LLB270 Chapter Notes - Chapter 20: Bankruptcy Act, Compass Resources, Contingent Liability
Chapter 20 – Introduction to Trusts:
20.1 – Introduction:
oTrust exists when the beneficial ownership is separated from the legal ownership
oLaw in this area has become increasingly complex over the centuries
oObligations of the trustee have their origins in equity
oAuzora Pty Ltd v Commissioner of the Office of Business and Consumer Affairs (2009):
‘It is an essential element of a trust that the trustee is under a personal obligation to
deal with the trust property for the benefit of the beneficiary, an obligation giving rise
to co-relative rights in the beneficiary. The obligation attaches to the trustee in
personam, but it is also annexed to the property, so that the equitable interest
resembles a right in rem.’
20.4 – ELEMENTS of a Trust:
oTHREE essential elements to a trustee relationship:
Trustee – legal person who holds a vested legal title in the property
Trust property – real or personal property which is identified and capable of being held
on trust; can be legal or equitable property
Beneficiary – person, or group of persons, who hold a beneficial equitable estate in the
property, and on whose behalf the trustee must act
oAyerst v C & K (Construction) Ltd:
‘The ‘legal ownership’ of the trust property is in the trustee, but he holds it not for his
own benefit but for the benefit of the cestui qui trust or beneficiaries. Upon the
creation of a trust in the strict sense as it was developed by equity the full ownership in
the trust property was split into to constituent elements, which became vested in
different persons: the ‘legal ownership’ in the trustee, what came to be called the
‘beneficial ownership’ in the cestui qui trust.’
oPerson who creates the trust – SETTLOR
Inter vivos trust or ‘settlement’
oTrust created by will – TESTATOR
Post mortem trust
oDKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW):
‘Where the trustee is the owner of the legal fee simple, the right of the beneficiary,
although annexed to the land, is a right to compel the legal owner to hold and use the
rights which the law gives him in accordance with the obligations which equity
imposed upon him. The trustee, in such a case, has at law all the rights of the absolute
owner in fee simple, but he is not free to use those rights for his own benefit in the
way he could if no trust existed. Equitable obligations require him to use them in some
particular way for the benefit of other persons.’
oThree actors need not be different legal persons
Beneficiary and settlor cannot be the same person – doctrine of merger
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20.10 – THREE Species of Trust:
o20.11 – Express Trusts:
FIVE main types of express trusts:
oFixed and discretionary trusts
oBare trusts
oCharitable trusts
oCommercial trusts
oFamily trusts
20.12 – Fixed and Discretionary Trusts:
Express trusts can be characterised by the nature of the beneficiary’s interest
Fixed trust: beneficiary has a set share of the interest in the property
Discretionary trust: entitlements are subject to the trustee’s discretion
oDiscretion can vary greatly
oEnabled by a power of appointment
oTrustee can chose between beneficiary’s – expectancy, weaker non-
proprietary interest
oAppointers, guardians or protectors can be appointed to ensure the
trustees work
oDiscretionary trusts may be exhaustive or non-exhaustive
Exhaustive: trustees must distribute the income earned by the trust
capital
Non-exhaustive: trustees are permitted to accumulate the income
20.15 – Bare Trusts:
Simplest form of express trust
Trustees only have an obligation to hold the property until the beneficiaries
demand it be transferred to them – Wade v Wade
Gummow J, Herdegen v Federal Commissioner of Taxation:
o‘Today the usually accepted meaning of a ‘bare’ trust is a trust under which
the trustee or trustees hold property without any interest therein, other
than that existing by reason of the office and the legal title as trustee, and
without any duty or further duty to perform, except to convey it upon
demand to the beneficiary or beneficiaries or as directed by them…’
Mason P, Chief Commissioner of Stamp Duties v ISPT Pty Ltd:
o‘It is… clear that some active duties, though not of management, are
imposed on some, but not all, bare trustees. … ‘as a matter of strict logic,
almost no situation can be postulated where a trustee cannot in some
circumstances have active duties to perform’.’
Duty to preserve the trust property – CGU Insurance Ltd v One.Tel Ltd (in liq):
o‘One obligation of a trustee which exists by virtue of the very office is the
obligation to get the trust property in, protect t, and vindicate any rights
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attaching to it. That obligation exists even if no provision of any statute or
trust creates it. It exists unless it is negated by a provision of any statute or
trust instrument.’
Duties go beyond preservation
Only a bare trustee if the beneficiaries have called upon the rule in Saunders v
Vautier
Arises in various circumstances:
oAssignor of future property becomes bare trustee for the property when it
comes into existence – Commissioner of State Revenue v Abbotts
Exploration Pty Ltd
oUpon payment of the purchase price, vendor becomes bare trustee for the
purchaser – Stern v McArthur
oPerson who holds the legal title, where payment has been provided by
another – vendor becomes bare trustee for the purchaser – Herdegen v
Federal Commissioner of Taxation
Beneficiaries are entitled to pursue the property
oBut cannot assert the interest against a bona fide purchaser for value
without notice
20.19 – Charitable Trusts:
Express trusts created for a purpose
No beneficiary
20.20 – Commercial Trusts:
Mechanism applicable to several forms of commercial venture
oSubject to different tax and reporting schemes
Unit trusts
oPopular form of trust
oCorporate trustee invests trusts funds for beneficiaries
oInterest is based on the number of ‘units’ purchased
oDoes not have a constant or fixed meaning
Superannuation trusts are another common form
20.22 – Family Trusts:
Tax benefits have also made family trusts appealing
Mainly in the form of discretionary trusts with corporate trustees
Used extensively to lessen the impact of income tax
o20.23 – Resulting Trusts:
Imposed in equity in situations where it is presumed a trust was intended
Often imposed when formal requirements are not met or in sale of property
o20.24 – Constructive Trusts:
Imposed by courts
Not necessarily dependant on the parties intentions
Remedial function – aim to remedy breaches of equitable obligations
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Document Summary
It is an essential element of a trust that the trustee is under a personal obligation to deal with the trust property for the benefit of the beneficiary, an obligation giving rise to co-relative rights in the beneficiary. The obligation attaches to the trustee in personam, but it is also annexed to the property, so that the equitable interest resembles a right in rem. ". 20. 4 elements of a trust: three essential elements to a trustee relationship: Trustee legal person who holds a vested legal title in the property. Trust property real or personal property which is identified and capable of being held on trust; can be legal or equitable property. Beneficiary person, or group of persons, who hold a beneficial equitable estate in the property, and on whose behalf the trustee must act: ayerst v c & k (construction) ltd:
