S53(1)(b) – ONLY FOR LAND OR INTEREST IN LAND S53(1)(b) operates to make unenforceable a declaration of trust over land or an interest in land until such time as it is manifested and proved in writing by a person able to do that. This does not invalidate the created orally over land - it simply renders it unable to be enforced. Wratten v Hunter [1978] 2 NSWLR 367 A brother promised to hold land on trust for himself and his siblings. After the brother died – one of the siblings declared that she had an interest in the trust and so did her children. The Court held the trust was not enforceable unless it was evidence in writing. S53(1)(b) – Has no application unless the subject matter of trust is land or interest in land. Trusts over other property – Other property such as chattels and chooses in action can be created orally, and are enforceable without written proof. No writing needed – no particular form of writing is required, nor is it required that the writing be contained in a single document. Who can prove a trust under s53(1)(b) The person who must manifest and the trust under this section is ‘some person who is able to declare such a trust’. It makes no allowance for this to be done by an agent. The settlor of the is the only person is able to manifest and prove the trust in writing. However, there are exceptions: Hagan v Waterhouse (1991) 34 NSWLR 308 – land had been purchased in name of one of the trustees and it was alleged the land was on trust. Supporting letters signed by the trustee and his brothers. Court held that the letters acknowledged the existence of a trust and was written proof the trust.
Overlapping between the Provisions It is possible that a single transaction can be caught by more than of the provisions discussed: Over Land - A declaration of trust over land might be caught by subsection (a) as well as by (b) Over an Interest in land – A declaration of sub-trust over an interest in land might be caught by subsections (a), (b) & (c) Equitable Assignment – Might be caught by an equitable mortgage over land might be caught by (a) and (c) Overlap of (a) and (b) Subsection (a) applies to the creation of legal or equitable interests in land: Adamson v Hayes (1973) 130 CLR 276 When a settler declares a over land, an equitable interest in land is created – the beneficiaries title. Subsection (b) applies to declarations of trust concerning interests in land (A) is given precedence than the less onerous (b). Department of Social Security v James (1990) 95 ALR 615 Mrs James applied for aged pension and his assets were assessed. She claimed her house should not be taken into account as he held it on trust. Subsection (a) does not extend to declarations of trust. Only subsection (b) applies to a declaration of trust over an interest in land. Its requirement of proof in writing could be satisfied by a combination of documents capable being read together. Overlap of (a) and (b) - What is the potential overlap? Subsection (c) applies to dispositions of subsisting equitable interests. It requires that dispositions are done in writing. Subsection (b) applies to declarations of trusts concerning interests in land. Most particularly, they concern sub-trusts and the beneficiary’s declaration of a sub-trust. Disposition of an Subsisting Equitable Interest by - When a beneficiary declares a sub-trust – that is, where a beneficiary of a trust over land declares himself or herself trustee of that beneficial interest for a - The Comptroller of Stamps (Vic) v Howard-Smith stated that declaration of a sub-trust is valid disposition. A settlor can declare a trust over land orally, and later manifest it and prove it in writing (b); but if the beneficiary wants to declare a sub-trust trust over the interest, it must be in writing (c).
Exceptions to the need to comply with requirements as to form are a number of exceptions regarding the need to comply with form. These include: Creation or operation of resulting, implied or constructive trusts Trusts created by wills have special additional formalities. The statutory provisions in s53(1)(a) and (c) – specifically the exempt creations and dispositions of land made by will. Where part performance has occurred S55 of the Property Law Act 1975 (Vic) and its equivalents provide that nothing in the formalities provisions will affect the operation of the law relating to part performance. Where the interests in land created or disposed of by will Section 53(2) provides that nothing in section 53 affects the creation or operation of resulting, implied or constructive trusts. Resulting and constructive trusts arise only through law – not the intention of the parties or those parties involved as per express trusts. Where the requirements of strict compliance would allow the statutory provisions to be used as an instrument of fraud The courts will not allow the statutory formalities to be used an instrument of fraud. Rochefoucauld v Boustead [1897] 1 Ch 196
Failure for illegality A trust which is created for an illegal purpose may fail or be set aside. Illegal purposes include those that are contrary to statute, general law or public policy. Trusts Contrary to Statute Statute-based illegality arises in two ways. The may be directly affected by statute; i.e. by s121(1) of the Bankruptch Act 1966 (Cth) makes void transfer to a trustee made to defeat credits Some step required to constitute the trust might be affected by statute. Primary Authority - Nelson v Nelson (1995) 184 CLR 583 ‘the question of the effect of illegality had to be considered in the light of the underlying policy of the legislation in question. The Courts should not refuse to enforce legal or equitable rights simple because they arose out of or were associated with some unlawful purpose unless the statute concerned show an intention that such rights should be unenforceable, or where the imposition of the sanction was either not disproportionate or otherwise necessary in the circumstances’ Thus, it appears unless the illegal purpose is achieved in whole or in party, illegality will not be relevant per Clegg v Wilson (1932) 32 SR NSW 109 – upheld in Nelson v Nelson. Trusts Failure by Contract If the trusts creation is dependent upon a contract that is expressly prohibited by statute, then the trust is void unless there is also some provision allowing otherwise per Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410. Trusts contrary to public policy Trusts may be contrary to public policy if they promote an immoral or illegal purpose, although the range of purposes that are contrary to public policy are not restricted to immoral or illegal purposes. Re Edgar [1939] 1 All ER 635 – Testator wanted his sons to work on his business and left the trust stating that their interests were void if ‘they became politicians or a person of public office.’ Court ruled that this was in violation of public policy as it was contrary to the interests of the state and was a void clause. Trustees of Church Property of the Dicese of Newcastle v Ebbeck (1960) 104 CLR 394 – A testator stated that his wife and sons would inherent his trust as long as they declared christain faith. They were already married to Catholic women.
Must be transferable Subject matter must be transferrable - Both of the above requirements fall under the general rule that if the subject matter is not capable of being transferred to another party – as is required when a settlor transfers property to a trustee on behalf of a beneficiary(s) – then it typically cannot form the subject matter of a trust. This is not an absolute rule in its entirety and as with all aspects of law there are always exceptions. Not transferrable, cant be subject - An item which is not transferable generally cannot be declared as the subject matter of an inter vivos trust if the holder of the item does not have the right to transfer it or declare themselves as the trustee. The Court will always look to the nature of the item being transferred and determine the legal validity of transferring the property. Trusts by Transfer - For example, an item may be thought to be transferrable but be made non-transferrable under general law. In Re Bruynius [1995] 1 Qd R 492 an equitable assignment of benefits was held to be invalid because of legislation which directed it was so. Separately, the item may also be untransferable because of a valid restraint clause attached to the property which prohibits it from being so. In these circumstances, it is impossible to create a trust inter vivos because it is not possible to transfer title. Trusts by Declaration - However, this poses a potential issue in trusts created by declaration since the property ‘does not’ have to be transferred. In types of trusts it will depend on the construction of the instrument being transferred and whether only legal title is being restricted from transfer or whether both legal and equitable title are being restricted. If there is no intention to restrict an equitable interest by declaration or the subsequent transfer then it may be possible that such a trust is still valid. See Don King Products Inc v Warren [2000] Ch 291; [1999] All ER 218 for an example of this.
Unseparated Part of a Whole Certainty of subject matter is often difficult from the perspective of a declaration of a trust where the assignable benefit is described as part of a larger whole. Typically in these cases the maxim “equity regards that as done which out to be done” cannot be used if valuable consideration has not been give for the declaration. Example – If one declares a trust over a parcel of 1000 shares as part of larger parcel of 20,000 shares inter vivos, an effective trust would form immediately as there is no uncertainty regarding the subject matter as per Tunley v FCT (1927) 39 CLR 528. Example The modern law position, from the case of Hunter v Moss [1994] 3 All ER 214 of the UK of Appeal, suggests that if each part of the property is indistinguishable from the rest then specific description is not necessarily fundamental. This was applied in the case of White v Shortall [2006] NSWSC 1379 a declaration of trust was made over 220K of shares out of total of 1500K and the shares were not numbered and were identical to each other. The Court rejected the argument that the trust was unsuccessful – instead stating that 220K were held on trust and the rest were held on resulting trust.
objects – Queensland Trustees Ltd v Commissioner of Stamp Duties (Qld) (1952) 88 CLR 54. No Default Provision – If there is no attainable default provision, the property would return on resulting trust to the settler or the testators estate – Lutheran Church v Farmers Co-operative Executors and Trustees Ltd (1970) 121 CLR 628 Is the Power Valid – When the class described in the power is general or special. Hybrid Powers – In Re Hays Settlement Trust [1981] 3 All ER 786, and in Re Manistys Settlement [1973] 2 All ER 103 – the English authorities contend that Hybird powers are valid powers. Inte vivos – Some states require that the powers are only valid inter vivos – however in Victoria, s48 of the Wills Act 1997 provides that they are valid in wills.
The Certainty Once a has determined whether the clause in questions creates a Interest; or Discretionary; or Mere Power. It must apply the relevant test for certainty. Unless the class can be described with sufficient certainty – the clause will be held invalid and the trust will fail. Fixed interest trusts: list certainty In fixed interest trusts, the amount that each beneficiary is stipulated from the outset. This can be because the trust instrument itself has specific shares. I leave my shares in X Pty Ltd to my trustees on trust and appoint my son 50 percent and my daughter 50 percent I leave my shares in X Pty Ltd to my trustees on trust for my three children in equal shares. In these examples, the shares in the trust are clearly specified – however, if it is said I leave my shares in X Pty Ltd to my trustees on trust for my three children. The settler has not specified the relevant proportionate breakdown, and the Court will assume that they are to be shared equally. However, what is common in each of these examples is that the objects are specified. List Certainty For a trust, the trustee must be able to make a ‘list’ of names so that the trustee can effectively distribute the property to them. Cannot make a list? will fail - If such a list cannot be made, the trust will fail per Kinsela v Caldwell (1975) 132 CLR 458 & Commissioner of State Revenue v Viewbank Proprieties Pty Ltd (2004) 55 ATR 501. Time of distribution – The list of beneficiaries must be compiled at the time of distribution, not at the time of creation – thus, unborn children can be beneficarie Re Bowles; Amedroz v Bowles [1902] 2 Ch 650
Differences between private trusts and charitable trusts The differences include: Beneficiaries enforcing the - Private trusts can be enforced by their beneficiaries. Charitable trusts have no identifiable beneficiaries to enforce the trust. Certainty Tests – In express trusts, the certainty tests apply. In charitable trusts, the test for validity is whether the trust is for a charitable purpose and for public benefit. Trusts cannot be changed – Unless the trust instrument directs, beneficiaries of private trusts cannot be changed. The doctrine of The doctrine of cy-pres allows the Court to vary charitable trusts. Rule against perpetuities – Private trusts cannot extend to perpetuity. Charitable Trusts are not subject to this rule. Taxation – Private trusts and charitable trusts have different taxation implications. Requirements: Purpose - The charitable purpose must be for public benefit and this must be positively established. These are two distinct elements: ‘A Charitable Purpose’ The Statute of Charitable Uses 1601 has been accepted as law in Australia in addition to the generals head unders Income Tax Special Purposes Commissioenrs v Pemsel [1891] AC 5531 – The relief of Poverty The advancement of education; The advancement of religion; and Other purposes beneficial to the community ‘A Section of the Public’ Re Income Tax Acts (No 1) [1930] VLR 211 YES - Large groups of persons – Typically called a ‘section of the public’ because of the size of the group NO - Very Small Groups of People – Unlikely to be held as ‘section of the public’ per Re Compton; Powell v Compton [1945] Ch 123 NO - Members of groups such a clubs etc – Not a section of the public because their group is defined by memberships which place a bar on membership. NO - Personal relationships – Not sections of a public, regardless if its relationship with charity as the scope is not sufficiently ‘public’ enough. Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297 Lord Simonds described ‘section of a trust as’ The potential beneficiaries must not be numerically negligible
Administrative Scheme An administrative scheme may be called for where the settlor or testator has not sufficiently specified the means of administering the charitable gift. Purpose - An administrative scheme ‘fills in the gaps’ so that the charitable purpose can be achieved. In Re Simpson [1961] QWN 50, the residue of an estate was left to three named institutions for ‘cancer research’. The gift was in favour of cancer research and was therefore for charitable purposes.
The Courts inherent jurisdiction examines the trustees exercise of discretion is limited to cases in which The trustees have reasons for the exercise; or the beneficiary can assert an exercise of discretion in bad faith or for an improper purpose; or the beneficiary can attack the exercise as not having been a real and genuine consideration of the exercise. Karger v Paul [1984] VR 161 – The exercise of discretion will not be examined by the Court if the discretion is exercised in good faith upon real and genuine consideration and in accordance with the purpose for which the discretion was conferred The Court will only look to evidence of the inquiries made by the trustees, the information they had, and the reason for, and manner of, exercising their discretion ensuring that these three essential components are present’ Meat Industry Superannuation Fund Pty Ltd v Pertrucelli [1992] MC 148 – The limits of the Courts review function are: Relate to Discretion being exercised - Whether the reasons relate to or are relevant to the discretion being exercised. Arrived at in Good Faith - Whether the reasons were arrived at in good faith and without ulterior purpose Reasons support conclusion - Whether the reasons reasonably support the conclusion Information available to the Trustee - It is open to the to look at evidence of the inquires made by trustees and the information they had and the manner of the exercise of their discretion, but only so far as to assess the viability of the exercise, not to impugn or replace it. Cannot examine reasons for exercising discretion - It is not open to the Court to examine the reasons for the purpose of exercising its own discretion. It is not open to the Court to examine the factual situation for the purposes of substituting its own discretion for that of the trustee because the Court might consider the trustee unwise or imprudent. Can only review the exercised discretion - The reviewable discretions that which was exercised the trustees at the time. Trustees Duties
Trustee Act 1958 (Vic) s 7 – requires that and principles of law or equity that impose duties upon trustees exercising the power of investment continue to apply, except to the extent that they are inconsistent with the Act or are overridden by the trust instrument. Best Interests of present and future beneficiaries – ‘no moral duty’ The term ‘best interests’ in the context of investment means ‘the best financial interests’ of the beneficiaries per Buttle v Saunders [1950] 2 All ER 93 Buttle v Saunders – Trustees were selling a freehold to Mrs Simpson, and then another bidder made a higher bid. The trustees felt obliged to contract with Mrs Simpson. Court stated that ‘the trustees overriding duty to obtain the best price they could for their beneficiaries’ and they owed no moral duty. Cowan v Scargill [1984] 2 All ER 750 ‘The paramount duty of trustees under a trust to provide financial benefits was to provide the greatest financial benefits for the present and future beneficiaries’ The Court was concerned with a trust for individual beneficiaries. Charitable trusts different from trusts for persons in that they are for particular charitable No Personal views or Preferences – Trustees must not be swayed by their personal views and preferences if investments contrary to their own views return greater rewards for the trust. Duty to act impartially towards beneficiaries and between different classes of beneficiaries Where there is more than one beneficiary of a trust, the trust cannot show partiality to one of them at the expense of another. v Carlson [1948] VLR 401 Testators daughter was married to the trustee and was permitted by the trustees to purchase a house from the estate at a bargain price. Other beneficiaries had offered the same price but were rejected. Court ruled that the purchase was void and that ‘the trustee is under a duty to act fairly in respect of these different classes and cannot prefer one group over another’ Duty to Invest Funds
Modern Portfolio Theory List & ‘Line-by-Line’ Investments – Guaranteed a portfolio that was prudent and risk-averse, but they also resulted in a portfolio that might not keep pace with inflation and so real value was eroded per Nestle v National Westminster Bank [1994] 1 All ER 118. Modern Portfolio Theory – Aim – The aim of modern portfolio theory is to maximise growth minimising risk through a diversification of investments. Investments should be spread between – A range of investments - Land, shares, bonds and cash; and A range of risk profiles – higher and lower risks must be balanced. Trustee Act 1958 (Vic) – S7(2) – Duty not to invest in speculative investments. s 8(1) – Viewed in its entirety to encourage modern portfolio theory, however s7(2)(b) – reviewing individual investments annually - seems to favour line by line. Implies that as long as trustee keeps portfolio balanced – can used either. s 12C – Regular review and formulation of investment strategy encourage modern portfolio theory s 12D – The extended set-off jurisdiction also supports portfolio theory. Review of Investments Trustee Act 1958 (Vic) s 6(3) – There is a positive duty to make regular reviews of investments as imposed by Statute. This can be altered by the trust declaration. ‘a trustee must, at least once in each year, review the performance of trust investments’ S8(1)(m) – Requires a trustee, when investing, to take into account the results of a review of existing trust investments. Matters to which a trustee must have regard when investing
the person or persons nominated for the purpose of appointing new trustees by the instrument (if any) creating the trust; or if there is no such person or no such person able and willing to act, then the surviving or continuing trustees or trustee for the time being, or the personal representatives of the last surviving or continuing trustee- Power of the Court to remove a trustee - Bankruptcy – Bankruptcy usually means the immediate removal of a trustee, however the Court will not always remove a bankrupt trustee when called upon to do so in exercising its statutory inherent jurisdiction per Re Matheson must be satisfied otherwise wont remove – Where the Court is satisfied the tustees bankruptcy will not interfere with the performance of the trust then they may not remove the relevant trustee. relies on person qualified to appoint trustee – The difference between appointment of new trustees outside of Court and an order for removal of a trustee by the Court seems to be that, if the person qualified to appoint a new trustee forms the genuine belief that the trustee is unfit to act, the Court will not interfere. Trustee Act 1958 (Vic) – s48 The Court can appoint new trustees under this section of the act ‘if it is found inexpedient difficult or impracticable so to do without the assistance of the Court’ Re Tempest (1886) LR 1 Ch App 485 - One of two trustees nominated in the will had died during the deceased lifetime. The deceased will had provided that 2 of the existing trustees had the right to appoint a new trustee, but they could not agree. The beneficiaries wanted Petrie. Court provided 3 tests ‘First, the Court will have regard to the wishes of the persons by whom the trust has been created, if expressed in the instrument creating the trust, or clearly to be collected from it’ ‘Second, is that the will not appoint a person to be a trustee with a view to the interests of some of the persons interested under the trust in opposition either to the wishes of the testator or to the interests of other beneficiaries’
The trustee is the legal owner or holder of the property; but this is not for the trustees personal benefit. The property belongs, in equity, to the beneficiary and the primary obligation placed upon a trustee is to account for the trust property when called upon to do so. The most useful remedy available for breach of trust in many cases is the order of account. Order of Account Account – This is distinguished from remedy of ‘account of profits’. An order to account requires the trustee to account for the trust property itself, and its management. The remedy of account of profits is used to strip unauthorised profits from the trustee. Boardman v Phipps – A trustee may have made personal profits, increasing trust property – an account of profits or constructive trust is required to strip these profits from a trustee. Beneficiary can call at any time – A beneficiary can call for an account at any time, whether or not there has been a breach of trust. The trustee must product accounts showing receipts and disbursements. Breach of trust – if the beneficiary can establish that the trustee has committed a breach of trust, the trustee is usually ordered to account ‘on the basis of wilful default’ – Perpetual Executors, Trustees and Agency v West Australian Trustee, Executor and Agency Once account is made – The beneficiary can either accept, surcharge or falsify the account Accepts – If the beneficiary ‘accepts’ the account, they agree that the trustee has performed the trust and properly account for the trust property. Surcharges – If the beneficiary surcharges the account, the beneficiary indicates dissatisfaction with the trustee’s management. The trustee must then account for the trust fund as if it were properly managed. Falsifies – If the beneficiary ‘falsifies’ the account where they believe that some of the trust moneys have been misapplied. The trustee must then account for the full amount of the misapplied funds. Account of Profits