferee’s advancement and no resulting trust arises.
Calverly v Green -In quantifying a party’s interest in property under a resulting trust, the party’s contributions to the purchase price is the amount of money paid to the vendor and includes both deposit money, balance settlement money and the legal obligation to pay a mortgage. It does not include subsequent mortgage payment s or improvements to the property.
If there is nobody that the resulting trust can said to be in favour of then the unclaimed trust or portion of the trust would be vested in the crown under the doctrine of bona vacantia in regards to chattels that are trust property and escheat in regards to real property.
Constructive Trust
Constructive trusts arise by operation of the law and are imposed by the court irrespective of the intention of the parties.
Giumelli v Giumelli (1999) – As a proprietary remedy a constructive trust can be distinguished from the personal liability to account as trustee which, for example, may attach to a party assisting a dishonest trustee, and which sometimes also describes as a resulting trust.
An action based on estoppel may give rise to an order that the property be held on constructive trust. In some circumstance however a lesser order such as an equitable lien or compensation may be more appropriate.
Muschinski v Dodds (1986) – A remedial constructive trust will be imposed where it would be contrary to equitable principle for the legal owner to deny the beneficial interest claimed by another.
Muschinski v Dodds & Baumgartner v Baumgartner (1987) (per Mason Cj, Wilson and Deane JJ) – the equitable principle applied is that which restores to a party contributions which he or she has made to a joint endeavour that fails, when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.
Types of Contributions
Muschinski v Dodds & Baumgartner v Baumgartner (1987) (per Mason Cj, Wilson and Deane JJ), Dunne v Turner (1996) (QCA), Parij v Parij (1997) SASR, the contributions the court takes into account are both financial and non financial contributions, including ‘support, home making and family care’. Although the court will require there to be a connection between the non-financial contribution and the property in which the interest is claimed.
Third Parties
Muschinski v Dodds- the flexible nature of constructive trusts means that third parties rights may be protected by the court’s imposition of the trust from some specified date.
Legislation
Marital relationships are governed by the Family Law Act (1975) and relationships falling outside of this are governed by relevant legislation in each state; De Facto Relationships Act 1996 in South Australia. Equitable principles are still applicable where the relationship falls outside the scope of the relevant legislation. Furthermore, s10 (1) requires the court to make property adjustments that are just and equitable.
Duties of Trustee
- Duty to invest trust fund properly
- Duty to act gratuitously
- Duty of loyalty
- Duty to act personally
Fiduciary Relationships
There is no accepted definition of what constitutes a fiduciary relationship, yet it is commonly accepted that such a relationship will arise in circumstances where one person has undertaken to act for, or on behalf of, another person in a particular transaction.
This is distinguished from commercial relationships where parties deal at arms length and on an equal footing.
There are a number of relationships that are recognised by the courts as being fiduciary in nature; however, whether a fiduciary relationship exists in any given situation will always be a question of fact.
There are three situations in which certain legal obligations are required from fiduciaries.
- Where a fiduciary profits from his or her fiduciary office (profit from position)
- Where a fiduciary puts himself or herself in a situation where his or her duty to a client and self interests conflict (conflict of duty and interest)
- Where a fiduciary puts himself or herself in a situation where duty to one beneficiary and duty to another beneficiary conflict in relation to the same transaction. (conflict of duty and duty)
Is it Fiduciary?
The following are established categories of fiduciary relationships:
- Trustee/ Beneficiary
- Director to Company
- Lawyer to Client
- Agent to Principle
- Partner to Partner
There are also ad hoc relationships that are classified as fiduciary based upon analogical reasoning examples of these are:
- Joint Ventures
- Accountant/ Financial Advisor to Client
All of the above categories require the fiduciary to put the person to whom they owe the duty interests above their own. The exception to this is partner to partner and by analogy joint ventures where the interests of all the parties are equal.
Scope
Harris v Digital Pulse (2003) – scope is determined by what the fiduciary has undertaken in their relationship with the person to whom they owe the duty and can be found by looking at the nature of the relationship and the facts surrounding it.
Breach
Chan v Zachariah (1984) – if the fiduciary has breached any of the above three principle than they are liable account for any profit, gain or benefit acquired by taking advantage of the fiduciary position.
Defences to Breach of Fiduciary Duty
The only defence available to a person alleged to be in breach of their fiduciary duty is that they obtained the fully informed consent was obtained from the person the duty was owed too.
Remedies
Boardman v Phipps (1967) – liability is strict there is no defence of impossibility and there does not need to be any evidence of loss or detriment suffered, by the person to whom the duty is owed, to seek remedies.
Warman International v Dwyer (1995) – in seeking a remedy the plaintiff needs to elect to either pursue an account of profits or claim for damages they cannot get both. Also where an account of profits is ordered the court may discount from the amount awarded for any capital, skill or expertise contributed by the defendant.
Third Parties and Liability for Breach of Fiduciary Duties
A third party to a fiduciary relationship can become liable as if they also owed fiduciary obligations to the fiduciary’s principal. This can happen in three situations:
- Where the third party assumes a fiduciary office ( holds himself or herself out to be a fiduciary when he or she is not)
- Where a third party receives or deals with property derived form a breach of fiduciary duty
- Where a third party knowingly assists a fiduciary to commit a breach of fiduciary duty
Barnes v Addy – where somebody assumes a fiduciary office they will be held to account for any breach of the fiduciary duty as an actual fiduciary. If this is the case they and is referred to as a trustee de son tort. This situation can only occur with actual knowledge of the wrong doing by the third party.
In the second and third situations the degree of knowledge of the third party as to their wrong doing will be a key determinant in their guilt. The degree of knowledge between the two categories also varies.
Knowing Assistance and Knowing Receipt
The distinction between the two types of breaches has not be authoritatively decide in Australia. However in the UK it has been.
Baden’s case (1992) – the case enumerates the 5 levels of knowledge ranging from actual to constructive:
- Actual knowledge
- Willfully shutting one’s eyes to the obvious
- Willfully and recklessly failing to make such inquiries as an honest and reasonable person would make
- Knowledge of circumstances which would indicate the facts to an honest and reasonable person
- Knowledge of circumstances which would put an honest and reasonable person on inquiry
Consul Developments V DPC (1975) – although this case was decided before Baden the judgments of Gibbs and Stephen JJ have been interpreted as accepting the first 4 of the above categories.
Subsequently, in the UK Royal Brunei Airlines & Twinsectra v Yardley have altered this area of the law in the UK, altering the standard to one of dishonesty. In Australia this point has not been authoritatively decide upon either.
Other Equitable Frauds
Undue Influence
Relates to the quality of the consent or assent by the weaker party.
Union Bank of Australia v Whitelaw (1906) - Undue influence exists when a person in a position of influence over another improperly uses that position for that person’s or another’s benefit, so that acts of the subordinate person are not free and voluntary.
Johnson v Buttress (1936) – there are two classes of undue influence presumed and actual.
Presumed
- Parent child
- Solicitor and client
- Trustee and beneficiary
- Doctor and patient
- Spiritual advisor and flock
- Man and fiancée
Yerkey v Jones (1940) – if a debtor relies on a husband to obtain the guarantee for the debt from his wife and the debtor had no independent grounds for believing that the wife fully comprehended the transaction and freely entered into it then that transaction is liable to be set aside.
Garcia v National Australia Bank (1998) - The principle in Yerkey v Jones is applied by the High Court. Debtors are running a risk if they leave the gaining of surety over the loan up to the husband in the capacity of principle borrower. the transaction will be set aside in two different scenarios. One where the wife has knowledge but the husband exercises actual undue influence over her and two where she does not have knowledge of the nature of the transaction and the bank relies on the husband. In the second of these the court stated that it did not matter that it could not be proved that the husband undertook unconscionable conduct by the husband towards the wife.
Lloyds Bank Ltd v Bundy (1975) – needs to be a special relationship the elements of which are a reliance on guidance and advice, awareness of the reliance by the dominant party, a benefit being received by the advisor and some element of confidentiality in the relationship.
Zamet v Hyman (1961) – if there is a presumed relationship of undue influence the presumption can only be rebutted by proof by the defendant that the transaction was entered into ‘after full, free and informed thought’.
Actual
Requires proof of an express use of influence. This is based on the facts put before the court as in Johnson v Butress. Pursuant to that case it needs to be shown that there is influence and that it is used improperly to obtain a benefit, one example would be violence.
Louth v Diprose (1992) – man falls in love with woman and buys her a house. High court states that although this would not normally constitute undue influence the particular circumstances of the case dictated that the transaction should be set aside due to the fact manipulative and calculated manner in which the woman sought to take advantage of the infatuation. Also taken into account was the improvident nature of the transaction.
Third Parties
Bank of New South Wales v Rogers (1941) - Third parties can have transactions set aside if they have actual or constructive knowledge of a transaction containing undue influence of which they are beneficiaries.
Avon Finance v Bridger (1956) – if the party exerting undue influence is the agent of the person receiving the benefit than primary liability will attach to the principal.
Rebutting the Presumption
Adequacy of consideration
If the transaction was a sale at full value then generally no further proof will be required of the propriety of the transfer. Issacs J in Watkins v Coombes & Deane J in Amadio were under the view that such transactions could still be set aside. In Wright v Carter it was suggested that sometimes transactions are so evidently fair that independent advice is not necessary and that gifts will receive greater scrutiny.
If the consideration is superficial or inadequate it is therefore improvident and generally presence of consideration will be no defence. This was the case in Brusewitz v Brown (1923).
Independent Advice
There is no clear rule as to whether or not advice is needed or indeed whether or not it suffices as a defence but it does go along way to rebutting the presumption as long as it is independent and qualified advice.
Inche Noriah v Shaik Allie Bin Omar (1929) – independent advice in itself is not enough to rebut a presumed relationship of undue influence. It needs to be advice that would so completely satisfy the court that that the donor was acting independently free of nay influence of the donee.
Bester v Perpetual Trust (1970) – girl on advice of uncle his solicitor and an independent solicitor gives away her right to property. Independent lawyer did not adequately explain all of the girls options to her as she was not experienced in finance dealings. Court held presumption was not rebutted.
Misrepresentation
Rescission can be granted where on party makes a representation to another party that induces them to enter into a contract that later turns out to be false, this is true regardless of whether or not the misrepresentation was made innocently.
Equitable misrepresentation is different from the common law variety due to this element of innocence. At common law the party making the misrepresentation needed to have acted dishonestly.
Under the Trade Practices Act (1974) provision has been made to allow for the expansion of remedies available to the court for innocent misrepresentation. The Misrepresentation Act 1972 SA makes it a defence to a claim of misrepresentation that the defendant had reasonable ground for believing the misrepresentation was true or could not have been reasonably expected to know it was untrue.
Mistake
-
Unilateral Mistake – where one party is mistaken in regards to a fundamental matter of a contract ( usually the identity of a party, a term of the contract, or the nature of the document signed)
-
Mutual Mistake – where parties are at cross purposes ie A offers to sell his car to B. B accepts but they are mistaken as to what car, B thinks it is the Commodore and A the Camry.
-
Common Mistake – where both parties are under the same mistaken belief. For example, A offers to sell his horse to B, both believing it be alive when in fact it is not.
Estoppel
Equitable estoppel is different to common law varieties of estoppel as it relates to future and not present representations of fact.
Proprietary Estoppel
Where someone owning a piece of land induces someone else to act to their detriment in the belief they has some right in that land.
Giumelli v Giumelli (1999) – Orchard business. Son promised that he would be given a piece of land in return for not receiving wages in parents business. Parents fail to convey the land to him.
In their decision the court quoted from Dillwlyn v Llewelyn (1862) & Riches v Hodges (1985) ‘in these cases, the equity which founded the relief obtained was found in an assumption as to the future acquisition of ownership of property which had been induced by the representations upon which there had been detrimental reliance by the plaintiff. This is a well recognised variety of estoppel as recognised in equity and may found relief which requires the taking of active steps by the defendant.
Promissory Estoppel
Parties to a subsisting legal relationship (Contract, fiduciaries etc) enter into some course of negotiation or other conduct, whereby one gives the other an assurance that strict legal rights available under the contract will not be enforced. This was developed in the High Trees Case (1947) and taken up in Australia in Legione v Hateley (1983). It has since been overtaken by the development of equitable estoppel in Australia.
Equitable Estoppel
fusion of promissory and proprietary estoppel. The principle case in establishing this principle was Walton Stores v Maher (1988). Mahers under the impression Walton stores had entered into a contractual relationship with them. This belief was mistaken but known to Walton Stores who did nothing to rectify the acts that had led to this misbelieve. It was held that it was unconscionable for Walton Stores to wait until January to convey to the Mahers they had no intention of proceeding when they had known since December construction was taking place and had received the final paperwork from the Mahers in November.
The problem with Walton Stores is that although all the judges agreed on the result they came about it in a variety of ways. Although not authoritative Brennan J gives a useful list of what may constitute a case of equitable estoppel.
- the plaintiff assumed a particular relationship existed, or would come to exist, between the plaintiff a defendant;
- the defendant induced the plaintiff to adopt that assumption or expectation;
- the plaintiff acted or abstained from acting on the faith of the assumption or expectation;
- the defendant knew of the plaintiff’s action, or intended the plaintiff to act in such a way;
- the plaintiff’s action or inaction will cause him or her to suffer detriment if the assumption or expectation is not fulfilled; and
- the defendant has failed to act to avoid the detriment by fulfilling the expectation or otherwise.
In a succession of cases after Walton Stores the high court affirmed its decision in that case without ever fully putting to rest the ideas of predominantly Mason CJ and Deane J that there should be a unification of common law and equitable estoppel. Commonwelath v Verwayen (1990), Lorimer v State Bank of NSW (1991) (NSW), S & E Promotions v Tobin Bros (1994)- in this case the elements of equitable estoppel were applied systematically.
Estoppel Elements
Assumption or Representation- Legione v Hateley (1983) – the assumption must be clear and certain. However not all elements of any proposed transaction need to be fully set out Austotel v Franklin’s Self Service Stores (1989). The representation should also be unqualified RT & YE Falls Investments v NSW (2001) (NSW) if a representation is accompanied by a qualification that makes it clear a transaction may not be occurring then the claim will be dismissed.
Encouragement or Acquiescence- defendant must do something to encourage actively or passively the position the plaintiff has taken.
Reliance- the plaintiff must act in reliance of the assumption by acting or refraining to act Fitzwood v Unique Goal (2001) there can be no reliance if it can be shown that the plaintiff would have acted in the same way in the absence of a representation.
Detriment- it must be shown that there is some detriment on behalf of the plaintiff and in rectifying this the court looks for the detriment suffered by the plaintiff rather than the making good of the representation or expectation of the plaintiff.
Unconscionability- it is not enough to show that the plaintiff acted on an assumption induced by the defendant and that the plaintiff will suffer detriment because of this. It must be unconscionable in all the circumstance for the second party to insist on their strict legal right and deny the assumption. Ie Waltons was not unconscionable to not go ahead with contract in itself but the way they delayed it and generally went about it did make it unconscionable. Austotel v Franklin’s Self Service Stores (1989) – Unconscionability depends on the facts of the case. On appeal it was stated that although it can be unconscionable to not put in to affect agreements with uncertain terms this was not the case because both parties were commercial entities and had not agreed to these terms deliberately. Therefore equity would not put Franklin’s in the position that it would have been in but for its gambling.
Remedies
In equity there are a number of remedies available to those seeking relief. These remedies are at the discretion of the court and are usually given where common law damages would not be sufficient to undue the harm to the plaintiff.
-
Specific Performance – an order by the court directing a party under a contract to perform obligations due by a party under that contract.
-
Injunctions – an injunction is an order by the court compelling a party to either refrain from doing something (negative injunction) or to perform some positive act (mandatory injunction). They can be granted as final relief either alone or ancillary to some other relief and finally by way of interlocutory relief to protect the rights of a party pending the final outcome of litigation.
-
Declarations – an authoritative statement by the court of the law or of the rights of a party in some matter or the rights of certain parties. It is a form of final relief. Under the Supreme Court Act 1935 SA s 31 the courts can now grant a declaration even where it is not ancillary to another form of relief.
-
Equitable Compensation - Supreme Court Act 1935 SA s 30 allows courts to award damages in addition to or in lieu of the injunction and specific performance. In cases of restitution such as a breach of trust the trustee is obliged to put the trust in the same position as if the breach had not occurred. In assessing how much the defendant would be held liable for consideration of causation, remoteness and forseeability does not matter. It only matters to ask whether the breach caused the loss.
-
Rescission – allows a party to a contract to disaffirm a contract and return to their original position.
-
Restitution – equity will order specific restitution of chattels in any case in which damages at law would not be an adequate remedy.
-
Rectification – equity will allow rectification of documents which, by mistake, do not reflect the true agreement between the parties.
-
Account – court order for a party in breach to account for moneys and other property they received in breach of their obligations.
-
Delivery Up – where a document is void due to undue influence or unconscionable conduct the court may order the document be delivered up fro cancellation to remove the risk of further mischief.
-
Appointment of Receiver and Managers- court orders somebody, receiver, to recover the property on the behalf of another. If they are required to also manage certain property such as a business for the purpose of selling it then they are called a manager or manager and receiver.
