LAW 2502 Lecture Notes - Lecture 2: Settlor, Beneficiary Principle, Bailment
23 May 2018
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TRUSTS
DISTINGUISH FROM OTHER LEGAL RELATIONSHIPS
Look to intention of the settlor and draw inferences- did they intend to create a trust? Re Gardiner
1. Bailments
a. Bailor leaves personal property with bailee
b. Bailee only has a duty to look after the property- trustee’s obligations are more onerous
c. Bailment can only be chattels- not real property
d. Title of property is transferred to trustee, not to a bailor
2. Agency
a. Agent authorised to act on behalf of principle, changes legal relaations between principal and 3rd party
b. Title of property need not be vested in the agwnt Walker v Corby
3. Unsecured debts- debtor-creditor relations*
a. debts = chose in action. Not a property right, but a right for creditor power to demand payment
i. But- intention to hold money in a separate account is indicative (though not conclusive) of a trust, Korda
ii. Trust + debt = Quitclose Trust – mutual intention that funds will be heard for specific purposes, and that
if those purposes cannot be met, the money will be repaid Westgem Investments Pty Ltd v Saracen Project
Management Pty Ltd (No 2) [2012] WASC 358 see [47]-[49]
• Shapard v Mladenis [2011] NSWSC 1431- gynaecologist defrauded of >$2m by dating agency
Hearts United- said wife they organised for him needed money- wife was fictional- used money to
buy cars etc- court found a Quitclose trust
4. Contracts
a. Contracts are personal in nature, convey in personam rights- trustees have property rights imposed on them
b. Fiduciary duties impose an onerous obligation on the trustee but not on contractors
c. Remedies for breach are different- trustee required to make restitution of trust property but breaching party to
contract only liable for damages
d. Trust law has started potentially as a way to circumvent the doctrine of privity Trident General Insurance v
McNieve Bros
5. Gifts with moral conditions, or gifts subject to a condition
CONTEXTS
❖ Families, business, charities, retirement
❖ Commonly arises from contracts
MUST HAVE
1. The trustee: titleholder of the property; has a fiduciary obligation to deal with the property to the best benefit of
the beneficiary
2. The property: in real or personal form which is identifiable/ ascertainable and capable of being held on trust;
equitable or legal property; and
3. The beneficiary: (object of the trust) person, or group of persons who hold a beneficial equitable estate in the
property and on whose behalf the trustee must act
4. Settlor/ testator: person who sets up the trust (disappears once trust is executed)
TYPES OF TRUSTS
1. Express: both parties verbally expressly agreed to make a trust
a. Fixed: beneficiaries are fixed
b. Discretionary: trustee has discretion to choose who will be beneficiary (T not told how much to give B’s)
i. Trust power
ii. Bare power: beneficiaries are fixed but T can choose between them
2. Implied: no express intention-look at conduct to discern intention to create trust
a. Resulting: presumed intention of the parties, if no beneficiary is names, it will ‘spring back’ to the settlor
b. Constructive: imposed despite the intention of the parties
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EXPRESS TRUST
STEP 1: state the parties and Type of trust
1. Parties
a. Trustee: if all requirements for the creation of a valid trust are satisfied, equity will, not allow a trust to
fail for lack of a trustee owing to death or another cause
b. Property is…
c. Beneficiary is…
2. Express type
a. Fixed (T told how much to give Bs)
b. Discretionary (when T not told how much to give Bs, has discretion)
STEP 2: Give overview of essentials for a trust to be formed
For a trust to be created, it is firstly essential to ensure that the property is of a kind that can be subject to a trust.
Secondly, it must be established that the declaration or transfer of property complied with legal formalities. Thirdly,
there must also be certainty of intention, the property and objects so that the trust is administratively workable.
Finally, the trust must not have any vitiating factors and comply with the rule against remoteness.
STEP 3: a trust may be created… provided the legal formalities are complied with
inter vivos (between living people)- one of three ways
1. by declaration of trust:
a. Settlor (declarant) declared himself/ herself to hold their property on trust for a beneficiary, beneficiaries or
charitable purpose; or
b. transfer does not need to occur, as the creator and trustee are the same legal person. Oral declaration of
intention is sufficient, no need for written intention, unless trust relates to real property
2. by transfer
a. settlor transfers property to trustee with an intention to make a third party the equitable owner of that property
i. trust imposed by instrument facilitating transfer or by a separate instrument executed at the time of the
transfer
ii. only executed when the title of the trust property has been completely and irrevocably transferred to the
trustee. Do everything necessary to secure transfer
3. Direction: beneficiary of existing trust directs trustee to hold his or her interest on trust for another
4. Have legal formalities been complied with?
a. PERSONAL PROPERTY: transfer may be created orally, no need for written evidence
b. REAL PROPERTY: Oral declaration is sufficient for the creation of a trust where the property is a legal or an
equitable interest in land, but it is NOT enforceable. To be enforceable such a trust of land must be in
writing, per s 29(1) Law of Property Act (SA) 1936
i. Note- trust of land may be enforceable notwithstanding the lack of required written evidence where
• It is a resulting or constructive trust (s 29(2) LPA 1936)
• The equitable maxim that a statute cannot be used as an instrument of fraud can be applied, so the
doctrine of part performance can be used (s 31(d) LPA 1936)
• An equitable estoppel preventing trustee relying on absence of written evidence
post mortem (by will)- one way
1. By will: satisfy the general requirements for the creation of a valid will
a. Must own the property to leave it in a will
b. must be in writing and signed by the testator in the presence of two or more witnesses s 8 Wills Act 1936 (SA)
i. s 8: no will is valid unless it is in writing and executed in the following manner:
(a) it must be signed by the testator or by some other person in the testator's presence and by the
testator's direction; and
(b) it must appear, on the face of the will or otherwise, that the testator intended by the signature to
give effect to the will; and
(c) the signature must be made or acknowledged by the testator in the presence of two or more
witnesses present at the same time; and
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(d) the witnesses must attest and sign the will (but no form of attestation is necessary); and
(e) the signatures of the witnesses must be made or acknowledged in the presence of the testator (but
not necessarily in the presence of each other).
c. Parol evidence rule applies- doco is conclusive, no extrinsic evidence
i. Exception- secret trust! 21.152 textbook
STEP 4: to be valid it is essential that an express trust has all three certainties present; these are the certainty
of intention, subject matter and objects. These will be considered in turn.
** need all 3 Ying v Song [2010] NSWSC 1500 at [239]
**burden of proof in cases where the intention of the creator is questioned lies on the person who alleges the
trust was intended
** inter vivos- oral and written evidence is allowed
** post mortem- oral and written allowed if exception to parole evidence rule is established
** be careful not to IMPOSE a trust (this would have to be done by the court- a CT)- only look for evidence that
one exists- Korda
1. Certainty of intention- The question whether an express trust exists must always be answered by reference to
whether there was an intention to benefit a 3rd, and to do so via a trust Re Australian Elizabethan Theatre Trust
(1991) 30 FCR 491 at 502 per Gummow J
a. Express
i. an express trust cannot be created unless the person or persons creating it can be taken to have intended
to do so” (use of words) Garrett v L’Estrange (1911) 13 CLR 430 at 434 per Griffith CJ, Barton and
O’Connor JJ
ii. Necessary intention found when manifested by an explicit (written or oral) declaration as in Byrnes
v Kendle
iii. SHAMS Lewis v Condon (2013) 85 NSWLR 99
• Eg: defrauding others
• Labelling something a trust when there is actually no intention on behalf of the creator to create a
trust
Will still be a trust provided that the outward intention is that a trust is established
Unless there is intentional deception as to the effect of the document
b. Inferred: absent an explicit declaration of intention, the court must determine whether intention is to be
implied.
i. Objective intention
• intention was historically inferred from subjective intention (HC in Commissioner of Stamp
Duties (QLD) v Joliffe) but now is to be inferred from the objective construction of the
douet’s ords, or parties’ oral dealigs, ot a sujetie itetio that a hae eisted i
conscience but cannot be extracted from them Byrnes v Kendle (2011) 243 CLR 253 (formal doco
in Byrnes labelled a ‘acknowledgement of trust’)
Consider what a reasonable person believe was intended from what was done and said (Isaacs
in Jolliffe, dissenting)
ii. Traditional understanding of certainty of intention requires two elements to be present: (1) the
intention to benefit a 3rd party; and (2) to do so through a trust
• But - requirement to have both aspects of intention attacked by Mason CJ and Dawson J Bahr v
Nicolay who held intention could be implied by any language clear enough to create one where it
is necessary to protect a party’s interest
words ‘trust’ or ‘trustee’ don’t need to be used RACT (Vic) v Fed Commissioner of Taxation
(1993) 178 CLR 145 at 165
There is no required formula, any language is good enough, as long as the person creating the
trust recognises that he/she is undertaking a role with certain attributes which constitute
him/her as trustee Sheikholeslami v Tolcher [2911] FCA 1050 at [151]-156
Eg: Paul v Constance [1977] 1 WLR 527: statement by man to woman that money in his
bank account was as much hers as his constituted an express declaration of trust.
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Document Summary
Management pty ltd (no 2) [2012] wasc 358 see [47]-[49: shapard v mladenis [2011] nswsc 1431- gynaecologist defrauded of >m by dating agency. Mcnieve bros: gifts with moral conditions, or gifts subject to a condition. Step 2: give overview of essentials for a trust to be formed. For a trust to be created, it is firstly essential to ensure that the property is of a kind that can be subject to a trust. Secondly, it must be established that the declaration or transfer of property complied with legal formalities. Thirdly, there must also be certainty of intention, the property and objects so that the trust is administratively workable. Finally, the trust must not have any vitiating factors and comply with the rule against remoteness. To be enforceable such a trust of land must be in writing, per s 29(1) law of property act (sa) 1936: note- trust of land may be enforceable notwithstanding the lack of required written evidence where.
