TRUSTS

Basic Terms
 Trust
 Equitable obligation which binds legal owner of property (trustee) to deal with that
property (trust property) for benefit of others (beneficiaries)
 Separation of legal ownership (trustee) and equitable ownership (beneficiaries)
 Trusts act as buffer for settlor and beneficiaries against liabilities to outsiders arising
out of transactions with trust  trust insulates trust property from creditors of
individual beneficiary or creditors of settlor (protection from creditors)
 Trustee
 Legal titleholder of property who, under principles of equity, must deal with property in
best interests of beneficiaries (he/she may be one, but not sole beneficiary)
 Fiduciary who looks after beneficiary’s interests
 Settlor
 Creator of express/implied trust who transfers legal title to trustee and who establishes
trust conditions binding on trustee  original owner (legal and equitable ownership) of
assets now held in trust
 Beneficiary ("cestui que trust")
 Named person or class of persons in whose best interest trustee must act in dealing with
trust property
 Holder of "beneficial" or "equitable" title to trust property
 Protection because underage or incapacity (comatose etc.)
 Trust property  not available to secure creditors  good for overcoming bankruptcy
 Property of any type (tangible and intangible, real and personal, chose in possession or
chose in action, etc.) in which trustee has legal title and appreciation/accretions thereto.

 Equity overrides common law

Additional Terms relating to Trust

 Inter vivos trust  to take effect within lifetime of settlor
 Declaration of Trust  settlor declares trust effective during lifetime and settlor
becomes trustee  not appointed trustee yet, ‘I am going to hold this property for myself
as well as others’ (i.e. himself and his wife)
 Testamentary trust  takes effect only after death of settlor (or "testator") (by will).
 Fixed trust”  settlor gives specific instructions which must be obeyed with strict
compliance  where beneficiaries interests have been fixed – pay 2000 each year to all
my children 
 Discretionary trust  where trustee has discretion as to allocate income and/or assets -
each year for 10 years trustee shall allocate profits in his/her discretion among one,
several, or all of my children  i.e. for trustee company to decide which grandchildren
will gain access to trust
 Public/charitable trust  for benefit of society as a whole
 Private trust  for benefit of certain specified individuals
 Trading Trust  tax advantage by income splitting

Elements and Special Attributes of Trust

1. ‘Three Certainties’
a. Intent to create trust  not always required for constructive trust
b. Identity of trust property  if he wants to create trust for only some properties
 c. Identity of beneficiaries or class of beneficiaries  ‘grandchildren born already
(existing) and grandchildren that are born during my own children’s lifetime’
2. Separation of Legal and Equitable Ownership  if settlor becomes trustee and no
beneficiary, then no separation
 In trust, there is always variance (difference in identity) between holder of legal
common law title (trustee) and holder/s of equitable title (beneficiaries) of property
3. Trust has no separate legal personality
 Trustee personally liable for all dealings with trust property unless trust deed and/or
contracts with outsiders provide otherwise

Creation and Classification/types of Trusts

 Express trusts
 Where by a document in the form of a "deed" or by other writing, or by oral
representations, there is a clear "intent" that property to which one party has or gains
legal title should be held for the benefit of others. Creation may be by way of
settlement, declaration or by way of a will. An express trust is often created by a
document in the form of a "deed"
 Statute of Frauds 1677 (UK) (as received into Western Australia and other former
British colonies) provides that creation of an express trust over an interest in real
property may be unenforceable unless at least evidenced in writing ).
 In Western Australia, PLA 34(1)(a) and (b) are of the same general effect as Statute of
Frauds as to a trust over an interest in real property.
 Courts will not allow the formality requirements to be used as an instrument of fraud.
 Implied trusts
 Where intent to create a trust is not clearly and overtly stated, but the court will
presume (hence the alternative name of "presumptive trust") from the conduct of the
alleged settlor that a trust (a split between legal and equitable interest) was intended or
that the alleged settlor would have intended a trust had she or he contemplated the
circumstances that eventuated.
 Three situations
a. Implied actual intent - settlor intended someone other than legal title holder have
beneficial interest and a trust is the only way to accomplish the result intended by the
settlor.
b. Gratuitous provision of a substantial piece of property
 Calverley v Green (1984) 155 CLR 242 (High Court)
 Where the alleged settlor transfers legal common law title to substantial property to
a "stranger" (a third party with which has no close personal association) without
receiving any consideration; or (ii) in a purchase money situation, the alleged
settlor supplies all or part of the consideration for the purchase of property but
allows the entire legal common law title to be established in the name ofa stranger.
 There is a (weak) presumption in equity that the stranger holds all or part of the
property as a trustee for the benefit of the alleged settlor - unless circumstances
indicate otherwise (i.e., presumption is rebuttable)
 Implied trust won’t arise in ‘gratuitous property’ situation where ‘presumption of
advancement’ prevails  presumption that gift was intended
 “Presumption of advancement": when a person ("the first party") in certain
relationships (e.g., husband/wife, fiance', parent/child) gratuitously (without
consideration) provides some property interest to the other party in the relationship
("the second party"), there is a (weak) rebuttable presumption under equity that the
 first party intended to make a gift to the second party (a rebuttable presumption
that the second party was to receive both legal and equitable title to the property
and that a trust was not intended - that the second party is not holding title as a
trustee).
 Nelson v Nelson (1995) 132 ALR 133 (HC)
 Mother (widow) purchases house for herself but puts title in names of two adult
children
 Children refuse to recognise her equitable interest
 Presumption of advancement overcome by particular facts
 Mother put house in names of children so that would not exceed "asset threshold"
and lose entitlement to aged pension
c. Resulting Trust
i. Where purpose of transferring interest in property fails for any reason, there is
rebuttable presumption in equity that transferor (settlor) intended title of property
to revert itself in that circumstance (i.e. present interest holder holds interest as
trustee for benefit of settlor)
 "Kayford trust" (classified express/implied trust)
 Re Kayford Ltd [1975] 1 ALL ER 604
 Mail order house, realising it was nearing insolvency, put customer's deposits
into a separate bank account to protect the customers.
 Court deemed that as an intention to create a trust though word "trust" was not
used in account name.
 Three certainties present, and court held that no special "formality"
requirement when creating a trust over personal property such as customer
deposits.
 Customers got deposits back and defeated claim by later liquidator of mail
order house.
 "Quistclose trust" (V&L [29.45])
 When property (usually a fund of money) is supplied to a payee for a specific
purpose, is kept separate, and due to unforeseen circumstance that purpose fails
(becomes impossible to achieve, similar in concept to "frustration of contract"),
the court may deem the property held in a trust even if that circumstance is not
specifically provided for. If deemed held in trust, the property will return to
(result back to) the payer (who will be deemed a settlor). In a resulting trust, the
payer is deemed to be the settlor and the payee is the trustee who therefore has
to return the asset to the payer as the purpose has failed.
 Barclay's Bank Ltd v Quistclose Investments Ltd [1970] AC 567
 Money lent by Quistclose Investments to a company solely for the purpose of
payment of dividends by the company. Company deposits money into special
separate "dividend" account at Barclay's Bank, but not expressly designated as
a trust account. Company goes into liquidation before paying dividend making
payment of dividend illegal. Barclay's Bank attempts to offset money in
dividend account against loan owed by company to that Bank. Insolvent
company deemed to be holding money as a trustee and Bank was on notice of
this fact. Bank must repay fund to Quistclose as Bank is not an "innocent third
party without notice”
ii. Where trust property in excess of what is needed to fulfil purpose of trust,
beneficial interest in the excess property is deemed to revert to the settlor.
 Constructive trusts
 Where equity may (court has discretion) recognise or impose a trust to remedy breach
of fiduciary duties, or to remedy certain limited types of unconscionable behaviour
and/or unjust enrichment. This may occur even when there is a contrary intent by the
alleged trustee. (situation (b)).
 Two situations where constructive trusts arise:
a. Actual intent to create trust but trust fails to meet formality requirements  e.g. trust
property is real property and requirements of PLA 34 and/or “Statute of Frauds" not
met (overlap with "implied trusts" classification)
 Mere intention to create trust or supply beneficial interest not enough to satisfy
formality requirements  court must find denial of intended beneficial interest to be
"unconscionable“
 Court has discretion to refuse to declare/enforce a trust if trust was gratuitous and
alleged beneficiary has not relied to his or her detriment (e.g., if alleged beneficiary
made no monetary or other contributions to the purchase or improvement of the
property nor has irrevocably changed its legal position) (i.e., cannot use PLA 34(2)
exception unless convince court to impose a trust).
 The necessary ingredient of "unconscionability" much less likely to be found in an
arm's length business deal (where presumption of caveat emptor) than in a family or
de facto situation.
 Austin v Keele (1987) 72 ALR 579
 (Privy Council on appeal from NSW Court of Appeal - one of last appeals from
Australia) (an arm's length business situation between employer and employee.
There was an arguable common intention that employee to get some interest in real
property being purchased and improved but there was no formal documentation and
it was not proved that the employee relied to detriment on this expectation by
staying in the employ of defendant. Employee received regular substantial salary in
the interim.
 The court held that an implied, resulting or constructive trust can not arise solely out
of a gratuitous intention of a person to create or transfer a beneficial interest. No
implied, resulting or constructive trust was recognised ie the exception to formality
requirement under PLA 34(2) equivalent cannot be used to establish a trust).
 “In an arm's length commercial transaction ... a trust does not come into being
merely from a gratuitous intention to transfer or create a beneficial interest. There
has first of all to be the additional ingredient of an intention or at least an
expectation that the cestui que trust {the beneficiary} will act in a particular way,
normally, though not necessarily exclusively, by making some contribution towards
the cost of acquisition of the property in which the interest is said to subsist".
 You also need to prove some inequity - that it would be unconscionable ... "to deny
to the cestui que trust the beneficial interest that it is proved he was intended to have.
There has to be some conduct detrimental to the cestui que trust, even if only in the
sense of an irrevocable change of legal position, which is referable to the common
intention proved and undertaken on the footing of the grant of the beneficial interest
claimed. Classically this takes the form of some contribution towards the purchase
of the property, a feature which is entirely absent from the instant case." (at 587)
b. No intent to create trust but constructive trust declared by court to remedy injustice
 2 categories:
i. Breach of fiduciary duties  main category for application of constructive trust
  Chan v Zacharia (1984) 154 CLR 178 (an ex-partner usurping opportunity of
firm by taking a personal renewal lease on firm offices - lease deemed held in a
constructive trust.
 In addition the court may impose constructive trust on third party volunteers by
way of tracing
 Attorney General For Hong Kong v Reid [1994] 1 All ER 1 (Privy Council)
(bribe taken by fiduciary in Hong Kong. Bribe deemed held in constructive trust
and funds traced into real estate in New Zealand).
 K & S Corp Ltd v Sportingbet Australia [2003] SASC 96 (defendant bookmaker
extended extraordinarily large amounts of credit to debtor who it knew was an
employee of plaintiff bank - large betting losses of debtor paid off by wire
transfers from account of plaintiff bank - defendant bookmaker deemed to have
constructive notice of debtor's breach of fiduciary duties to plaintiff because it
"wilfully and recklessly failed to make such inquiries as an honest and
reasonable man would make" - bookmaker deemed to be in "knowing receipt"
of funds that debtor had held in constructive trust - funds traced to bookmaker
and bookmaker liable as constructive trustee and must reimburse bank).
ii. Pooled resources
a. Failed de facto relationship or, occasionally, failed joint business venture,
where presumption was that relationship would continue
AND
b. one party holds full legal title to property and unconscionably ignores
contribution (financial or otherwise  i.e. improvements or household
services) of other party and also claims full beneficial interest
 NOTE: necessary ingredient of "unconscionability" much less likely to be
found in an arm's length business deal than in a family or de facto situation
because businesspersons should look out for own interests (caveat emptor) and
properly document their entitlements.
 Examples:
 Muschinski v Dodds (1985) 160 CLR 583, 62 ALR 429 (High Court)
 Three year de facto relationship. Bought land as tenants in common in
equal shares. Woman contributed over 90% of cost. She claimed full
ownership as she contributed the most. Constructive trust was imposed to
the extent of man's contribution (10% of purchase price) and to share the
appreciation equally.
 Baumgartner v Baumgartner (1987) 62 ALJR 29, 76 ALR 75 (High Court)
 De facto - legal title to house in man's name but woman contributed 45% of
income pooling. No evidence that man actually intended to hold title in
trust but also no evidence that woman intended her 45% contribution to be
a gift. Unconscionable for man to assert full beneficial ownership. Woman
had equitable lien to extent of 45% interest or constructive trust over that
proportion. Constructive trust enables woman to claim appreciation in
value.

Constructive Trusts v Equitable Lien

 Equitable lien
 "equitable lien" (or charge) is simply the right conferred by equity upon one person
("the claimant") to have the property owned by another person (the "property owner")
 utilised or sold in order to ensure payment of a liability or debt owed by the property
owner. There is no entitlement to appreciation.
 Constructive Trust
 In a constructive trust, as the beneficiary has equitable title to the asset, appreciation in
the asset will flow to the beneficiary.
 Court may decide remedy of constructive trust inappropriate and award equitable lien
 Giumelli v Giumelli (1999) 161 ALR 473 (High Court)
 (an adult son working on orchard properties owned by parents was promised part of the
land, a house and orchard in exchange for not taking employment elsewhere - son
worked on property, helped build the house, and developed an additional orchard -
falling out with parents over choice of wife, and son forced to leave the property -
parents' refusal to convey the promised part of the land and the house deemed
unconscionable - WA Supreme Court, full court declared a constructive trust and
ordered conveyance to son despite lack of required formality - High Court modifies
order, instead imposing equitable lien on the property, stating: "Before a constructive
trust is imposed, the court should first decide whether ... there is an appropriate
equitable remedy which falls short of the imposition of a trust" but still is sufficient to
remedy the unconscionable conduct)
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