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2. Capacity and Certainty

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EXPRESS TRUSTS —C APACITY AND THE THREE C ERTAINTIES 1. All parties to the trust must have capacity 2. trust must have the 3 certainties: Clay v Clay [2001] HCA; Knight v Knight o Certainty of intention; o Certainty of subject matter; o Certainty of object 3. Title 4. No Vitiating Factor I Capacity 1. Creating the trust • Trust in a will—person must have capacity to make a will: Succession Act 1981, s8 • Trust inter vivos—must have the capacity to contract • Infants—trusts set up by infants will be binding unless they repudiate it shortly after attaining full legal capacity: Edwards v Carter [1893] o Person has full legal capacity upon reaching 18: Age of Majority Act 1974, s5 • Insane persons—same as contract: Wright v Gibbons (No 2) (1954) • Corporations can also create trusts 2. Beneficiaries • Anyone who can hold an interest in property is able to be a beneficiary 3. Trustee • Individuals—can be a trustee is they are capable of holding property o BUT where under a ‘disability’ which makes them unable to discharge their duties properly they won’t be able to be: Trusts Act, s12(1) o Disabilities include—s (s12(1)) a) Death; b) Out of state for more than 1 year; c) Seeks to be discharged d) Refuses to act as trustee e) Unfit to act as trustee f) Incapable of being a trustee g) Infant h) Corporation, ceasing to carry on business o These people may be replaced • Corporation can be a trustee: Attorney-General v Landerfield (1744) o Trust corporation = public trustee or any corporation authorised by the Trustee Companies Act 1968 to administer a trust/estate: s5 Trusts Act • Crown may be a trustee if it chooses: Civilian War Claimants Association Ltd v R [1932]; o but can’t be compelled to accept: Re Mason [1929] Andrew Trotter LWB241 Trusts II Certainty 1. Certainty of Intention Settlor must exhibit an expressed or implied intention to create a trust • Court are no longer reluctant to find a trust has been created where it is consistent with parties’ intention: Bahr v Nicolay [No 2]; Trident v McNiece Intention that transferee hold money on trust • Nomenclature not conclusive—Equity looks to the substance, not the form o Where form and intention all indicate a trust, money held on trust: Kauter v Hilton (objective—“Frank as trustee for Hilton”  | subjective—told niece about account, gave her the passbook   Trust ) o Trust may exist even where terminology not used: Re Armstrong [1960] VR 202 (Father creating trust account for sons— died before trust matured | objective—not referred to as a trust account  | subjective—post mortem gift to sons   funds on trust → not part of general estate)  the language of a trust ← an intention that the trustee is under an obligation to hold property for the beneficiary (“George re William” etc—revenue from funds for sons—principal also to sons on death of father  father holding on trust (for life) for sons)  Drafted by lay person → not construed in a strict, technical way (between father and bank manager) o Fund may not be a trust even though it is referred to as a trust if there is no intention to create one: Commissioner of Stamp Duties (Qld) v Joliffe (1920) 28 CLR 178 (law against having 2 bank accounts—so man held one account on trust for his wife | wife didn’t know—wife dies  expressly created trust but without intention to do so → no trust → account not part of wife’s estate)  Alternative view—trust expressly created is beyond the recall of the settler: Commissioner of Stamp Duties (Qld) v Joliffe per Isaacs J (in dissent) (actions of settler objectively sufficient to create a trust—no subjective evidence to rebut (parole evidence rule)—public policy: settlor’s actions to evade legislative policy  trust upheld) • Precatory words will not suffice— o Understanding: Hayes v National Heart Foundation of Australia, NSW Division [1976] o Request: Re Pike [1932] o Recommendation: Stuart v Clemmons [1951] o Hope: Re Lord [1910] o Belief: Will of Warren [1907] o Desire: Re Mayne (1928) o Confidence: Mussoorie Bank, Ltd v Raynor (1882) (in a will—"feeling confident that she will act justly to our children in dividing the same when no longer required by her"  no trust || also no certainty of subject matter—no provision for quantum to be distributed to children); Re Williams (“Absolutely in the fullest trust and confidence that she will carry out my wishes”  no trust) o Wish: Re Elies [1939] • Where left to someone ‘absolutely’—they are not a trustee holding it for the benefit of others: Re Williams (“Absolutely in the fullest trust and confidence that she will carry out my wishes”  no language sufficient to import an obligation to act ← “absolutely” inconsistent with a trust—would mean the wife was to hold for the benefit of others → no trust) Andrew Trotter LWB241 Trusts Lack of intention → no trust → person who holds the property takes it absolutely Intention to create trust relationship (as distinct from others) ← Important in bankruptcy cases Revocable mandate ↔ trust Comptroller of Stamps (Vic) v Howard-Smith (1936) (beneficiary of will sends letter to executors— allowing to pay monies to creditors listed in letter—creditors not aware  letter merely amounted to giving a power to pass property under power of attorney, not conferring interest → no trust, merely revocable mandate (→ no stamp duty)) • Indicative of revocable mandate— o Language of request (“I hereby request you”) o Recipients of money not aware o Allocator of money a residuary beneficiary (= amount uncertain) Effect— o power to pass property under a power of attorney o does not give title to the property to trustee o can pass property if acted upon before revoked o revoked at will or by death or bankruptcy • ↔ Trust: immediate movement of a beneficial interest upon creation Debt ↔ trust • Agents holding money (as debt / on trust) o Money held separately, in an isolated sale → trust: Cohen v Cohen (1929) 42 CLR 91 (Man selling furniture, collecting insurance proceeds, bringing back money from Germany for wife  money collected from furniture proceeds, insurance = kept on trust ← should have been kept separate || money collected from Germany brought back to UK as goods—not kept separate → not held on trust) o Commercial relationship | no requirement of separation → debtor-creditor relationship: Walker v Corboy (1990) 19 NSWLR 382 (fruit growers selling to agent for sale at market—statutory scheme did not require separation of proceeds (would have been easy to do so) | industry practice = no separation | frequent daily trading— agent goes into liquidation  not held on trust) • Money lent for a specific purpose—Quistclose Trust (specific purpose not enough by itself) Where money is lent with a mutual intention that— o not part of the general assets o to be used for a specific purpose o to be returned where the purpose is not fulfilled then whatever portion of the money which is not used towards that purpose is held on trust for the lender: Barclays Bank v Quistclose Investments Ltd [1970] AC 567 (R in debt to B—Q lent money to R to pay shareholders dividends—B has notice—R goes into liquidation—B uses money held in account from Q to offset debts  money held on primary trust by R for shareholders (bank constructive trustee with notice) → purpose fails (insolvency) → money held on secondary (resulting) trust by R (B) for Q) adopted
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