THE UNIVERSITY OF

NEW SOUTH WALES

FACULTY OF LAW

JURD7285 Equity and Trusts

END OF SEMESTER EXAMINATION Semester 2 2013

Time allowed: 2 hours, plus 10 minutes reading time

Examination condition: THIS IS AN OPEN BOOK EXAMINATION.

You are permitted to bring any printed or handwritten materials into
the examination room. You may also bring a calculator into the
examination room.

Total number of questions: 4

Value of questions: All questions are not of equal value. Question 1 is worth 40% of
the marks for this examination; Question 2 is worth 60% of the
marks for this examination.

Questions to be answered: You should choose ONE essay from Question 1 and choose
ONE problem from Question 2.

OTHER INSTRUCTIONS:

1. Your NAME and STUDENT ID should be written on the front of each exam booklet you use.
2. Your TEACHERS NAME and your CLASS DAYS AND TIME should be written at the top right
hand corner of each exam booklet you use.
3. Answers must be written in ink. Except where they are expressly required, pencils may be
used only for drawing, sketching or graphical work.
4. Answer each question in a separate booklet.
5. You may not retain the examination paper. Please return it together with your answer booklet
at the end of the examination.

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 QUESTION 1
Choose ONE of the essay topics below. This question is worth 40%.

Question 1(a):

Equity presumes everything against a wrongdoer. Discuss.

OR

Question 1(b):

Resulting trusts are express trusts found through relationships and conduct. Discuss.

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 QUESTION 2

Choose ONE of the problems below. This question is worth 60%.

Please answer this question in a separate booklet to Question 1.

Question 2(a):

Peter and Sarah are good friends and related by marriage. Sarah is a widow, having been married
to Peters brother John (John is now deceased). Peter is financially secure and has significant
savings at the bank but Sarah is struggling financially and indebted to her landlord for arrears of
rent. Eviction is imminent. Sarah has 4 children for whom she is the sole parent. All four children
are the children of the marriage between Sarah and John (deceased).

On 31 December 2011 Peter gives Sarah $50,000 in cash. Peter says little to Sarah as he hands
over the money other than This is for my nieces and nephews; it is what John would have wanted.
Please spend it carefully. Sarah is overwhelmed by Peters generosity, ashamed of her own
unfortunate circumstances and starts to cry. Peter is embarrassed by the display of emotion and,
knowing Sarah is very proud, further remarks in order to preserve Sarahs dignity: We will say no
more about this. Regard this money as a loan which will only be repaid if you can ever afford it.

Sarah immediately deposits the $50,000 cash into her current account at the bank (balance
currently zero) and while at the bank branch does a transfer of funds to the account of her landlord
to pay $2,000 for rent owing thus removing the risk of eviction by her landlord.

On 31 January 2012 the balance of Sarahs current account is $14,000. In addition to having spent
funds on arrears of rent, in January 2012 she paid 2013 school fees for the children in the amount
of $15,000, orthodontic consultations for 2 children total $2,000, and placed a deposit on a home
unit for $20,000 (contract price $200,000, contracts were exchanged on 30 January 2012, Sarah is
bound to complete the purchase on 15 March 2012). Sarah earned a total amount of $3,000 in
January comprising regular salary and her tax refund for the previous financial year. All funds
stand to the credit of her current bank account. The familys regular living expenses have all been
placed on Sarahs credit card, the debt for which on 31 January 2012 is $20,000. Sarah has not
made any repayments for months and has received a letter of final demand from the credit card
issuer. All but one of the credit cards have now been stopped.

On 5 February 2012 Sarah withdraws $1,000 cash and purchases shares in Big Bank Limited via a
stock broker. The share register records the owner of the shares as Sarah. Sarah also withdraws a
further $1,000 and transfers it to her friend Wai Fong who is an investment advisor. Wai Fong is
Sarahs best friend and knows her tragic family story. Wai Fong also knows Peter. Wai Fong
suggests to Sarah that Sarah should use the money to buy a time share in the Gold Coast. Wai
Fongs rationale for this decision is: It might be a good investment but in reality it is a way of
giving you a cheap holiday every year! The terms of the investment are that for an up-front
investment of $1,000 in Gold Coast Properties Pty Ltd each investor has the opportunity to spend a
week at a resort managed by that company at reduced rates for a nominated week each year and in
return also gets a return from Gold Coast Properties Pty Ltd. The rates of return will vary
according to company performance.

Sarah also withdraws $2000 which she spends on designer clothes and another $2000 is spent on a
family holiday to New Zealand.

All remaining funds are used towards stamp duty on the home unit purchase. Sarah manages to
secure a loan from Dodgy Bank Limited and the purchase is completed on 15 March 2012. Sarah
is recorded as the registered proprietor. On 17 March 2012 Gold Coast Properties Pty Ltd is

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declared insolvent although the share price of Big Bank Limited has risen so that Sarahs shares
are now worth $1300. On 30 March 2012 Sarah has received no dividend from Big Bank Limited
nor any investment return from Gold Coast Properties Pty Ltd. Sarah is struggling to make the
mortgage repayments on her home unit, in which the family now live.

On 30 March 2012 Sarah contacts Peter to ask for further financial assistance. He is furious,
shouting: What have you done? I gave you this money for the children. Peter is overwhelmed by
grief at the loss of his brother and the parlous state of Sarahs affairs and takes no legal action until
1 February 2013 by which time Sarahs home unit has increased in value to $400,000.

Advise Peter, Sarah and Wai Fong.

OR

Question 2(b):

George is employed by Tree Planting Pty Ltd (TPPL), a garden maintenance and tree surgery
company. TPPL is owned by Janet Lyons. TPPL has built up a large clientele including many local
councils and electricity supply companies who use TPPL to keep tree populations in good order
including height control, cutting off dead or diseased branches and planting new stock. George is a
highly skilled tree surgeon and Janet has come to rely on him to do the trickiest maintenance jobs.

Janet is also the trustee of a trust created by Janets father Solomon. The trust was created by a
deed executed by Solomon on 3 January 2009 in which he declared:

1. I give $100,000 to daughter Janet to be held as trustee for herself and her children
Charles and Steven.

2. On Janets death, the balance of the fund is to be divided equally between those of her
children still living.

At the date of execution of the deed, Charles is 12 years and Steven is 13 years old.

Simultaneously with his execution of this deed, Solomon transferred to Janet on 3 January 2009
$100,000 which she deposited in an account held with Bank of Australia Limited held in the name
of Janet Lyons (trustee). Janet also keeps her business account for TPPL (a current account) with
Bank of Australia Limited.

George has for some time been thinking of opening his own business. Although he is a skilled tree
surgeon, he doesnt possess much business acumen. In addition, his relationship with Janet has
become difficult of late and the two have had a disagreement about his remuneration. George has
asked for a pay rise which Janet has declined remarking: Im sorry George. TPPL simply cant
afford to pay you more at the moment. Lets review your pay in 3 months time. George does not
want to wait for 3 months and on 31 January 2011 he resigns from TPPL. He is owed 2 weeks
annual leave (his notice period) so leaves immediately.

On 1 July 2011 Janet is perturbed to discover an advertisement in the local newspaper for Jungle
George Tree Surgeon. George has opened his own business in competition with Janet. It turns
out that in the last weeks of his employment for TPPL he contacted many TPPL clients and
persuaded them to follow him to his new venture Jungle George. In the 5 months since he left

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TPPL and commenced Jungle George, George has worked hard and expanded into garden design
as well as the maintenance aspects.

On 1 December 2011 TPPL is experiencing a serious cash flow crisis and its account with Bank of
Australia Limited has run into overdraft. In part because of the loss of clients to Jungle George,
there has been a downturn in the business at TPPL and Janet decides to borrow funds from the
family trust and withdraws $25,000 from the account held with Bank of Australia Limited held in
the name of Janet Lyons (trustee). Janet immediately deposits $25,000 into TPPLs account with
Bank of Australia Limited. Janet is the only authorised signatory to both accounts and transacts all
business personally at her local bank branch. Following these transactions, the balances standing
to the credit of the accounts is as follows:

1. Janet Lyons (trustee). $55,000

2. TPPL $10,000, prior to the deposit of $25,000 the account having been overdrawn in the
amount of $15,000.

On 15 December 2011 TPPL pays suppliers $5,000 and makes the final $5,000 payment on tree
lopping equipment. Despite knowing about Georges new business venture since 1 July 2011,
Janet does not commence legal action until 1 July 2012 by which time Jungle George has attracted
80% of TPPL clients.

Advise Janet, TPPL, George and Bank of Australia.

END OF EXAM PAPER

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