HISTORY AND NATURE OF EQUITY25

Core Principals of Equity25

The relationship between CL and Eq26

The legalisation of equity26

19th Century reforms27

Fusion fallacies27

Salt v Cooper (1880)27

Property in CL27

Property in Eq27

Trust and confidence27

Case study 1: When contracts go bad28

Case Study 2: Fat Henry and the problem of trusts28

Case study 2: Part performance and the equitable ‘impersonation’29

The requirements for writing29

Equity looks to substance not form29

Law and Equity29

The Relationship between Law and Equity29

Fusion fallacies33

Damages for Innocent Misrepresentation33

Refusal of damages for breach of covenant because the plaintiff is a volunteer33

Damages on the basis of the doctrine of part performance34

54A Contracts for sale etc of land to be in writing34

Lavery v Pursell (1888)35

Exemplary or aggravated damages for breach of an equitable obligation36

The doctrine of Walsh v Lonsdale36

ESTOPPEL38

1
 Common Law Estoppel38

Differences b/w CL and Eq38

Modern Equitable Estoppel38

Central London Property Trust Ltd v High Trees House Ltd [1947]39

Proprietary estoppel39

Two streams39

Dillwyn v Llewelyn [1862]39

Detriment40

Bringing Estoppel together40

Representation41

Assumption or expectation41

Inducement41

Reliance42

Knowledge or intention42

Detriment42

Relief42

LAW OF ASSIGNMENTS AND DISPOSITIONS44

Rights and liabilities not capable of assignment44

Arbuthnov v Norton (1846)44

Bare rights to litigate44

Glegg v Bromley [1912]45

Bare rights to litigate – genuine commercial interest45

Trendtex Trading Corporation v Credit Suisse [1982]45

Re Daley; Ex parte National Australia Bank Ltd (1992)46

Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr [2005]46

National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Limited (1995)46

2
 Poulton v Commonwealth (1953)46

Beatty v Brashs Pty Ltd [1998]46

Equuscorp Pty Ltd v Haxton [2012]46

Maintenance, Champerty and Barratry Abolition Act 199350

Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd [2006]51

Rights and liabilities not capable of assignment - incidental to a right of property54

Rights and liabilities not capable of assignment - insurance54

Assignment of contractual rights54

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994]55

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006)55

MALLESONS SUMARRY:58

Contracts for personal services60

Nokes v Doncaster Amalgamated Collieries Ltd [1940]60

Tolhurst v Associated Portland Cement Manufacturers (1900)60

Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak (2006)60

Assignment Analysis61

Assignments at law61

Part of a debt or chose in action cannot be assigned62

Things Section 12 can’t do62

Everett v Commissioner of Taxation (1980)63

Equitable assignments63

Intention is the key63

Burridge v MPH Soccer Management Ltd [2011]63

Comptroller of Stamps (Victoria) v Howard-Smith (1936)63

Assignments of future property in equity64

Norman v Federal Commissioner of Taxation64

3
 Shepherd v Commissioner of Taxation64

Future or Present?65

Everett v Commissioner of Taxation (198065

Description of the property65

Tailby v Official Receiver (1888)65

Assignment of future property and specific performance65

Nature of the assignee’s right65

Re Lind [1915]65

The equitable assignment of legal property for consideration66

Milroy v Lord (1862)66

Corin v Patton (1990)66

Costin v Costin (1997)67

The voluntary assignment of legal property not assignable at law67

PRIORITIZATION68

Equitable interest v equitable interest68

Moffett v Dillon [1999]68

Notice68

Who has the best equity?68

Heid v Reliance Finance Corporation Ltd69

JNJ Investments Pty Ltd v Sunnyville Pty Ltd [2006]70

Exception70

Rule in Dearle v Hall (1828)70

Re Dallas [1904]71

Lyle v Rosher71

Mere Equities71

Walker v Linom71

4
 Latec Investments Ltd v Hotel Terrigal Pty Limited71

Exception: tacking71

Prior Legal v Later Equitable71

Brocklesby v Temperance Permanent Building Society [1895]72

Barry v Heider72

Prior equitable interest v legal interest72

Pilcher v Rawlins (1872)72

Imputed Notice73

Old System Title74

Good Faith:74

Valuable Consideration74

Torrens Title Land74

Competing Registered Interests74

Port Swettenham v Loke Yew75

Fraud Timing75

Fraud by the agent75

Dollars & Sense Finance Ltd v Nathan [2008]75

Problem75

Answer76

Section 23C of the Conveyancing Act77

Equitable assignment of equitable interest77

Grey v Inland Revenue Commissioners [1960]78

Vandervell v Inland Revenue Commissioners [1967]78

What if the assignor dies before the direction is carried out?79

Parker & Parker v Ledsham [1988]79

Disposition by way of a contract to assign an equitable interest79

5
 Oughtred v Inland Revenue Commissioners [1960]79

Disposition of an equitable interest by way of declaration of trust80

Question80

Answer80

CONFIDENTIAL INFORMATION82

The obligation82

Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 213:82

What is confidential information?82

The origins of the action for breach of confidence82

Property origins –82

Franklin v Giddins [1978] Qd R 7282

Krueger Transport Equipment Pt Ltd v Glen Cameron Storage [2008] FCA 80383

OBG Ltd v Allan [2008] 1 AC 184

Contract origins –85

Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 16785

Seager v Copydex Ltd [1967] 2 All ER 41585

Ministry of Defence v Griffin [2008] EWHC 154285

The origins of the action for breach of confidence86

Tort origins – economic torts or fusion fallacy?86

Campbell v Mirror Group Newspapers Ltd [2004] 2 AC 45786

Mosley v News Group Newspapers Ltd [2008] EWHC 17788

Human rights?88

Unjust enrichment?88

Equitable origins in conscience88

Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 437–8 per Deane J88

The modern doctrine of breach of confidence88

6
 Coco v A N Clark (Engineers) Ltd88

Information that has a ‘confidential quality’89

Secrecy and the public domain89

Lucasfilm Ltd v Ainsworth [2008] EWHC 187889

Lennon v News Group Newspapers Ltd [1978]90

G v Day [1982] 1 NSWLR 24 .90

Australian Football League v Age Company Ltd (2007) 15 VR 40590

Personal information90

Prince Albert v Strange90

Marital and defacto relations90

Giller v Procopets90

Sexual preference and activity91

Stephens v Avery91

Theakston v Mirror Group Newspapers Ltd [2002] EWHC 13791

Mosley v News Group Newspapers92

A v B plc [2003] QB 19592

Brown v Associated Newspapers Ltd [2008] QB 10393

Diaries94

Prince of Wales v Associated Newspapers [2006]94

McKennitt v Ash [2008]94

Medical history95

X v Y [1988] 2 All ER 64895

Campbell v MGN Ltd [2004] UKHL 22. – Naomi Campbell See above95

Witnesses and informants95

Venables v News Group Newspapers Ltd [2001] 1 All ER 90895

Rogers v TVNZ [2007] NZSC 9195

7
 Cultural and religious information95

Foster v Mountford & Rigby Ltd (1977) 14 ALR 7195

Church of Scientology of California v Kaufman [1973] RPC 63596

Cf Foster. Court will allow publication of confidential society’s practices if it deems them to be harmful
to the public.96

Commercial informationTrade secrets or know-how? Court will protect trade secrets but not things
that are too obvious, general or widely known. Also, a global claim without specifics will also fail. To
determine, courts look at:96

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd96

Some trade secrets:96

Clothing: Peter Pan v Corsets Sillhouettes [1963]96

film costumes: Lucasfilm v Ainsworth96

Chemical formulae: Weston v Hemmons (1876)96

Results of experiments: Smith Kline v Secretary, DOCS96

Recipes: Crowder v Hilton96

Ideas for TV shows deleloped to the point of efficacy: Fraser v Thames TV [1984]96

But not a bare idea that is obvious: De Maudsley v Palumbo [1996]96

Faccenda Chicken Ltd v Fowler96

Del Casale v Artedomus (Aust) Pty Limited [2007] NSWCA 17297

Client Lists:97

Del Casale v Artedomus [2007]97

Government secrets98

Commonwealth v John Fairfax & Sons, at CLR 5198

Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd99

Semi-govt?99

British Steel Corp v Granada Television Ltd [1981] AC 109699

Esso Resources Ltd v Plowman (1995) 183 CLR 10 at 32 per Mason99

8
 Soldiers?101

‘R’ v Attorney-General [2003] UKPC 22101

Ministry of Defence v Griffin [2008] EWHC 1542 – see above.101

The duty or obligation of confidence101

Coco v A N Clark (Engineers) Ltd101

Hitchcock v TCN Channel Nine Pty Ltd (No 2) [2000] NSWCA 82.103

Unexpected Results of a Demonstration and unsolicited communications103

Fractionated Cane Technology Pty Ltd v Ruiz-Avila (1987)103

Accidental Disclosures103

Trevorrow v South Australia103

Misappropriation of information103

Exchange Telegraph Co Ltd v Central News Ltd [1897]103

Eavesdroppers103

Malone v Metropolitan Police Commissioner [1979]103

Francome v MGN [1984]103

Third parties103

Wheateley v Bell [1982]104

Establishing a breach104

Smith Kline and French Laboratories (Aust) Ltd v Secretary, Dept of Community Services &
Health104

R v Department of Health; Ex parte Source Informatics Ltd104

Detriment?104

Defences104

Public interest104

Expose dangers to public safety or health105

Hubbard v Vosper105

9
 W v Edgell105

Lion Laboratories Ltd v Evans [1985] QB 526105

Schering Chemicals Ltd v Falkman ltd and Ellstein [1981]106

Woodward v Hutchins [1977] 1 WLR 760106

McKennitt v Ash [2005] EWHC 3003107

Richards v Kadian [2005] NSWCA 328107

Public Interest and Sexy Times108

Stephens v Avery109

Mosely v News Group109

The Woodward Defence109

AFL V Age109

Forced disclosure109

Delay109

Clean hands –109

Campbell v Mirror Group Newspapers Ltd109

Australian Football League v Age Company Ltd (2007) 15 VR 405109

REMEDIES110

Injunctions110

The springboard doctrine110

Saltman Engineering Co Ltd v Campbell Engineering Co3110

Terrapin v Builders Supply Co [1967]110

Aggravated Damages110

Account of profits110

Delivery up110

Equitable compensation111

Harris v Digital Pulse Pty Ltd111

10
 Giller v Procopets111

Constructive trusts111

LAC Minerals v International Corona Resources (1989)111

The future — rights to privacy?111

Victoria Park Racing & Recreation Grounds Co Ltd v Taylor111

Australian Consolidated Press Ltd v Ettingshausen (1991)111

Kaye v Robertson (1991) FSR 62112

Developments in New Zealand and England112

Bradley v Wingnut Films [1993]112

Hosking v Runting [2004] NZCA 34112

Rogers v TVNZ112

Wainwright v Home Office [2002] UK112

Douglas v Hello! Ltd112

MAX MOSLEY v NEWS GROUP NEWSPAPERS LIMITED112

SIR ELTON JOHN v ASSOCIATED NEWSPAPERS LTD113

DAVID MURRAY v BIG PICTURES (UK) LIMITED113

Australia?113

Bathurst City Council v Saban113

Kwok v Thang [1999]113

Donnelly v Amalgamated Television Services Pty Limited (1998)113

Australian Broadcasting Corp v Lenah Game Meats Pty Ltd114

Whiskisoda Pty Ltd v HSV Channel 7 Pty Ltd Pty Ltd (1993)114

UNCONSCIONABLE TRANSACTIONS & UNDUE INFLUENCE PURPOSE114

General or specific term?115

Elements115

11
 Bargaining Power115

Timing116

Special Disadvantage116

Knowledge116

Unconscionable exploitation of the disadvantage116

Examples116

Legislation117

Undue Influence118

Categories of Undue Influence119

Actual Undue Influence119

Presumed Undue Influence120

Class 2A and 2B120

Trustee-Beneficiary Relationship120

Class 2B120

Rebuttal121

Yerkey v Jones121

DECLARATIONS122

Definition122

Why use them?122

Equity to Statute122

NSW123

Declarations concerning statutory rights123

•Forster
Forster v Jododex Australia Pty Ltd (1972)123
(1972)

•Law
Law Society of NSW v Weaver [1974]123
[1974]

Discretion123

•Rivers
Rivers v Bondi Junction-Waverley RSL Sub-branch Ltd (1986)123
(1986)

12
 •Ainsworth
Ainsworth v Criminal Justice Commission (1992)123
(1992)

Abstract or hypothetical questions123

Mellstrom v Garner [1970]123

[1970]

University of New South Wales v Moorhouse (1975)123

Egan v Willis (1998)123

(1998)

Need for a ‘real interest’ — locus standi124

Foreseeable consequences — utility125

Cruse v Multiplex Ltd [2008]125

[2008]

Commonwealth of Australia v BIS Cleanaway Ltd [2008]125

[2008]

Defences125

H Stanke & Sons Pty Ltd v O’Meara (2007)125

(2007)

Criminal law?126

Gedeon v Commissioner of the New South Wales Crime Commission (2008)126

(2008)

Airedale NHS Trust v Bland126

•Sankey v Whitlam (1978)126

•Tom & Bill Waterhouse Pty Ltd v Racing New South Wales [2008]126

INJUNCTIONS127

Jurisdiction?127

Judicature Act127

Exclusive127

Why does it matter?127

Injunctions Protect Rights128

Inadequacy of damages128

Graham v K D Morris & Sons Pty Ltd [1974]128

The requirement of a proprietary right128

Types of Injunctions128

13
 Mandatory injunctions128

Mandatory restorative injunctions129

Jessica Estates Pty Ltd v Lennard [2007]129

Relevant Factors:129

Mandatory enforcing injunctions129

Perpetual injunctions129

Interlocutory injunctions129

Prima Facie Case Requirement130

Shercliff v Engadine Acceptance Corporation Pty Ltd [1978]130

Balance of Convenience Requirement131

Interlocutory mandatory injunctions131

Burke v Frasers Lorne Pty Ltd [2008]132

Interlocutory injunctions in the context of defamation132

ABC v O’Neill132

Undertaking as to damages132

Quia Timet Injunctions133

Injunctions to Enforce Negative Stipulations133

Lumley v Wagner (1852)133

Warner Bros Pictures Inc v Nelson [1937]134

Injunctions to enforce statutory rights134

Mareva orders135

Jurisdiction135

Supreme Court Act 1970 (NSW) s 66136

3 Requirements for obtaining a Mareva Order136

A risk of dissipation of assets136

The plaintiff’s cause of action136

14
 Balance of convenience136

Anton Piller Orders137

Jurisdiction137

Requirements for an Anton Piller Order137

The rights of the defendant137

SPECIFIC PERFORMANCE & MONETARY REMEDIES138

In personam138

Binding contract not for valuable consideration138

Inadequacy of damages at common law138

Personal services contracts138

Constant court supervision138

Hardship139

Vitiating factors139

Unconscionability139

Lack of mutuality139

Plaintiff in substantial breach and/or not able to perform140

Contracts unenforceable at law and Part performance140

Equitable compensation and damages140

Equitable compensation140

The nature of equitable compensation141

The relationship to the common law conception of damages141

Causation141

Plaintiff’s contribution to loss142

Other factors143

s 68 of the Supreme Court Act 1970 (NSW)143

Lord Cairns Act damages143

15
 Jurisdiction to award equitable damages143

Equitable damages in addition to specific relief143

Equitable damages in lieu of specific relief143

INTRODUCTION TO TRUSTS144

Elements144

Definitions144

Actors in the trust144

History of the trustError! Bookmark not defined.

The three species of trust144

Contracts and trusts145

Gosper v Sawyer (1985)145

Fiduciary relationships and trusts146

Deceased estates and trusts146

Bailments and trust146

Agency and trust146

Debts and trusts147

Securities and trusts148

Conditional dispositions and trusts149

Retention of title clauses and trusts149

Powers of appointment and trusts150

Problem Question151

CREATION OF EXPRESS TRUSTS160

The three certainties160

Certainty of intention160

Commissioner of Stamp Duties v Joliffe (1920)160

Parol evidence rule will not apply161

16
 Quistclose TrustsError! Bookmark not defined.

Barclays Bank Ltd v Quistclose Investments Ltd [1970]Error! Bookmark not defined.

Re Kayford Ltd (in liq) [1975]162

Stephens Travel v Qantas Airways Ltd (1988)162

Certainty of subject matter162

Palmer v Simmonds (1854)163

Re Golay’s Will Trusts163

Sprange v Barnard (1789)163

Hunter v Moss [1994]163

Certainty of objects164

Fixed trusts and certainty164

West v Weston (1998)165

Certainty of beneficiaries in discretionary trusts165

Unincorporated associations166

Leahy v Attorney General (NSW) [1959]167

The rule against delegation of testamentary power167

Tatham v Huxtable (1950)167

Declarations of trust168

Wratten v Hunter [1978]169

Creation by direction169

Secret trusts169

What is the trust property of a secret trust?170

Problem170

VARIATION AND TERMINATION OF EXPRESS TRUSTS172

Powers to Vary Contained in Express Trusts172

17
 Inherent Power to Vary Trusts172

Emergencies:172

Tickle v Tickle (1987)172

Statutory Power to Vary Trusts172

Trustee Act 1925 (NSW), s 81172

Illegality172

Termination or failure of express trusts173

Nelson v Nelson (1995)173

Day v Couch [2000]174

Public policy174

Kay v SESAHS175

Restraints on alienation175

The rule against indestructible trusts176

The rule against perpetuities176

The modern rule against perpetuities176

SOME STEPS177

Examples177

Common Law Amelioration178

RULE IN Andrews v Partington178

Statutory reform178

Question178

Solution179

CHARITABLE TRUSTS180

Differences with other express trusts180

‘Charitable’ Purpose180

Gilmour v Coates [1949]180

18
 Royal National Agricultural and Industrial Association v Chester (1974)180

Commissioner for Special Purposes of Income Tax v Pemsel [1891]181

Report of Inquiry Into the Definition of Charities and Related Organisations 2001181

the advancement of education;181

the advancement of religion181

the advancement of the natural environment;181

Charities Bill in 2003181

Public benefit181

Re Compton [1945]181

Trusts for Political Purposes182

Attorney General (NSW) v The NSW Henry George Foundation Ltd [2002]182

Trusts for the Relief of Poverty182

Trusts for the Advancement of Education182

Trusts for the Advancement of Religion183

Trusts with Mixed Charitable and Non-Charitable Purposes183

Enforcement and Administration of Charitable Trusts183

General Administrative Schemes183

Cy-pres Schemes184

Initial Impossibility185

Supervening Impossibility185

Satisfaction of Original Purpose185

Phillips v Roberts185

Valid Non-Charitable Purpose Trusts185

The upkeep of animals185

The maintenance of graves and tombstones186

Problem186

19
 Answer186

RESULTING TRUSTS188

Definition188

Automatic resulting trusts188

Westdeutsche Landesbank Girozentrale v Islington Borough Council188

Presumed resulting trust188

An institutional trust188

Incomplete disposition of a beneficial interest188

Failure of an express trust188

Quistclose trusts189

Salvo v New Tel Ltd [2005]189

Trust surpluses after satisfaction of the purpose of a trust189

Purchase of property in another person’s name189

Contributions to the purchase of property189

The nature of co-ownership in resulting trusts190

Rebutting the presumption of resulting trust190

The presumption of advancement190

Calverley v Green (1984)191

Gifts and resulting trusts192

Solution192

CONSTRUCTIVE TRUSTS194

Remedy or institution?194

Muschinski v Dodds (1985)194

Differences with express and resulting trusts195

Giumelli v Giumelli (1999)196

When do constructive trusts arise?196

20
Constructive trusts to enforce agreements concerning property196

Mutual wills196

Estoppel197

Breach of confidence197

Common intention to deal with property197

Pettit v Pettit [1970]197

Gissing v Gissing [1971]198

Midland Bank v Cooke [1995]199

Oxley v Hiscock [2005]199

Stack v Dowden [2007]199

Quantifying the beneficial interest200

In Australia Allen v Snyder (1977)201

Ogilvie v Ryan [1976]201

Clout v Markwell [2003]202

Constructive trusts to remedy breach of fiduciary duty202

Western Areas Exploration Pty Ltd v Streeter (No 3) [2009]203

Michael Wilson and Partners Ltd v Nicholls [2009]205

Constructive trusts to remedy breach of fiduciary duty205

Constructive trusts that arise against third parties205

Trustees de son tort205

Knowing receipt206

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007)206

The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2009)208

Knowingly assisting a breach of trust209

Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006]210

Constructive trusts and stolen property210

21
 Constructive trusts and moneys paid by mistake211

Constructive trusts and homicide213

Constructive trusts to remedy unconscionable conduct213

Muschinski v Dodds (1985)213

Baumgartner v Baumgartner (1987)214

Turner v Dunne [1996]214

The effect of legislation on constructive trusts in the family context215

Property (Relationships) Act 1982 (NSW)220

The effect of legislation on constructive trusts in the family context220

The remaining importance of equity220

TRUSTEES BENEFICIARIES AND TRACING221

Appointment, retirement and removal of trustees222

Removal222

Rights of trustees223

Powers of trustees223

Duties of trustees223

Interests of beneficiaries224

Rights of beneficiaries224

Personal remedies224

Equitable compensation224

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003)224

Proprietary remedies — tracing224

Foskett v McKeown [2000]224

Tracing property into the hands of trustees225

Mixed property — the rule in Re Hallett’s Estate225

The lowest intermediate balance rule225

22
 Tracing valuable purchases from a mixed fund225

Tracing mixed funds into appreciating property225

Mixed property in the hands of trustees from more than one trust226

The rule in Clayton’s case226

Tracing property into the hands of third parties226

Foskett v McKeown [2000]226

Defences227

EQUITY AND TRUSTS PRACTICE QUESTIONS228

Assignments & Dispositions228

Confidential Information229

Fiduciary Obligations230

Introduction to Trusts232

Express Trusts232

Variation and Termination233

Charitable Trusts234

Resulting Trusts235

Constructive Trusts236

Rights and Responsibilities237

Combined Trust Questions with Answer Guides238

PAST EXAMS243

Undue Influence244

Assignment of a Chose in Action245

Confidential Information246

Fiduciary Relationship247

Charitable Trust248

Private Express Trust249

23
Automatic Resulting Trust249

Rule on Perpetuities249

Indefeasibility and knowing receipt of trust property250

Resulting Trust Joint Owners Real Property251

Disposition of power of appointment251

Secret Trust252

Joint Tenancy presumption, married couples252

Fiduciary Obligations in a Joint Venture254

Assignments in Equity and consideration256

Estoppel256

Quitclose Trust257

Presumed Resulting Trust of Matrimonial Home258

Resulting Trust in Bankruptcy258

Torrens Trust Knowing Receipt258

Secret Trust259

Charitable Trust260

Charitable/Political Trust260

Restraint on Marriage Trust261

Rule against Perpetuities261

Equitable Estoppel262

Undue Influence / Unconscionable Dealing262

Assignment of Shares and Dividends263

24
HISTORY AND NATURE OF EQUITY
Core Principals of Equity
Equity is discretionary

The core principals are lyrical prescriptions cf. the ten commandments – the basis for values courts
should bare in mind when reaching decision.

1...............................................Equity will not suffer a wrong to be without a rememdy – Core jurisdiction

2.............Equity follows the law – Equity is generally required to follow the statutes in all circumstances.
However, note secret trusts designed to circumvent the Wills Act. This principle is subject to:
3.....................................Equity will not permit statute or common law to be used as an engine of fraud –
4.....Where there is equal equity, the law shall prevail – where both parties are equally blameless, equity
resorts to common law.
5...........Where the equities are equal, the first in time shall prevail – However, this principal is subject to:
6.................................................................................................................................Delay defeats equities
7.. .Equity will not assist a volunteer – A person has no rights unless there is a valid contract, a valid trust
or some statutory provision. E.g. someone promised flowers has no rights to the flowers unless they
have provided consideration or a trust had been created.
[Link] who seeks equity must do equity. E.g. two people enter a contract and then both refuse to do what
is required. A cannot seek specific performance because she has not performed her part.
9. He who comes to equity must do so with clean hands – Company director committed a crime to enrich
his company. Sought money from the company in compensation but refused b/c lack of clean hands
Guinness v Sullivan (1990)
10....Equality is equity – A last resort in situations where the different merits are difficult to differentiate
e.g. trusts of poperty of unmarried couples and competing mortgagees (Midland Bank v Cooke (1995)).
11. Equity looks to the intent rather than to form – equity tries to cut to the meat of the intentions. E.g. if
it looks like a trust, it’s a trust Paul v Constance (1977).
12.......Equity looks on as done that which ought to be have been done – Walsh v Lonsdale creation of an
equitable lease evidenced by a valid contract to create a lease despite lack of formal requirements.
13. Equity imputes an intention to fulfil an obligation – even to the point that acts not strictly required by
the obligation may be deemed to be part performance of the obligation. E.g. woman owes money to a
man and dies. Leaves money to him in her will. Equity will deem the money to be paid in satisfaction of
the debt. NB. may be overcome by evidence that legacy promised before debt.
14..Equity abhors a vacuum – Resulting trusts in property where a gift does not come to fruition and the
property springs back to its original owner. An owner cannot simply abandon property rights in a horse
and not be obliged to feed or care for it or compensate neighbours for crops the horse ate.
What does Equity do?

Parkinson:

(i) the exploitation of vulnerability or weakness, as exemplified in principles relating to unconscionable

dealing and undue influence;

(ii) the abuse of positions of trust or confidence, as exemplified in the law of trusts and fiduciary
obligations generally;

25
(iii) the insistence upon rights in circumstances which make such insistence harsh or oppressive as
exemplified in relief from penalties and forfeiture, the law of equitable set-off, and the refusal of specific
performance on the discretionary ground of hardship;

(iv) the inequitable denial of obligations, as exemplified in the doctrine of part performance and the
principle of equitable estoppel;

(v) the unjust retention of property, as exemplified in certain constructive trusts and principles of
subrogation

The relationship between CL and Eq

James VI of Scotland

The rise of protestantism

Absolutism of sovereign – Divine Right of Kings or King-in-parliament?

Bacon & Ellesmere: Earl of Oxford’s case

Earl of Oxford’s case

The Office of the Chancellor is to correct Men’s consciences for Frauds, Breach of Trusts, Wrongs and
oppressions, of what Nature soever they be, and to soften and mollify the Extremity of the Law ...
[W]hen a Judgment is obtained by Oppression, Wrong and a hard Conscience, the Chancellor will
frustrate and set it aside, not for any error or Defect in the Judgment, but for the hard Conscience of the
Party.

The legalisation of equity

The Civil War – equity nearly destroyed

Lord Nottingham (1673-82)– father of equity

Lord Eldon – (1801-27) modern rules

Precedent and fixation

Appointment of VC

Poor administration

Infamous delay – record 16 years and still interlocutory

19th Century reforms

Bentham and the ‘dog law’

Judicature Acts 1870s – 1970s

The two streams in one courtWindeyer J in Felton v Mulligan (1971) 124 CLR 367 at 392; [1972] ALR 33
at 46

Fusion fallacies

26
Salt v Cooper (1880) 16 ChD 545 at 549, Jessel MR said of the effect of the Act:

It has been sometimes inaccurately called 'the fusion of Law and Equity'; but it was not any fusion, or
anything of that kind; it was the vesting in one tribunal the administration of Law and Equity in every
cause, action, or dispute which should come before that tribunal. … To carry that out, the Legislature did
not create a new jurisdiction, but simply transferred the old jurisdictions of the Courts of Law and Equity
to the new tribunal, and then gave directions to the new tribunal as to the mode in which it should
administer the combined jurisdictions.

Property in CL
Universalized, reified, fetishized – the materialization of the common law

Formality

Creation

Transfer

Rights recognised in contract and tort – breach of contract, trespass, negligence

Remedies for breach of property rights – damages

CL makes orders about the property not the people

Property in Eq
Substance

Conscience

Power

Responsibility – lunacy, infants, married woman

Trust and confidence

BUT through the logic of precedent not unfettered discretion

Rights recognised through doctrines of equity – misrepresentation, undue influence, duress,

unconscionability, fiduciary relationships, part performance, equitable estoppel, breach of confidence

Remedies – injunctions, specific performance, constructive trusts, personal orders

Equity makes orders about the people not the property

Equitable property or interest (equitable fee simple, mortgages, covenants etc)

Personal Equities (Gill v Gill)

Mere Equities (Latec)

Case study 1: When contracts go bad

A (vendor) exchanges contracts with B (purchaser)

A gets a better offer from C (he knows about B’s offer) and completes the sale to C before B knows

27
Common law approach? Breach and damages – no property held by B

Equitable approach: breach and specific performance

But what about the property interests?

Case study 1: When contracts go bad

In common law B is not the owner as the contract has not been completed so the property cannot be
returned

In equity, the rule in Lysaght v Edwards says that B gets an equitable interest from the exchange and
that it is a form of constructive trust, which can be enforced against C (when he knows about B)

Case Study 2: Fat Henry and the problem of trusts

Henry and the purse strings

Taxation in Tudor England – feudal tenures

Primogeniture

Devising land by will

The legal remainder rules

The use

A --------------------------B --------------------C

(Landowner)(feoffee to use )(cestui que use)

Legal estate Beneficial estate

CLEquitable

The Statute of Uses 1535

Collapse the use

Springing uses

The use on the use

Equity creates property where there was none before……

Case study 2: Part performance and the equitable ‘impersonation’

A Lease for a factory – an agreement to create a deed

Or a mortgage created by deposit of title deeds

Or a promise to give a life interest if cared for in dotage…

The requirements for writing

23BAssurances of land to be by deed

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No assurance of land shall be valid to pass an interest at law unless made by deed.

23CInstruments required to be in writing

Subject to the provisions of this Act with respect to the creation of interests in land by parol: (a)  no
interest in land can be created or disposed of except by writing signed by the person creating or
conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by
operation of law, ….

54AContracts for sale etc of land to be in writing

No action or proceedings may be brought upon any contract for the sale or other disposition of land or
any interest in land, unless the agreement upon which such action or proceedings is brought, or some
memorandum or note thereof, is in writing, and signed by the party to be charged or by some other
person thereunto lawfully authorised by the party to be charged…

CL says no deal

Part performance

Equity looks to substance not form

Was there an agreement?

Did a party act under that agreement and performed an act to their detriment which relates solely to
the agreement?

Is the agreement one which a court of equity would order specific performance?

If yes to all then equity creates an interest which is an equitable impersonation or copy of the common
law interest being claimed

Law and Equity

The Relationship between Law and Equity
[1.10] The relationship between law and equity prior to the introduction of Judicature Act style
legislation. Even though Judicature Acts have now unified the administration of law and equity
throughout Australia the two bodies of law remain separate and to properly understand the nature of
modern equity it is essential to comprehend the relationship between equity and the law before their
administration was united under the one court. There were a number of major features of that
relationship.

[1.11]Common law courts would not recognise equitable rights, titles and interests. Thus, at common
law, the trustee, and not the beneficiary was regarded as the 'owner' of trust property. This meant, for
instance, that no action could be brought at common law for breach of a purely equitable obligation.

In Castlereagh Motels v Davies-Roe (1967) 67 SR (NSW) 279 a company brought an action against one
of its directors seeking damages for breach of his duty to act in the interests of the company. Asprey and
Jacobs JJ rejected the company's claim saying at 285-6, We do not think that . . . all those principles
which must govern the conduct of directors as fiduciaries which have been developed in equity have
become in some manner transposed into the common law so that there is at common law an action for
their breach .... The courts of equity having developed the principles of duty enforce those principles by
their own remedies'.

29
But there were exceptions to this rule. The common law recognised the validity of devises of equitable
interests; in Pawlett v A-G (1667)
(1667 Hard 465; 145 ER 550 a devise of an equity of redemption was upheld.
The common law also recognised equitable claims in interpleader cases:: Gourlay v Lindsay (1879) 2 SCR
(NSW) 278; in garnishee proceedings: M G Charley Pty Ltd v F H Wells Pty Ltd [1963] NSWR 22, and in
contracts for the sale of land always held the purchaser to be entitled to insist on a conveyance of the
equitable as well as the legal title. In contract cases the common law would sometimes take into
account the interests of a third party cestui que trust when assessing damages at law.

In Robertson v Wait (1853) 8 Exch 299;155 ER 1360 a ship was chartered from Liverpool to Calcutta. A
clause in the charterparty provided that at Calcutta the vessel was to be chartered there to a third firm,
Ewing & Co, and the plaintiff expected to receive a commission from that further charter. The ship was
lost on its way to Calcutta and the plaintiff was held to be entitled to damages on its own account and
also to substantial damages as trustee for the third party.

In some circumstances courts of common law have recognised trusts, particularly where leases have
been held on trust, ie, May v Taylor (1843) 6 Man & G 261; 134 ER 891, and decrees in Chancery have
for a long time been allowed as a set-off in actions at law. Common law courts also recognised equitable
rights, titles and interests where they were the subject matter of a claim in tort or contract, such as
breach of a contract to sell some equitable interest. There were other breaches in the wall, but none of
any great effect and the disadvantages flowing from the separate administration of common law and
equity far outweighed these slim concessions.

[1.12]Equity had no power to decide disputed legal rights and titles. A plaintiff seeking an equitable
remedy to enforce a legal right would not be able to do so unless the common law right was admitted.
In New South Wales s 4 of the Equity Act 1880 (s 8 Equity Act 1901), adopting s 61 of the English Court of
Chancery Procedure Act 1852, gave the Supreme Court in its equitable jurisdiction power to determine
incidental questions of law arising in suits for equitable relief.

[1.13]Equity had no power to award damages. The Court of Chancery had power to award monetary
remedies by way of restitutionary relief but not damages as they were known at law. In England a power
to award damages in lieu of or in addition to the remedies of injunction and specific performance was
conferred on Chancery by Lord Cairns' Act in 1858 which was adopted in New South Wales as s 32 of the
Equity Act 1880 (s 9 Equity Act 1901). This has since been re-enacted as s 68 of the Supreme Court Act
1970 (NSW) This right to award damages was not unlimited. Some entitlement to one of the two
equitable remedies had to be shown before damages could be awarded. However it was ultimately held
that a claim for injunction or specific performance which could be justified on the original pleadings was
sufficient, even though the claim might be defeated by some subsequent intervening factor:
Goldsborough Mort v Quinn (1910) 11 CLR 674, per Isaacs J. This provision has been carried over into
the judicature system and the distinction between damages under Lord Cairns' Act and damages at
common law remains a matter of some controversy. At the same time there has been considerable
growth in equity's jurisdiction to award monetary relief by way of restitution or equitable compensation
(see Chapter 25).

In King v Poggioli (1923) 32 CLR 222 a purchaser of rural land sought specific performance against the
vendor and damages for the vendor's failure to complete on a specified day as stipulated. However, the
purchaser had refused to tender the full purchase price and retained a sum sufficient to cover the cost
of stock lost through lack of grazing. The High Court held that specific performance was not available as
the purchaser could not show that he was at all times ready and willing to fulfil his part of the contract

30
and, as he was not entitled to specific performance, he could not get damages under s 9 of the Equity
Act 1901.

[1.14]The common law courts lacked power to give interlocutory relief. Chancery had inherent power to
order discovery, interrogatories, to award interim injunctions and to appoint receivers. The common law
courts lacked these powers, although a power to order discovery and interrogatories was conferred on
the common law courts in England by ss 50 and 51 of the Common Law Procedure Act 1854. The
discovery power was adopted in New South Wales as ss 23-24 of the Common Law Procedure Act 1857.
Apart from those limited reforms, litigants at common law had to resort to equity if they wanted any
such interim relief.

[1.15]The courts of common law had no power to award specific performance, or injunctions. The only
exceptions to this were, first, a power to award injunctions in addition to damages given to the common
law courts by ss 48-51 of the Common Law Procedure Act (Imp) 1854, as adopted in New South Wales
by the Common Law Procedure Act 1857, ss 44-47 which was necessarily limited by the precondition of
damages, and, secondly, a limited power to award injunctions in commercial causes given in 1965 to the
common law side of the Supreme Court by s 7B of the Commercial Causes Act 1903 (NSW).

[1.16]The common law courts lacked power to make declarations. Chancery had an inherent power to
make declarations when giving other relief but it was not until Sir George Turner's Act 1850, s 35, that a
specific power to make declarations, provided the parties agreed to state a case, was conferred on
Chancery. That power was clarified in 1852 by a provision which allowed Chancery to make declarations
whether other relief was granted or not. 1 This power was read down to apply only to cases where other
relief could have been granted: Rooke v Lord Kensington (1856) 2 K & J 753; 69 ER 986 (see Chapter 24).

[1.17]No power existed to transfer cases from one jurisdiction to the other. There was a very real risk,
particularly in cases concerning mistake or breach of contract, of commencing proceedings in the wrong
court. It was not until 1854 in England and 1857 in New South Wales that a power to recognise equitable
defences was conferred on the courts of common law.

However, the courts of common law had no power to impose conditional relief. They could only find for
or against a party. As a result the right to raise equitable defences at law was restricted to cases in which
a court of equity would have granted an absolute, perpetual and unconditional injunction on the
pleading raised:: Mines Royal Societies v Magnay (1854) 10 Ex 489; 156 ER 531.

In Carter v Smith (1952) 52 SR (NSW) 290 a defendant in an action of ejectment sought to rely on an oral
sharefarming agreement. The relevant agricultural holdings statute required such agreements to be in
writing. Street CJ held that while the agreement might be recognised in equity under the equitable
doctrine of part performance it could not be raised as a defence at common law as a court of equity
would only grant a conditional injunction on such a claim, ie, one which restrained the plaintiff pending
execution of a lease in proper form.

[1.18] As most injunctions awarded by Chancery were conditional the benefit of this reform was quite
limited. Other jurisdictions resolved this continuing procedural dilemma by enacting judicature
legislation. New South Wales clung to the ancient system and sought to alleviate it by passing legislation
which allowed for the transfer of cases from common law to equity where the judge at common law was
of the opinion that the matter pleaded would not produce an absolute, perpetual and unconditional

1 15 & 16 Vict c 86 (Imp) s 50 which was adopted in New South Wales as s 50 of the
Equity Act 1880 and re-enacted as s 10 of the Equity Act 1901.

31
injunction with ludicrous results.2 There was no complementary power to transfer cases from equity to
the common law where it became clear that equity could not deal with the matter. New South Wales
attempted a further patch up piece of reform in 1957 by adding s 84A to the Equity Act 1901. 3 Under s
8A the Court, in its equity jurisdiction, was required to transfer a suit to common law when it appeared
at any stage of the proceedings that the Court had no jurisdiction and that the appropriate remedy lay in
the common law. There was some judicial confusion about what was meant by 'no jurisdiction', 4 while
the logical conclusion of 'any stage of the proceedings' remained unexplored when the Supreme Court
Act 1970 came to the rescue.

1.3The Judicature System

[1.19] The English Judicature Act of 1873 and 1875. While law and equity were administered by separate
courts the only way to resolve conflicts between the two, as in a case where a defendant at common
law had a good equitable defence to the claim but could not raise it in the common law court, was the
common injunction which stopped the proceedings at common law. That clumsy mechanism was
replaced in the Judicature Act (Imp) 1873 by s 25(11) which provided that where there was any conflict
between the rules of equity and those of the common law, equity should prevail. 5 Under the judicature
system the administration of these two bodies of law was brought under control of the one court,
obviating any need for a multiplicity of actions on the one cause. It is crucial to remember that it is only
the administration of these principles which is fused, not the principles themselves. The main features of
a judicature system are:

[Link] branches of the court have power to administer equitable remedies.

[Link] defences can be pleaded in all branches of the court and the appropriate relief given.

[Link] branches of the court must recognise equitable rights, titles and interests.

[Link] branches of the court have a general power to determine legal rights and titles.

[Link] common injunction is abolished.

Fusion fallacies
[1.20] The unification of the administration of common law and equity caused some judicial confusion,
particularly in the early days of the judicature system in England, resulting in a number of decisions
where the judgment proceeded on the erroneous assumption that the Judicature Acts had united the
common law and equity into the one bundle of principles from which desired pieces could be picked out
like rags at a jumble sale. But that was not the intention of the legislature in bringing in a judicature
system. That proposition has been recognised since. In O’Rourke v Hoeven [1974] 1 NSWLR 622 at 626
Glass JA said of the Supreme Court Act 1970 (NSW) that it effected a fusion not of two systems of
principle but of the courts which administer the two systems. In Bank of Boston Connecticut v European
Grain and Shipping Ltd (The Dominique) [1989] AC 1056 at 1109 Lord Brandon said that the judicature
Acts, while making important changes in procedure, did not alter and were not intended to alter the
rights of parties. Or, as Mummery LJ put it in MCC Proceeds Inc v Lehman Bros International (Europe)
[1998] 4 All ER 675 at 691, the Judicature Acts were “intended to achieve procedural improvements in
2 M G & L [152].
3 M G & L [152].
4 M G & L [153].
5 Re-enacted in NSW in the Law Reform (Law and Equity) Act 1972.

32
the administration of law and equity in all courts, not to transform equitable interests into legal titles or
to sweep away altogether the rules of the common law”. Despite the fact that the Judicature Acts did
not state that the two systems of law were to be, as to the principles applied in each system, decisions
have been made over the years that have suggested some judicial confusion on this point.

Damages for Innocent Misrepresentation

At common law damages were available for the tort of deceit which required proof of conscious
dishonesty: Derry v Peek (1889) 14 App Cas 337. Equity would grant rescission of a contract on the
grounds of innocent misrepresentation, provided the parties could be restored to their original
positions. In Redgrave v Hurd (1881) 20 Ch D 1 Sir George Jessel MR suggested that the difference
between equity and the common law had disappeared with the passing of the Judicature Acts and that
damages might thus be obtainable for innocent misrepresentation which had previously been
recognised in equity only as a ground for rescission. More recently damages were awarded for breach of
confidence, a purely equitable obligation, without any reference to Lord Cairns' Act as the basis for the
award, nor any suggestion that the remedy was actually a matter of restitution, both of which would
have satisfied established principle: Seager v Copydex [1967] 2 All ER 415; [1967] RPC 349.6

Refusal of damages for breach of covenant because the plaintiff is a volunteer

The maxim that equity will not assist a volunteer has, in one narrow line of cases, been carried across to
the common law to frustrate an action brought by a party entitled to the benefit of a covenant executed
under seal which, for over five hundred years, had provided a perfectly good action for damages at
common law: Re Pryce [1917] 1 Ch 234.

The trustee of a marriage settlement7 approached the court for directions as to whether he ought to sue
another party to the deed of settlement for breach of its provisions, specifically, that the party had failed
to convey certain after acquired property to the trustee. Eve J held that the trustee 'ought not to sue' as
the beneficiaries under the deed, by then the wife's next of kin, were volunteers, and equity would not
assist a volunteer. His Lordship also added his view that, 'nor could damages be awarded either in this
court or, I apprehend, at common law where since the Judicature Act the same defences would be
available to the defendant as would be raised in an action brought in this court for specific performance
or damages'.

The survival of the action for damages for breach of covenant at common law testifies to the magnitude
of the error in this judgment. If it was correct, apart from a number of odd results, it would be possible
to plead the equitable defence of hardship at common law in, say, an action for money had and
received, with absurd consequences. With the legal recognition, albeit only by statute, of the rights of
married women to own property in their own name, the marriage settlement has passed into history
along with the breech loading musket. The varied fortunes of the law of trusts may produce some new
species of arrangements in which covenants to settle after acquired property in favour of future
beneficiaries are a central feature. For the moment, the issues which arose in Re Pryce and cases of its
ilk are unlikely to trouble modern courts of equity.

6 This practice has continued in breach of confidence cases and is now generally regarded
as a matter of equitable compensation rather than a fusion fallacy.
7 A trust established on the marriage of a woman from a wealthy family whereby property
was settled on trust for the woman for life and thereafter for her children or heirs. The
woman, and usually her husband to be, were parties to the deed, as were other members of
her family The deed usually contained a covenant to settle property acquired thereafter on
the trustees.

33
Damages on the basis of the doctrine of part performance
Under the Statute of Frauds, and its modern re-enactments, certain contracts were unenforceable if
they did not meet certain formal requirements, usually that they be in writing. In New South Wales the
most common example of that is s 54A of the Conveyancing Act 1919;

54A Contracts for sale etc of land to be in writing

(1)No action or proceedings may be brought upon any contract for the sale or other disposition of land
or any interest in land, unless the agreement upon which such action or proceedings is brought, or some
memorandum or not thereof, is in writing, and signed by the party to be charged or by some other
person thereunto lawfully authorised by the party to be charged.

This section applies to contracts whether made before or after the commencement of the Conveyancing
(Amendment) Act 1930 and does not affect the law relating to part performance, or sales by the court.

At law such provisions meant that no action for damages could be brought for breach of such a contract.
Equity, on the other hand, by way of the doctrine of part performance, would enforce such contracts by
granting a decree of specific performance, provided the party seeking the order could prove acts of part
performance sufficient to give rise to an equity in his or her favour. The test for the application of the
doctrine of part performance was laid down in Maddison v Alderson (1883) 8 App Cas 467.

The appellant had lived for many years as housekeeper in the service of Thomas Alderson, who died in
1877. In return for her unpaid services, Alderson had promised to leave her a life estate in Moulton
Manor Farm. He included that gift in a will which he signed in 1874 and which later failed for want of
proper attestation. After Alderson’s death the appellant took possession of the title deeds to the farm.
Alderson’s heir sought to recover the deeds. In her defence the appellant claimed that she was entitled
to the benefit she would have received under the will because of the parol agreement between herself
and the deceased. The House of Lords, led by Lord Selborne LC, held that the agreement was one on
which the appellant might have been entitled to relief but for the Statute of Frauds, there being no
written memorandum of it, and that the acts of the appellant were not sufficient to invoke the doctrine
of part performance which required that the acts relied upon as part performance be unequivocally, and
in their own nature, referable to some such agreement as that alleged. The defendant would then be
‘charged’ upon the equities resulting from the acts done in execution of the contract and not upon the
contract itself. Mere continuance in Alderson’s service, though without payment of wages, was not of
itself evidence of a new contract, much less one concerning land.

That statement of the rule in Maddison v Alderson was followed by the High Court in McBride v
Sandiland (1918) 25 CLR 69, in which Isaacs and Rich JJ, in a joint judgment, at 78, confirmed that ‘some
such agreement as that alleged’ meant some contract of the general nature of that alleged. McBride v
Sandiland has since been followed in Cooney v Burns (1922) 30 CLR 216, and in Regent v Millett (1976)
50 ALJR 799. The latter case was applied in Watson v Delaney (1991) 22 NSWLR 358 as authority for the
principle stated in Maddison v Alderson to give effect to an oral grant of a tenancy for life. The acts of
part performance, which were held to be sufficient, included going into possession, paying rent, and
effecting substantial capital repairs on the premises. The doctrine is not a rule of evidence through
which the court can find proof of a contract otherwise required to be in writing; it is a rule of substantive
law concerned with the question of whether the acts of part performance relied upon by the plaintiff
give rise to an equity entitling him or her to specific performance. The acts of part performance are not
manifestations of the alleged agreement which satisfy some spirit of the legislation requiring that the
agreement not be secret.

34
In some cases arguments have been put to the effect that a claim for damages could be brought for
breach of a “partly performed” contract, even though the contract was otherwise unenforceable for lack
of writing.

In Meagher Gummow & Lehane's, Equity Doctrines and Remedies, 4th ed 2002, when listing examples
of fusion fallacies, the learned authors (now Meagher, Heydon and Leeming) include at para [2-165]
"Damages for part performance". In the opening sentence to that paragraph they say, "Part
performance is a doctrine of equity which if successfully asserted by a plaintiff will take from the
defendant to a suit for specific performance of a contract for sale of an interest in land the defence that
the contract does not satisfy the requirements for writing of s 4 of the Statute of Frauds and its
successors. They then point to a number of cases in which a party has sought to argue that damages
might be awarded for breach of a contract rendered unenforceable by the statute but in which case the
court would not, or could not decree specific performance.

In O'Rourke v Hoeven [1974] 1 NSWLR 622 per Glass JA (with whom Reynolds and Hutley JJA agreed)
citing Dixon J in J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297 in which his Honour
said, "An action of damages could not but fail, because when a common law remedy is sought, part
performance never did and does not now afford an answer to the Statute of Frauds ... if the doctrine is
not confined to cases in which a decree might be made for specific performance of the contract, it is at
least true that the doctrine arose in the administration of that relief and has not been resorted to except
for that purpose".

The only possible basis upon which damages might be awarded in a case involving a contract otherwise
rendered unenforceable by the Statute of Frauds would be in exercise of the power conferred by Lord
Cairns Act, to award damages in lieu of or in addition to a decree of specific performance, by courts
having such power.

The jurisdiction to award damages in substitution for, or in addition to specific performance, has not
been extended to cases where specific performance could not possibly have been directed. So that
where a contract has become incapable of specific performance, such as by lapse of time, the equitable
doctrine of part performance will not enable a plaintiff to obtain relief in damages.

Lavery v Pursell (1888) 39 Ch D 508 at 518-519 per Chitty J

That case involved a contract made in November 1886 on a house standing on a property. As the house
was thus a fixture the contract was held to be one for the sale of an interest in land. The vendor
subsequently repudiated the contract and returned the deposit on 17 December 1886. The purchaser
commenced proceedings seeking an order for specific performance. No interim orders were obtained
and the matter did not come on for trial until February 1888. At that time the purchaser conceded that
because of the lapse of time the contract could not be specifically enforced. He argued, nonetheless,
that he should be awarded damages for breach of the contract, in lieu of specific performance.

At 519 Chitty J said of the question of whether damages could be awarded on the ground of part
performance;

"It was suggested that after Lord Cairns' Act the Court of Equity could give damages in lieu of specific
performance. Yes, but it must be in a case where specific performance could have been given. It was a
substitute for specific performance. It did not give the old Court of chancery a general jurisdiction to give
damages whenever it thought fit, it was only in that kind of case where specific performance would have

35
been the right decree and there were reasons why it would have been better to substitute damages, but
that could not apply to a case where you could not have given specific performance".

The point was restated by the New South Wales Court of Appeal in Batey v Gifford (1997) 42 NSWLR
710 at 718 per Handley JA (with whom Priestley JA and Clarke A-JA agreed), where his Honour said:

"Compensation awarded in equity ancillary to specific performance was only available as Lord Haldane
said "for a deficiency in the subject matter described in the contract" (Rutherford v Acton-Adams [1915]
AC 866 at 870) or as Starke J said "for some diminution or deterioration in the value of the property
contracted to be sold". (King
King v Poggioli (1923) 32 CLR 222 at 246.) Compensation could not be awarded
for unliquidated damages for breach of contract (King v Poggioli at 246), or for "a claim to make good a
representation about (the) subject matter made not in the contract but collaterally to it". (Rutherford v
Acton Adams at 870.)"

Exemplary or aggravated damages for breach of an equitable obligation

The Court of Chancery had no power to award damages. With the introduction of Lord Cairns’ act in
1858 it was given power to award damages in lieu of or in addition to the remedies of injunction or
specific performance. In Aquaculture Corporation v NZ Mussel Co Ltd [1990] 3 NZLR 299 the New
Zealand Court of Appeal awarded exemplary damages for a breach of confidence. Palmer J did the same
in Digital Pulse Pty Ltd v Harris [2002] NSWSC 33 bringing a regrettably childish response from the
authors of Meagher Gummow & Lehane’s Equity Doctrines and Remedies 4th ed (at para 23-020).

In the Court of Appeal, in Harris v Digital Pulse Pty Ltd [2003] NSWCA 10 (7 February 2003) Palmer JK’s
decision was overturned, by a majority (Spigelman CJ and Heydon JA, Mason P in dissent). Those
judgments provide a much more reasoned critique of the question.

The doctrine of Walsh v Lonsdale

[1.21]Perhaps the most famous fusion fallacy is that perpetrated by Sir George Jessel MR in Walsh v
Lonsdale (1882) 21 Ch D 9.

A mill, or factory, was leased for seven years under a written agreement, but no deed of lease under seal
was executed as required by s 3 of the Real Property Act (Imp) 1845 and thus the lease was void at law.
At law the tenant was merely a tenant from year to year, one year's rent having been paid in advance.
Traditionally, equity would have awarded specific performance of the agreement to grant a lease. The
Master of the Rolls held that a tenant holding under an agreement to grant a lease of which specific
performance would have been decreed stood in the same position as to liability as if the lease had been
executed, saying, 'He is not, since the Judicature Act, a tenant from year to year, he holds under the
agreement and every branch of the court must give him the same rights .... There are not two estates as
there were formerly, one estate at common law . . . and an estate in equity under the agreement. There
is only one court and equity rules prevail in it'.

If that judgment was taken literally then all distinctions between equitable and common law interests
would vanish. The continued existence of trusts shows that that has not happened. It is also incorrect to
talk of the rules of equity prevailing. The rules of equity only 'prevail' when there is a conflict between
the two; it does not apply to the relationship between equity and the common law generally. It is also
wrong to talk of a party as having the benefits of a decree of specific performance before the remedy
has been awarded. Decrees of specific performance are not automatic. They are discretionary and there
are many factors, not the least of which is the conduct of the party seeking relief, which must be taken
into account before a court will decree specific performance. Despite these obvious flaws, and

36
considerable criticism since, Walsh v Lonsdale has survived and has been accepted as authority for the
rule that a written lease not in proper form will, pending a decree of specific performance requiring the
lessor to execute the proper form, give rise to an equitable relationship of landlord and tenant between
the parties under which the former could, if necessary, be restrained by injunction from acting on the
footing that the latter was merely a tenant-at-will or a tenant from year to year: Progressive Mailing
House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17, per Mason J at 26; and the equitable estate thus
recognised endures until the contract upon which it is founded is avoided or dissolved : Cricklewood
Property & Investment Trust Ltd v Leighton's Investment Trust Ltd [1945] AC 221, per Lord Wright at
240. Other obligations arising under the written lease will not, necessarily, be enforceable.

In Chan v Cresdon (1989) 89 ALR 522 an agreement for lease was executed under which the respondent
agreed to lease certain land in Queensland for five years to Sarcourt Pty Ltd. A form of lease was
annexed and a lease in registrable form was simultaneously executed, but not registered under the Real
Property Act 1861 (Qld). After default by Sarcourt, the lessor sought to recover from the appellants as
guarantors under the unregistered lease. Under s 43 of the Act the lease was not effectual to pass any
estate or interest until registration. The High Court, by a majority, held that the appellants were not
liable under the guarantee. What they had guaranteed was the 'obligations of Sarcourt Pty Ltd under
this lease'. Even if it was assumed that specific performance of the agreement for lease would be
granted, that was not enough to establish liability on the part of the appellants as guarantors. Only a
lease at law would meet this description for the purposes of the guarantee. Mason CJ, Brennan, Deane
& McHugh JJ, having discussed Walsh v Lonsdale and the authorities which had dealt with it since, said
that case established two propositions: first, the court's willingness to treat the agreement as a lease in
equity, on the footing that equity regards as done that which ought to be done and equity looks to the
intent rather than the form, rests upon the specific enforceability of the agreement; and, secondly, an
agreement for a lease will be treated by a court administering equity as an equitable lease for the term
agreed upon and, as between the parties, as the equivalent of a lease at law, though the lessee does not
have a lease at law in the sense of having a legal interest in the term. Because the liability of a guarantor
was, 'At law, as in equity, . . . strictissimi juris, (so) ambiguous contractual provisions should be
construed in favour of the surety': Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987)
162 CLR 549; 70 ALR 641, the requirement that the Chans guaranteed payment of rent 'under this lease'
meant just that, and no more.

37
ESTOPPEL
Definition: In simple terms, an estoppel is an equitable claim that prevents someone from denying the
existence of a state of affairs in circumstances where such denial would be unconscientious. This
necessarily has an impact upon those legal rights which would otherwise be exercisable by the person
estopped. A simple example would be a situation where A has induced B to believe that A will not insist
upon his or her strict legal rights under a contract that exists between them. If B relies upon the
assumption that B will not be exposed to liability should B fail to perform his or her obligations exactly,
the law recognises that it is unconscionable to allow A to subsequently sue B for breach of contract on
those grounds.

Common Law Estoppel

At common law the focus has been upon assumptions of fact. These could arise by means of judicial
decision (estoppel by record or issue estoppel), agreement by both parties (estoppel by deed or
estoppel by convention), and also by representation made by one to the other (estoppel by
representation). The general principle of common law estoppel was stated by Dixon J in Grundt v Great
Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, at 674 as being that, ‘the law should not permit an
unjust departure by a party from an assumption of fact which he has caused another party to adopt or
accept for the purpose of their legal relations’

it is commonly said of common law estoppel that it is a rule of evidence while estoppel in equity may
confer substantive rights. By this it is meant that common law estoppel is a device used merely to
determine the facts upon which the legal rights of the parties will then be determined by the court,
whereas, in equity, rights flow directly from the operation of estoppel in equity. This classification is a
natural consequence of the first distinction — if the scope of common law estoppel is confined to
representations of fact, its true role is to establish which facts the court will adjudge. If the estoppel is
successfully raised, then the representor will be precluded from denying the facts assumed by the
representee.

Differences b/w CL and Eq

In Silovi Pty Ltd v Barbaro (1988) 13 NSWLR 466, at 472, Priestley JA set out a series of enumerated
points in order to clarify the law on estoppel. The first three offer a concise summary of the ideas
presented so far:

1. Common law and equitable estoppel are separate categories, although they have many ideas in
common.

2. Common law estoppel operates upon a representation of existing fact, and when certain conditions
are fulfilled, establishes a state of affairs by reference to which the legal relation between the parties is
to be decided. This estoppel does not itself create a right against the party estopped. The right flows
from the court’s decision on the state of affairs established by the estoppel.

3. Equitable estoppel operates upon representations or promises as to future conduct, including

promises about legal relations. When certain conditions are fulfilled, this kind of estoppel is itself an
equity, a source of legal obligation.

Modern Equitable Estoppel

38
Equitable estoppel is the result of bringing together the two significant forms of estoppel that existed in
equity — promissory estoppel and proprietary estoppel

Promissory estoppel

Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130. In that case Central London
Property Trust (CLPT) leased a block of flats to High Trees House (HTH) for a period of 99 years. In 1940,
CLPT agreed to accept a reduced rent, which was paid for the next five years by HTH. CLPT accepted the
reduction because of the low occupancy rate for the flats during World War II. In 1945, with the flats all
fully let, CLPT asserted a claim for the full rent thereafter. Denning J said that CLPT was entitled to the
full rent as claimed, on the basis that the agreement for a reduced rent was only for as long as the flats
were not fully let. The critical aspect of the case was the statement by Denning J that, if CLPT had
claimed the full rent for the years 1940–1945, it would have failed. Even though the promise to accept a
reduced rent was not supported by consideration, the principle of promissory estoppel would have been
raised against CLPT, preventing recovery of the forgone rent.

Limitations

1. the promise had to be in the context of one intended to affect a pre-existing legal relationship
between the parties: Combe v Combe [1951] 2 KB 215, at 220. In High Trees, this was satisfied in that
the parties were in a lease relationship and the promise was in relation to terms agreed under that
lease.

Limitations

2. promissory estoppel could only be used as a defence to an action brought by the promisor against the
promisee. It was said that it could only be used as a ‘shield’ and not as a ‘sword’: Combe, at 220. In High
Trees, this was satisfied as it was HTH, the defendant/promisee, that would have used promissory
estoppel as a defence to a claim for the forgone rent by CLPT, the plaintiff/promisor

Proprietary estoppel
In relation to proprietary estoppel, it always was able to act as a sword as well as a shield and it is this
feature that it has brought to equitable estoppel generally

Proprietary estoppel’s other major difference from promissory estoppel is its operation in the realm of
real property law. This estoppel operates to restrict the legal rights of landowners if they have
encouraged the belief in another, or at least acquiesced in that other’s belief, that she or he has some
entitlement over the property and that belief has been acted upon, for example, by some alteration or
improvement having been made to the land. However, no proprietary estoppel claim is available if the
plaintiff and defendant have a legally enforceable contract relating to the property: Giumelli v Giumelli
(1999) 196 CLR 101, at 121; 161 ALR 473, at 482; Riches v Hogben [1985] 2 Qd R 292, at 301. As Young CJ
in Eq observed in Barnes v Alderton [2008] NSWSC 107, at [55], ‘contract and proprietary estoppel are
mutually exclusive’.

Two streams
Dillwyn v Llewelyn [1862] All ER 384 is the classic example of estoppel by encouragement. In that case a
father put his son into possession of land which he purported to voluntarily convey to his son. The
conveyance was ineffective. With his father’s assent and approval, the son built and occupied a house
on the land. After the father’s death the son sought a declaration that he was the owner of the land in

39
equity and that the trustees of the land be ordered to convey the land to him absolutely. The House of
Lords made these orders.

The other stream of proprietary estoppel is estoppel by acquiescence which was succinctly explained by
Cranworth LJ in Ramsden v Dyson (1866) LR 1 HL 129, at 140–1:

If a stranger begins to build on my land supposing it to be his own, and I, perceiving his mistake, abstain
from setting him right, and leave him to persevere in his error, a Court of equity will not allow me
afterwards to assert my title to the land on which he had expended money on the supposition that the
land was his own.

Detriment
In Barnes v Alderton [2008] NSWSC 107, at [42], Yound CJ in Eq put it as follows:

No equity arises to raise a proprietary estoppel unless the person in whose favour it is being raised, has
acted to their prejudice or detriment in some way whether in terms of direct expenditure or on some
other basis. However, the detriment may not necessarily be expenditure of money, commonly a
claimant leaves her job, moves in with the promisor and does his housekeeping for many years …
However, … minor expenditure such as day to day living expenses or minor repairs will not qualify.

Bringing Estoppel together

In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513, the High Court handed
down its most significant decision on the topic of estoppel. The significance of this case was that it
consolidated promissory and proprietary estoppels into the single, and broader, principle of equitable
estoppel

Mason CJ and Wilson J, at CLR 404; ALR 524, said:

One may therefore discern in the cases a common thread which links them together, namely, the
principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a
basic assumption in relation to which the other party to the transaction has ‘played such a part in the
adoption of the assumption that it would be unfair or unjust if he were left free to ignore it’: per Dixon J
in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 675 … Equity comes to the relief of
such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to
ignore the assumption.

Brennan J, in Waltons, at CLR 428–9; ALR 542, set out what he saw as the elements that had to be
satisfied, as follows:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the
plaintiff assumed that a particular legal relationship then existed between the plaintiff and the
defendant or expected that a particular legal relationship would exist between them and, in the latter
case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the
defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or
abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended
him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or
expectation is not fulfilled; and 6) the defendant has failed to act to avoid that detriment whether by
fulfilling the assumption or expectation or otherwise.

40
Representation
To establish a case based upon principles of equitable estoppel there needs to be a promise or a
sufficiently clear and unambiguous representation. In Accurate Financial Consultants Pty Ltd v Koko
Black Pty Ltd [2008] VSCA 86, at [134], Dodds-Streeton JA said that, when construing a representation,
the court must assess its meaning ‘by how it would be reasonably understood by the addressee in the
context of the surrounding circumstances’. In Australian Crime Commission v Gray [2003] NSWCA 318,
at [200], Ipp JA, speaking for the New South Wales Court of Appeal, said:

The underlying reason for the rule that, generally speaking, an ambiguous or unclear representation will
not give rise to a promissory estoppel is that the foundation of promissory estoppel is unconscionability.
Unconscionability is usually difficult to establish when the representation is ambiguous or unclear.

The promise or representation can be either express or implied: Legione v Hateley, at CLR 438–9

Assumption or expectation
If the assumption is one of an existing fact, a case of common law estoppel arises. (In Waltons the
minority found for the Mahers on this basis, viewing the evidence as establishing that the Mahers
believed that Waltons had completed the exchange of the lease.)

Equitable estoppel will arise if the assumption is that the representor will act in a particular way in the
future. According to Brennan J, the relying party needs to show that he or she assumed that a particular
legal relationship existed or would exist between the parties. According to the majority in Waltons, this
was established on the facts of that case. A similar approach is detected in Mobil Oil Australia Ltd v
Lyndel Nominees Pty Ltd (1998) 153 ALR 198, at 235, where the Full Court of the Federal Court said that
‘it is a necessary element of the principle that the [representor] has created or encouraged an
assumption that “a particular legal relationship” or “interest” would arise or be granted’

Inducement
Initially, it needs to be stressed that it is the assumption that is induced by the promise or
representation, rather than the promise or representation itself, that forms the basis for a claim based
upon equitable estoppel: Waltons at CLR 413– 14, 428–9, 458–9; ALR 531, 542, 564–5; Commonwealth
v Verwayen (1990) 170 CLR 394, at 412–13, 444–5, 453–6, 500–2; 95 ALR 321, at 332–3, 356–7, 363–4,
396–8.

Deane J said the following in Commonwealth v Verwayen, at CLR; ALR at 356:

The cases indicate four main, but not exhaustive, categories in which an affirmative answer to that
question may be justified, namely, where that party:

(a) has induced the assumption by express or implied representation;

(b) has entered into contractual or other material relations with the other party on the conventional
basis of the assumption;

(c) has exercised against the other party rights which would exist only if the assumption were correct;

(d) knew that the other party laboured under the assumption and refrained from correcting him when it
was his duty in conscience to do so.

41
Reliance
The relying party must act, or refrain from acting, in reliance on the assumption. A causal link between
the assumption and the action or conduct by the relying party must be established. The action or
conduct undertaken must be reasonable in all the circumstances

Knowledge or intention
According to Brennan J, the representor must actually know, or intend, that the relying party will act or
refrain from acting in reliance on the assumption or expectation. In cases of assumptions based upon a
promise or representation, knowledge is ‘easily inferred’. In cases where the assumption arises outside
the context of a promise or representation, the requirement of knowledge or intention is more difficult
to establish: Waltons, at CLR 423; ALR 538. However, it can be established, as was the case in Waltons,
in cases where ‘the defendant encourages a plaintiff to adhere to an assumption or expectation already
formed, or acquiesces in an assumption or expectation when, in conscience, objection ought to be
stated’: Pazta Company Pty Ltd v Idelake Pty Ltd [2008] NSWSC 941, at [26].

Furthermore, according to Brennan J, it is not enough that the representor ought to have known that
the relying party would act or refrain from acting in reliance on the assumption or expectation. A
contrary view was suggested by Deane J in Commonwealth v Verwayen, at CLR 445; ALR at 356. In New
Zealand Pelt Export Company Limited v Trade Indemnity New Zealand Limited [2004] VSCA 163, at [99],
the Victorian Court of Appeal expressed a preference for the view of Deane J over that of Brennan J on
this issue.

Detriment
The relying party must suffer, or stand to suffer, detriment if the assumption made by it is not fulfilled.
There must be a link between the detriment and the assumption or expectation

In Sullivan v Sullivan [2006] NSWCA 312, at [18] Handley JA said that ‘[t]he detriment that makes an
estoppel enforceable is that which the party asserting the estoppel would suffer, as a result of his or her
original change of position, if the assumption which induced it was repudiated by the party estopped’

Relief
Establishing the elements of equitable estoppel gives rise to an equity in favour of the relying party. This
simply means that the relying party is entitled to some equitable relief. The relief is not based upon
there being a promise or representation, but rather upon the expectation that the promise or
representation generated: Giumelli v Giumelli (1999) 196 CLR 101, at 121; 161 ALR 473, at 482. Prima
facie, the equity is enforced by ‘the making good of the relevant assumption on which the plaintiff
acted, although where that relief would be disproportionate to the requirements of conscionable
behaviour, equity may, as a matter of discretion, decree something less’: McKay v McKay [2008] NSWSC
177, at [32].

It is thus often said that there needs to be proportionality between the relief ordered and the detriment
suffered, or that the court will, in making its orders, determine the minimum equity required to do
justice to the relying party. Furthermore, relief may be structured to recognise practical considerations
such as the need for a clean break. The court should also take into account the impact of its orders on
relevant third parties and any hardship or injustice they would suffer: Giumelli,
Giumelli at CLR 113-4, 125; ALR
476, 485.

42
In Giumelli, parents promised their son that, if he continued to live on a property owned by his parents,
they would subdivide it and give him the portion containing the house that he lived in. On the basis of
this the son stayed and gave up a career opportunity that would have taken him away from the
property. The relationship between the parents and son broke down when the son married a woman of
whom his parents did not approve and they refused to transfer the property to the son. The High Court
granted the son monetary relief to the value of the property that should have been transferred to him
by the parents. The High Court did not order a transfer of the property to the son. However, the
monetary compensation was nevertheless a remedy based upon the son’s lost expectation rather than
reliance loss or any actual detriment suffered by the son.

43
LAW OF ASSIGNMENTS AND DISPOSITIONS
Legal and Equitable assignment

In the assignment of property, the nature of the assignment is important. A legal assignment gives the
assignee a legal interest in that property. If it is an equitable assignment the assignee obtains an
equitable interest in property. The nature of the assignee’s property right is crucial in the context of
competing rights to that property

Rights and liabilities not capable of assignment

Some things cannot be assigned at all

Public pay

An assignment of pay by the holder of a public office is prohibited on the basis that such pay is made to
enable the office holder to maintain his or her office with decorum and propriety.

Arbuthnov v Norton (1846) 4 Moore 219; (1846) 13 ER 474

Norton, a judge, assigned the equivalent of six months pay to which he was entitled to his legal personal
representative upon death. The entitlement was assigned as security for an advance. The Privy Council
ruled, after Norton’s death, that the assignment was valid. This was so because the pay that was
assigned only fell due upon Norton’s death, that is, when Norton no longer held public office. Because
the pay was not payable during his life, the assignment in no way diminished Norton’s ability to maintain
the dignity of his office.

Bare rights to litigate

Bare rights to litigate include rights to sue in tort, rights to sue for unliquidated damages in contract and
bare rights to sue in equity. None of these rights are rights of property and therefore they are not
assignable. Debts and rights to sue for liquidated sums in contract are assignable because they are
regarded as rights of property.

Why?

Encourages litigation

Torts and crimes of barratry (overly officious in instigating or encouraging prosection of groundless
litigation” or who bring “repeated or persistent acts of litigastion” for the purposes of profit or
harassment), champerty and maintenance (doctrines in common law jurisdictions, that aim to preclude
frivolous litigation. "Maintenance" is the intermeddling of a disinterested party to encourage a lawsuit.
[1] It is "A taking in hand, a bearing up or upholding of quarrels or sides, to the disturbance of the
common right."[2] "Champerty" is the "maintenance" of a person in a lawsuit on condition that the
subject matter of the action is to be shared with the maintainer.[3] Among laypersons, this is known as
"buying into someone else's lawsuit.") –

The rule in Glegg v Bromley does not preclude the assignment of the verdict (future property) to which
the assignor may become entitled as a result of the prosecution of litigation proceedings. In Glegg v
Bromley at KB 475; All ER Rep 1140, the assignor assigned ‘all that interest, sum of money, or premises
to which she is or may become entitled under or by virtue of any verdict, compromise, or agreement
which she may obtain’ in relation to an action in tort

44
Why?

In Prosser v Edwards (1835) 160 ER 196 it was said that a bare right to litigate was unassignable because
it, in effect, encouraged litigation of matters which the assignor was not disposed to prosecute. In terms
of legal principle, bare rights to litigate could not be assigned on public policy grounds because such
assignments savoured of maintenance or champerty: Glegg v Bromley [1912] 3 KB 474, at 489–90.

Glegg v Bromley [1912] 3 KB 474

Mrs G sued B for defamation.

By a deed, Mrs G assigned ‘all that the interest, sum or money, or premises to which she is or may
become entitled under or by virtue of any verdict, compromise …’ to her husband, Mr G.

She later won

A creditor of Mrs G sought (as a garnishee) to take the verdict

Mr G claimed that he was entitled to the verdict

Vaughan Williams LJ said:

I know of no rule of law which prevents the assignment of the fruits of an action. Such an assignment
does not give the assignee any right to interfere in the proceedings in the action. The assignee has no
right to insist on the action being carried on … There is in my opinion nothing resembling maintenance
or champerty in the deed of assignment.

Bare rights to litigate – genuine commercial interest

If the assignee has a genuine commercial interest in taking the assignment of a bare right to litigate,
then the assignment is valid

Trendtex Trading Corporation v Credit Suisse [1982] AC 679

Trendex was a Swiss coy who contracted to sell cement to an English coy for sale in Nigeria which went
bad. The sale was to be paid by a letter of credit from the Central Bank of Nigeria but the bank refused
to pay.

Credit Suisse was a creditor of Trendex which helped Trendex fund the legal action against the Bank

Trendtex purported to assign its cause of action against Central Bank of Nigeria to Credit Suisse for
$800,000.

Central Bank agreed to pay Trendtex $8m in settlement.

Trendtex sought a declaration that the assignment was void for being a bare right to litigate savouring of
maintenance.

Court of Appeal found against Trendtex on the basis that the assignment was not of a bare right to
litigate. Trendtex then appealed unsuccessfully to the House of Lords

At 531, Lord Roskill said:

45
[I]t is today true to say that in English Law an assignee who can show that he has a genuine commercial
interest in the enforcement of the claim of another and to that extent takes an assignment of the claim
to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of
our law of champerty, which, as has often been said, is a branch of the law of maintenance … The court
should look at the totality of the transaction. If the assignment is of a property right or interest and the
cause of action is ancillary to that right or interest, or if the assignee has a genuine commercial interest
in taking the assignment and enforcing it for his own benefit, I see no reason why the assignment should
be struck as an assignment of a bare cause of action or as savouring of maintenance.

Applied in Re Timothy’s Pty Ltd [1981] 2 NSWLR 706

Timothy’s sued Affiliated Holdings for breach of lease. T also indebted to Bronze Lamp Pty Ltd. T
assigned cause of action to Bronze Lamp in return for release from debt. Upheld because Bronze found
to have had little hope of being repaid without the assignment.

Re Daley; Ex parte National Australia Bank Ltd (1992) 37 FCR 390

Daley was sole shareholder in two companies and had guaranteed the companies’ overdrafts.
Companies assigned claim against bank for wrongly honouring cheques. Upheld b/c GCI

Project 28 Pty Ltd (Formerly Narui Gold Coast Pty Ltd) v Barr [2005]
The interest must be distinct from the benefit that the person supporting the action seeks to derive
from the litigations

National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Limited (1995)
Genuine commercial interest refers to a commercial interest which exists already or by reason of other
matters and which receives ancilliary support from the assignment.

Poulton v Commonwealth (1953) 89 CLR 540

Right to sue in Tort is unassignable HOWEVER

Beatty v Brashs Pty Ltd [1998] 2 VR 201 upheld right to assign tort actions following Trendex if there is
GCI. Approved in T S & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 at
465 where the argument was put forward that HC had approved assignement in Campbells Cash and
Carry v Fostif (2006). This view was subsequently by endorsed by Gyles J in Tosich v Tasman Investment
Management Limited (2008) 250 ALR 274 at 285.

Equuscorp Pty Ltd v Haxton [2012] HCA 7 – cleared up the matter and approved Trendex thereby
authorising the assignment of tortious claims if assignee has a genuine and substantial commercial
interest.

Facts

Investment scheme set up avoid tax through blueberry farming. The Farmer owned the land, the
manager grew and sold the crop, the buyer bought and the lender lent money. Investors invested with
loans from the lender.

The group had issued the interests to the investors without a prospectus, penalty $20,000. The investors
were not on the hook for this.

46
The group ran into fin difficulties and borrowed from Equuscorp (the Assignee) and gave them charges
over various group property. The group defaulted on the loans from the assignee and the scheme
collapsed.

Acting under its registered charges, the assignee appointed receivers and managers to the assets of the
farm owner, the manager, the buyer and the lender and proceeded to realise those assets. In relation to
the lender, this involved entering into: (1) an ‘asset sale agreement’ with the lender’s receivers and
managers for purchase of the loan agreements; and (2) a deed of assignment (the deed)—again, with
the lender’s receivers and managers—to give effect to the agreement.

The deed provided:

1. the lender ‘as legal and beneficial owner, hereby sells, assigns, transfers and sets over the debts
[defined as the amounts each investor owed under the loan agreements], its interests under the [loan
agreements] … free from all encumbrances to [the assignee] and all interest due and becoming due on
the debts for [the assignee] to hold absolutely (“the assignment”)’;

2. the assignment was ‘intended to take effect immediately as a legal assignment of, inter alia, (a) the
legal right to such debts …. (b) all legal and other remedies for these matters in the preceding sub-
paragraph (a) …’

Written notice of the assignment was given to the investors.

The assignee paid the receivers and managers $500,000 for the loan agreements.

Having acquired the loan agreements, the assignee sued the investors in the Supreme Court of Victoria
to recover the outstanding loan moneys (those moneys having become due and payable).

The investors argued that the loan agreements—firstly in the hands of the lender and then in the hands
of the assignee—were unenforceable on the ground of illegality. They said that the loan agreements
were contracts made in furtherance of an illegal purpose—namely, the issue of prescribed interests
without the prior registration of a prospectus.

The assignee denied that the loan agreements were unenforceable but if they were:

1. the lender, alternatively, had been entitled to restitution of the loan moneys as moneys had and
received. The illegality had brought about a failure of consideration and it would have been unjust for
the investors to be enriched at the lender’s expense;

2. the lender’s right of restitution was capable of being assigned to the assignee; and

3. the restitution right was, in fact, assigned to the assignee in the deed.

The Supreme Court substantially dismissed the assignee’s proceedings. The trial Judge held that the loan
agreements were unenforceable for illegality and that, in relation to all but two of the investors,
restitution was unavailable. The assignee appealed to the Victorian Court of Appeal, but its appeal was
dismissed.

In the High Court, the assignee did not challenge the trial Judge’s finding that the loan agreements were
unenforceable for illegality. Instead, it relied wholly on the claim in restitution, once again contending

47
that restitution was: (1) available to the lender; (2) assignable to the assignee; and (3) actually assigned
by virtue of the deed.

Decision

By a majority judgment (French CJ, Gummow, Crennan, Kiefel and Bell JJ; Heydon J dissenting), the High
Court dismissed the assignee’s appeal.

Whether restitution available

French CJ, Crennan and Kiefel JJ held that the lender, and therefore the assignee, had no right to recover
the loan moneys as moneys had and received.

Their Honours said it is a policy consideration whether to allow a restitutionary claim when a contractual
claim is unavailable due to illegality. The overriding policy concern is to maintain coherence in the law
or, negatively, to avoid self-stultification of the law. If allowing restitution would make nonsense of the
refusal to enforce the contract—if it would defeat or frustrate the purpose of the statutory prohibition
—then restitution should be refused.

Their Honours said that if the right to claim restitution for moneys had and received had been available
to the lender in the present case, the lender would have been able to recover by such claims what the
policy of the law denied it in respect of the loan agreements. Their Honours noted or observed that: (1)
the lender was not an arms length financier, but part of the group. Therefore, it was involved in the
promotion of the investment scheme and furthered the illegal purpose; (2) the failure of consideration
on which the assignee relied was the product of the lender’s own conduct in furthering the illegal
purpose; and (3) the investors were not in pari delicto with the lender. This, then, was a clear case in
which coherence in the law, and the avoidance of self-stultification of the statutory purpose, led to the
conclusion that the lender, and therefore the assignee, did not have the right to restitution of the
moneys advanced to the investors under the loan agreements.

In a separate judgment, Gummow and Bell JJ agreed that the lender was not entitled to restitution of
the loan moneys. Their Honours agreed that the scheme and purpose of the prescribed-interest
provisions of the Code—to protect persons acquiring prescribed interests—was at odds with permitting
an action for money had and received where the money was received under loan agreements entered
into in direct contravention of the statutory provisions. Employing the same language as French CJ,
Crennan and Kiefel JJ, their Honour said that allowing a claim in restitution would stultify the statutory
policy.

Heydon J dissented. Following McHugh J in Nelson v Nelson [1995] HCA 25, at [35]-[37], his Honour said
that withholding relief because of an illegal transaction means depriving one party of their property
rights and effectively vesting them in another person. The imposition of such a sanction can be justified
only if: (1) it is proportionate to the seriousness of the illegality involved, which in turn must be judged
by reference to the relevant statute; and (2) it furthers the purpose of the statute and does not impose a
further sanction for the unlawful conduct where parliament has indicated that the statutory sanctions
are sufficient to deal with the relevant breach.

Heydon J accepted that the Code rendered the loan agreements unenforceable at the lender’s suit. If
the Code expressly preserved the lender’s liability to the investors under the loan agreements, it
followed that all other rights and liabilities did not survive the lender’s breach of the statutory
provisions. However, his Honour found that:

48
the Code did not prevent the lender from suing for moneys had and received. Among other things: (1)
the Code did not expressly or impliedly extinguish the lender’s property rights by negating claims for
restitution, even though it could have done so; and (2) the onerous sanctions imposed by the Code for a
breach of the prescribed-interest provisions indicated that those sanctions were sufficient to deal with
the breach;

there had been a failure of consideration; and

it was unjust for the investors to retain the loan moneys.

Accordingly, his Honour concluded that an action for restitution had been available to the lender and, if
brought, would have succeeded.

Whether restitution assignable

French CJ, Crennan and Kiefel JJ held that, if the lender had been able to claim against the investors in
restitution, the claim would have been assignable. In response to the investors’ argument that the claim
for money had and received was not a proprietary right—a chose in action—but a bare right of action
which is not assignable at common law, their Honours said that such a claim is not assigned as a bare
right of action if it is assigned along with contractual rights and the assignee has a ‘genuine commercial
interest’ in the enforcement of the claim. Here, the assignee acquired the loan agreements for value.
Therefore, it had a legitimate commercial interest in acquiring the restitutionary rights if the contract
was found to be unenforceable.

Gummow and Bell JJ agreed that a restitutionary claim, had it existed, would have been assignable. Their
Honours located the ‘genuine and substantial commercial interest’ in the registered charges the
assignee held over the lender’s assets, recovery on the basis of restitution ‘[filling] the gap created by
the [contractual] debts imploding under illegality’.

Heydon J also held that restitution was assignable. Like Gummow and Bell JJ, his Honour found that the
assignee had a genuine commercial interest in enforcing a claim in restitution because of its registered
charge over the lender’s assets (which his Honour said included rights to sue for money had and
received).

Whether restitution actually assigned

French CJ, Crennan and Kiefel JJ held the deed did not assign restitutionary claims to the assignee.
Noting that cl 2 of the deed had adopted the language of s 199(1) of the Property Law Act 1974 (Qld)—
in particular, the phrase ‘all legal and other remedies’ in cl 2(b) was identical to para (b) of s 199(1)—
their Honours said that cl 2 must be taken to have the same meaning as the section. And according to
the case law on s 199(1), the ‘other remedies’ of which the section speaks are merely the rights to
recover or enforce the debt or chose in action that has been assigned. The phrase does not include
additional causes of action, such as a claim for money had and received.

Gummow and Bell JJ took the opposite view, holding that ‘other remedies’ in cl 2 of the deed included a
claim for restitution. Their Honours said that such a claim arose out of, or by reason of, the failure of the
loan agreements and that ‘[t]here would have been little sense for the receivers and managers [of the
lender] to retain these restitutionary actions and for [the assignee] to pay for some but not all of the
rights of [the lender] against the [investors].’ Therefore, if the lender had possessed restitutionary rights,
those rights were assigned to the assignee under the terms of the deed.

49
Heydon J also held that the deed had effected an assignment of the claim in restitution. His Honour said
the ‘other remedies’ to which the deed referred were not confined to those which supported a claim on
the loan agreements, but bore a wider construction, extending to recovery of the economic equivalent
of the contractual debts by actions for money had and received.

Editorial comment

This case is about an assignment of contractual rights—specifically, the rights of a lender under several
loan agreements. Such rights are a form of property (a chose in action) and, therefore, assignable.

In this case, the assignment was made for value and the statutory formalities for legal assignments of
choses in action were satisfied. In particular, notice of the assignment was given to the borrowers.
However, the benefit of the assignment started to unravel when the assignee sued to recover the
unpaid loan moneys.

Unfortunately, the loan agreements were tainted by illegality. They were part-and-parcel of an
investment scheme in which ‘prescribed interests’ were issued in breach of the companies legislation
that applied at the time. The borrowers were the recipients of those prescribed interests and the lender
was part of the corporate group that promoted the scheme. These circumstances rendered the loan
agreements unenforceable.

The assignee turned to the law of restitution for help, but this raised problems of its own. Firstly, did the
legislation strike out not only contractual claims but restitutionary claims as well? Secondly, if the
legislation left restitutionary claims untouched, were such claims capable of being assigned to an
assignee? And lastly, if the lender did have a claim in restitution (despite the illegality) and that claim
was assignable, was the claim in fact assigned to the assignee?

In the High Court, five of the six justices held that the legislation struck down not only the lender’s
contractual claims but its restitutionary claims as well. That was enough to dispose of the appeal and
deny relief to the assignee. However, on the second question, the Court was unanimously of the view
that a claim for restitution was assignable and, on the last question, was equally divided as to whether
the deed of assignment had effectively assigned restitutionary rights to the assignee.

The judgment canvasses several important topics—assignments of choses in action; statutory illegality
as a vitiating factor in contract law; the particular illegality of a contract made to further an illegal
purpose; failure of consideration; the elements of restitution; the policy considerations that determine
the effect of contractual illegality on actions for moneys had and received; the assignability of bare
rights of action; and the principles of construction of statutes and contracts.

As to practical lessons that can be drawn from the case, two immediately spring to mind:

When taking an assignment of contractual rights, the assignee should make enquiries or otherwise take
steps to guard themselves against the possibility that the contracts are unenforceable or even void for
illegality.

When drafting the deed of assignment, one should clearly and unequivocally provide for the assignment
of not only the assignor’s contractual rights, but also their right to claim restitution and any other legal
or equitable rights they could conceivably have against the borrowers in relation to the loan moneys.

Maintenance, Champerty and Barratry Abolition Act 1993

50
Section 3: crime of maintenance abolished

Section 4 : "[a]n action in tort no longer lies on account of conduct known as maintenance (including
champerty)".

Section 6:

"This Act does not affect any rule of law as to the cases in which a contract is to be treated as contrary to
public policy or as otherwise illegal, whether the contract was made before, or is made after, the
commencement of this Act.“

Now found in Civil Liability Act 2002 – Sched 2

Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41

Historically, the common law in Australia has prohibited maintenance (supporting litigation, regardless
of the reason) and champerty (supporting litigation in exchange for a share of the proceeds of that
litigation), on the basis that they are contrary to public policy. However, maintenance and champerty
have now been abolished as crimes and torts in most Australian jurisdictions, and recent court decisions
have made it plain that litigation funding is now a reality in Australia. Courts throughout the country
have accepted, as a matter of public policy, that litigation funded by third parties may allow parties who
would otherwise be denied access to justice to proceed with their claims. However, until today's High
Court decision in Fostif, there was some uncertainty as to what elements of a litigation funding
agreement might render it contrary to public policy and an abuse of process.

Fostif – background

A class action was brought by a number of tobacco retailers against licensed wholesalers for the
recovery of state licence fees, following the High Court's declaration in Ha v State of New South Wales
(1997) 189 CLR 465, that the tobacco licensing schemes of the states and territories were invalid. The
proceeding was financed by a litigation funder, Firmstone, on the basis that it would take one-third of
the proceeds if the case were successful.

At first instance, Justice Einstein of the New South Wales Supreme Court held that the proceeding was
an abuse of process and fell outside the court rules permitting representative proceedings. The Court of
Appeal allowed the appeal and ordered the proceedings to continue as representative proceedings. The
Court of Appeal found that neither Firmstone's role in connection with the litigation nor the particular
funding arrangements justified staying the proceeding. The Court of Appeal's findings included that:

 champerty or third-party assistance per se does not amount to abuse of process;

 the court is not concerned with the arrangements between the funder and the plaintiff unless
they have corrupted, or have a tendency to corrupt, the processes of the court;

 in circumstances where the plaintiff's claim is viable, as was held to be the case here, the
standard of proof for a permanent stay is high, and the court will only dismiss the proceeding as a last
resort means of eliminating the abuse; and

 some measure of control over the proceedings by a litigation funder is necessary if the funder is
to manage the group litigation and protect its own interests, and is not a basis for finding abuse of
process meriting an unconditional stay.

51
The High Court granted special leave to appeal in September 2005.

The High Court's judgment

In Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd, the High Court upheld the wholesalers' appeal on the
question of whether the proceedings should continue as representative proceedings. However, the
appeal was dismissed on issues of public policy and abuse of process arising from the funding agreement
between the retailers and Firmstone.

Justices Gummow, Hayne and Crennan, with whom Chief Justice Gleeson and Justice Kirby agreed on
this issue, made the following points in concluding that the funding arrangements between Firmstones
and the retailers did not constitute a ground to stay the proceedings.

Section 6 of the legislation abolishing the offences of maintenance and champerty in New South Wales,
the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) (the Abolition Act), made it clear
that questions of maintenance and champerty were not to be regarded as always legally irrelevant. That
section preserved any 'rule of law as to the cases in which a contract is to be treated as contrary to
public policy or as otherwise illegal'. However, the Abolition Act neither stated explicitly whether
questions of maintenance and champerty are relevant to issues of abuse of process nor addressed the
scope of public policy or doctrines of illegality concerning those questions.

In their Honour's view, the wholesalers' proposition that for the maintainer to institute and continue
proceedings in the name of, or on behalf of, the maintained plaintiffs was an abuse of process which
could be avoided only by a stay assumed that maintenance and champerty give rise to public policy
questions beyond those relevant when considering whether the funding agreement is enforceable
between the parties. However, in jurisdictions where legislation like the Abolition Act has been enacted,
that assumption is not valid, for several reasons:

 when the crimes and torts of maintenance and champerty were abolished, any wider rule of
public policy, beyond the rules preserved by s6, lost any basis that it previously had; and

 the asserted rule of public policy would not yield any certain rule, because the content and basis
of the public policy asserted was identified only by the use of terms such as 'trafficking' or
'intermeddling'.

The particular complaints by the wholesalers that Firmstone had sought out claimants, exercised a great
degree of control over the proceedings and bought the rights to litigation to obtain profit were not,
either alone or in combination, contrary to public policy or resulting in an abuse of process. Their
Honours held that many people seek to profit from assisting in litigation, and seeking out and
encouraging litigation could only be contrary to public policy if there were still a rule against maintaining
actions. In the absence of such a rule, either in crime or in tort, there was no foundation to conclude
that maintaining an action could be contrary to public policy.

Moreover, fears concerning the adverse effects on the processes of litigation and the fairness of the
agreement between the funder and the plaintiff are not sufficient to justify an 'overarching rule of public
policy' that would prohibit funded actions or require funding agreements to meet particular standards
concerning the funder's degree of control or reward. Such a rule 'would take too broad an axe to the
problems that may be seen to lie behind the fears'. Similarly, fears for the administration of justice (for
example, that the funder might inflame the damages or suppress evidence) can be adequately met by
existing doctrines of abuse of process, and fears that lawyers might find themselves in positions of

52
conflict are also adequately addressed by the existing rules regulating their duties to the court and
clients.

Importantly, their Honours considered it neither necessary or appropriate to consider the position in
jurisdictions where maintenance and champerty continue to be torts or crimes.

Justices Callinan and Heydon dissented on this point. Their Honours found that the Court of Appeal's
decision on this issue should be overturned. Their Honours found that a combination of factors rendered
the proceedings an abuse of process, including Firmstone's motive of profiting from the litigation of
others, the fact that Firmstone sought out and encouraged persons to sue who would not otherwise
have done so, the large gains hoped for by Firmstone, Firmstone's control of the litigation and the
subservience of the retailers' interests to those of Firmstones.

Implications of the High Court's decision

The High Court's decision is likely to encourage the number of litigation funders and funded cases,
particularly for class actions which through economies of scale may be seen to offer the best chance of a
large return for funders. Previously, it was difficult to predict whether a particular litigation funding
agreement would be stayed on public policy grounds. That uncertainty has now been largely removed,
at least in New South Wales, Victoria, South Australia and the ACT, where the torts of maintenance and
champerty have been abolished. The position remains unclear in the remaining jurisdictions.

The decision is of concern to defendants. The majority judgment appears to dismiss many of the public
policy considerations that have been identified in lower courts as significant. Those considerations
include the importance of protecting plaintiffs where their interests might conflict with those of the
funder and the need to discourage unmeritorious litigation to ensure an appropriate balance in the civil
justice system. The decision of the majority of the High Court suggests that courts should be slow in
staying proceedings as an abuse of process on the basis of funding agreements.

The decision may also impact on what, if any, regulation of litigation funding is considered by the
Standing Committee of Attorneys-General (SCAG). The Discussion Paper released by SCAG in late May on
the issue of litigation funding notes the lack of legislative uniformity across Australia on this issue. That
lack of uniformity has been highlighted by the High Court's decision in Fostif and may encourage action
on the part of SCAG. Further, the need to protect vulnerable plaintiffs who enter into funding
agreements has also been highlighted by SCAG, and may be given further consideration in light of the
High Court's judgment. It is unclear whether other aspects of the decision will influence the outcome of
SCAG's review.

In Ha v State of New South Wales (1997) 189 CLR 465, the HC found that the tobacco licensing schemes
of the states and territories were invalid

A class action was started to reclaim the fees from licensed wholesalers

Firmstone was a litigation funder who agreed to finance the action in exchange for one-third of the
proceeds of the action

At trial Einstein J said the proceedings were an abuse of process

The Court of Appeal overturned these findings and said that champerty does not automatically mean an
abuse of process – it is necessary to show a corruption of the court process

53
Some measure of control by the funder does not mean there has been an abuse of process

HC: appeal upheld but on other unrelated grounds. On the issue of policy and abuse of process the HC
(Gleeson CJ, Gummow, Hayne, Crennan, Kirby JJ; Heydon and Callinan JJ in dissent) agrees with the
Court of Appeal

Gummow, Hayne and Crennan JJ:

[90] Two kinds of consideration are proffered as founding a rule of public policy - fears about adverse
effects on the processes of litigation and fears about the "fairness" of the bargain struck between funder
and intended litigant. In Giles v Thompson[101], Lord Mustill said that the law of maintenance and
champerty could best "be kept in forward motion" by looking to its origins; these his Lordship saw as
reflecting "a principle of public policy designed to protect the purity of justice and the interests of
vulnerable litigants".

[91] Neither of these considerations, whatever may be their specific application in a particular case,
warrants formulation of an overarching rule of public policy that either would, in effect, bar the
prosecution of an action where any agreement has been made to provide money to a party to institute
or prosecute the litigation in return for a share of the proceeds of the litigation, or would bar the
prosecution of some actions according to whether the funding agreement met some standards fixing the
nature or degree of control or reward the funder may have under the agreement. To meet these fears
by adopting a rule in either form would take too broad an axe to the problems that may be seen to lie
behind the fears.

Rights and liabilities not capable of assignment - incidental to a right of property

If there is an assignment of property with an incidental right to litigate it is valid. This is so because there
is no assignment of a bare right to litigate, the right being incidental to a right of property. Accordingly,
no issues of maintenance or champerty can arise. Thus, the right to rescind for undue influence in
Dickinson v Burrell (1866) LR 1 Eq 337 was assignable because it was incidental to the real property
assigned to the assignor.

Rights and liabilities not capable of assignment - insurance

An assignment by an insured to an insurer of the insured’s right to sue, in consideration of a payment
made by the insurer to the insured in satisfaction of a claim pursuant to an insurance policy between the
insured and insurer, is valid. This stems from the insurer’s right of subrogation (refers to circumstances
in which an insurance company tries to recoup expenses for a claim it paid out when another party
should have been responsible for paying at least a portion of that claim) : Compania Colombiana de
Seguros v Pacific Steam Navigation Co [1965] 1 QB 101

Assignment of contractual rights

The benefit (the right to receive performance) of a contract may be assigned, but its burden (the
obligation to render performance), may not be assigned: Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395

Assignable contractual rights are choses in action and hence property Queensland Insurance Co Ltd v
Australian Mutual Fire Insurance Society Ltd (1941) 41 SR 195

Jordan CJ said at 201-3:

54
As a general rule a person may assign to another any benefit to which he may be entitled under a
contract, but cannot escape his contractual liabilities by purporting to assign them, although if the
contract be not of a personal nature, he may procure someone else to perform them for him. If
therefore a contract be assigned by one of the parties, the assignee may in general compel the other
party to do for his benefit whatever he would have been liable to do for the assignor’s benefit, subject,
however, to the obligations of the assignor being duly performed by the assignor or by someone else.

What does the contract say?

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85

Two joined cases

Case 1: Lessee hires Lenmestra to remove asbestos. Contract states that any assignment of rights must
be with the contractor’s consent. Lease is assigned. The work was defective.

Could the new assignee sue?

No the clause was effective – there was no policy reason for striking it down as the contractor had a
genuine interest in controlling who it owed contractual duties to

Second case:

Lessee of 150 yr old lease gets building work done. Contract forbids assignment of rights without
consent

Later the lease is assigned

Building work is defective

The original party sues – can they get substantial damages?

Yes – the contract intended for the original parties only to enforce the contract so it must have been
envisaged that the parties could sue on behalf of successors in title for substantial damages.

Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395

Pacific Brands bought the Sara Lee business which included the licensing rights to King Gee and Stubbies
Trade marks

However, prior to the acquisition Sara Lee had granted an exclusive sub-license of these rights to
Underworks (a rival coy) for 5 yrs with a 5 yrs option

The contract between PB and SL expressly purported to assign the license but the sub-license agreement
was silent on the issue of assignment

Underworks refused to consent to an assignment of the rights to Pacific Brands

As part of the agreement with SL, Underworks had to lodge marketing plans and reports. PB argued that
they had failed to comply with this terms and they sought to terminate the sub-license

55
Could they do this? At trial Justice Finkelstein said that the right to terminate could not be assigned as it
was a personal privilege and not proprietorial. The requirement to submit plans was personal and
confidential and so could not be assigned

FFC - Finn, Sundberg JJ and Emmett JJ – upheld the trial decision but differed in approach

FFC – found that a party's contractual rights have a proprietary character for the purposes of
assignment, and are ordinarily assignable. They are a bundle of rights

FFC rejected the approach of choosing between some rights and powers of a party, and of giving to
some proprietary characteristics, while denying that character to others.

Once the bundle of rights is recognised the next issue is to examine any statutory, or public policy
reasons for denying assignability

Finn and Sundberg JJ:

32 By way of background, it is appropriate to begin with a number of relatively non-contentious

propositions.

First, it is well accepted that assignable contractual rights are choses in action; are a species of personal
proprietary right; and can be transferred to a third party at law or in equity in accordance with the
formal rules governing the transfer of such rights: see Norman v Federal Commissioner of Taxation
[1963] HCA 21; (1963) 109 CLR 9 at 26; Loxton v Moir [1914] HCA 89; (1914) 18 CLR 360 at 379.

Secondly, while it is not legally possible to assign the burden of a contract (i.e. the obligation to render
performance), it may be possible to assign (a) the entire benefit of a contract (i.e. the right to receive
performance): Don King Productions Inc v Warren [2000] Ch 291 at 318 ("Don King"); (b) if a right under
a contract is separate and severable, such a separate and severable right: cf Federal Commissioner of
Taxation v Everett [1980] HCA 6; (1980) 143 CLR 440 at 449-450; or (c) if some only of the rights under a
contract are assignable, those rights. "[A]ssignability is not a matter of all obligations arising under a
contract or none at all": Don King, above, at 319.

Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract which would
not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993) 113 ALR 225 at 235
("Devefi v Mateffy"); or, conversely, may expressly or impliedly prohibit assignment of rights otherwise
prima facie assignable: Don King, above, at 319. "Such contractual provisions are legally effective" as
between the contracting parties: Don King, ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd
[1994] 1 AC 85 at 103 ff ("Linden Gardens Trust").

Fourthly, while the product to be derived from a contractual performance (the "fruits of performance")
may be assigned; Devefi v Mateffy, above, at 234; the right to that performance may, nonetheless, be
unassignable because, having regard to the nature of the contract and the subject matter of the
contractual right in question, that right is personal in the sense that the identity of the contractual
obligee is material to the contractual relationship itself (i.e. it is a "personal contract": Peters v General
Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [1937] SASR
195; or to the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge
Disposals Ltd (1992) 57 BLR 57 at 77 (contract requiring a party to act on the other’s instructions); see
generally Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (8th Aust ed, 2002), [8-6];
Furmston (ed), above, 6.299 ff; Chitty on Contracts, Vol 1 19-053 ff (29th ed, 2004); Farnsworth, above,

56
SS11.4. A contractual right, though, will not be personal if, construed in its setting, "it can make no
difference to the person on whom the [corresponding] obligation lies to which of two persons [i.e.
assignor or assignee] he is to discharge it": Tolhurst v Associated Portland Cement Manufacturers (1900)
Ltd [1902] 2 KB 660 at 668.

Fifthly, seemingly, a contractual right may itself be of such a personal character that it cannot properly
be characterised as property: cf Jack v Smail [1905] HCA 25; [1905] HCA 25; (1905) 2 CLR 684 at 704-705;
but it is not clear whether this proposition has salience only in contexts other than assignment of such a
right, e.g. insolvency, because of the proposition immediately preceding this which relates expressly to
assignments of "personal" contractual rights.

Sixthly, the assignee of a contractual right under a legal assignment is entitled, as owner of that right, to
take action in respect of it: e.g. Conveyancing Act 1919 (NSW), s 12.

Seventhly, a third party may become a "substituted contracting party" by novation (the act of either
replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a
new party. In contrast to an assignment, which is valid so long as the obligee (person receiving the
benefit of the bargain)) is given notice, a novation is valid only with the consent of all parties to the
original agreement: the obligee must consent to the replacement of the original obligor with the new
obligor.[1] A contract transferred by the novation process transfers all duties and obligations from the
original obligor to the new obligor) of the original contract. Novation will, ordinarily, require the
agreement of the original and the substituted party although the original contract itself may, on its
proper construction, authorise a party to substitute a contracting party in its place without need for a
further tri-partite agreement: see Harry v Fidelity Nominees Pty Ltd (1985) 41 SASR 458 at 460. On
novation, though, there is no assignment of rights and obligations, but rather the creation of new rights
and obligations in a new contract: Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388; Cheshire &
Fifoot’s Law of Contract, above, [8.45] ff.

Eighthly, a contractual obligation cannot be assigned without the consent of the other contracting party:
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668. This, for
practical purposes, requires novation of the original contract; Furmston, "The Assignment of Contractual
Burdens" (1998) 13 Jo Contract Law 42; see also Vickery v Woods [1952] HCA 7; [1952] HCA 7; (1952) 85
CLR 336 at 345; Fightvision Pty Ltd v Onisforou [1999] NSWCA 323; (1999) 47 NSWLR 473 at 491-493.

Ninthly, the delegation of performance of contractual obligations is permissible where the obligations
assumed do not require personal performance but only the producing of a result: Bruce v Tyley [1916]
HCA 34; (1916) 21 CLR 277; British Wagon Co v Lea & Co (1880) 5 QBD 149. In such cases perfect
performance by the delegate will discharge the delegating contractor’s obligation, although that
contractor will remain liable unless and until such performance is rendered. "Whether or not in any
given contract performance can properly be carried out by the employment of a sub-contractor must
depend on the proper inference to be drawn from the contract itself, the subject matter of it, and other
material surrounding circumstances": Davies v Collins [1945] 1 All ER 247 at 250.

Conclusion - the right to provide plans was based on the identity of Sara lee and personal to it

67 Considered in its totality, we are satisfied that the Sub-Licence in its setting, while not of a type that
was necessarily inherently personal in character...was nonetheless intended to create an enduring
relationship in which the identity of Sara Lee as the Sub-Licensor was material and was made so by Sara
Lee in particular. While acknowledging the legitimate interest the Sub-Licensor had in exercising control

57
over the use of the mark and hence having contractual powers to that end, we consider that there are
sufficient indications in the text of the Sub-Licence itself that the particular will to which the Sub-
Licensee was asked to subject itself was Sara Lee’s, and that that was a state of affairs that Underworks
agreed to

Underworks needed to give consent to the assignment

MALLESONS SUMARRY:
Review of the facts

Pacific Brands acquired the business of Sara Lee through a set of transactions, which included a licence
from Saramar LCC to use its KING GEE and STUBBIES trade marks. Prior to the acquisition, Sara Lee
granted an exclusive sub-licence of its rights to Underworks, a Pacific Brands' competitor.

The sub-licence, which was for a five-year term with an option for a further five years, was purported to
be assigned to Pacific Brands as part of the acquisition. However, there was no express right of
assignment under the sub-licence, and despite various attempts to replace the sub-licence with a new
agreement between Pacific Brands and Underworks through novation, Underworks refused to consent
on the terms offered.

Under the terms of the sub-licence, Sara Lee had a right to terminate the sub-licence if Underworks
failed to submit appropriate marketing plans, reports and audits to Sara Lee. After about two years of
dealings, a dispute arose between Pacific Brands and Underworks. Essentially, Pacific Brands alleged
that Underworks had breached the licence conditions, primarily by failing to submit appropriate
marketing plans, reports and audits.

As a result, Pacific Brands attempted to terminate the licence for breach of its rights. Pacific Brands
argued that Sara Lee had properly transferred its rights under the sub-licence to Pacific Brands through
assignment, or alternatively, implied novation. Therefore, the dispute ultimately turned on whether
Pacific Brands, as the purported assignee of Sara Lee's rights, had the right to terminate the sub-licence
for breach.

Primary decision

In the Federal Court last year, Justice Finkelstein held that certain rights under an agreement, including
the right to terminate, were incapable of assignment. The basis of his honour's decision was two fold:

1. Only the 'benefits' of an agreement such as the ability to collect royalties, being choses in action, may
be legally assigned. A chose in action is a property right enforceable by legal action. The right to
terminate is not a property right, but rather a personal right or privilege.

2. Even if the first reason was incorrect, the right or privilege to terminate and other similar rights such
as the right to review annual marketing plans and to approve audit and manufacturing facilities have
elements of 'personal confidence' which required them to be exercised personally by the original
contracting parties. Those personal rights could not, therefore, be assigned without consent.

In Justice Finkelstein's view, the issues may have been resolved by novation of the contract. However,
his Honour did not find novation on the facts of the case as Underworks had refused to enter into a new
licence with Pacific Brands.

Pacific Brands appealed the primary decision.

58
Full Federal Court decision

Almost exactly a year after the primary decision, the Full Federal Court comprising Justices Finn,
Sundberg and Emmett, dismissed the appeal and upheld the original decision that the critical rights that
had allegedly been breached, and the right to terminate for those breaches, had not been successfully
assigned to Pacific Brands. It was therefore not possible for Pacific Brands to terminate the sub-licence.

Assignment of rights

On the issue of assignment of rights, contrary to Justice Finkelstein's view, the Full Court found that all
of a party's contractual rights have a proprietary character for the purposes of assignment, and are
ordinarily assignable. The Full Court rejected the approach of differentiating between various rights and
powers of a party, and of giving to some the character of assignable property, while denying that
character to others. According to the Full Court, the correct approach is to begin by treating all contracts
as a 'bundle of rights', which are all prima facie assignable. This is followed by considering whether there
are any reasons preventing the assignability of those rights such as statute, public policy, the identity of
the contracting parties, or if the various rights are not separable in the manner attempted.

Importantly, contrary to the primary decision, the Full Court found that the right of termination was
assignable because it is not severable from the other rights that had been assigned as a whole.

Relevance of the identity of the contracting parties and consent

The Full Court concluded that Sara Lee's identity was material to the contract and its performance. The
sub-licence established a relationship between Sara Lee and Underworks that was personal and
enduring, and was therefore not assignable without Underworks' consent.

In the circumstances, Underworks' consent was required as Pacific Brands was a competitor. The Full
Court was not prepared to imply consent either from the subsequent conduct of the parties in dealing
with one another for over two years, or the terms of the sub-licence. There was no express clause
permitting Sara Lee to assign its rights under the sub-licence, and Sara Lee was not defined to include its
assigns.

Accordingly, the Full Court concluded that the sub-licence with Underworks was not assignable without
consent due to its personal nature.

Practical implications

A number of important principles arise from the Full Court's decision, which should be borne in mind by
contracting parties and those negotiating business purchase agreements.

Contracting parties should ensure that their assignment rights are expressly set out in the contract. If
assignment is permitted, the contract should contain an express clause permitting assignment. Silence
on the issue of assignment will not necessarily mean that the agreement can be assigned without the
other party's consent.

Contracting parties should also consider negotiating an automatic right to novate the agreement in the
event of a business sale. If desired, the contract should require the other party to execute a novation
deed in an agreed form, or in a form prepared by the contracting party (acting reasonably).

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Purchasers of businesses should carefully review all business contracts to be acquired. If a contract is
significant, and there is any doubt whether or not it can be validly assigned without consent, the
contract should be novated. Ideally, novation of significant contracts should be a condition precedent to
completion.

The Purchase of Business Agreement and other contractual documentation should also contain fall back
wording to address the position where necessary consents cannot be obtained. In these circumstances,
the vendor should be required to administer the business contracts on the purchaser's behalf and
subject to the purchaser's directions.

Contracts for personal services

Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014; [1940] 3 All ER 549,

Noakes worked for Hickelton Main Co Ltd

The business was transferred to Doncaster Colleries.

Noakes went absent and was required to pay a fine on the basis that he had a contract of service with
Doncaster

Noakes said he did not have a contract for service

Lord Atkin -My Lords, I confess it appears to me astonishing that apart from overriding questions of
public welfare power should be given to a court or anyone else to transfer a man without his knowledge
and possibly against his will from the service of one person to the service of another. I had fancied that
ingrained in the personal status of a citizen under our laws was the right to choose for himself whom he
would serve: and that this right of choice constituted the main difference between a servant and a serf...

Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414

Tolhurst agreed, for a term of up to 50 years, to supply chalk to a particular cement manufacturing
company which later assigned this contractual right to another company who took over the first
company’s business.

Tolhurst’s claim that the assignment was invalid was rejected because the House of Lords took the view
that it could not make any difference to Tolhurst whether it supplied chalk to the assignor or assignee.

Mid-City Skin Cancer & Laser Centre v Zahedi-Anarak (2006) 67 NSWLR 569

Zahedi, a medical practitioner, was contractually bound by an implied obligation of confidence in

relation to records on patients kept by a medical practice where he was employed.

A new owner took over the medical practice.

Zahedi took records and then ended his employment to work elsewhere.

Could the new business owner sue on the original obligation?

Yes: Campbell J

If one considers the contract between Dr Zahedi and [his former employer], it has now come to an end,
so far as either side having ongoing obligations to provide services is concerned. However, the

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contractual obligation continues whereby lists of patient names and addresses which Dr Zahedi obtained
… cannot be disclosed, and cannot be used except for the purposes of the [former employer]. The
obligations of Dr Zahedi under that term of the contract do not require any personal interaction with the
person to whom the obligation is owed, and the content of the obligation is not influenced by any action
or decision of the person to whom the obligation is owed. It is not an obligation requiring Dr Zahedi to
do things — it is an obligation requiring him not to do things. Dr Zahedi can perform it perfectly by total
inaction. In my view, for these reasons no analogy can be drawn with the reasons whereby the benefit
of a contract of service is unassignable.

Assignment Analysis
Assignment means to transfer property rights

Can the property rights be assigned e.g. are there rules against assignment?

Is the property legal property or equitable property?

Is the transfer a legal assignment or an equitable assignment?

Is the transfer for consideration or voluntary?

Assignments at law
Old system title – deeds, registration – s 38 (deeds for people); s 51A (execution of deed by a
corporation)

Torrens title – registration, indefeasibility

Goods – gifts, sale of goods

Debts and other choses in action

HISTORY

In Lampet’s case (1612) 77 ER 994 at 997, Lord Coke said that ‘the great wisdom and policy of the sages
and founders of our law, have provided, that no possibility, right, title, nor thing in action, who shall be
granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits,
of great oppression of the people, and chiefly of terre-tenants, and the subversion of the due and equal
execution of justice’.

Equity always allowed them to be assigned

By the 19th century the law was changed to allow assignment

Section 12 of the Conveyancing Act stipulates:

Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of
charge only) of any debt or other legal chose in action, of which express notice in writing has been given
to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or
claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all
equities which would have been entitled to priority over the right of the assignee if this Act had not
passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice,
and all legal and other remedies for the same, and the power to give a good discharge for the same

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without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person
liable in respect of such debt or chose in action has had notice that such assignment is disputed by the
assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such
debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit,
to call upon the several persons making claim thereto to interplead concerning the same, or he or she
may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the
Acts for the relief of trustees.

[Link] must be a clear intention to assign rather than a mere authorisation that the debtor or other
person pay another: Norman v FCT

[Link] assignment must be absolute and not by way of a charge (a charge allows the assignee to
appropriate the property if there is a default, it is not a property right). The basic reason why the
assignment must be absolute is to ensure that the debtor or other person is protected in that at all
times he or she knows to whom payment must be made. Furthermore, the requirement that the
assignment must be absolute enables the assignee to sue on the debt or chose in action in his or her
name because an absolute assignment means that the assignor no longer has any interest at all in the
debt or chose in action.

In Durham Bros v Robertson [1898] 1 QB 765 there was an assignment of a book debt which was
expressed to endure until money lent by the assignee to the assignor was repaid.

Not an absolute assignment because it was conditional upon repayment

Part of a debt or chose in action cannot be assigned pursuant to s 12. This is because the assignor still
has an interest in the debt or chose in action and thus must be joined in any proceedings instituted
against the debtor by the assignee. A part of a debt of chose in action can only be assigned in equity

[Link] assignment must be in writing signed by the assignor William Brandt’s Sons & Co v Dunlop
Rubber Company Limited (customer instructed his debtor to pay debt directly to the bank. The bank
sued for payment without being joined by the assignor. It was that an equitable assignment requires no
more than expression of intention to assign and notice to the debtor.)

[Link] notice in writing must be given to the debtor by either the assignor or assignee. There are no
formal requirements as to the notice and it need not even state the date of the assignment. The
importance of the notice is that the debtor be advised as to whom he or she must pay. Constructive
notice, notice by implication or operation of law is NOT sufficient: Consolidated Trust Co Ltd v Naylor
(1936) 55 CLR 423 at 438-9

Things Section 12 can’t do

1. Future choses in action

2. Change priorities - An assignment under s 12 is subject to equities having priority over the rights of
the assignee

3. Assign choses regulated by other pieces of legislation: Patents Act 1990 (Cth) s 14; Copyright Act 1968
(Cth) ss 196–197; Trade Marks Act 1995 (Cth) ss 106–111; Life Insurance Act 1999 (Cth) ss 200–203;
Marine Insurance Act 1909 (Cth) ss 56–57

3. Assign equitable interests????? e.g. a right of partnership?

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Everett v Commissioner of Taxation (1980) 143 CLR 440

The assignment of part of a partnership

Obiter comment – what if it had been an absolute assignment? It could be assigned. At CLR 447

“[T]hough the interest of a partner is an equitable interest, it may be assigned under s 12 of the
Conveyancing Act 1919 (NSW), as amended … The interest, being a chose in action, falls within the
expression ‘debt or other legal thing in action’ because the section, in providing that notice shall be
given to a trustee ‘as a person liable in respect of such debt or other legal chose in action’, appears to
contemplate the assignment by a beneficiary of an equitable chose in action against a trustee. There
would be no point in referring to a trustee if the section made provision only for the assignment by
strangers to the trust of debts owing by, and choses against, persons who happen to be trustees. The
expression ‘legal chose in action’ may be read as ‘lawfully assignable chose in action’.

Equitable assignments
Equitable assignments exists for:

Future property

Equitable assignment of legal property for consideration

Voluntary equitable assignment of legal property that is assignable at law

Voluntary equitable assignment of legal property that is not assignable at law

Equitable assignment of equitable property

Intention is the key

In all cases, for an assignment to be effective in equity, the assignor must display an intention to assign.
The assignor must show that he or she is parting with dominion over the property. No particular form of
words is necessary to establish consent.

Burridge v MPH Soccer Management Ltd [2011] EWCA Civ 835

The Court of Appeal had to determine whether the following words amount to an intention to assign:

‘The fee due to [Harrison] is to be sent to the Football Association for onward transmission to the agent
… [at] Lloyds TSB…Sort code 30-93-71 … account number…03717572 MPH Soccer Management Ltd’.

The court unanimously held that there was an intention to assign the fee.

Comptroller of Stamps (Victoria) v Howard-Smith (1936) 54 CLR 614

Howard-Smith was the residuary beneficiary under his deceased wife’s estate.

He wrote a letter to the executor and trustee of the will, who held a power of attorney from him,
requesting that certain payments be made to named individuals from his interest as residuary
beneficiary. The payments were made.

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The Comptroller of Stamps in Victoria assessed the letter to be dutiable, claiming that stamp duty was
payable under the Stamps Act 1928 (Vic). The Supreme Court of Victoria found the gift was not liable for
stamp duty. The Comptroller of Stamps appealed to the High Court.

Issue: was Howard-Smith’s letter an assignment of property and therefore liable for stamp duty or
merely an authorisation having no dispositive effect with no liability for stamp duty?

The High Court (Starke, Dixon and McTiernan JJ) unanimously dismissed the Comptroller of Stamps’
appeal and affirmed the lower court decision that Howard-Smith’s letter did not operate as an equitable
assignment. It was merely an authorisation with no dispositive effect.

Starke J: A man may voluntarily dispose of his equitable estates or interests if he choose to do so. No
[620] particular form of words is required for the purpose, but he must make clear his intention that he
divests himself of the property and gives it over to another, or that he creates a trust in the property in
favour of another. A mere mandate from a principal to his agent gives no right or interest in the subject
of the mandate. Now, all we have to go on in this case is the letter from H B Howard-Smith to the
executor of the will of his wife and his own attorney. It simply ‘requests’ the executor and attorney to
pay certain amounts out of his residuary interest. It is left to the discretion of the executor and attorney
whether the payment shall be in shares or in money. And, so far as appears from the facts stated in the
case, the document, when executed, was not communicated to the persons or institutions named as the
recipients of Howard-Smith’s bounty. The absence of communication suggests that the appropriation
was not irrevocable. The document, it appears to me, operates as an authority to the executor and
attorney to make the payments mentioned, and is not a transfer or assignment of any interest to the
persons or institutions named, nor the creation of any trust in their favour.

Assignments of future property in equity

The assignment of future property The rule in Holroyd v Marshall (1862) 10 HLC 191 at 211; (1862) 11
ER 999 at 1007

Valuable consideration

Is the property present or future property?

Norman v Federal Commissioner of Taxation

Voluntary deed between a husband and wife whereby the husband purported to assign to the wife two
items of property. First, there was interest on a loan, which the borrower was entitled to repay to the
assignor at any time and without notice. Second, there were dividends on certain shares owned by the
assignor.

Tax Com argues that voluntary hence ineffective

IS it the right to receive money (present property) or the money itself (future property)?

In relation to the dividends, the High Court (Dixon CJ, McTiernan, Windeyer, Menzies and Owen JJ)
unanimously held that the assignment was not effective because it involved future property for which
the assignee did not provide valuable consideration. A bare majority (Dixon CJ, Menzies and Owen JJ;
McTiernan and Windeyer JJ dissenting) came to the same conclusion in relation to the interest on the
loan.

Shepherd v Commissioner of Taxation

Inventor was entitled to royalties in relation to the manufacture of castors.

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By a voluntary deed he assigned ‘all [his] right title and interest in and to an amount equal to ninety per
centum of the income which may accrue during a period of three years … from [the] royalties’..

Tax Com says ineffective because it’s future property

The majority of the High Court (Barwick CJ and Kitto J; Owen J dissenting) held in favour of Shepherd on
the basis that the voluntary deed of assignment was an effective assignment of presently existing
property.

Future or Present?
Everett v Commissioner of Taxation (1980)
(1980 143 CLR 440; 28 ALR 179 a taxpayer purported to assign a
fraction of his share in a partnership together with the right to receive a corresponding share of
partnership profits. The majority of the High Court of Australia held that the assignment involved
present property.

In Booth v Federal Commissioner of Taxation (1987) 164 CLR 159; 76 ALR 375 the High Court of
Australia ruled that the assignment by a landlord of a percentage of the right to receive rent payable in
respect of particular premises involved present property, holding that the assignment was analogous to
the facts of Shepherd and not Norman.

Description of the property

For a valid assignment of future property the property must be described with sufficient particularity to
permit its identification when it comes into existence or into the possession of the assignor.

Tailby v Official Receiver (1888) 13 App Cas 523

Assignment of future property and specific performance

This passage in Holroyd suggests that the assignment is not valid if, as at the date upon which the
subject matter of the assignment comes into the hands of the assignor, the court would decline an order
for specific performance of the contract to assign.

If A, for valuable consideration agrees to assign future property to B, and consideration has been paid or
executed by B, when A acquires property that falls within the description of that which A agreed to
assign, equity determines that the property vests in B as soon as it is acquired by A and can be
identified. There is no need for any further assurance by A or action to be taken by B

Equity looks on that as done which ought to be done

Nature of the assignee’s right

What is the nature of the assignee’s right?

If debt or similar to debt, if the assignor goes bankrupt and then discharged the debt is discharged?

Re Lind [1915] 2 Ch 345

Lind had an expectancy under his mother’s will. Prior to her death he borrowed from two separate
sources (Norwich Union and Arnold), in each case assigning the expectancy as security for the loan.

Lind was then declared bankrupt, from which he was subsequently discharged.

He then borrowed money from a third source (Industrials Finance Syndicate) and again assigned his
expectancy as security for the loan.

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His mother then died.

Did the third assignee’s interest in the property inherited by Lind pursuant to his mother’s will have
priority over the interests of the first two assignees?

The Court of Appeal (Swinfen Eady, Phillimore and Bankes LJJ) unanimously ruled in favour of the first
two assignees. The Court found that the first two assignments survived Lind’s bankruptcy.

All three judges rejected the notion that the rights of an assignee of future property rested purely in
contract. Rather, there was a higher right. The crucial factor establishing this higher right was the fact
that an assignee of future property obtains an equitable interest in the property immediately and
automatically upon the property coming into existence or into the possession of the assignor.

This attribute of the assignment of future property meant that the rights of the assignee were
sufficiently proprietary in nature to attract the rules relating to priorities between competing interests in
the property that was the subject of the assignment.

If the rights of the first two assignees had been merely contractual they would have been completely
discharged by Lind’s bankruptcy and no priorities issue would have arisen with the third assignee.

The practical implication of Re Lind is that an assignee of an expectancy taken as security for a loan has
the right not to prove his or her debt in the assignor’s subsequent bankruptcy, and can simply rely on
the security, in much the same way as an ordinary secured creditor can do upon the bankruptcy of a
debtor

The equitable assignment of legal property for consideration

If no requirement for writing then an assignment of legal property for consideration takes effect
immediately the consideration is paid or executed

If there is a requirement for writing then doctrine of part performance may save an oral agreement

In Everett v Commissioner of Taxation, at CLR 450; ALR 185, the majority of the High Court of Australia
said:

[A]n equitable assignment of, or a contract to assign, present property for value takes effect
immediately and passes the beneficial interest to the assignee.

The voluntary assignment of legal property assignable at law

Milroy v Lord (1862) 4 De G F & J 264 at 274; (1862) 45 ER 1185 at 1189

The first limb of Milroy v Lord: do everything necessary to be done: Corin v Patton (1990) 169 CLR 540

The second limb of Milroy v Lord: assignor has done all that is necessary to be done to render the
assignment binding on the assignor Costin v Costin (1995) NSW Conv R 55-811

Corin v Patton (1990) 169 CLR 540

Mr and Mrs Patton owned land as joint tenants.

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Mrs Patton was terminally ill and, on the assumption that she would die before her husband, the land
would have passed to her husband automatically upon her death in accordance with the principle of
survivorship

She did not want this to happen so she executed three documents – a transfer to her property of her
share, a trust and will were she left her estate to the children

The transfer had not been registered

Had she done everything necessary to be done?

No – she did not authorise the bank to uplift the CT to Corin for the purpose of registering the transfer

Costin v Costin (1997) NSW Conv R 55–811

Costin snr makes an initial attempt to sever a joint tenancy in relation to Torrens title land by an
assignment of his interest to his son.

Costin snr handed over an appropriate transfer document as well as giving written instructions to the
solicitors who held the certificate of title to release it to the assignee.

The solicitors refused to do so because they believed that they needed the authority of both the joint
tenants to release the certificate of title to the assignee.

Costin snr later changed his mind and assigned his interest to a second son and the second son was duly
registered as co-owner of the property.

The first son argued that there had been an effective equitable assignment to him and that the second
son held the interest in the property on trust for the first son.

The court held the assignment to the first son was ineffective.

The voluntary assignment of legal property not assignable at law

If the legal property cannot be assigned at law the assignment will be effective in equity if the assignor
has manifested an intention to make an immediate and irrevocable transfer : Norman v FCT

The principles set out in Milroy v Lord do not apply. Nor is consideration required

Arguably the only example of such property is part of a debt or chose in action

The equitable assignment of equitable property

The assignment of equitable property can only be achieved in equity. Because equitable property is not
recognised at common law it cannot be the subject of a legal assignment. For a voluntary assignment of
equitable property the assignment must be absolute. Apart from any statutory requirement of writing
(see below), all that is necessary for a valid equitable assignment is ‘a clear expression of an intention to
make an immediate disposition’

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PRIORITIZATION
Once you have characterised the interest you can test is strength against other interests

There are only four types of priority dispute:

Legal vs legal

Equitable vs Equitable

Earlier Legal vs Later Equitable

Earlier Equitable vs Later Legal

Legal interest v legal interest

When two or more legal interests in the land conflict the main principle is that a person cannot convey
an interest which he or she does not have (“nemo dat quod non habet”)

Partial eg where A leases to B – A then sells to C – C ‘s interest is taken subject to the lease

Wholly inconsistent – A sells to B and then sells to C: C receives nothing

Equitable interest v equitable interest

Moffett v Dillon [1999] 2 VR 480, at 491, it was stated by Brooking JA (Buchanan JA concurring, at 506)
that the resolution of priority disputes in the context of competing equitable interests in property could
be resolved by applying either of two distinct rules. The first rule is that, generally, if the holder of the
second equitable interest takes with notice of the first equitable interest, he or she takes that interest
subject to the first equitable interest. The second rule is that, prima facie, the equitable interest first
created prevails. However, this prima facie rule can be displaced if the holder of the second equitable
interest has a ‘better equity’. The onus of proof in such cases is upon the holder of the second equitable
interest to displace the prima facie priority of the first equitable interest holder: Platzer v
Commonwealth Bank of Australia [1997] 1 Qd R 266, at 279

Notice
Notice may be actual or constructive i.e. would have discovered if they had taken proper steps –
Barclays Bank v O’Brien [1994].

Exception: if the holder of the first interest induces the holder of the second to think that the first no
longer exists: Moffet v Dillan.

Exception: Where holder of first agrees to postponement or waiver of their interest: Platzer v
Commonwealth Bank.

Who has the best equity?

Rice v Rice per Kindesly VC:

1. nature and condition of the respective equities i.e. not a mere equity. Mere equities always lose
to a purchaser for value without notice: Double Bay Newspapers Pty Ltd v A W Holdings Pty Ltd (1996).
All other equities treated equally. Moffett v Dillon – mortgagee had better equity but not because it was
in registerable form.

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2. the circumstances and manner of acquisition.

3. the whole conduct of the parties – Most important esp. the conduct of first holder. If the second
interest holder also acted badly, the unconscientious behaviour cancels out and first in time.

Heid v Reliance Finance Corporation Ltd – per Gibbs CJ

The better equity depends on the circumstances –

look to the conduct of the parties

the question of negligence on the part of the prior claimant

the effect of any representations made by the prior claimant which may give rise to an estoppel

did the conduct of the prior claimant enable such a representation to be made?

Generally: the earlier equitable interest may be postponed to the later interest where:

(a)the conduct of the earlier interest holder has led to the later interest holderacquiring an interest;

(b)in the mistaken belief that the prior interest did not exist

If the equities are equal then first in time

EG Able agrees to sell his land to Barb. Able gives the title deeds to barb and signs a receipt for the
purchase money even though he has yet to be paid. Barb proceeds to grant an equitable mortgage over
the land to Clary. How has the better interest?

Look to the equities:

Able has an equitable lien over the property

Clary has an equitable mortgage

Equitable interest v equitable interest

Both the equities are security interests – no real difference between them – However Able’s negligent
conduct in giving the title deeds and signing the certificate means that it was his fault that Clary took his
interest without notice- Hence Clary’s interest is superior

See Rice v Rice (1853) 61 ER 646

Vendors sold property. Purchaser entered contract and paid some of purchase price. Vendors
automatically got lien for remainder of rest of price. When deposit was paid, vendors gave a deed of
conveyance and a declaration that full purchase price had been paid. Purchaser used this doc to go out
and get a mortgage.

Equitable Lien over purchase price v Equitable mortgage.

Held equitable mortgagee wins. Vendors foolishly and negligently armed purchaser with means to
create second equitable interest, effectively encouraged second equitable interest by their actions.

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JNJ Investments Pty Ltd v Sunnyville Pty Ltd [2006] QSC 138, a vendor of property contracted to sell
property to a purchaser. On the day of settlement of this contract, the vendor completed a sale of the
property to a second purchaser for a higher price. The first purchaser, upon becoming aware of what
had happened, lodged a caveat to prevent registration of the second purchaser’s transfer. The second
purchaser commenced proceedings to have the caveat removed. The issue before the court was
whether the first purchaser had priority over the second purchaser. Mullins J, at [70], held that the first
purchaser had priority because the second purchaser ‘had notice of the first [purchaser’s] equitable
interest at the time of the acquisition of its interests’.

Exception: in the case of land held under a trust the beneficiaries will not lose their priority because of
negligent or fraudulent conduct by the trustee: Shropshire Union Railways v Robson (1835) but may
due to postponing conduct by the beneficiaries.

Facts: Trustee (Hollyoake) held shares for Shropshire. In breach of trust, trustee used share certificate as
loan collateral from Robson. Robson held the shares but did not register them under his name so
equitable.

Held: Shropshire had priority because they had not engaged in postponing conduct even though their
trustee had. Up to Robson to determine that Hollyoake was only holding on trust.

HOWEVER, where the second equitable interest is created because the trustee didn’t bother to get
documents proving property – this is postponing despite beneficiary lack of fault: Walker v Linom
[1907]. If title deeds never came into possession, did the trustees every hold anything on trust?

Walker created an equitable interest in a property trust in favour of his wife. Trustees failed to get title
deeds from walker who was then able to hold himself out as true owner and mortgaged. Default and
lender sold property to Linom. Linom wins!!

Exception doesn’t apply unless the trust is properly formed or in cases where the trustee has failed to
complete the trust by receiving the trust property

Rule in Dearle v Hall (1828)

Priority given to second equity in personalty and realty if:

1. assignment for valuable consideration.

2. without notice when consideration given

3. assignee was the first to give notice to the trustee, debtor or fundholder.

Rationale is that by failing to give notice, the first holder has opened the door for the second. Notice
may be oral.

If notice given on the same day, held to be simultaneous so earlier interest prevails.

NB Strictly applied and even if first holder not at fault in not giving notice.

NB Notice to one trustee is effective even if that trustee dies before telling any other trustees: Ward v
Duncombe (1893).

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Re Dallas [1904]
Dallas executor and beneficiary of father’s will. Before receiving he assigned his expectancy to two
different creditors. After death he renounced probate and his sister got administration. Second debtor
submitted intrest the day after sister got admin. As soon as first debtor found out six days later he
submitted interest. Priority to second interest holder despite no way for first to notify quicker. NB Obiter
held that notice given to executor who subsequently renounces duties, this would be ineffective.

Lyle v Rosher
The trustee and the assignor cannot be the same person.

Mere Equities
Walker v Linom
Exception: Mere equities – personal right to a remedy – proprietary in nature but less than a full
equitable interest

Examples: the right to have a document rectified, right to have a conveyance set aside because of the
grantee’s fraud

Latec Investments Ltd v Hotel Terrigal Pty Limited:

Limited Terrigal had granted a mortgage to Latec. Latec
exercised the power of sale of the mortgage and sold it to a wholly owned subsidiary, Southern –
Southern granted a further equitable interest to MLC which had no notice of the Terrigal interest

Terrigal argued that the sale was fraudulent – not at arm’s length – both Southern and Latec had
conspired to sell at a low price

What was the priority between the interest held by Terrigal and the interest held by MLC? It was held
that Terrigal had a bare right to sue and have the transaction set aside – a mere equity

A prior mere equity will not prevail over a later full-blown equitable interest that was taken without
notice

Exception: tacking
Exception: tacking – tabula in naufragio – if a later equitable interest holder purchased for value and
without notice and is later able to acquire the legal estate then the later interest holder can tack its
equity onto the legal estate and jump priority

EG Mortgages – If Able grants a mortgage to Bette then an equitable mortgage to Clary and then
another equitable mortgage to Donna – then the order of priority will normally be B, C, D – but if Donna
can later buy the land off Bette then Donna equitable interest will be tacked to the legal estate and Clary
will come in last

Prior Legal v Later Equitable

Generally earlier legal prevails but there are 4 exceptions all relating to the conduct of the legal interest
holder.

1. Legal interest holder obtained interest through fraud.

Where the legal interest holder was a party to the fraud that led to the equitable interest being created
Northtern Counties v Whipp

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Crabtree gave a legal mortgage to NC. Crabtree was manager of the company where deeds were
stashed and had a key. He removed them and executed a second mortgage with Whipp, an equity of
redemption because of the earlier legal mortgage. Held that fruad must have been perpetrated by the
interest holder. Fraud by the interest assigner alone is not sufficient.

Per Fry LJ:

‘where the owner of the legal estate has assisted in or connived at the fraud which has led to the
creation of a subsequent equitable interest, without notice of the prior legal interest’

2. Where the legal interest holder was grossly negligent in failing to inquire after or obtain possession
of the title deeds Walker v Linom thus enabling another person to hold themselves out as the true
owner.

Mere carelessness on the part of the holder of the legal interest is not enough to constitute postponing
conduct: Evans v Bickell (1801) 31 ER 908, at 1005–6. ‘Gross negligence’ in the sense of a special degree
of lack of care or prudence is needed for this exception to arise.

3. Where the legal interest holder entrusted the title deeds to an agent with limited authority to raise
money by using the property as a security interest, and that agent exceeds authority by borrowing more
than was intended – legal interest is bound to the full extent.

Brocklesby v Temperance Permanent Building Society [1895], a father authorised his son to raise a loan
on the security of certain property in the sum of Ł2250. The son actually raised Ł3500. The father was
held liable for the full amount raised by the son.

4. Where the legal interest holder, although not parting with title documents, gives another person a
document that confers an equitable interest or a right to acquire a legal interest.

Barry v Heider
Barry executed a transfer to Schmidt. Transfer could not be registered because LTO was in the process
of issuing a new title certificate. Barry authorised LTO to issue the certificate direct to Schmidt. Schmidt
mortgaged the land to Heider on the basis of the certificate. Before registration, Barry sought an
injunction against transfer due to fraud. Also sought to have land freed from mortgage. Mortgage
upheld because Barry had issued certificate through LTO that allowed the fraud to be perpetrated.

Prior equitable interest v legal interest

Pilcher v Rawlins (1872) LR 7 Ch 259, at 268. The legal interest will prevail if it was acquired:

1. by a purchaser:

Anyone who acquire an interest for value (lessee, fee simple owner, mortgagee)

2 for value

Consideration in money – needs to be more than nominal amount but not market value. Bassett v
Nosworthy (1673) b/c equity will not assist a volunteer.

3 in good faith

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Bona fide – no hint of conspiracy or unclean hands:Midland Bank Trust Co Ltd v Green [1981] AC 513, at
528 e.g. notice of prior equitable interest.

4. without notice of the prior equitable interest

Most significant catch. Relevant time is when purchaser furnishes consideration: Pilcher v Rawlins.
Exception is if equitable interest is beneficiary under a trust where beneficiary will prevail after
consideration but before acquiring the legal interest.

Can be actual, constructive or imputed

Actual: knowledge of the actual facts – real knowledge

Constructive: knowledge that would have come into the person’s attention had they made reasonable
inquiries eg case of land sold with a tenant in possession – purchaser should have checked the rights of
the lessee - constructive notice. A person who has actual notice of a document that might affect title will
have constructive notice of its contents: Cosser v Collinge (1832).

Must be able to find the interest – old system title allowed to go back 30 years

CAct s 164

The rule in Wilkes v Spooner [1911] 2 KB 473: Subsequent purchasers are in the same shoes as the legal
estate holder even when the subsequent legal interest has notice or receives via gift:

[I]n justice to the owner of the land who had no notice when he acquired the land, it would not be right
to hamper his power of dealing with his own land, because certain persons, who possibly would be the
only customers for the land likely to pay the best price, have such notice.

Imputed Notice
Actual or constructive notice that comes to the attention of the purchaser whether or not they came to
their attention in the course of their agency: Hargreaves v Rothwell (1836)

However, Cf CA S.164 – implies notice within the course of agent’s duties

Restriction on constructive notice

(1) A purchaser shall not be prejudicially affected by notice of any instrument, fact, or thing, unless:

(a) it is within the purchaser’s own knowledge, or would have come to the purchaser’s knowledge, if
such searches as to instruments registered or deposited under any Act of Parliament, inquiries, and
inspections had been made as ought reasonably to have been made by the purchaser, or

(b) in the same transaction with respect to which a question of notice to the purchaser arises, it has
come to the knowledge of the purchaser’s counsel as such, or of the purchaser’s solicitor or other agent
as such, or would have to come to the knowledge of the purchaser’s solicitor or other agent as such, if
such searches, inquiries, and inspections had been made as ought reasonably to have been made by the
solicitor or other agent.

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 (1A) Omission to search in any register or list kept by, or filed with, the Australian Securities and
Investments Commission, whether within New South Wales or elsewhere, shall not of itself affect a
purchaser of land with notice of any mortgage or charge.

(2) This section shall not exempt a purchaser from any liability under or any obligation to perform or
observe any covenant, condition, provision, or restriction contained in any instrument under which the
purchaser’s title is derived, mediately or immediately, and such liability or obligation may be enforced in
the same manner and to the same extent as if this section had not been enacted.

(3) A purchaser shall not by reason of anything in this section be affected by notice in any case where
the purchaser would not have been so affected if this section had not been enacted.

(4) This section applies to purchases made either before or after the commencement of this Act, save
that where an action is pending at the commencement of this Act the rights of the parties shall not be
affected by this section.

Old System Title

Land goes to the one who registers first. Land must have been obtained in good faith and for value. NB
Only applies in competing instruments e.g. two equitable morgages, one written instrument and one
deposit of title, registration will not give priority and general law applies.

Also, Old System does not differentiate between legal and equitable. Title goes to the one registered
first: Darbyshire v Darbyshire (1905).

Good Faith:
Good faith on the recipient of the interest. GF on the part of the vendor is irrelevant: Jones v Collins

Most common example of bad faith is taking with notice of earlier equitable claim. Timing of notice is
before the execution of the transfer: Scholes v Blunt. Notice after execution but before registration is
okay: Burrows v Crimp

Valuable Consideration
Must not be nominal: Bullen v A’Beckett (1863). However, nominal consideration sufficient if interest
registered and competing interest is acquired after registration because subsequent interest will have
notice.

Torrens Title Land

Primacy of registration: Breskvar v Wall. No legal interest until registration: Westfield v Perpetual
Trustee (2007)

Competing Registered Interests

Registering land acquires land subject to previously registered interests -> indefeasable title Frazer v
Walker [1967]

Exceptions to indefeasibility

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Fraud: Must relate to the current state of the title, not fraud on past transfers. Means actual fraud
brought home to the person acquiring the asset or their agents. Fraud not attributed for carelessness
but can be for willful blindness: Assets Co v Mere Roihi [1905]

Actual fraud, moral turpitude: Fairclough v Butler

Expanded recently to include equitable fraud somewhat but ill defined: Grgic v ANZ Banking Group Ltd
(1994) where Powell JA said:

[T]hose species of ‘equitable fraud’ which are regarded as falling within the concept of ‘fraud’ for the
purposes of s 42 of the Act are those … in which there has been an element of dishonesty or moral
turpitude on the part of the registered proprietor of the subject interest or on the part of his or its
agent.

Mere knowledge of an unregistered interest will only affect title prior to registration. Once registered,
everything’s cool: IAC (Finance) Pty Ltd v Courtenay (1963)

Port Swettenham v Loke Yew

LY owned land and conveyed to Eusope on the understanding that he would not be disturned on it. They
agreed. Eusope then conveyed land to PS on the understanding that LY would not be disturbed. They
agreed but when they moved in they kicked LY out. Held that agreement constituted more than mere
knowledge of unregistered interest and amounted to fruad, making an agreement knowing they
wouldn’t honour it. Cf Hosking v Barnes [1971] where there was no deliberate plan to not honour
agreement and no evidence original owner had been induced to transfer on the basis of statements by
Hosking.

Fraud Timing
Any time up to registration: Bahr v Nickolay (No 2). Fraud afterwards doesn’t count except in relation to
the in personam exception.

Fraud by the agent

Counts if agent acting within the scope of the principal’s actual or apparent authority even if principal
doesn’t know about it.

Dollars & Sense Finance Ltd v Nathan [2008]

Agent acquired mortgage by forging signature of the principal where the mortgagor had forwarded docs
to the agent for the mortgagee. Held within apparent authority

Problem
Monica, aged 27, and Chandler, aged 26, were married five years ago. Three years ago they purchased,
as joint tenants, a house under Torrens title. About a year ago their marriage began to break down. They
decided to keep up the pretence of being married because a divorce would have damaged their
respective careers. Six months ago Monica was diagnosed as having breast cancer.

One week ago Monica met with her brother Ross and told him that she wanted him to have her interest
in the house she had purchased with Chandler. To effectuate this gift she handed Ross a duly executed

75
Memorandum of Transfer transferring her interest in the house to Ross, together with a letter
addressed to Ally, the solicitor in whose office the certificate of title was held. The letter directed Ally to
release the title deed to Ross.

The next day Ross went to Ally’s office to collect the title deed but Ally refused to release it to Ross on
the ground that she could not do so without also having a direction to that effect from Chandler. Ross
left Ally’s office without the certificate of title. Before anything else was done in relation to this matter
Monica was killed in a car accident.

Ross seeks your advice as to whether he is entitled to Monica’s interest in the house.

Answer
The issue raised by this problem is whether the transaction between Monica and Ross amounted to an
effective equitable assignment of the property to Ross. If it did the assignment would have severed the
joint tenancy between Monica and Chandler with the result that Chandler would not have inherited
Monica’s interest in the property on her death pursuant to the principle of survivorship. At her death
Monica would have held her interest in the property as trustee for Ross. If the transaction was not an
effective equitable assignment of the property, Monica would have died holding her interest in the
property as joint tenant with Chandler who would inherit her interest pursuant to the principle of
survivorship.

Given that Monica sought to assign her legal interest in the property to Ross for no consideration, the
question of whether it was assigned in equity invokes the principles in Milroy v Lord (1862) 4 De G F & J
264 at 274; (1862) 45 ER 1185 at 1189 where it was held that such an assignment would be valid in
equity only if Monica had done all that was necessary to be done in order to render the assignment
binding upon her: see [4.6.7]. It should be noted that there has been no legal assignment of the property
because the transfer document has not been registered: see [4.3.4].

On the basis of the High Court decision in Corin v Patton (1990) 169 CLR 540; 92 ALR 1, or in Queensland
pursuant to s 200 of the Property Law Act 1974 (Qld), the principles in Milroy v Lord mean that Monica
would have assigned her interest in the property to Ross if (i) she had performed those acts towards a
legal assignment of the property which she and she alone could perform and (ii) whether the gift to Ross
was beyond recall by Monica: see [4.6.9]–[4.6.12]. Monica’s actions satisfy the first of these
requirements

However, Ally’s refusal to hand over the title deed to Ross without Chandler’s consent means that the
gift to Ross was not beyond Monica’s recall. In Costin v Costin (1995) NSW Conv R 55–811 the New
South Wales Court of Appeal held that a refusal by a solicitor such as Ally to hand over the title deed
meant that an assignment such as Monica’s would be ineffective in equity :see [4.6.13].. On the basis of
this decision Monica would not have assigned her interest in the land to Ross with the result that
Chandler inherits the property pursuant to the principle of survivorship.

Equitable assignment of equitable property

The assignment of equitable property can only be achieved in equity. Because equitable property is not
recognised at common law it cannot be the subject of a legal assignment. For a voluntary assignment of
equitable property the assignment must be absolute. Apart from any statutory requirement of writing,
all that is necessary for a valid equitable assignment is ‘a clear expression of an intention to make an
immediate disposition’: Norman at CLR 30; ALR 149, per Windeyer

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Section 23C of the Conveyancing Act
23C Instruments required to be in writing

(1) Subject to the provisions of this Act with respect to the creation of interests in land by parol:

(a) no interest in land can be created or disposed of except by writing signed by the person creating or
conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by
operation of law,

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by
some writing signed by some person who is able to declare such trust or by the person’s will,

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in
writing signed by the person disposing of the same or by the person’s will, or by the person’s agent
thereunto lawfully authorised in writing.

(2) This section does not affect the creation or operation of resulting, implied, or constructive trusts.

The writing requirements within s 23C(1) can be satisfied by more than one document provided they are
obviously interconnected: Australia and New Zealand Banking Group Ltd v Widin (1990) 102 ALR 289 at
297–300 per Hill J.

Section 23C(1)(b) merely requires evidence in writing in relation to a declaration of trust of land.

However, the disposition or creation of an interest pursuant to s 23C(1)(a) must itself be in writing.

In all Australian jurisdictions except Queensland, the disposition of a subsisting interest pursuant to s
23C(1)(c) or its equivalents must also be in writing.

Section 23C(1)(a) and s 23C(1)(b) apply to the creation or disposition of interests, whereas s 23C(1)(c)
only applies to the disposition of subsisting interests.

Section 23C(1)(a) applies to the disposition of legal and equitable interests in land

Section 23C(1)(a) and s 23C(1)(b) apply only to land, whereas it has been held that, despite the
references to land in the opening sentence of the section, s 23C(1)(c) applies to interests in land and
personalty

Equitable assignment of equitable interest

23C(1)(c) requires assignments of subsisting equitable interests to be in writing.

It does not apply if the assignor has both the legal and equitable interest in the property. This is a
consequence of the decision in Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694

Equitable assignment of equitable interests

Nor does s 23C(1)(c) apply when where an absolute owner of property disposes of an equitable interest
in that property, the equitable interest is created by the disposition. A similar line of reasoning applies to
the equitable assignment of a legal interest in property. Here the assignee’s interest is a newly created
one and not the assignment of a subsisting equitable interest.

Disposition by way of a direction by a beneficiary to a trustee

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Direction to hold property on trust for a third party

What if a beneficiary instructed his or her trustee to hold the equitable interest in the trust on trust for
someone else?

What would be required for this interest to pass?

Grey v Inland Revenue Commissioners [1960] AC 1

Hunter was the beneficiary under a bare trust of 18,000 shares. Grey was the trustee.

On 18 February 1955 Hunter orally and irrevocably directed Grey to hold those shares on various trusts
for Hunter’s grandchildren.

One week later Hunter executed various declarations of trust confirming the effect of the oral direction
given to Grey.

Was the oral directive effective to pass the interest?

If it was then stamp duty was only payable on a nominal basis on the confirming declarations

The House of Lords ruled against Grey and found that the oral directions were ineffective. This was the
disposition of a subsisting equitable interest and needed to be in writing

Ad valorem stamp duty had to be paid on the written declarations of trust.

Vandervell v Inland Revenue Commissioners [1967] 2 AC 291

A bank was a bare trustee of shares for Vandervell. Vandervell orally directed the bank to transfer the
shares to the Royal College of Surgeons. His intention was that the college acquire both the legal and
equitable interests in the shares.

Vandervell was assessed as liable for a surtax on the shares pursuant to relevant income tax legislation,
on the basis that his oral direction to the bank did not result in a disposition of the shares to the college.

If the oral direction was an effective disposition of the shares to the college, Vandervell was not liable
for the surtax.

Disposition by way of a direction by a beneficiary to a trustee

The House of Lords unanimously ruled in favour of Vandervell, holding that his direction to the trustee
was not a disposition within the parameters of s23C(1)(c).

On the issue of Vandervell’s oral direction the House found that it was effective and did not have to be
in writing.

Grey v IRC was distinguishable from the present case because in that case the transaction was one that
dealt only with the subsisting equitable interest, whereas in the present case the transaction involved
dealing with both the legal and equitable interests. It was not the disposition of a subsisting equitable
interest

Neither were S 23C(1)(a) or (b) relevant because the interests were personalty

78
What if the assignor dies before the direction is carried out?
In Vandervell v IRC,
IRC at AC 330; All ER 18, Lord Wilberforce said that, if Vandervell had died before his
direction to the trustee had been carried out, the gift would nevertheless have been valid on the basis
that Vandervell had done everything within his power to transfer the property to the college

Parker & Parker v Ledsham [1988] WAR 32

Prior to death a testatrix gave trustees a written direction to pay money from her deceased husband’s
estate to named persons

She died before the money was paid.

Rowland J held that in such circumstances the direction to the trustee would be revoked by the death of
the person making the direction.

Disposition by way of a contract to assign an equitable interest

Do contracts for valuable consideration to assign an equitable interest in property have to be in writing?

There is divided opinion

On one view a contract for valuable consideration to assign an equitable interest in property would be a
‘disposition’ within the meaning of the legislation, and would therefore have to be in writing.

On another view s 23C(2) effectively dispenses with the requirement of writing in the context of the
creation of, constructive trusts.

It is a well-settled principle of law that a contract for valuable consideration to assign property of any
kind gives rise to a constructive trust whereby the vendor is a constructive trustee of the property for
the purchaser e.g. the rule in Lysaght v Edwards

Oughtred v Inland Revenue Commissioners [1960] AC 206

Mrs Oughtred held a beneficial life estate in certain shares.

Her son Peter held the equitable reversionary interest in those shares.

Mrs Oughtred also owned absolutely a number of other shares in the same company.

By an oral agreement of 18 June 1956 Mrs Oughtred and her son agreed that on 26 June 1956 she would
transfer to him the shares in the company that she owned absolutely and in return Peter would
surrender to her his equitable reversionary interest in the shares in which Mrs Oughtred had an
equitable life estate, thereby making her the absolute beneficial owner of those shares

On 26 June 1956 three documents were executed to effectuate the oral agreement of 18 June 1956.

The first document was a deed of release which noted that the shares formerly held by trustees on trust
for Mrs Oughtred for life with an equitable reversionary interest to Peter, were now held on trust for
Mrs Oughtred absolutely and that it was intended to transfer legal title to her whereupon the trustees
would be released from their trusteeship.

The second document transferred, for nominal consideration, the shares formerly owned absolutely by
Mrs Oughtred to Peter.

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The third document was a transfer, for nominal consideration, of the legal title from the trustees to Mrs
Oughtred in relation to the shares referred to in the first document.

The third document was assessed by the taxing authorities as liable for the payment of ad valorem
stamp duty on the basis that the earlier oral contract was ineffectual in transferring Peter’s equitable
reversionary interest to Mrs Oughtred

A bare majority in the House of Lords found in favour of the taxing authorities.

Lord Jenkins (Lord Keith concurring) opined that, even if the earlier oral agreement created a
constructive trust, the later transfer to Mrs Oughtred from the trustees would have conferred upon her
rights superior to those gained on the creation of the constructive trust. In such circumstances the
transfer would be dutiable at ad valorem rates under the stamp duty legislation

Lord Denning also was of the view that the oral agreement was ineffective to dispose of Peter’s
equitable reversionary interest because of the requirement of writing in s23C(1)(c). In his Lordship’s
view s 23C(2) did not do away with that requirement.

Lord Radcliffe for the minority, accepted the view that the oral agreement of 18 June 1956 gave rise to a
constructive trust and that the disposition was effected by the oral agreement. In such a situation s
23C(2) dispensed with the need for writing. The transfer from the trustees to Mrs Oughtred of 26 June
1956 did not dispose of Peter’s reversionary interest and accordingly was only liable to nominal stamp
duty

In Neville v Wilson [1997] Ch 144 the Court of Appeal in England, when confronted with this diversity of
opinion in Oughtred v IRC, unanimously endorsed Lord Radcliffe’s view that a constructive trust had
effective transferred the interest orally.

Disposition of an equitable interest by way of declaration of trust

A disposition includes a declaration of trust for the purposes of s 23C(1)(c)

Question
Mrs Dole was the absolute beneficial owner of 10,000 shares in Macquarie Mines Ltd (MML). The
registered holder as trustee of the shares was MML’s bank and it was obliged to transfer the legal title
to the shares to Mrs Dole at any time if called upon to do so by Mrs Dole. One week ago Mrs Dole called
the manager of the bank and said to him: ‘I want my son Bob to have my shares in MML. Please transfer
them to him’. The manager replied: ‘Very well’. Two days later, and before any steps were taken by the
bank manager to carry out Mrs Dole’s instructions, Mrs Dole died. In her will she left her entire estate to
her husband Eric.

Eric seeks your advice as to who is entitled to the shares in MML.

Answer
The issue is whether Mrs Dole’s oral direction to the trustee disposes of the property to Bob or is the
direction a disposition of a subsisting equitable interest caught by the writing requirement in s. 23C(1)(c)
of the Conveyancing Act.

Because the property is personalty there is no question of s. 23 (1)(a) or s. 23C(1)(b) applying as they are
confined to land.

Section 23C(1)(c) does apply to both interests in land and personalty.

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Whether Mrs Dole's direction is within s. 23C(1)(c) depends upon a consideration of Vandervell v IRC
which held that it doesn’t on these facts.

Even though Mrs Dole is getting rid of her equitable interest s 23C(1)(c) does not apply because Mrs
Dole intends to and has the power to deal with both the legal and equitable interests in the shares.
Thus, the oral direction is effective to pass the equitable interest to Bob. At her death Mrs Dole has no
interest in the shares and Eric does not inherit any interest in them upon her death.

The issue raised by this problem is whether the transaction between Monica and Ross amounted to an
effective equitable assignment of the property to Ross. If it did the assignment would have severed the
joint tenancy between Monica and Chandler with the result that Chandler would not have inherited
Monica’s interest in the property on her death pursuant to the principle of survivorship. At her death
Monica would have held her interest in the property as trustee for Ross. If the transaction was not an
effective equitable assignment of the property, Monica would have died holding her interest in the
property as joint tenant with Chandler who would inherit her interest pursuant to the principle of
survivorship.

Given that Monica sought to assign her legal interest in the property to Ross for no consideration, the
question of whether it was assigned in equity invokes the principles in Milroy v Lord (1862) 4 De G F & J
264 at 274; (1862) 45 ER 1185 at 1189 where it was held that such an assignment would be valid in
equity only if Monica had done all that was necessary to be done in order to render the assignment
binding upon her: see [4.6.7]. It should be noted that there has been no legal assignment of the property
because the transfer document has not been registered: see [4.3.4].

On the basis of the High Court decision in Corin v Patton (1990) 169 CLR 540; 92 ALR 1, or in Queensland
pursuant to s 200 of the Property Law Act 1974 (Qld), the principles in Milroy v Lord mean that Monica
would have assigned her interest in the property to Ross if (i) she had performed those acts towards a
legal assignment of the property which she and she alone could perform and (ii) whether the gift to Ross
was beyond recall by Monica: see [4.6.9]–[4.6.12]. Monica’s actions satisfy the first of these
requirements

However, Ally’s refusal to hand over the title deed to Ross without Chandler’s consent means that the
gift to Ross was not beyond Monica’s recall. In Costin v Costin (1995) NSW Conv R 55–811 the New
South Wales Court of Appeal held that a refusal by a solicitor such as Ally to hand over the title deed
meant that an assignment such as Monica’s would be ineffective in equity :see [4.6.13].. On the basis of
this decision Monica would not have assigned her interest in the land to Ross with the result that
Chandler inherits the property pursuant to the principle of survivorship.

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CONFIDENTIAL INFORMATION
The obligation
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 at 213:
If a defendant is proved to have used confidential information, directly or indirectly obtained from a
plaintiff, without the consent, express or implied, of the plaintiff, he will be guilty of an infringement of
the plaintiff’s rights.

What is confidential information?

“The myriad ways obligations of confidence”

The phrase is best viewed as a term that covers information that is subject to an obligation of
confidentiality.

What sorts of relationships give rise to obligations of confidence? Confidences arise in three sorts of
relationships: private confidences, confidences relating to government secrets, and commercial
confidences.

The origins of the action for breach of confidence

Property origins –
Franklin v Giddins [1978] Qd R 72
FACTS

Franklin was the owner of an orchard and had developed a new type of nectarine called the Franklin
Early White. This nectarine was of better quality than most nectarines and had the commercial
advantage of ripening before other nectarines.

Giddins was a neighbour and friend of Franklin’s son and was aware of the commercial value of the new
nectarine type and was also aware that Franklin did not wish to sell the nectarine budwood and allow
others to grown the new nectarine.

Giddins trespassed onto Franklin’s property and stole some nectarine budwood. Giddins later began to
grow the new nectarine and sold it to the public.

ISSUES

Had Giddins breached an obligation of confidence to Franklin, and if so was Franklin entitled to an order
that the budwood be delivered by Giddins to Franklin?

FINDING

An obligation of confidence could be imposed even if the confidential information was not directly
imparted by the owner of the information to the person misusing the information.

The Court ordered that the budwood be delivered up to Franklin and Giddins be barred by injunction
from any further use of the budwood or new nectarines.

QUOTE

Dunn J at page 80 said:

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“I find myself quite unable to accept that a thief who steals a trade secret, knowing it to be a trade
secret, with the intention of using it in commercial competition with its owner, to the detriment of the
latter, and so uses it, is less conscionable than a traitorous servant.

The thief is unconscionable because he plans to use and does use his own wrong conduct to better his
position in competition with the owner, and also to place himself in a better position than that of a
person who deals consensually with the owner.”

At page 81 he said:

“If it be right to regard the defendants as constructive trustees of the productive wood, leaves, flowers
and fruit then they are obliged to deal with them as the plaintiff’s direct. If they were directed to do so
by the Plaintiff they would be bound to destroy the property.”

IMPACT

An obligation of confidence can be imposed even if the person misusing the confidential information did
not receive it directly from the owner of the information.

Krueger Transport Equipment Pt Ltd v Glen Cameron Storage [2008] FCA 803
FACTS

Krueger Transport Equipment Pty Ltd (Krueger) is a designer and manufacturer of trailers for the
Australian transport industry. The Glen Cameron Group (Camerons) are a transport and logistics group
involved in transporting goods throughout Australia. Vawdrey Australia Pty Ltd (Vawdrey) is a
manufacturer and retailer of semi-trailers and truck bodies throughout Australia. Vawdrey is a
competitor of Krueger.

Camerons was invited to respond to a Request for Proposal issued by Amcor for the cartage of Amcor
cargo (the tender). Camerons sought designs and quotes from three parties, including Krueger and
Vawdrey, for the manufacture of a number of curtain-sided trailers which it would need if it were to
succeed in its proposal to Amcor. After receiving preliminary quotes, Camerons met separately with
Vawdrey (Camerons/Vawdrey meeting) and Krueger (Camerons/Krueger meeting) to discuss, among
other things, methods by which to restrain the trailer load. Vawdrey and Krueger produced to Camerons
various sketches and quotations both at the initial meetings and subsequently. Camerons’ response to
the tender, which was ultimately successful, included drawings, made by Krueger, of the Krueger
Concept. Despite this, Camerons ultimately awarded the contract for the manufacture of the trailers to
Vawdrey. Vawdrey’s final submissions, made to Camerons a day after Camerons won the tender,
included a load restraint system remarkably similar to the Krueger Concept.

Krueger brought proceedings against Camerons for breach of confidential information, and against
Camerons and Vawdrey for copyright infringement and contravention of the Trade Practices Act 1974
(Cth). Krueger alleged that it had devised the Krueger Concept as a load restraint system for the Amcor
cargo and that after it disclosed the system to Camerons at the Camerons/Krueger meeting, Camerons
disclosed it to Vawdrey and Vawdrey used it to win the contract with Camerons. Justice Gordon
accepted these submissions. She found that ‘the sequence and temporal proximity of events’ provided a
reasonable basis on which to conclude that there was a disclosure of the confidential information (and
in particular, the Krueger Concept) by Camerons to Vawdrey.

THE DECISION ON BREACH OF CONFIDENTIALITY

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Krueger submitted that Camerons owed Krueger an obligation of confidence in relation to the
information on two bases: first, on the basis of a contractual obligation arising out of an express
agreement to keep certain information confidential between Krueger and Camerons; and second, on the
basis of an equitable obligation arising from the relationship of the parties, the nature of the
information in issue and the circumstances in which Krueger disclosed it to Camerons.

EQUITABLE OBLIGATION OF CONFIDENCE

Both parties’ counsel referred to principles described by Justice Megarry in Coco v AN Clark (Engineers)
Ltd [1969] RPC 41. According to Justice Megarry, three elements are necessary for a successful action for
breach of an equitable obligation of confidence:

OBG Ltd v Allan [2008] 1 AC 1

The defendants were receivers purportedly appointed under a floating charge (a security interest over a
fund of changing assets of a company or a limited liability partnership (LLP), which 'floats' or 'hovers'
until conversion into a fixed charge, at which point the charge attaches to specific assets) which is
admitted to have been invalid. Acting in good faith, they took control of the claimant company's assets
and undertaking. The claimant says that this was not only a trespass to its land and a conversion of its
chattels but also the tort of unlawful interference with its contractual relations. It claims that the
defendants are liable in damages for the value of the assets and undertaking, including the value of the
contractual claims, as at the date of their appointment. Alternatively, it says the defendants are liable
for the same damages in conversion.

In Douglas v Hello! Ltd [2006] QB 125 the magazine OK! contracted for the exclusive right to publish
photographs of a celebrity wedding at which all other photography would be forbidden. The rival
magazine Hello! published photographs which it knew to have been surreptitiously taken by an
unauthorised photographer pretending to be a waiter or guest. OK! says that this was interference by
unlawful means with its contractual or business relations or a breach of its equitable right to
confidentiality in photographic images of the wedding.

In Mainstream Properties Ltd v Young [2005] IRLR 964 two employees of a property company, in breach
of their contracts, diverted a development opportunity to a joint venture in which they were interested.
The defendant, knowing of their duties but wrongly thinking that they would not be in breach,
facilitated the acquisition by providing finance. The company says that he is liable for the tort of
wrongfully inducing breach of contract.

JUDGEMENT

Elaborating on the general principle that an agent cannot be sued for interfering with contractual
relationships between a principal and another contracting party, Lord Hoffmann held that invalidly
appointed receivers were not liable to the company for wrongful interference with contractual relations.
Such a receiver acting in good faith employs no unlawful means and intends to cause no loss. Intangible
property cannot be the subject of a claim for conversion.

On the tort of inducing or procuring breach of contract, there are five requirements. (1) there must be a
contract (2) the contract must be breached (3) the defendant's conduct must have procured or induced
the breach (4) the defendant must have known about the breached term or turned a blind eye to it, and
(5) the defendant must have actually realised that the conduct procuring the breach would have that
result.[1]

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Contract origins –
Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167
Recognised that equity will not intervene when there is an adequate remedy at law under contract

Seager v Copydex Ltd [1967] 2 All ER 415

that the judicature system entitles a court to award damages (presumably in tort, since Lord Denning
had eliminated an ‘implied contractual duty’?) for the breach of an equitable duty?

Held:

oThe law on this subject does not depend upon any implied contract. It depends on the broad principle
of equity that he who has received information in confidence shall not take ufair advantage of it. He
must not make use of it to the prejudice of him who gave it without obtaining his consent.

oThe Court grants neither an account of profits nor, nor an injunction, but only damages to be assessed
by the master. Damages should be assessed on the basis of reasonable compensation for the use of
confidential information which was given to the defendant company.

Does it follow, therefore, that any breach of contract can be restrained by injunction; that damages at
common law will lie against a trustee? NO – see English v Debham Vale Properties Ltd [1978] 1 All ER
383 at 399, where Slade LJ doubted that the court had the general power to award damages in its
exclusive jurisdiction (eg, trustees). Also see Harris v Digital Pulse Pty Ltd [2003] NSWCA 10.

Ministry of Defence v Griffin [2008] EWHC 1542

FACTS

The Ministry of Defence brought an action for alleged breaches of a confidentiality agreement and
equitable duty of confidence against G, a former soldier who had served in the Special Forces (UKSF).
Upon volunteering to join the UKSF G had signed a confidentiality agreement which provided, amongst
other things, that G would not disclose any information, document or other article relating to the work
of the UKSF without express prior written authority from the MoD.

Since his discharge G had made a number of unauthorised public disclosures and statements in respect
of matters which he experienced or which came to his knowledge through his service with the UKSF. G
had failed to seek express prior authority for his disclosures. The MoD sought a permanent injunction
restaining any further breaches in addition to damages and/or an account of profits.

ISSUE

Whether G was permitted to exercise his own judgment in deciding what information was covered by
his duty of confidence, whether contractual or otherwise, or in determining whether there was a public
interest overriding his obligation which would permit him to make disclosures.

HELD

The important consideration was that the injunction sought would only require G to go through the
clearance procedure prescribed by the contract and would not in effect be a blanket ban on G's right to
publish information. Under the contractual terms, the ministry had a right to make judgments as to any
proposed disclosure. This was qualified by a safeguard, where appropriate, by G’s ability to make an
application for judicial review of any such decision. In essence the court was being asked to do no more

85
than enforce the terms of a contract which had been held by previous authority to be enforceable. G's
plain contractual obligation was to make an application for prior authority first and then, if necessary,
consider the possibility of an application by way of judicial review. The court was bound to continue the
existing injunction against G until trial or further order.

COMMENT

The terms of the contract at issue had already been held to be enforceable in R v Attorney General of
England and Wales [2003] UKPC 22; [2003] EMLR 24.

The origins of the action for breach of confidence

Tort origins – economic torts or fusion fallacy?
Campbell v Mirror Group Newspapers Ltd [2004] 2 AC 457
FACTS

Well-known model Naomi Campbell was photographed leaving a rehabilitation clinic, following public
denials that she was a recovering drug addict. The photographs were published in a publication run by
MGN.

Campbell sought damages under the English law through her lawyers Schillings who engaged Richard
Spearman QC to bring a claim for breach of confidence engaging s. 8 of the Human Rights Act, which
required the court to operate compatibly with the European Convention on Human Rights. The desired
result was a ruling that the English tort action for breach of confidence, subject to the ECHR provisions
upholding the right to private and family life, would require the court to recognize the private nature of
the information, and hold that there was a breach of her privacy.

Rather than challenge the disclosure of the fact she was a drug addict - which, given her previous
denials, may be considered merely a rectification of a lie, she challenged the disclosure of information
about the location of her Narcotics Meetings. The photographs, she argued, formed part of this
information.

JUDGMENT

First instance

MGN was found liable. MGN appealed.

Court of Appeal

MGN was not liable; the photographs could be published since, apparently, they were peripheral to the
published story and served only to show her in a better light. It was within journalists' margin of
appreciation to decide whether such "peripheral" information should be included.

Campbell appealed on the basis, inter alia, that the aforementioned breach of confidence, subject to
human rights principles of privacy, had occurred.

HOUSE OF LORDS

Held, 3:2 (Lords Nicholls and Hoffman dissenting), that MGN was liable. Lord Hoffman and Lord Nicholls
dissented on the ground that as the Mirror was allowed to publish the fact that she was a drug addict
and that she was receiving treatment for her addiction that printing the pictures of her leaving her NA

86
meeting was within the margin of appreciation of the editors as they were allowed to state that she was
an addict and receiving treatment for her addiction, while the majority (Hale, Hope, Carswell) believed
that the picture added something of 'real significance'.

Confidence

Lord Nicholls in particular observed that "confidence" was an artificial term for what could more
naturally be termed "privacy". He famously coined the term 'misuse of private information'. The result
of which is numerous cases following Cambell such as Mckennit v Ash, Mosley v MGN , Murray v Express
newspapers, have also had a claim for misuse of private information. This artificiality was a product of
English law's lack of a concept of privacy per se.

Approving A v B plc[1], Lord Hope of Craighead noted that a duty of confidence arises wherever the
defendant knows, or ought to know, that the claimant can reasonably expect their privacy to be
protected. Where there is doubt, the test of what is "highly offensive to a reasonable person"[2] in the
plaintiff's position[3] can be used for guidance.

Privacy

The court engaged in a balancing test. Firstly determining whether the applicant had a reasonable
expectation of privacy (thus determining whether Art.8 ECHR was involved), it then asked if the claimant
was successful would this result in a significant inference with freedom of expression (balancing Art. 8
with Art. 10). Their Lordships did not give the matter as thorough a treatment as subsequent cases; it
was held that Campbell's right to privacy (HRA, Sch 1, Part I, Art 8) outweighed MGN's right to freedom
of expression (HRA Art 10).

THREE STEP TEST

The majority elucidated upon this balancing of Convention rights, and 'added flesh to the bones' (Hale at
[112]) of privacy law by declaring a set of tests which would consider whether a claimant can rely upon
the tort of misuse of private information. First, the claimant must successfully show the information to
be private, to the level of a 'reasonable expectation of privacy' (per Lady Hale). In an obiter argument,
following the jurisprudence of the European Court of Human Rights in Tammer v. Estonia, Lord Hoffman
stated that romantic or sexual relationships of the rich and famous should not be covered by the 'cloak
of privacy' (at [74]) due to their commonplace in everyday life. Despite a sexual relationship having a
'private' connotation, a celebrity must reasonably expect their love-lives to be known just as well as the
parts of their private life they wish to share with the press. It is only in certain circumstances, such as a
homosexual relationship, where such an expectation will seldom be 'reasonable'.

Secondly, in balancing the Article 8 right with the Article 10 right, as per Lord Steyn in Re: S, courts must
pay heed to Section 12(4) Human Rights Act. This grants the Article 10 right of expression far higher than
the Article 8 right of privacy (the only case in Europe which runs contrary to this presumption is Von
Hannover v Germany, which can be distinguished due to the private, yet still celebrity status enjoyed by
the claimant). As a result of this presumption, the Strasbourg court- and by definition therefore the UK
Supreme Court (as it now is) will be given a particularly broad margin of appreciation in terms of what
constitutes a 'public interest'. Therefore it is likely, under s.12(4)HRA, the English courts will more often
than not find in favour of Article 10, and refuse the injunction or damages.

The final test stated by the Court was in regard to when an injunction, rather than damages, should be
issued. Under s.12(3)HRA, the court must be satisfied that the applicant is 'likely to establish' that

87
publication should not be allowed. 'Likely to establish' was previously confirmed in R v Cream Holdings
to mean 'more likely than not', and this was confirmed in the present case.

Mosley v News Group Newspapers Ltd [2008] EWHC 177

FACTS

M, the President of the Federation Internationale de l’Automobile, the governing body of motor sport
worldwide, was filmed engaging in sado-masochistic activities with five dominatrices in a private flat. An
edited version of the footage was made available on NGN's website in connection with a News of the
World article entitled 'F1 boss has sick Nazi orgy with 5 hookers'. M accepted that the events shown
occurred but claimed that their disclosure infringed his right to privacy. He also denied any Nazi
element. An interim injunction was denied on the basis that the footage was by that stage widely
accessible. M brought proceedings for invasion of privacy.

ISSUE

(1) Whether the sexual activity had or was intended to have a Nazi theme, the basis upon which NGN
sought to rely that it was in the public interest to disclose that a publicly-elected FIA official engaged in
such conduct;

(2)The availability of exemplary damages in a privacy claim

HELD

Finding for M and awarding him £60,000:

(1)There was no evidence that the sexual role play was intended to be an enactment of Nazi behaviour
or adoption of any of its attitudes, nor was it in fact. Though the sexual activities were unconventional
there was no public interest or other justification for the clandestine recording, for the publication of
the footage and images or for the placing of the video extracts on the NOTW website.

(2) There was no authority to support extending the application of exemplary damages into this field or
to include an additional element specifically directed towards deterrence. Further, the claim for
exemplary damages would fail both the tests of necessity and proportionality and on the facts.

COMMENT

It remains to be seen whether the record figure of damages for invasion of privacy awarded in this case
will make newspapers and magazines take the threat of privacy actions more seriously in future.

Human rights?
Unjust enrichment?
Equitable origins in conscience
Like most heads of exclusive equitable jurisdiction, its rational basis does not lie in proprietary right. It
lies in the notion of an obligation of conscience arising from the circumstances in or through which the
information was communicated or obtained.

Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414 at 437–8 per Deane J
The modern doctrine of breach of confidence
Coco v A N Clark (Engineers) Ltd
Megarry J :

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In my judgment, three elements are normally required if, apart from contract, a case of breach of
confidence is to succeed. First, the information itself, in the words of Lord Greene MR in the Saltman
case on page 215, must ‘have the necessary quality of confidence about it.’ Secondly, that information
must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be
an unauthorised use of that information to the detriment of the party communicating it.

Information that has a ‘confidential quality’

Secrecy and the public domain
Lucasfilm Ltd v Ainsworth [2008] EWHC 1878
Lucasfilms, the US claimant, sued a British modelmaker who had produced some of the helmets and
armour used by Imperial Troopers and Rebel Forces in the first Star Wars film, for his sales of replica
items and toys in the UK and the US. They already had a default judgment against him in the US; he had
contested jurisdiction there. He counterclaimed on the basis that he had been the designer of some of
the helmets which had been merchandised by the film company themselves.

The Court concluded that there was now no copyright protection for the items concerned in the UK. The
effect of Section 51 of the Copyright, Designs and Patents Act 1988 was to remove protection for designs
of all products that are not themselves artistic works (i.e. works of sculpture, works of “artistic
craftsmanship” or engravings). In this case, although the helmets were visually appealing rather than
functional, and craftsmen had been involved in making them, they were not works of “artistic
craftsmanship” (in fact we are unaware of any case in which something has been so described by the UK
Court) as they had no “arts and crafts” feel to them. Further, although the helmets and armour were
produced from original sculptures they were not works of sculpture in the statutory sense as they were
not intended as works of art. Section 51 therefore extinguished any UK copyright claim on either side.

Although it was not necessary, the judge went on to consider whether any copyright that might have
existed had ceased to be enforceable under Section 52. This limits the term of enforcement to 25 years
where a copyright work is industrially multiplied (i.e. more than 50 are made, and some are sold –
anywhere in the world, according to the judge). The transitional provision applies a shorter term of 15
years where the work was exploited before the 1988 Act came into force (in August 1989), as the
evidence showed in this case, so the copyright ceased to be enforceable in 2004. Not all articles count:
the term limitation does not bite where the exploitation is merely for works of a primarily literary or
artistic nature. This includes works of sculpture. The claimants argued that the helmets and armour
were sculptures and hence excused; the judge once more disagreed. Thus, any copyright that might
have survived could not be enforced by virtue of Section 52.

As to Ainsworth’s counterclaim, the judge found that he was indeed the author of one helmet design,
but that under the circumstances there was an implied assignment of copyright to the claimants.

Finally, the judge considered the US copyright claim. In the past, UK courts have been reluctant to
entertain infringement actions for foreign IP, and this will no doubt remain so for registered rights.
However, the judge held that he could consider the US copyright claim and it would be appropriate and
expedient to do so here since the factual issues had already been determined and he had expert
evidence as to the law, and although the advocates were ill-placed to argue the case in detail, he found
infringement. Part of his reasoning was based on the unusual circumstance that the defendant had
previously disputed the jurisdiction of the US Courts, leaving him ill-placed to object to resolution by the
UK Courts, so one should not expect a rush to hear US copyright claims here, but the door has clearly

89
been inched open to a wider choice of forum. So, honours were even at first instance; the appeal court
may take a different view.

Lennon v News Group Newspapers Ltd [1978] FSR 573, John Lennon failed to prevent his former wife
from publishing secrets of their married life, on the basis that he had himself published information on
the topic.

Transitory publication - a Chinese pop star was successful in restraining the publication of an
embarrassing video tape on the Internet, even after a verbal account of the contents had been
published in a Hong Kong newspaper Kwok v Thang [1999] NSWSC 1034

G v Day [1982] 1 NSWLR 24 .

Protection of confidentiality applies to personal information and information of a private nature, even
though the disclosure of this type of confidential information may not lead to pecuniary loss.

Australian Football League v Age Company Ltd (2007) 15 VR 405

Personal information

Prince Albert v Strange

The Defendant sought to publish a catalogue of a collection of etchings by Queen Victoria and Prince
Albert. Held that the publication could be restrained either on the plaintiff's right of property in his
unpublished work (copyright) or breach of trust, confidence or contract, where the imposition of liability
can even be upon a third party who did not have the engravings entrusted to them. Also held that:

where the privacy is the right invaded, the postponing of the injunction would be equivalent to denying
it altogether. The interposition of this Court in these cases does not depend on any legal right; and to be
effectual it must be immediate.

The equitable jurisdiction in respect of unpublished works was abolished with the Copyright Act 1911
(UK). According to the seminal article of SD Warren and L Brandeis ("The Right to Privacy" (1890) 4 Harv
L Rev 195), the case taken as the foundation of a general right to privacy in the US is Abernethy v
Hutchison (1825) 47 ER 1313 (RR 481). In this case the plaintiff surgeon delivered lectures. The
Defendant sought to publish notes, presumably from a student. The court held that, as a third party, the
Plaintiff could not rely on an implied contract not to publish, but relief could still be granted.

Marital and defacto relations

Giller v Procopets
Ms Giller lived in a de facto relationship with Mr Procopets for about three years, in a home which he
owned. The couple had twin sons. Ms Giller had a daughter from a previous marriage. The judge at trial
found that Mr Procopets assaulted Ms Giller five times, on one occasion in front of her daughter. She did
not seek medical treatment, but became distressed and
fearful as a result of the assaults.
After the couple separated their sexual relationship continued. Mr Procopets filmed their sexual
activities on a hidden video camera. For a time Ms Giller was unaware of this, but she had sex with him
on some occasions after she discovered he was filming them. As their relationship deteriorated, Mr
Procopets began threatening to show the videos to Ms Giller’s family and
friends.

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He took a video to her parents’ house and left it with her brother, though her family refused to look at it.
He showed Ms Giller’s mother photographs of Ms Giller which involved some sexual activity and nudity.
He tried to show the video to a couple who were Ms Giller’s friends and showed it to the elderly mother
of another friend, taking a VCR with him in order to do so. He
phoned Ms Giller’s employer and said that he had a video of her engaging in sexual activity, in
circumstances where (he said) it was unethical for her to do so.
In 1999, Ms Giller began proceedings in the Supreme Court seeking an adjustment of their property
interests; and damages for breach of confidence, intentional infliction of mental harm and/or invasion of
privacy arising out of Mr Procopets’ conduct in showing or threatening to show the video of Ms Giller.
She also sought damages for assault.
Breach of confidence
The Court of Appeal held that Ms Giller was entitled to compensation for the mental distress and
embarrassment caused by the publication of the videotapes. The Court followed English decisions
awarding damages for mental distress resulting from a breach of confidence, including cases in which:
• Naomi Campbell was awarded damages for mental distress suffered as a result of a newspaper report
showing that she had attended Narcotics Anonymous; and
• Michael Douglas and Catherine Zeta Jones received damages for unauthorised publication of their
wedding photos.
The Court (by majority) awarded Ms Giller damages of $40,000 for breach of confidence, including
$10,000 as compensation for her humiliation and distress. The Court (also by majority) dismissed Ms
Giller’s separate claim for the intentional infliction of mental harm by Mr Procopets.
Because the award of damages in this case was based on breach of the confidential relationship
between sexual partners, the Court did not have to decide whether Australian law recognises a stand-
alone right to recover damages for breach of privacy.
Sexual preference and activity
Stephens v Avery
The plaintiff told the first defendant certain information relating to her sexual relationship of a lesbian
nature with one T (who was later murdered by the first defendant). Some time later an article appeared
in a Sunday newspaper which gave details of the relationship. The plaintiff issued a writ and statement
of claim in which she alleged that the information had been imparted in confidence and that in breach
of confidence the first defendant had imparted the information to the second and third defendants, the
editor and proprietor of the newspaper. It was further alleged that the second and third defendants had
knowingly published the information in breach of confidence.
The defendants sought to have the writ and statement of claim struck out as disclosing no reasonable
cause of action or as being scandalous, frivolous or vexatious. The master refused the application.
The plaintiff appealed.
Sir Nicolas Browne-Wilkinson V-C said that the defendants had argued that the information was just
gossip or tittle-tattle and not entitled to the protection of the law. They further argued that sexual
conduct whether heterosexual or homosexual lacked the necessary quality of confidentiality because
both sexual partners knew what had occurred and, accordingly, that information could not be
confidential to either of them. Those arguments were not well founded. Nothing either in principle or
authority supported the view that sexual conduct could not be the subject of a duty of confidence.
Equity's intervention was based on the principle that it was unconscionable for a person to whom
information was conveyed in confidence, later to reveal that information to others. Information which
was given in confidence remained confidential, notwithstanding that another person or group of
persons knew the facts. The duty of confidence, here, would therefore be enforced.
Appeal dismissed. (WLR)

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Theakston v Mirror Group Newspapers Ltd [2002] EWHC 137

A High Court judgment in which British television presenter Jamie Theakston attempted to
injunct the Sunday People from publishing a story about how he visited a brothel in Mayfair,
London.[2]

Theakston argued that the publication of the story breached his right to privacy under Article 8
of the European Convention of Human Rights, that the activities had taken place in private and
therefore should be treated as confidencial and that there was no public interest in publication.
The Sunday people argued that the publication of the story was in the public interest given the
concern of the British Broadcasting Corporation to ensure that presenters of programmes
aimed at younger people conduct themselves appropriately in public.

The court were skeptical of Theakston's assertion that he only realised that he was in a brothel
when other prostitutes entered the room. Held that visiting prostitutes was “a fleeting
transaction for money” and distinguished from marital relationships in which confidentiality
could be expected. The fact of the visit was therefore not confidential but a photograph of the
visit was.

Mosley v News Group Newspapers

A v B plc [2003] QB 195
FACTS

The Claimant, a married Premiership footballer, sought an injunction to prevent the first Defendant
newspaper from disclosing or publishing information concerning sexual relationships that he had had
with the second Defendant and another woman and to restrain any disclosure by those women to
anyone with a view to such information being published in the media. On the Claimant's application, an
interim injunction was granted. The judge refused the newspaper's subsequent application to set aside
the injunction on the merits, holding that the law of confidentiality should afford the same protection to
sexual relationships outside marriage as to sexual relationships within marriage and that, since there
was no public interest in the publication of the details relating to the claimant's relationships, the
claimant was likely to succeed at trial in restraining publication of the information. The Defendants'
appealed.

ISSUE

Whether the Claimant should be granted an interim injunction to prevent disclosure of the information

HELD

Where a court was considering whether to grant relief that might interfere with the freedom of the
press, as protected by Article 10 of the ECHR, that interference had to be justified, even where there
was no public interest in the material in question being published. The Defendants' appeal was allowed.
Where one party to a relationship wished to disclose information about that relationship, that affected
the Article 8 right to confidentiality of the other party to the relationship. While recognising the special
status of marriage, courts had to recognise and give appropriate weight to the extensive range of
relationships which now existed, the more stable the relationship the greater the significance to be

92
attached to it. There was a significant difference between the confidentiality which attached to what
was intended to be a permanent relationship and that which attached to the category of relationships
which the Claimant was involved with, some friendly and others professional.

Comment

The Court of Appeal sets out guidelines for privacy or confidentiality injunctions. However its reasoning
in this case is not altogether satisfactory. Lord Woolf's "role model" justification for intrusion into
privacy is not convincing and has been quickly explained and distinguished - see para. 40 & 41 of Lord
Phillips MR in Campbell v MGN [2002] EWCA Civ 1373; [2003] QB 658; [2003] 2 WLR 80; [2003] EMLR 2.

Brown v Associated Newspapers Ltd [2008] QB 103

FACTS:

Two poofs and their pillowtalk. D wanted to publish details of shady business practices which they had
learned from P’s aggrieved lover. Held that not all information gleaned during a tryste was confidential
as there was no reasonable expectation of confidentiality.

Appeal against the decisision of Eady J refusing to continue to restrain the Defendant from publishing
certain categories of information concerning the Claimant's private and business life. Following the end
of their relationship C’s former partner (JC) had provided information to D. Eady J had held that C was
entitled to a injunction in respect of private information disclosed to JC in confidence in the course of
their relationship but not otherwise. The injunction would be lifted in respect of information about C’s
alleged misuse of company resources, breach of confidentiality in revealing corporate information and
documents to JC and the bare fact of C’s relationship with JC Additionally it emerged that C had lied to
his advisors and the Court in respect of the circumstances in which he met JC, details of which were not
subject to the injunction and were included in the Judge's public judgment.

ISSUE

(1) Was the judge correct to allow publication of the information?

(2) Should publication of the circumstances in which the Claimant and JC had met be restrained?

(3) Was the judge wrong to include details of the circumstances in which the Claimant and JC had met in
his public judgment?

HELD

Dismissing the appeal in relation to (1) and (2), but allowing the appeal in relation to (3):

(1) The correct approach was balancing the Art 8 rights against the Art 10 rights could the applicant
demonstrate that he was likely to succeed at trial within the meaning of s.12(3) HRA 1998. The mere
fact that the information was imparted in the course of a relationship of confidence did not give rise to
an expectation of privacy, but was a very important consideration. The burden is on a Claimant to
establish that he defeat any public interest defence at trial.

(2) The judge had not carried out the balancing process in relation to this information, but the Court of
Appeal decided that publication should be allowed.

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(3) The Judge erred in refusing to excise these details from his judgment. Applying Cream Holdings, at an
interim stage even if the Court refuses an injunction, it should not itself pre-empt publication by the
newspaper by publishing the private details itself.

COMMENT

The Cream Holdings point (see §26 in Lord Nicholls' Judgment) is important. Even where a Court refuses
an interim injunction in a privacy case, it should not include details in any public judgment which would
have the effect of destroying the privacy. To do so risks depriving the Claimant of any meaningful
remedy against the Defendant if ultimately it decides to publish. Also of note is the Court's acceptance
that privacy injunctions must specify clearly the information that cannot be published.

Diaries
Prince of Wales v Associated Newspapers [2006]
POW prevented his diary being published despite him regularly releasing extracts to a select group of 45
to 75 people. Partial publication did not mean no confidentiality

McKennitt v Ash [2008] QB 73

FACTS

A had written a book about her former friend and employer, M, a Canadian folk singer. Prior to
widespread publication M successfully obtained an injunction preventing publication of some of the
information contained in the book on the ground that A had acted in breach of confidence. A appealed.

ISSUE

(1) Whether the information was confidential;

(2) Whether A's right to tell her own story outweighed M's Art 8 right;

(3) Whether the information was already in the public domain;

(4) Whether, if information is false, a claimant can bring a claim for breach of confidence.

HELD

Dismissing the appeal:

(1) The information was to be protected as confidential, since (a) it was sufficiently private to engage
Art. 8; and (b) in the circumstances A's right of freedom of expression under Art. 10 had to yield to the
Art. 8 rights of M;

(2) A did not have the right she claimed to tell her own story. The story was shared only in the sense that
M had admitted A to her confidence. A had no story of her own to tell. A v B was not a binding authority
on the balance to be struck between Arts. 8 & 10, which was best illuminated by von Hannover;

(3) The information was not already in the public domain;

(4) Where private information engaged Art. 8, the question was whether the information was private,
not whether it was true or false.

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COMMENT

This widely anticipated judgment delivers a potential body blow to kiss and tell stories with A v B being
sidelined in favour of Strasbourg jurisprudence. The weight given to von Hannover seriously undermines
the media argument that its effect is limited to cases of press harassment. Both Buxton and Longmore LJ
expressly stated that a defendant cannot deprive a claimant of Art 8 protection by showing the material
is untrue.

Medical history
X v Y [1988] 2 All ER 648
The public in general and patients in particular are entitled to expect hospital records to be confidential
and it is not for any individual to take it upon himself to breach that confidence whether or not induced
by a journalist.

Campbell v MGN Ltd [2004] UKHL 22. – Naomi Campbell See above
Witnesses and informants
Venables v News Group Newspapers Ltd [2001] 1 All ER 908
FACTS

The Claimants, the convicted murderers of James Bulger, applied for indefinite injunctive relief to
restrain publication of their new identities and their whereabouts.

ISSUE

Whether the court had jurisdiction to protect an adult's identity in circumstances where there was a
serious risk to physical safety. It was argued that the court should exercise its equitable jurisdiction to
make the orders sought by the Claimants.

HELD

(1) The Claimants were uniquely notorious and at risk of serious physical harm. They would continue to
be at risk in future. (2) The Claimants rights under Art 2 of the Convention demanded protection which
could be provided by extension of the law of confidence. (3) An injunction contra mundum was granted
restraining publication of the Claimants' identities and their whereabouts.

COMMENT

Despite being said to be an exceptional case justifying an exceptional order, the Courts have gone on to
make two further orders, in favour of Mary Bell and Maxine Carr. Are they really so exceptional, or are
they going to be granted to anyone who can claim that his/her notoriety or infamy is likely to lead to
someone making death threats against him/her?

Rogers v TVNZ [2007] NZSC 91

NZSC allowed publication of a video of an accused person admitting to murders even though he was
later acquitted. Held that there could be no expectation of confidence if P was being interviewed by the
police and knowingly videotaped.

Cultural and religious information

Foster v Mountford & Rigby Ltd (1977) 14 ALR 71

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Dr Mountford wrote Nomads of the Australian Desert after spending time in 1940 with Aboriginal
communities in the Pitjantjara area and being told various 'secrets'. The revelation of these secrets to
the tribe's women, children and uninitiated men may undermine "the social and religious stability of
their hard-pressed community."

Held that, even though the specific individuals who had divulged the secrets could no longer be
identified, the council representing the Pitjantjara people and in their individual capacity had standing.

For old cases that have recognised the right of successor in title to enforce confidence in relation to
secret recipes and processes see Morison v Moat (1851) 68 ER 492, and Green v Folgham(1823) 57 ER
159.

[1973] RPC 635

Church of Scientology of California v Kaufman [1973]
Cf Foster. Court will allow publication of confidential society’s practices if it deems them to be harmful
to the public.

Commercial information
Trade secrets or know-how? Court will protect trade secrets but not things that are too obvious, general
or widely known. Also, a global claim without specifics will also fail. To determine, courts look at:

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd

(1) the extent to which the information is known outside of his business;

(2) the extent to which it is known by employees and others involved in his business;

(3) the extent of measures taken by him to guard the secrecy of the information;

(4) the value of the information to him and to his competitors;

(5) the amount of effort or money expended by him in developing the information;

(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Held that designs for machinery were trade secrets.

Some trade secrets:

Clothing: Peter Pan v Corsets Sillhouettes [1963]
film costumes: Lucasfilm v Ainsworth
Chemical formulae: Weston v Hemmons (1876)
Results of experiments: Smith Kline v Secretary, DOCS
Recipes: Crowder v Hilton
Ideas for TV shows deleloped to the point of efficacy: Fraser v Thames TV [1984]
But not a bare idea that is obvious: De Maudsley v Palumbo [1996] (idea for a nightclub)

Faccenda Chicken Ltd v Fowler

[Link] information, which is publicly available or so obvious that it cannot be protected;

[Link] that must be treated confidentially until the termination of employment, whereupon it
becomes part of the ex-employee’s collective skill, knowledge and ability; or

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[Link] confidential trade secrets, which will be protected by the courts even after the termination of
employment.

Only the third will be treated as confidential.

This was rejected in Wright v Gasweld where court held that second should also be considered
confidential. Further guidance in:

Del Casale v Artedomus (Aust) Pty Limited [2007] NSWCA 172

1. The extent to which the information is known outside the business.

2. The extent to which the trade secret was known by employees and others involved in the plaintiff’s
business.

3. The extent of measures taken to guard the secrecy of the information.

4. The value of the information to the plaintiffs and their competitors.

5. The amount of effort or money expended by the plaintiffs in developing the information.

6. The ease or difficulty with which the information could be properly acquired or duplicated by others.

7. Whether it was plainly made known to the employee that the material was by the employer as
confidential.

8. The fact that the usages and practices of the industry support the assertions of confidentiality.

9. The fact that the employee has been permitted to share the information only by reason of his or her
seniority or high responsibility.

10. That the owner believes these things to be true and that belief is reasonable.

11. The greater the extent to which the “confidential” material is habitually handled by an employee,
the greater the obligation of the confidentiality imposed.

12. That the information can be readily identified.

Hodgson JA

[W]here the confidential information is something that is ascertainable by enquiry or experiment, albeit
perhaps substantial enquiry or experiment, and the know-how which the ex-employee is clearly entitled
to use extends to knowledge of the question which the confidential information answers, it becomes
artificial to treat the confidential information as severable and distinguishable from that know-how; and
in that kind of case, courts have tended not to grant relief.

Client Lists:
Ex employees who approach P’s customers will be held to have breached confidential information: AIIB
v Beard [2009] EXCEPT where customer lists are public and widely known: NP Generations v Fenley
(2001). In these case, the client information is considered trivial and not to be protected. Note that even
trivial information is subject to a proper restraint of trade clause: Bluescope Steel v Kelly (2007).

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Note also that deliberate memorisation is not allowed but ordinary memory is: Weldon and Co v
Harbison [2000] NSWSC

Del Casale v Artedomus [2007]

P had discovered a source of rare and sought-after stone. When D left the company, they agreed they
would keep secret information confidential for 3 years. D then established a competitor and imported
the rare stone. CofA held not confidential and gave the following helpful list of issues:

1. The extent to which the information is known outside the business.

2. The extent to which the trade secret was known by employees and others involved in the plaintiff’s
business.

3. The extent of measures taken to guard the secrecy of the information.

4. The value of the information to the plaintiffs and their competitors.

5. The amount of effort or money expended by the plaintiffs in developing the information.

6. The ease or difficulty with which the information could be properly acquired or duplicated by others.

7. Whether it was plainly made known to the employee that the material was [held] by the employer as
confidential.

8. The fact that the usages and practices of the industry support the assertions of confidentiality.

9. The fact that the employee has been permitted to share the information only by reason of his or her
seniority or high responsibility.

10. That the owner believes these things to be true and that belief is reasonable.

11. The greater the extent to which the ‘confidential’ material is habitually handled by an employee, the
greater the obligation of the confidentiality imposed.

12. That the information can be readily identified.

In cases where it is difficult to distinguish trade secrets and know how, the court will err in favour of the
defendants especially where the information could have been gleaned using D’s know how and
experimentation.

Government secrets
Court must weigh the public interet of keeping secrets (e.g. national security) and the public’s need to
know.

Commonwealth v John Fairfax & Sons, Sons at CLR 51

The Commonwealth sought to restrain the publication of certain foreign affairs and defence policy
documents. Held that protection of confidential information (or in this case copyright) requires more
than the information merely not being public knowledge. It must not only be "confidential in quality and
imparted to import an obligation of confidence" but its use also will be to the detriment of the party
communicating it. The executive government acts in the public interest, thus unless disclosure is likely to
injure the public interest it will not be protected.

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The court will not prevent the publication of information which merely throws light on the past workings
of government, even if it be not public property, so long as it does not prejudice the community in other
respects. ... If, however, it appears that disclosure will be inimical to the public interest because national
security, relations with foreign countries or the ordinary business of government will be prejudiced,
disclosure will be restrained. There will be cases in which the conflicting considerations will be finely
balanced, where it is difficult to decide whether the public's interest in knowing and in expressing its
opinion, outweighs the need to protect confidentiality.

Mason J referred to its being accepted that the so-called common law defence of public interest applies
to disclosure of confidential information. He then went on to refer to the defence in its application to
copyright as protecting the community from "destruction, damage or harm."

Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd

When the Spycatcher case reached the NSW Court of Appeal, Kirby P (as he then was) stated that, in
an Australian context, the public interest in an open discussion of the matters raised in Spycatcher
[relating to the affairs of ASIO and ASIS] outweigh the residual equitable duty of confidence or fiduciary
duty of silence operating on [the author's] conscience.

There is a wide difference between what is interesting to the public and what is in the public interest to
make known.

Semi-govt?
In Australia, semi-govt organisations are subject to the same balaning act as government.

British Steel Corp v Granada Television Ltd [1981] AC 1096

The defendant had broadcast a TV programme using material confidential to the plaintiff, who now
sought disclosure of the identity of the presumed thief. Held: (Lord Salmon dissenting) The courts have
never recognised a public interest right of the media to protect their sources where disclosure was
necessary in the interests of justice. As to procedure, the courts could order disclosure of a third party's
name. The defendant here could not claim to have been unaware of any wrongdoing by the person who
delivered the documents, and this was not a case where they would receive the limited protection from
discovery available in defamation cases. Lord Wilberforce said: "there is a wide difference between
what is interesting to the public and what it is in the public interest to make known."

Lord Denning MR said that the Norwich Pharmacal case opened "a new chapter in our law" and "Mr
Irvine suggested this was limited to cases where the injured person desired to sue the wrongdoer. I see
no reason why it should be so limited. The same procedure should be available when he desires to
obtain redress against the wrongdoer - or to protect himself against further wrongdoing."
Templeman LJ: "In my judgment the principle of the Norwich Pharmacal case applies whether or not the
victim intends to pursue action in the courts against the wrongdoer provided that the existence of a
cause of action is established and the victim cannot otherwise obtain justice. The remedy of discovery is
intended in the final analysis to enable justice to be done. Justice can be achieved against an erring
employee in a variety of ways and a plaintiff may obtain an order for discovery provided he shows that
he is genuinely seeking lawful redress of a wrong and cannot otherwise obtain redress. In the present
case BSC state that they will not finally determine whether to take legal proceedings or whether to
dismiss the employee or whether to obtain redress in some other lawful manner until they have
considered the identity, status and excuses of the employee. The disclosure of the identity of the
disloyal employee will by itself protect BSC and their innocent employees now and for the future and is
essential if B.S.C. are to redress the wrong."

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Only Lord Salmon had any doubt that Granada had acted in a manner which in any event would have
disqualified them from relief.

Esso Resources Ltd v Plowman (1995) 183 CLR 10 at 32 per Mason

This appeal raises the important question whether an arbitrating party is under an obligation of
confidence in relation to documents and information disclosed in, and for the purposes of, a private
arbitration. The question, in the context of this case, has its genesis in two agreements for the sale of
natural gas from the Bass Strait fields to two public utilities, the Gas and Fuel Corporation of Victoria
("GFC") and the State Electricity Commission of Victoria ("SEC"). The first agreement dated 1 January
1975 was with GFC. It was amended on three occasions, the last occasion being by a deed dated 14
February 1986. The second agreement dated 30 July 1981 was with SEC. It was also amended on three
occasions, the last occasion being by deed dated 3 August 1990. The other parties to the agreements,
the vendors of the natural gas, are the first and second appellants. By deed dated 1 January 1988, the
second appellant assigned its rights and obligations under the second agreement to the third appellant,
BHP Petroleum (Bass Strait) Pty. Ltd. The three appellants were described as "Esso/BHP" in the courts
below.

2. Each of the sales agreements contained a clause whereby the price payable for the gas sold was to be
adjusted by taking into account changes relating to royalties and taxes attributable to the production or
supply of gas (1).

32. “The various circumstances in which disclosure can legitimately take place, two questions necessarily
arise. First, is there a legal basis for holding that there is an obligation not to disclose? Secondly, if so,
how is the obligation to be defined and what are the exceptions to it?”

The thrust of Mason CJ's decision is that where the issue involves government seeking to prevent
disclosure the onus changes. It is the government that must prove that the public interest demands non-
disclosure. Mason CJ said this approach "should be adopted when the information relates to statutory
authorities or public utilities because, ... `in the public sector the need is for compelling openness, not
burgeoning secrecy'" [quoting from Finn, "Confidentiality and the Public Interest" (1984) 58 ALJ 497 at
505].

The specific issue of confidentiality obligations prohibiting disclosure between government

instrumentalities and a Minister arose in Esso Australia Resources Ltd v Plowman 86. In the context of a
private arbitration involving two public utilities in Victoria and two private parties in which the public
utilities refused to disclose information concerning the arbitration to the Minister for Energy and
Minerals, Mason CJ repeated what has come to be called the John Fairfax rule:

The courts have consistently viewed governmental secrets differently from personal and commercial secrets. · [T]he
judiciary must view the disclosure of governmental information 'through different spectacles'. This involves a
reversal of the onus of proof: the government must prove that the public interest demands non-disclosure 87.

While the rule applies to governmental activity and information, it is in turn based on the public interest
in the free flow of information:

· why should the consumers and the public of Victoria be denied knowledge of what happens in these arbitrations,
the outcome of which will affect, in all probability, the prices chargeable to consumers by the public utilities? 88

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While the Plowman case involved the issue of an implied term of confidentiality, Brennan J in his
judgment also thought that in situations where a party is in possession of a document or information
and that party is under a common law or statutory duty to communicate the document or information
to a third party, no contractual obligation of confidentiality could prohibit the performance of that
duty89. While Brennan was not sure, and was not required to decide, whether the public authorities
involved in the case had a legal duty or a moral duty to disclose information, he also found that the
public had a real interest in the arbitrations because of their effect upon the price of electricity.

Public authorities are not to be taken, prima facie, to have bound themselves to refrain from giving an account of
their functions in an appropriate way: sometimes by giving information to the public directly, sometimes by giving
information to a Minister, to a government department or to some other public authority 90.

The fact that public officers ultimately work for the people means that they are subject to higher
standards of fidelity, probity and integrity than are those in the private sector. And, where important
public interests are involved, principles of open government and responsible government will require a
more narrow view of confidentiality claims when information becomes 'government information' as it
inevitably will become in the course of governments contracting out of essential services.

Furthermore, while traditional notions of responsible government and the role of the public service
support confidentiality (as between a Minister and public servants), the corporatisation of the public
service and the privatisation of government sector jobs means that accountability (as between a
Minister and those working within the Minister's portfolio) has been reduced to a substantial degree.
This is particularly true in situations involving statutory or government corporations in which the
corporation's Board is ultimately answerable to a Minister but the corporation's employees and
Directors are in the first instance responsible to the Board

Soldiers?
‘R’ v Attorney-General [2003] UKPC 22
FACTS

After the Gulf War, an SAS soldier of the Bravo Two Zero patrol was told to sign a confidentiality
agreement or be demoted. He signed. Then he returned to New Zealand. He got a publishing contract
for his memoirs, about material in the Gulf War.

The New Zealand Court of Appeal denied an injunction, but allowed an account of profits and an
assessment of damages for breach of contract. R appealed to the Privy Council, contending the contract
was under duress when he signed, given the threat of demotion.

ADVICE

The Privy Council advised that the contract was not avoidable for duress. Lord Hoffmann said there was
no illegitimate pressure, so no duress. That first element is ‘pressure amounting to compulsion of the
will of the victim and the second was the illegitimacy of the pressure’.

“ Generally speaking, the threat of any form of unlawful action will be regarded as illegitimate. On the
other hand, the fact that the threat is lawful does not necessarily make the pressure legitimate. As Lord
Atkin said in Thorne v Motor Trade Association [1937] AC 797, 806, ‘The ordinary blackmailer normally
threatens to do what he has a perfect right to do - namely, communicate some compromising conduct
to a person whose knowledge is likely to affect the person threatened… What he has to justify is not the
threat, but the demand of money.'

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Ministry of Defence v Griffin [2008] EWHC 1542 – see above.
The duty or obligation of confidence
Coco v A N Clark (Engineers) Ltd
FACTS

Coco was developing a motor-assisted cycle or moped. He entered into negotiations with AN Clark to
develop the moped and provided information to A.N. Clark about his moped. After some time, A.N. Clark
elected to not further develop the Coco moped and instead began to develop its own moped.

Coco became suspicious that A.N. Clark was using some of his designs for the new moped. He therefore
applied for an injunction to stop A.N. Clark making or sell any moped using his confidential information.
A.N. Clark had just released its moped on the market while Coco had stopped developing his moped.

ISSUES

Had Coco established a strong prima facie case that the information was confidential or that there had
been a breach of confidence? Should an injunction be awarded to prevent the making and selling of the
moped?

FINDING

Coco had failed to establish that the similarities between the two mopeds were achieved by the use of
information provided by him to A.N. Clark.

Also an injunction was not appropriate as the evidence for the case had not been properly tested and
Coco had not developed his own moped and therefore it did not need protection from the sale of the
rival moped.

QUOTE

Megarry J at page 47 said:

“In my judgment, three elements are normally required if, apart from contract, a case of breach of
confidence is to succeed.

First, the information must itself … have the necessary quality of confidence about it. Secondly, that
information must have been imparted in circumstances importing an obligation of confidence. Thirdly,
there must be an unauthorised use of that information to the detriment of the party communicating it.”

And at page 50 he said:

“If the duty is a duty not to use the information without consent, then it may be the proper subject of an
injunction to restrain its use, even if there is an offer to pay a reasonable sum for that use. If, on the
other hand, the duty is merely a duty not to use the information without paying a reasonable sum for it,

then no such injunction should be granted.”

IMPACT

When claiming that confidential information is being misused it is important to be able to clearly identify
the information and explain how it is being misused.

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A Court may not order an injunction to prevent the use of confidential information if the plaintiff is not
themselves using that information.

Express Obligation

Implied Obligation

Hitchcock v TCN Channel Nine Pty Ltd (No 2) [2000] NSWCA 82.
Austin J considered that it was appropriate, in deciding an application for an injunction restraining
broadcast by the respondent of allegedly confidential material, to resolve certain questions relating to
the construction of a contract between the applicant and an employee. He noted that the parties had
had an opportunity to present extensive submissions on the issues and doubted that the evidence
would improve between the interlocutory and final hearings. Also significant was the fact that his
conclusions on the construction issues would affect the nature and scope of the interlocutory injunction
granted.

Unexpected Results of a Demonstration and unsolicited communications

Fractionated Cane Technology Pty Ltd v Ruiz-Avila (1987)
D was invited to a product demonstration that produced unexpected results. Given that there was no prior
confidentiality agreement and the results were a surprise ot everyone, there was no duty of confidence. Cf
Seager v Copydex where, despite unexpected revealing of Invisigrip and lack of confidentiality agreement, the
circumstances of protracted negotiations gave rise to confidentiality duty.

Accidental Disclosures
Trevorrow v South Australia
P was suing SA because he had suffered as an Aboriginal state ward. Office of State Records accidentally
provided him with confidential information including legal advice. Argued that the infor was priviledged
but court found the info was imparted in a manner that a reasonabl person would not have thought
them to be confidential. Esp the crown had a policy to make such documents available.

Misappropriation of information
Difficulty in cases of e.g. industrial espionage because info has not been imparted in circumstances that
give rise to a duty. Rejected in Franklin v Giddins where D stole nectarine clippings. Per Dunn J:

I find myself quite unable to accept that a thief who steals a trade secret, knowing it to be a trade secret,
with the intention of using it in commercial competition with its owner, to the detriment of the latter,
and so uses it, is less unconscionable than a traitorous servant. The thief is unconscionable because he
plans to use and does use his own wrong conduct to better his position in competition with the owner,
and also to place himself in a better position than that of a person who deals consensually with the
owner.

Exchange Telegraph Co Ltd v Central News Ltd [1897] Injunction from using info stolen from presses.
Crowder v Hilton D found liable for stealing and publishing recipes from P’s unpublished recipe book.
ABC v Lenah Game Meats – equity protects personal information collected surreptitiousl.

Eavesdroppers
Malone v Metropolitan Police Commissioner [1979] concerned information picked up by phone
tapping. Per Megarry VC – those that transmit information to others must accept the risk of being
overheard as is inherent in the system.

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Francome v MGN [1984] – rejected the focus on the ease with which the information can be overheard
and instead focused on the unconscionable conduct of the defendants in disclosing the information.

Third parties
Wheateley v Bell [1982] - an injunction can be obtained against any third party who knowingly obtained
the confidential information in breach of confidence or in any other fraudulent manner. NB bonafide
purchasers of information without notices are not protected because information is not property for
those purposes. All that is necessary is that the third party have actual or constructive notice of the
breach: Ansell Rubber v Allied Rubber.

Establishing a breach
The test which has found widespread acceptance is whether or not the information was disclosed for a
limited purpose. If the information was disclosed for a limited purpose, the confidence crystallises
around that limited purpose. The confidant will be bound by an obligation the content of which is not to
use or disclose the information for any purpose other than the limited one for which the information
was imparted.

F Gurry, ‘Breach of Confidence’ in P Finn (ed), Essays in Equity, 1985.

Smith Kline and French Laboratories (Aust) Ltd v Secretary, Dept of Community Services & Health
Whether one adopts the ‘reasonable man’ test suggested by Megarry J or some other, there can be no
breach of the equitable obligation unless the court concludes that a confidence reposed has been
abused, that unconscientious use has been made of the information

It was reasonable for P to expect the govt to use the information for public health but this had wide
implications than P’s purpose of extending their patent.

R v Department of Health; Ex parte Source Informatics Ltd

The Court of Appeal found that the pharmacists would not breach confidence if they supplied
anonymised information, even though this went beyond the confider’s purpose in supplying the
information. The confider’s purpose was said to be irrelevant when the information was anonymous

Detriment?
Open question as to whether detriment is required. Not necessarily per Gummow in Smith Kline v DOCS
and Hitchcock v TCN (No 2). Cf Mason J in Cth v Fairfax but set a very low level:

It may be a sufficient detriment to the citizen that disclosure of information relating to his affairs will
expose his actions to public discussion and criticism.

However, government must show more than mere embarrassment detriment given the importance of
freedom of speech.

Defences
Public interest
Already seen defence in dealing with government but can also be a private citizen confidentiality breach
defence. No confidence in an iniquity: Gartside v Outram (1856); Minister for Immigration and
Citizenship v Kumar (2009)

The High Court has decided that the Migration Review Tribunal was not required to disclose to Mr
Kumar the identity of the person who provided information it had received concerning his application

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for a spouse visa. The information fell under Non-disclosable information, defined to include
information whose disclosure would found an action for breach of confidence.

Relatively trivial matters will not trigger the defence, a relatively high degree of misbehaviour must be
perpetrated to render confidential information liable to the public interest defence: McKennitt v Ash
[2008] QB 73

NB the public interest of disclosure must be weighed against the public interest of maintaining privacy:
POW v Associated Press.

Expose dangers to public safety or health

Hubbard v Vosper
The Mind Benders was written by Cyril Vosper, a scientologist of 14 years who had become disillusioned,
It was the first book on Scientology to be written by an ex-member and the first critical book on
Scientology to be published (narrowly beating Inside Scientology by Robert Kaufman).

The Church of Scientology tried in 1971 to ban Cyril Vosper's book The Mind Benders on the grounds
that it made illegal use of copyrighted material and represented a breach of confidence. However, their
case was rejected, not least because the Church was held to be "protecting their secrets by deplorable
means"; the public interest of exposing such material outweighed the other considerations. The ruling
has since been applied in a number of subsequent cases.

W v Edgell
Psychiatrist asked to consult with a patient W, who had admitted to killing 5 people, and was held in a
secure hospital. W’s solicitors instructed Dr Edgell to provide an independent report that they hoped
they would use to support Ws transfer to a less secure hospital. The report was unfavourable, and W
took it upon himself to send a copy of the report to the home office, recommending that W be kept
where he was and that he had reason to believe that he was a serious threat.

W’s solicitors tried to sue the doctor for breach of contract and of confidentiality to W.

W failed, because it was held to be in the public interest to disclose the information.

Judge said that a ‘doctor owes a duty not only to the patient but also a duty to the public’

Judge Scott further went on to say that failure by a doctor to disclose information about a serious risk to
public safety might constitute professional misconduct.

What would have been the judgement if Edgell had sold the story to the media or discussed the case in a
learned article without concealing W’s identity?

Lion Laboratories Ltd v Evans [1985] QB 526

Lion Laboratories manufactured an electronic device called an intoximeter which measured a driver’s
level of intoxication. The measurements were used as evidence in criminal prosecutions. However, Lion
Laboratories had some confidential documents which indicated that this device was possibly unreliable
and they kept this information secret.

Two disloyal employees made copies of these documents and gave them to a newspaper. Lion
Laboratories sought to restrain the newspaper from making use of the confidential information and the
newspaper pleaded that it was in the public interest to publish it.

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The court said that to encourage an employee’s loyalty to his employer is a public interest that will be
outweighed by a competing value only in exceptional circumstances. This was such a case, because it is
a matter of the utmost importance to disclose the risk that people might well be punished for offences
which they did not commit.

The newspaper was therefore allowed to publish the information and was not required to pay any
damages.

Schering Chemicals Ltd v Falkman ltd and Ellstein [1981] 2 All ER 321,

The situation was a little different from Lion Labs.

Learned journals and the media had suggested that use of the drug Primodos as a pregnancy test on
women already pregnant might permanently damage the unborn children. When some of the children
were born with physical defects, actions were instituted on their behalf.

Schering Chemicals, the manufacturers of the drug, withdrew it from the market and engaged Falkman
Ltd and Ellstein to train some of its executives to speak effectively on television and radio to repudiate
the criticism which was being levelled against them.

After the training was over, Elstein produced a film on the subject for the television. He used only
information which was already available to the public. Nevertheless, Schering Chemicals applied
successfully to court for an order preventing the showing of the film.

What was the difference between the two cases?

In the Lion Laboratories case the newspaper wanted to publish something which was of current concern.
Drunken drivers had an interest in knowing whether their level of drunkenness was being correctly
assessed. In the Schering Chemicals case, on the other hand, the issue was no longer of current concern
because the drug had already been withdrawn from the market.

In summary, then, an employee’s duty to keep a confidence is overborne only in exceptional

circumstances and provided that some good can come from breaking it. What decides whether
circumstances are exceptional or not is a matter for judicial discretion which one may try to predict by
studying previous cases.

Woodward v Hutchins [1977] 1 WLR 760

The plaintiffs were pop singers including Tom Jones, Englebert Humperdinck and Cilbert OfSullivan. In
order that they were portrayed to the public in the best possible light the singers employed, through
their management company, the defendant public relations officer whose task it was to project a
favourable image of their public and private lives.

Shortly after the defendent left their employment he wrote a series of articles for a daily newspaper.
These articles gave an account of a number of discrediting incidents that had not previously been
disclosed in the public domain.35 The plaintiffs brought actions for libel and breach of confidence. The
English Court of Appeal refused an injunction and allowed the publication of the articles.

Lord Denning MR's approach, representing the judgment of the court, illustrates the public interest
defence at its widest: If a group of this kind seek publicity which is to their advantage, it seems to me
that they cannot complain if a servant or employee of their afterwards discloses the truth about them. If
the image which they fostered was not a true image, it is in the public interest that it should be

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corrected. As there should be truth in advertising, so there should be truth in publicity. The Court of
appeal regarded the public interest in knowing the truth about celebrity image as more important than
the celebrity privacy.

McKennitt v Ash [2005] EWHC 3003

FACTS

The Claimants were a Canadian folk musician (C) and her corporate recording companies. The Claimants
issued proceedings against a former friend and personal assistant of C over the contents of a book
entitled “Travels with Loreena McKennitt: My Life as a Friend”. The Claimant maintained that despite
her professional success, she had always sought to keep her personal and business life private, save for
the controlled release of personal information to promote a charitable cause. The Claimant sought a
declaration that by publishing identified information in the book the defendants had acted in breach of
confidence. Although there had already been limited publication of book, C also sought to restrain
various categories of ‘confidential information’ (as well as specific passages) in the book, as opposed to
its entire contents. The Court had ordered a speedy trial.

ISSUE

The five main categories of information sought to be protected were: (i) C’s personal relationships; (ii)
her personal feelings and grief relating to the death of C’s former fiancé; (iii) health & diet; (iv) C’s
emotional vulnerability and (v) a property dispute with D and D’s partner. D relied on defences of public
domain and public interest, as well as a claim that this was an expression of her personal right to
freedom of speech.

HELD

Finding for C on the majority of passages in the book complained of, Held: the court needed to consider
each passage separately to decide (1) whether the threshold test of reasonable expectation of privacy
had been passed and (2) whether any 'limiting factor' applied, such as public domain or public interest,
including whether information should escape protection as being banal, trivial or anodyne. The
principles in Von Hannover are of wider application than harassment by the tabloid press. In matters of
personal information, the courts would be less ready to assume protection had been lost forever on the
basis that it had entered the public domain. The relevant test is whether the information in question is
so generally accessible that in all the circumstances it cannot be regarded as confidential. A high degree
of misbehaviour is necessary on the part of the Claimant to engage a defence of public interest in
'exposure of misconduct cases' rather than mere peccadillos of a celebrity.

COMMENT

This is an important decision as it provides guidance on several previously unexplored issues in the law
of privacy: (a) the Court should be slow to allow a defence of public domain to succeed in relation to the
disclosure of personal information; (b) a reasonable expectation of privacy may arise in relation to false
allegations, untrue, distorted or misleading information; (c) the formulaic nature of claims for public
interest must be carefully analysed - Woodward v Hutchins [1977] 1 WLR 760 was impliedly
disapproved. Finally, the Court recognised that the right to privacy has a social dimension; those who
kiss and tell cannot justify revealing the private life of others by claiming they are exercising their own
right to freedom of expression.

Richards v Kadian [2005] NSWCA 328

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In Kadian v Richards,8 the plaintiff was a six-year-old boy (Ankur) born with a congenital heart disease
and a defective right kidney. The first defendant doctor, Dr Richards, was Ankur's paediatrician who had
care of him during the first nine months of his life. Dr Richards was sued because of an alleged delay in
the diagnosis of congenital heart disease.

When Ankur was nine months old, he was referred by Dr Richards to a paediatric cardiologist (Dr
Sholler), and also a paediatric nephrologist (Dr Lewis).

Dr Richard's legal representatives wished to speak to Dr Sholler and Dr Lewis, but Ankur's legal
representatives refused this request.

Dr Richards alleged that Ankur, in commencing the proceeding against him, had waived his right to
confidentiality in his other contemporaneous treatment records, that arose from the doctor/patient
relationship. Further, he sought that Ankur's proceedings be stayed until he provided a signed written
authority permitting Dr Sholler and Dr Lewis to discuss their management and treatment of Ankur with
Dr Richards' legal representatives.

It was Dr Richards' position that a patient who brings proceedings in which their health is at issue, and
where information relevant to the proceedings is the subject of confidentiality, has impliedly waived
confidentiality in that information.

Issues for the court

The court had to consider whether the patient's right to confidentiality had been impliedly waived by
bringing proceedings in which their health is in issue.

Ultimately, the court took the view that a patient's treating doctor has an obligation of confidence to
that patient that precludes the treating doctor from disclosing details of:

 the patient's history,

 the patient's treatment; or

 communications between the patient and the doctor in the course of that relationship,

 otherwise than by due court process, such as the issue of a subpoena.

Further, the court considered that there were various appropriate means by which a defendant (in this
case, Dr Richards) could obtain information about the course of treatment that a patient (in this case,
Ankur) has undergone with another doctor. Those 'appropriate means' included subpoenaing the other
doctors' records, or subpoenaing the doctors to give evidence at trial.

Summary

A doctor is under a duty not to voluntarily disclose information that they have gained in his/her
professional capacity without the consent of their patient, except in exceptional circumstances.

If a doctor is called on to discuss treatment of a patient in connection with legal proceedings, the doctor
is only entitled to do so under accepted court process, such as providing medical notes pursuant to a
subpoena, or attending at court to give evidence pursuant to a subpoena.

Public Interest and Sexy Times

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Stephens v Avery per Brown-Wilkinson V-C said that the court will not uphold a confidence of gross
immoral tendency but found it difficult to find one in these times where there is not generally accepted
sexual moral code.

Mosely v News Group

Group of S&M enthusiasts who played out prison roles including bottom shaving, cosplay and
humiliation. Newspaper argued breach of confidence justified because of Nazi-theme sex play public
interest. On reviewing the evidence Eady J found no Nazi sex or holocause derision. Said it was not for
journalists to undermine human rights of privacy or for judges to refuse to enforce them merely on the
grounds of taste or moral prurience.

The Woodward Defence

Woodward v Hutchins [1977] – publicist for Tom Jones and others published a tell-all book about their
sex romps. Held not a breach of confidence because TJ and others had held themselves out as moral
paragons and it was in the public interest to know the truth. Applied in A v B Plc [2003] and Cambell v
MGN.

This approach has not been followed in Australia. There must be a more weighty and precise public
interest that merely the truth being told: Castrol v Emtech; NRMA v Yates. There is a definite
demarcation between what the public is interested in and the public interest: Sullivan v Schlanders
(2000).

AFL V Age
(a) The proposed disclosure will in fact disclose the existence of or the real likelihood of the existence of
an inquity that is a crime, civil wrong or serious misdeed of public importance;

(b) that the iniquity is of a character of public importance in the sense that what is to be disclosed
affects the community as a whole, or affects the public welfare; and

(c) that the person who is seeking to protect the confidence is doing so in order to prevent disclosure to
a third party with a real and direct interest in redressing the alleged crime, wrong or misdeed.

Forced disclosure
E.g. Pubic health statutes requiring reporting of the names and addresses of people who have
contracted infectious diseases. The defendant is not liable in such cases.

Similarly courts may force disclosure of confidential documents during discovery. No liability on court
ordered disclosure.

Delay
The general equitable defence of laches is available: Attorney-General (UK) v Heinemann Publishers
Australia Pty Ltd (1988)

Clean hands –
The person who claims confidentiality must have clean hands e.g. the woodward defence.

Campbell v Mirror Group Newspapers Ltd

Australian Football League v Age Company Ltd (2007) 15 VR 405

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REMEDIES
Injunctions
Injunction is the primary remedy. However, compensation may be more equitable in situations where
the breach was committed innocently: Seager v Copydex. Subject to the springboard doctrine,
injunctions will not be granted where the info has moved to the public domain: AG v Observer, but an
account of profits may still be ordered.

The springboard doctrine

Courts will not allow confidence breakers to get a headstart from confidential information. May grant an
injunction even if that information has entered the public domain.

Saltman Engineering Co Ltd v Campbell Engineering Co3. In that case, Lord Greene observed that the
defendants "dispense[d] in certain material respects with the necessity of going through the process
which had been gone through in compiling [drawings of a product] … thereby sav[ing] themselves a
great deal of labour and calculation and careful draftsmanship". That is, the defendants in that case
relied upon the work carried out by the plaintiff (including the time, effort and expense involved in
carrying out that work) to more quickly develop and manufacture their own product. Such reliance, in
effect, allowed the defendants to "springboard" to a better position than they would have been if they
independently developed that product themselves without reference to the plaintiff's drawings.

Terrapin v Builders Supply Co [1967]

D used P’s manufacturing process to build pre-fab structures and put them on the market. When they
entered the market they became public domain because they could be reverse-engineered. D placed
under injunction until all aspects of the process had reached the public domain.

Conversion damages are awarded when the court deems the infringing articles to have been the
owner's property, which the infringer has, in effect, stolen. The amount of damages is usually referable
to the amount that the infringer realised on the sale of the articles.

Aggravated Damages are available when an injunction would be too late to prevent the damage: Giller
v Procopets

Account of profits
Where the infringers have sold or benefited financially from the infringing goods, the court may order
that they pay you a sum equivalent to the profits they made from using your IP. Peter Pan
Manufacturing Corp v Corsets Silhouette Ltd [1963]

Account of profits may be difficult to determine so an allowance for P’s time and effort in development
can be awarded with the onus for establishing the amount falling on D Bluescope Steel Ltd v Kelly
(2007).

Account of profits can be awarded for a breach that is purely contractual with no resulting quantifiable
damage. In AG v Blake [2000] There was no damage because the confidential info was already in the
public domain.

Delivery up
In cases of copyright infringement, the copyright owner is deemed to be the owner of the infringing
goods. In delivery up, the owner is entitled to have those goods rather than have them destroyed: Ansell
Rubber v Allied Rubber.

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Equitable compensation
Harris v Digital Pulse Pty Ltd per Heydon JA – punitive or exemplary damages are not available in equity

Giller v Procopets – ex defacto and the sex tape. $40,000 for injury of feelings including $10,000
aggravated damages. Court emphasised several times that damages were not exempary or punitive. By
majority, the court also denied recovery for intentionally causing emotional distress falling short of
psychiatric injury. The fact that mental distress damages are now available under breach of confidence
has strengthened the status of this cause of action as a quasi-privacy tort

Constructive trusts
LAC Minerals v International Corona Resources (1989)
Canadian Case demonstrates that constuctive trusts are available for breach of confidence if they
involve property. P found gold desposits on land and approached P for a joint venture. Negotiations
broke down and D subsequently purchased land with deposits and built a mega-mine.

The future — rights to privacy?

No traditional right of privacy

Generally privacy rights in Australia can only be enforced when there has been an incidental tort e.g.
trespass to land or nuisance. The limitations of this approach are illustrated in Kaye v Robertson below
where intrusion on a hospital was rejected because P did not own the hospital and there was not tort
against him.

Victoria Park Racing & Recreation Grounds Co Ltd v Taylor: P owned a racecourse and D ereceted a
viewing platform on his adjacent land. D broadcast his views to offtrack betters. P argued this affected
ticket revenue and asked for an injunction because:

1) SPECTACTLE: The spectacle is property and the value of the object to the creator should be
taken into account. The majority disagreed.

2) NUISANCE: D was being a nuisance, causing unreasonable and significant interference with P’s
enjoyment of property. Majority said no, looking over a fence does not interfere with a horse race.

3) PRIVACY: No deal.

Australian Consolidated Press Ltd v Ettingshausen (1991)

FACTS: Concerns a photo in a magazine of Ettingshausen, a well-known Rugby League footballer, in the
shower with team-mates. Hunt J said “The photograph is grainy in quality, and the scene appears to
have been lit only from the top and behind. Nevertheless, below the printing there is a shape between
the P’s legs which (despite the defendant’s submission to the contrary), is certainly capable of being
interpreted as his penis”. The photo was coupled with an article that played up the suggestiveness of the
photo. Sued for defamation
IMPUTATIONS: Revised imputations pleaded were:
a)    The P deliberately permitted a photograph to be taken of him with his genitals exposed for the
purposes of reproduction with a widespread readership.
b)    The P is a person whose genitals have been exposed to the readers of the defendant’s magazine
‘HQ’, a publication with a widespread readership.
Is intended as a back up imputation if (a) fails. Note these imputations do not suggest any fault element,
just that his genitals were exposed to widespread readership.
HELD: This imputation went to the jury. Hunt J held that persons of reasonable intelligence may differ as

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to whether imputation (a) would have been conveyed to the ordinary reasonable reader and therefore
the issue is for the jury.
Imputation (b) does not assert any moral blame for the exposure upon the P itself. It is well accepted
law that, to be defamatory, the imputation need not assert blame if it nevertheless tends to make
people shun and avoid him. P argued that as a result of the exposure of his genitals, he has been held up
to ridicule. He referred to the principle in Burton v Crowell Pub Co 82 F (2d) 154 (1936) which says if the
matter complained of was calculated to expose the P to more than trivial ridicule, it was prima facie
actionable, even though it asserted nothing about the P himself and notwithstanding the impression
which it conveyed (that the P in that case had exposed his penis) was obviously an optical illusion. The
caricature in that case affected his reputation. Applying this principle, he held (b) is capable of arising .

Kaye v Robertson (1991) FSR 62

The case involved Gorden Kaye, a well-known actor who suffered life-threatening injuries in a car
accident. Kaye attempted to obtain an order to restrain publication of photographs of the injuries he
suffered in the crash. These photographs were obtained by deception when a tabloid journalist entered
the hospital while he was undergoing treatment.

Developments in New Zealand and England

Development of the tort of privacy, similar to breach of confidence but strictly delimited.

Bradley v Wingnut Films [1993] 1 NZLR 415 – developed the tort of privacy to fill the gap of the
common law. Requires that there is a disclosure of facts which is highly objectionable to a reasonable
person.

Hosking v Runting [2004] NZCA 34

Publication of photographs of a celebrity’s kids in a public space did not make it because the publication
was not offensive.

Rogers v TVNZ
Allowed publication of a police video interview because there could be no expectation of privacy.
Element from traditional breach of confidence.

Wainwright v Home Office [2002] UK

UK expanding privacy protection but not departing from the traditional view that there is no general
action for breach of privacy. Instead combining confidential information and EU Human Rights Articles 8
(right to respect for family and private life) and 10 (freedom of expression).

Douglas v Hello! Ltd

Michael Douglas and Catherine Zeta Jones got married and contracted with OK! Magazine to take
exclusive pictures. A freelance paparazzi managed to infiltrate and take pics and then sell them to rival
Hello! Magazine.

(No 2) injunction overturned because Douglas had traded privacy as a commodity and damages were
sufficient.

(No 6) P received modest damages and pictures treated as trade secrets, given their commercial value.
The fact that D had acted surreptitiously meant that they had acted unconscionably.

MAX MOSLEY v NEWS GROUP NEWSPAPERS LIMITED

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tort approach is radically different because it allows judges to enforce confidences in circumstances
where there is no pre-existing relationship giving rise to an enforceable duty of confidence. Said to be a
departure but see Franklin v Giddens where equity did not require a pre-existing duty of confidence.

SIR ELTON JOHN v ASSOCIATED NEWSPAPERS LTD

Sir Elton failed to injunct a picture of himself walking down the street because there was nothing
offensive about it.

DAVID MURRAY v BIG PICTURES (UK) LIMITED

Successful njunction against pictures of JK Rowling’s son in a pram. Given kid’s age, he did not find
images offensive. Also not private because taken on a street and did not reveal any embarrassing
information. However, there was a reasonable expectation of privacy which was intrusively breached.

The english approach is tempered by the human rights articles and departing from australia but as
human rights protections are instituted in Australia, there may be a revergence.

Australia?
Bathurst City Council v Saban – light travelling from land into a camera does not constitute tresspass to
either land or airspace. However, it becomes an actionable tort if you keep taking photos of people over
and over again. However, it was said that equity may restrain the publication of photographs even when
they have been taken in public spaces surreptitiously, if they are embarrassing or offensive

Kwok v Thang [1999] NSWSC 1034 The scope of confidentiality is tested when data is in the public
domain or of widespread awareness. Chinese pop star came to australia and rooted D. D taped
encounter and threatened to distribute. A HK newspaper published an account. Hodgson CJ in Eq stated
that one need not have a longstanding friendship before equity would find an obligation of confidence.

Donnelly v Amalgamated Television Services Pty Limited (1998) 45 NSWLR 570

Facts: cameras were taken on a raid; D was taken in his underwear and Channel 7 broadcast the footage
on one of their current affairs programs. D sought an interlocutory injunction restrain the broadcast of
this.

Hodgson J in Eq: granted the injunction on the basis that the police footage and the disclosure of the
footage suggested an abuse of power on the part of the police and the knowing participation of that
abuse of power by Channel 7. There are arguments made by HJ which are useful to note in passing.

There was an issue of whether the footage was in the nature of confidential information or whether it
should be viewed as private. The distinction is vital because the approach in England is to treat invasions
of privacy by reference to breaches of confidence. Suggested that there is more than a nuance of
difference between privacy and confidentiality as concepts and not everything described as private in
confidential.

Also, H notes what could be considered ‘private’. It is consistently recognised that what is really subject
to the injunction is that which is not observable from the street and anything in terms of the footage
reflecting what could in fact be observed is not private and what was private was the footage taken
inside the house in areas not exposed to public view. H’s reasoning in this case reinforces the restrictive
nature of what can be characterised as private, which is taken up by Gleeson J in ABC v Lenah Game
Meats. When looking at a case for invasion of privacy, must consider the various tortious causes of
action a plaintiff could possibly have.

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Australian Broadcasting Corp v Lenah Game Meats Pty Ltd
HC restraint of surreptitious video of slaughtering shot by a animal liberationists that ABC wanted to
publish. It was assumed liberationists had trespassed when shooting. Claimed that ABC acting
unconscionably by using trespass.

•    Per Gleeson J: the law of breach of confidence provides a remedy where the nature of the information
obtained by the trespasser was such as to permit the information to be regarded as confidential. But, if that
condition was not fulfilled, then the circumstance that the information was tortiously obtained in the first place
was not sufficient to make it unconscientious of a person into whose hands that information later came to use it or
publish it
•    Compare this case to Lincoln Hunt v Willessee where the camera crews entered premises with cameras rolling
and whose conduct amounted to a trespass, but in this case the ABC was provided with the footage which was
obtained by a separate party
o    In this case the party publishing the material (ABC) was not a party to the trespass; if they were then the court
would have to consider the question postulated by Young J in Lincoln Hunt where he held that prima facie, if a film
is taken by a trespasser, made in circumstances involving private premises in respect of which there is some
evidence that publication of the film would affect goodwill, then the case is one where an injunction should be
seriously considered
•    Per Gummow and Hayne JJ: in Lincoln Hunt Young J stated that the court has power to grant injunctions to
prevent the publication of footage taken by a trespasser even though no confidentiality is involved. The court will
only intervene if the circumstances make the publication unconscionable.
o    Held that the maker of the film may be regarded as a constructive trustee of the copyright of the footage for
the benefit of the plaintiff conferred by s 98 of the Copyright Act and as a result it would be inequitable for the
maker of the film to broadcast the footage against the wishes of the plaintiff and the broadcast would be subject
to an interlocutory restraint

Whiskisoda Pty Ltd v HSV Channel 7 Pty Ltd Pty Ltd (1993) , unreported, Supreme Court of Victoria, 5
November 1993, McDonald J
Facts: Channel 7’s employee went to a venue operated by W; at the premises there was nude tabletop dancing
where Channel 7 wanted to explore this issue of public interest and therefore asked the employee to video the
dancing. W claimed that there were signs which informed patrons that no photography or cameras were to be
permitted to be used. The employee of Channel 7 claimed he saw no such signs but nevertheless concealed the
camera because he thought W wouldn’t be amenable to him openly filming on the premises. The footage was
taken and a story was to be mounted when W became aware of the events. They sought an interlocutory
injunction to restrain the broadcast of the footage.

McDonald J: had to determine whether an interlocutory injunction should be issued. Required consideration of
whether there was a serious question to be tried and where the balance of convenience lay. Refused to grant
injunction; in this case there was a strong case of trespass to land which would result in non-insubstantial damages
which were regarded as being an adequate remedy for W and also given the fact that there was a significant
dispute as to a question of fact (whether there were signs in place).

As a general rule, as Channel 7 is the trespassor; the video taken in the course of the trespass is considered to be
the ‘fruits of the trespass’. The issue here was whether the plaintiff was able to restrain the defendant who was
both trespassor and broadcaster from using the fruits of the trespass. As a general rule, because trespass is a tort
the principal remedy is an award of damages; but there may be circumstances in which it can be argued that an
interlocutory injunction should be granted to ameliorate the effects of the trespass. This can occur where the
defendant broadcaster is engaged in a continuing trespass on the plaintiff’s property or as in this case, in
circumstances where the plaintiff wants to restrain the defendant’s use of the fruits of the trespass.

UNCONSCIONABLE TRANSACTIONS & UNDUE INFLUENCE

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The purpose of the doctrine is to provide relief in situations where one party to a transaction has
actively taken advantage of the weakness of the other. In this way, equity seeks to look beyond the
fiction of equality of bargaining power that the common law takes for granted. Pursuant to the doctrine
of unconscionability, equitable relief is given where there has been ‘an abuse of power possessed by
one party over the other by virtue of the other’s position of special disadvantage’: Australian
Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292, at 297.

In Louth v Diprose (1992) 175 CLR 621, at 638; 110 ALR 1, at 14, Deane J observed that ‘the intervention
of equity is not merely to relieve the plaintiff from the consequences of his own foolishness. It is to
prevent victimisation’

General or specific term?

in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 324-5; 201 ALR 359, at 364-5, the High
Court held that ‘unconscientious’ is a more accurate term than ‘unconscionable’ in this context

Elements
In CBA v Amadio, at CLR 474; ALR 422, Deane J said:

The jurisdiction is long established as extending generally to circumstances in which (i) a party to a
transaction was under a special disability in dealing with the other party with the consequence that
there was an absence of any reasonable degree of equality between them and (ii) that disability was
sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he
procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which
he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon
the stronger party to show that the transaction was fair, just and reasonable.

Spigelman CJ in Attorney General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557, at 583:

Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied
over the centuries with considerable restraint and in a manner which is consistent with the maintenance
of the basic principles of freedom of contract. It is not a principle of what ‘fairness’ or ‘justice’ or ‘good
conscience’ requires in the particular circumstances of the case … [R]estraint in decision-making remains
appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be
applied as if it were equivalent to what was ‘fair’ or ‘just’, it could transform commercial relationships …
The principle of ‘unconscionability’ would not be a doctrine of occasional application, when the
circumstances are highly unethical, it would be transformed into the first and easiest port of call when
any dispute … arises

The essential elements are, as Deane J identifies:

A is under a special disadvantage or disability;

B knew, or is likely to have known, about that disadvantage; and

B proceeds to use that disadvantage unconscientiously in order to obtain A’s consent to the
transaction.

Bargaining Power
Practical recognition of these observations can be seen in the fact that mere inequality of bargaining
power between parties does not give rise to a situation of unconscionability. In Australian Competition

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and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51, at 64; 197 ALR 153, at
157, Gleeson CJ said:

A person is not in a position of relevant disadvantage … simply because of inequality of bargaining

power. Many, perhaps even most, contracts are made between parties of unequal bargaining power,
and good conscience does not require parties to contractual negotiations to forfeit their advantages, or
neglect their own interests … Unconscientious exploitation of another’s inability, or diminished ability,
to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining
position.

Timing
In Gustav & Co Ltd v Macfield Limited [2008] NZSC 47, at [5], the New Zealand Supreme Court held that
the appropriate time to assess whether a conditional contract was unconscionable was when the
contract was entered into and not when it became, or was declared, unconditional. However, the Court,
at [21], went on to note that ‘material variations to a contract should be examined for unconscionability
as at the date upon which they are agreed’.

Special Disadvantage
There is no fixed list of what constitutes a special disadvantage. What is required is some characteristic
‘which seriously affects the ability of the innocent party to make a judgment as to his own best
interests’: CBA v Amadio, at CLR 462; ALR 413.

In ACCC v Samton Holdings Pty Ltd (2002) 117 FCR 301, at 318; 189 ALR 76, at 92, the Full Court of the
Federal Court stated that factors going to establishing a special disadvantage fell into one of two
categories; ‘constitutional’ and ‘situational’. The court said:

The special disadvantage may be constitutional, deriving from age, illness, poverty, inexperience or lack
of education. Or it may be situational, deriving from particular features of a relationship between actors
in the transaction such as the emotional dependence of one on the other.

Knowledge
It is clear that the defendant must have known or ought to have known of the special disadvantage of
the other party. The requirement of knowledge is necessary because the defendant cannot be said to
have acted unconscientiously if he or she had no knowledge of the plaintiff’s special disadvantage

Unconscionable exploitation of the disadvantage

The stronger party must exploit the weakness that he or she knows to exist in the other in order to
procure consent to a transaction. Inequality of bargaining power will often be a factor to be taken into
account in assessing whether the stronger party has taken advantage of the weaker party’s special
disability.

Examples
In CBA v Amadio – uneducated, trust of son the Amadios’ special disadvantage was knowingly used to
procure them into signing a contract of guarantee, which was not limited by time or extent of liability, to
secure a loan to their son who was in serious financial trouble.

In Louth v Diprose - infatuated the infatuated Diprose made a gift of $58,000 to Louth so that she could
purchase a house.

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In Blomley v Ryan – drunk the drunken Ryan sold his entire landholding to Blomley at a price described
by McTiernan J, at 392, as ‘strikingly disproportionate’ to the estimated market value.

Legislation
The federal, state and territory legislatures have all enacted legislation which deal with unconscionable
conduct and/or related concepts dealing with what might generally be referred to as unfair conduct.

In Part IVA entitled ‘Unconscionable Conduct’of the Trade Practices Act ss 51AA, 51AB and 51AC deal
with statutory forms of unconscionability. In all three sections there are prohibitions against
corporations, in the course of trade or commerce, engaging in unconscionable conduct. The need for a
corporation to be involved is a consequence of the federal government’s limited legislative power under
s 51 of the Commonwealth Constitution. The federal government must have a legitimate grant of power
in order for its laws to be valid. The trade and commerce power (s 51(i)) presents problems as it
specifically precludes federal legislation in intrastate matters, hence recourse to the more amenable
corporations power (s 51(xx)), which will apply to intrastate matters so long as a sufficient connection to
corporations may be found.

Section 51AAB of the Act stipulates that ss 51AA and 51AB do not apply to conduct involving financial
services. However, the provisions of ss 51AA, 51AB and 51AC are replicated, in relation to financial
services, in ss 12CA, 12CB and 12CC of the Australian Securities and Investments Commission Act 2001
(Cth). In order to cover cases where the conduct is not within the provisions of either of these two
federal acts, complementary legislation is found in some states and territories that may enable an
applicant to seek relief. Section 51AA is replicated only in Victoria.[1] Section 51AB is replicated in all
states and territories.[2] Section 51AC has been replicated in Tasmania and Victoria,[3] as well as in
retail leases legislation in all states and territories, with the exception of South Australia.[4]

[1] Fair Trading Act 1999 (Vic) s 7.

[2] Fair Trading Act 1992 (ACT) s 13; Fair Trading Act 1987 (NSW) s 43; Consumer Affairs and Fair Trading
Act 1990 (NT) s 43; Fair Trading Act 1989 (Qld) s 39; Fair Trading Act 1987 (SA) s 57; Fair Trading Act
1990 (Tas) s15; Fair Trading Act 1999 (Vic) s 8; Fair Trading Act 1987 (WA) s 11.

[3] Fair Trading Act 1990 (Tas) s 15A; Fair Trading Act 1999 (Vic) ss 8A and 8B.

[4] Leases (Commercial and Retail) Act 2001 (ACT) s 22; Retail Leases Act 1994 (NSW) ss 62A and 62B;
Business Tenancies (Fair Dealings) Act, 2003 (NT) ss 79 and 80; Retail Shop Leases Act 1994 (Qld) ss 46A
and 46B; Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tas) Cl 3; Retail Leases
Act 2003 (Vic) ss 77 and 78; Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ss 15C and
15D.

It is clear that the notion of unconscionable conduct under ss 51AB and 51AC is broader than
unconscionable conduct in equity: Australian Competition and Consumer Commission v Simply No-
Knead (Franchising) Pty Ltd (2000) 104 FCR 253, at 265; 178 ALR 304, at 315; Canon Australia Pty Ltd v
Patton (2007) 244 ALR 759, at 767-9.

In ACCC v Samton Holdings, at FCR 317; ALR 91, the court identified the following four ways in which
unconscionable conduct has been used in the case law:

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1. As an organising idea informing specific equitable rules and doctrines which do not in terms refer to,
or require, an explicit finding of unconscionable conduct - eg rules on stipulations as to time and notices
to complete.

2. In relation to specific equitable doctrines of which estoppel, unilateral mistake, relief against
forfeiture and undue influence are examples. They are united by the idea that equity will prevent an
unconscionable insistence on strict legal rights and are conditioned upon the explicit finding of
unconscionable conduct in the persons against whom they are invoked.

3. In relation to the discrete doctrine of unconscionable dealing which concerns one species of
unconscionable conduct.

4. In relation to unconscionable conduct founding a cause of action not mediated by any discrete
doctrine.

Undue Influence
Whereas the common law has traditionally assumed that the parties to particular transactions have
equal bargaining power, equity recognises that often this may not be the case and it may enable a party
to set aside a transaction where it can be shown that the relationship between the parties was tainted
by inequality, unfairness or actual abuse.

In equity, the principle of undue influence also focuses on the quality of consent given to the
transaction. This was made clear by Deane J in Commercial Bank of Australia Ltd v Amadio (1983) 151
CLR 447, at 474; 46 ALR 402, at 423, when he said that ‘[u]ndue influence, like common law duress,
looks to the quality of the consent or assent of the weaker party’. The purpose of the doctrine of undue
influence is ‘to protect people from being forced, tricked or misled in any way by others into parting
with their property’: Allcard v Skinner, at 182-3. A new nun bequeathing her property and trying to
claim it back when she left the sisterhood

“The aim is to protect people from being forced, tricked or misled in any way by others into parting with
their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue
influence has grown out of and been developed by the necessity of grappling with insidious forms of
spiritual tyranny and with the infinite varieties of fraud.”

It is clear that the doctrines relating to unconscionable transactions and undue influence are closely
related. But just how closely is a matter of some debate. Hardingham, while making it clear that he was
not advocating a ‘general unifying principle of universal application’, made the following statement:

[T]he boundaries between traditional heads of intervention against unconscionable behaviour —

specifically between common law duress and actual undue influence or pressure, between presumed
undue influence and unconscionable dealing as such — are shifting. Lines of demarcation are not now as
clearly defined as they may have been in the past. As a consequence, the traditional heads themselves
may be ready for some redefinition or rationalisation

Hardingham, ‘Unconscionable Dealing’ in P D Finn (ed), Essays in Equity, Law Book Co, Sydney, 1985, 1, p
2.

The classic statements in this regard are both derived from Commercial Bank of Australia v Amadio
(1983) 151 CLR 447; 46 ALR 402. In that case, Deane J said, at CLR 474; ALR 423:

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Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker
party … Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or
retain the benefit of, a dealing with a person under a special disability in circumstances where it is not
consistent with equity or good conscience that he should do so.

Categories of Undue Influence

Traditionally there have existed two distinct categories of transactions that attract equitable
intervention on the basis of the principles of undue influence. The distinguishing characteristic between
the two categories is whether there is, or is not, a special relationship between the parties to the
transaction. Cases in which there is no special relationship between the parties are generally referred to
as ones of actual or express undue influence. Cases in which a special relationship exists between the
parties, are generally referred to as ones of presumed undue influence, and can be sub-categorised
according to the basis upon which the existence of the special relationship is established

Actual Undue Influence

In cases where there is no special relationship between the parties to the transaction, a person seeking
equitable relief on the basis of the principles of undue influence must establish that actual undue
influence was exerted by the other party to the transaction

In Johnson v Buttress (1936) 56 CLR 113, at 134, in discussing such cases, Dixon J said:

The source of power to practise such a domination may be found in no antecedent relation but in a
particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved
showing that the transaction was the outcome of such an actual influence over the mind of the alienor
that it cannot be considered his free act.

Cases of actual undue influence are uncommon. They are also difficult to prove. Thus, in Frederick v
State of South Australia (2006) 94 SASR 545, a South Australian magistrate resigned from his position
during a meeting with the Chief Magistrate. The magistrate had been recently convicted of two criminal
offences. However, the convictions were subsequently set aside. The magistrate argued that the
resignation was ineffective on the basis that it was procured by the exertion of actual undue influence
by the Chief Magistrate. The Supreme Court rejected the claim on the basis that the magistrate, as a
person who had had a long career as a lawyer and magistrate, was not in a position of being the victim
of actual undue influence.

White J, at 580, said the following in relation to the magistrate’s decision to resign:

I accept that [he] valued his position as a magistrate both for the honour which the office entailed, his
satisfaction with the work and because it was his source of livelihood. I accept that [he] wished to
maintain his position as long as practicable and that he signed the resignation letter reluctantly. I accept
that immediately before signing the resignation letter he said words to the effect that he felt that he did
not really have any choice but to resign with dignity, and that that statement reflected his state of mind
at that time. However, that evidence falls short, in my opinion, of establishing that [his] will was
overborne or that his agreement to resign was procured by undue influence. The fact that the choices
apparently open to him were unpalatable does not indicate that his will was overborne. It is an
unfortunate fact that often people are called upon to make difficult decisions and, in particular, to make
decisions which they would prefer very much not have to make. Where a person confronts the
circumstance, and makes the difficult decision, it will often be inappropriate to speak of their will having
been overborne. In my opinion, that is the position in the present case.

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Presumed Undue Influence
The existence of the special relationship gives rise to a presumption that the transaction was obtained
as a result of undue influence by the stronger party in the relationship over the weaker party. The
presumption of undue influence only arises upon proof of the existence of a special relationship. The
effect of the presumption is that the weaker party will be able to seek equitable relief, unless the
presumption of undue influence is rebutted by the stronger part

Class 2A and 2B
Class 2A include those existing between:

parent and child: Lancashire Loans Ltd v Black [1934] 1 KB 380; Moneylender - Borrowings by Mother -
Promissory Note signed by daughter recently of age - Charge given by daughter on her reversion -
Daughter a married woman living with her husband - Emancipation - Undue Influence - Independent
advice - Insufficient Memorandum - Transaction set asideIt was held that a daughter may not necessarily
be independent and may be under the influence of the mother.

guardian and ward: Hylton v Hylton (1754) 28 ER 349;

solicitor and client: Westmelton (Vic) Pty Ltd v Archer & Shulman [1982] VR 305;

doctor and patient: Bar-Mordecai v Hillston [2004] NSWCA 65; and

religious leader and follower: Allcard v Skinner.

In Royal Bank of Scotland v Etridge, at AC 797 Lord Nicholls asserted that a presumption arising by
virtue of a recognised class of relationship is ‘irrebuttable’. This approach has, however, been rightly
rejected in Australia: Janson v Janson [2007] NSWSC 1344, at [93]. This case is about a claim of undue
influence by way of a transfer of a frail and elderly man’s residence (sole asset) to his nephew. There
was no independent advice. The nephew held his uncle’s general (not enduring) power of attorney and
had given him care and assistance for many years.

However, it is difficult to rebut such a presumption and even being able to explain the relationship in
some other way, such as that the parties were also in a de facto relationship, will not guarantee success:
Bar-Mordecai v Hillston, at [149].

Trustee-Beneficiary Relationship
There are suggestions that the trustee-beneficiary relationship is a Class 2A relationship: Union Fidelity
Trustee Co of Australia Ltd v Gibson [1971] VR 573, at 577, and Johnson v Buttress, at 119. However, as
Meagher, Heydon and Leeming[1] observe, there is no justification, in the absence of special
circumstances, for suggesting that there is a relationship of undue influence between a trustee and
beneficiary, and that unless the transaction is one involving trust property, there should be no
presumption invalidating the transaction. In cases where trust property is involved, a beneficiary is
already protected by the rules relating to fiduciary obligations
[1] R Meagher, D Heydon & M Leeming, Meagher Gummow & Lehane’s Equity, Doctrines and Remedies,
4th ed, LexisNexis Butterworths, Sydney, 2002, pp 513-4.

Class 2B
If the parties to the transaction do not fall within a Class 2A relationship, a special relationship can
nevertheless be established on the particular facts and circumstances of their relationship. These Class
2B relationships arise ‘where it is proved that the party benefiting from the transaction occupies or

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assumes towards another a position naturally involving an ascendancy or influence over that other, or a
dependency or trust on the latter’s part’: Janson v Janson [2007] NSWSC 1344, at [72]. Uncle / Nephew
not 2A but might have been 2B b/c partial power of attorney and carer.

Example

In Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30, Bester, as a young woman, was encouraged to
make a settlement of a substantial inheritance received from her father. The effect of this irrevocable
document was to put the assets, which comprised her inheritance, beyond her control and provide her
with only a modest annual income from the property. At the time of settlement, Bester was 21 years of
age, without parental guidance and possessed of extremely limited business experience. She was
influenced by three much older men — the representative from her trustee company, and her two
uncles, one of whom was the solicitor who drafted the deed of settlement. In these circumstances,
Street J had little difficulty in finding that undue influence was raised successfully by Bester who was,
after many years, seeking to rescind the settlement. His Honour, at 34–5, said:

The present relationship is very close to, if not indeed, within, the scope of the traditional relations. But
whether within or without the traditional relations, the present facts involve a degree of confidence
equivalent thereto … Indeed, the very presence, in the circumstances surrounding this deed, of the
paternal element that pervades the discussions between all concerned is consistent with, and
corroborates, the existence of the special relationship of influence.

Rebuttal
Once the applicant has satisfied the court that there is a case of actual undue influence or the existence
of a special relationship of influence, the stronger party to the transaction has the task of rebutting the
presumption that the transaction was the result of undue influence. The aim of the stronger party is not
necessarily to rebut the nature of the relationship but rather to focus upon proving that ‘the gift was the
independent and well-understood act of a man in a position to exercise a free judgment based on
information as full as that of the donee’: Johnson v Buttress (1936) 56 CLR 113, at 134. This test is not
satisfied simply by establishing that the donor understood the transaction: Bar-Mordecai v Hillston
[2004] NSWCA 65, at [167], [183].

Yerkey v Jones, Mr and Mrs Yerkey brought a claim against Mr and Mrs Jones that arose out of a
mortgage over real property. Mr and Mrs Jones entered into a contract for the purchase of a poultry
farm at Payneham near Adelaide. The purchase price was to be paid in instalments. However, it was a
condition that part of the purchase price be secured by way of a second mortgage over another
property owned by Mrs Jones. Mr Jones negotiated the sale conditions with Mr Yerkey and it was not
until a week after agreeing to buy the property that Mr Jones advised Mrs Jones that he had agreed to
buy the Payneham property and that he might get into trouble if Mrs Jones did not provide a mortgage
over her property. Shortly thereafter Mrs Jones gave a second mortgage as was requested. Mr and Mrs
Jones received advice from Mr Yerkey’s solicitors. Subsequently, Mrs Jones took proceedings to have the
mortgage set aside.

Although the High Court denied Mrs Jones any equitable relief, the judgment of Dixon J is important in
that it articulates the existence of a special equity that protects the position of a wife acting as a
guarantor in relation her husband’s debts. Dixon J, at 678, said:

Although the relation of husband to wife is not one of influence, yet the opportunities it gives are such
that if the husband procures his wife to become surety for his debt a creditor who accepts her

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suretyship obtained through her husband has been treated as taking it subject to any invalidating
conduct on the part of her husband even if the creditor be not actually privy to such conduct

in Garcia v National Australia Bank (1998) 194 CLR 395; 155 ALR 614, the majority of the High Court
dramatically re-affirmed the principle in Yerkey v Jones. In that case a married woman and her husband
executed a mortgage in 1979 in favour of the National Australia Bank that was secured over their
matrimonial home. The mortgage not only secured all money owing under the mortgage, it also secured
any money owing pursuant to future guarantees given by either the husband or the wife to the bank.
Between 1985 and 1987, the wife signed several guarantees relating to loans made to businesses
conducted by the husband. There was no explanation of the precise extent of these transactions by the
creditor to the wife. Although she was a capable and professional woman who had her own business as
a physiotherapist, she did not realise that the guarantees were also linked to the mortgage entered into
in 1979. Importantly, the wife obtained no personal benefit from the transactions. In 1989, the woman
and her husband were divorced and she commenced proceedings to have the guarantees set aside.

The High Court majority, in setting aside the guarantees, found that, despite there being no actual
undue influence by the husband, it was nevertheless unconscionable for a creditor to enforce a
guarantee in such circumstances. The High Court majority noted that there were two possible ways in
which a wife in such circumstances could seek equitable relief. The first is where there is actual undue
influence by a husband over a wife and the second is where, in the absence of actual undue influence,
the Yerkey v Jones principle applies. .

DECLARATIONS
Definition
A declaration is a non-coercive order granted by a court that states with finality the true nature of the
law or the rights, duties and interests of the applicant under it. The element of finality is important.
Thus, in Nsi Group Pty Ltd v Mokas [2006] NSWSC 976, the court refused to make an interim declaration
of right as to the true construction of a contract, because the construction of a contract is something to
be determined once and for all at the final hearing of the dispute.

Why use them?

• It enables the parties to clarify their legal obligations and rights and avoid further costly
litigation.
• A declaration may also establish that there are indeed rights to be enforced with the assistance
of the courts, which may provide damages or some coercive remedy such as specific performance or
injunction upon application.
Equity to Statute
• The declaration developed originally as an equitable remedy, though it has since become
statutory in nature. The reason for this change in jurisdictional source was the restrictive practice of
equity courts by which they would only grant a declaration as ancillary to some other form of relief.
• For example, a declaration that obligations were owed under the terms of a contract would be
granted only pursuant to an action seeking a further order, such as one compelling specific performance
of those obligations. Parties could not seek the court’s involvement to clarify their legal positions and
then be left to resolve the matter themselves. It was said that equity would not grant ‘naked’ or mere
declarations.
• The usefulness of the declaration in its own right led to its recognition by statute as a form of
relief capable of being granted by all courts and without the need for other remedies to be sought by, or
even made available to, the parties

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• Judicature Acts
• Declaratory relief is ‘neither a legal nor an equitable remedy, but statutory’: Tito v Waddell (No
2) [1977] Ch D 106
NSW
• Supreme Court Act 1970 (NSW) s 75
• The consequence of this power is that declarations can be granted irrespective of whether other
remedies are sought, and whether or not the rights are derived from the common law or equity.
Declarations concerning statutory rights
• Statutes may exclude relief
• Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, Gibbs J, at 435–6, indicated that such a
restriction upon the court’s jurisdiction could not arise merely by virtue of an implication drawn from
the creation of a specialised tribunal:
• The jurisdiction to make a declaration is a very wide one … However, the jurisdiction may be
ousted by statute, although the right of a subject to apply to the court for a determination of his rights
will not be held to be excluded except by clear words.
• Law Society of NSW v Weaver [1974] 1 NSWLR 271. In that case, the New South Wales Court of
Appeal was quite prepared to grant a declaration that a solicitor had been engaged in professional
misconduct, despite the existence of a specialist body to make such determinations. The court, at 272,
said:
• It is a principle of statutory construction that a superior court of law will not be deprived of
jurisdiction except by express words or necessary implication. The provision of another tribunal would
not of itself ordinarily be sufficient to do so.
Discretion
• Rivers v Bondi Junction-Waverley RSL Sub-branch Ltd (1986) 5 NSWLR 362, at 376 (hope and
Priestley JJA), ‘a plaintiff does not have an automatic right to a declaration because he can point to a
failure by the defendant to comply with some requirement’
• Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 – procedural fairness
Abstract or hypothetical questions
Mellstrom v Garner [1970] 1 WLR 603 Harman LJ, at 604, said:
[E]ach party seeks from the court a declaration as to the true interpretation of this nonsensical affair. It
is not said that either of them has either broken any of its provisions or seeks to break them; it is not
suggested that there are any facts whatever to be considered; and we are to make what in my younger
days is to be called a declaration ‘in the air’. That is against the principles of the Court of Chancery as I
understand them.
University of New South Wales v Moorhouse (1975) 133 CLR 1; 6 ALR 193 - Moorhouse, (a successful
author) applied for a declaration that the University of New South Wales had, by placing a photocopier
in its library, authorised private individuals to infringe his copyright under the terms of relevant
Commonwealth legislation.

The trial judge granted the declaration, although he acknowledged a lack of factual evidence that
Moorhouse’s copyright had been infringed. On appeal, the High Court revoked the declaration. Gibbs J,
at CLR 10; ALR 198, observed that ‘as a general rule, the power to make a declaration will not be
exercised when the court is called upon to answer a question that is purely hypothetical’.

This was the case here as the basis for the declaration was not any proven fact, but rather an
assumption that Moorehouse’s copyright had indeed been infringed.

Egan v Willis (1998) 195 CLR 424

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Egan refuses to produce papers to Legislative Council

The Council then passed a resolution (i) finding him guilty of a contempt of the House; (ii) suspending
him from sitting in the House for the remainder of that day; and (iii) ordering him to attend at the House
on the following day in order that he should explain his refusal to table the documents which had been
requested.

Egan was escorted from the premises on to the street by the Usher of the Black Rod.

Egan commenced an action in the Supreme Court of New South Wales seeking declarations that, first,
the terms of the resolution were invalid, and second, that his removal to the footpath outside
Parliament House constituted a trespass to his person. The matter was moved to the Court of Appeal,
which found in favour of Egan only to the extent of finding a trespass to his person from the time he left
the precincts of parliament and was deposited on the footpath.

Gaudron, Gummow and Hayne JJ, at CLR 438; ALR 529, in the High Court, ‘dealt with the merits of the
matter rather than on the footing that a bare declaration with respect to the validity of proceedings in
the Legislative Council should not be made’. Their Honours, at CLR 438-9; ALR 529-30, indicated that this
would not have been their preferred approach to such a matter:

Questions respecting the existence of the powers and privileges of a legislative chamber may present
justiciable issues when they are elements in a controversy arising in the courts under the general law
but they should not be entertained in the abstract and apart from a justiciable controversy. Declaratory
relief should be directed to the determination of legal controversies concerning rights, liabilities and
interests of a kind which are protected or enforced in the courts. This is so even though in the area of
public law the ground of equitable intervention has not been limited to the protection of any particular
proprietary or legal entitlement of the plaintiff.

Need for a ‘real interest’ — locus standi

In order to obtain a declaration, the applicant must have a ‘real interest’ in the matter concerned. This is
otherwise known as locus standi — the requirement that the applicant has standing to seek the relief
sought. In respect of private rights such as those arising under a contract, it is easy to appreciate that
persons whose rights are not at stake have no standing to ask the court to declare those of others. But it
is in the area of public rights that the issue of standing is more complex.

Boyce v Paddington Borough Council [1903] 1 Ch 109, at 114, Buckley J said:

A plaintiff can sue without joining the Attorney-General in two cases: first, where the interference with
the public right is such as that some private right of his is at the same time interfered with … and,
secondly, where no private right is interfered with, but the plaintiff, in respect of his public right, suffers
special damage peculiar to himself from the interference with the public right.

In Australian Conservation Foundation Inc v Commonwealth (1980)

(1980 146 CLR 493

Challenge to tourist development

Gibbs J, at at CLR 530; ALR 270, said:

[A]n interest, for present purposes, does not mean a mere intellectual or emotional concern. A person is
not interested within the meaning of the rule, unless he is likely to gain some advantage, other than the

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satisfaction of righting a wrong, upholding a principle or winning a contest, if his action succeeds or to
suffer some disadvantage, other than a sense of grievance or a debt for costs, if his action fails.

In this case the Australian Conservation Foundation was found not to have a ‘special interest’ in the
sense required.

Foreseeable consequences — utility

A declaration should not be granted if it would produce ‘no foreseeable consequences for the parties’.:
Ainsworth

A declaration ‘must have some effect on the rights and obligations of the parties to the proceeding in
which the declaration is pronounced’: Australian Competition and Consumer Commission v Francis
(2004) 142 FCR 1

Cruse v Multiplex Ltd [2008]

[2008] FCAFC 179, at [50], Goldberg and Jessup JJ said that courts, in exercising
their discretion, could refuse declaratory relief in cases of this type in the following situations:

1. Where the dispute said to underlie the proceeding as a whole is entirely hypothetical …

2. Where … the underlying dispute has been settled, and it is part of the settlement that the court
should be asked to make particular orders by consent.

3. As in situation 2, but where the parties are not agreed on the remedial orders which should be made
(albeit that the facts and law are agreed or not controversial).

4. Where the terms of the declaration sought record the result of the case, but do not establish the
content of the parties’ ongoing rights or obligations.

5. Where the declarations sought are in the form of what Gummow, Hayne and Heydon JJ described as
‘a bad precedent’ in Rural Press Limited v ACCC,
ACCC [at CLR 91, ALR 245].

Commonwealth of Australia v BIS Cleanaway Ltd [2008] NSWCA 170

The Commonwealth commenced proceedings on 28 June 2006 in the NSW Supreme Court against BIS
Cleanaway Limited in relation to the depositing of industrial wastes between 1973 and 1980 on land
owned by the Commonwealth at Lucas Heights in Sydney. The waste was deposited by Industrial Waste
Collection Pty Ltd under a licence agreement with the Commonwealth. The Commonwealth is asserting
that this licence was novated to Brambles Australia Limited (now known as BIS Cleanaway) and that, as a
result, BIS Cleanaway has the obligation to remediate the site in accordance with the terms of the
licence. On 26 September 2007, the NSW Supreme Court struck out the Commonwealth’s claim on the
basis that it would not fully resolve the issues between the parties. The Commonwealth has appealed
against this decision. At 30 June 2008, final preparations for the appeal hearing were underway.

Defences
Clean hands

Laches

Statutory rights?

H Stanke & Sons Pty Ltd v O’Meara (2007) 98 SASR 450, at 459:

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In these circumstances, the declaratory orders sought by the plaintiffs would simply express the result of
the application of the relevant equitable principles. Whether or not this results in the declarations
themselves being properly regarded as equitable, there is little doubt that the plaintiffs are seeking the
aid of equity. Accordingly, there is no reason to exclude from the court’s consideration other equitable
principles such as the requirement as to clean hands.

Criminal law?
Gedeon v Commissioner of the New South Wales Crime Commission (2008) 249 ALR 398, at 404, the
High Court noted that the ‘power to make declaratory orders should be exercised sparingly where the
declaration would touch the conduct of criminal proceedings’

Airedale NHS Trust v Bland

House of Lords affirmed the decisions of a Family Division Court and the Court of Appeal, Civil Division,
permitting physicians to withhold medical treatment from an insensate patient in a persistent vegetative
state, provided that the patient's death will imminently follow the removal of life-sustaining treatment.
In this situation, the medical treatments to be withheld included artificial feeding and antibiotics to fight
infection. The court reasoned that this afforded the patient a peaceful and dignified death without
suffering, and fulfilled the course of nature. The court distinguished this circumstance from euthanasia,
a criminal offense in which a doctor actively participates in bringing about a patient's death. In the
future, doctors and families in similar situations were advised to petition the court before taking any
comparable measure because, in the absence of action by Parliament, each instance requires case-by-
case determination.

• Sankey v Whitlam (1978) 142 CLR 1; 21 ALR 505, the Crown alleged that certain documents that
were the subject of a subpoena in criminal proceedings were privileged and therefore did not need to
be produced. The High Court granted declaratory relief to the effect that the documents were not
privileged.
• Tom & Bill Waterhouse Pty Ltd v Racing New South Wales [2008] NSWSC 1013, at [74], Palmer
J said that a court ‘is less reluctant to make a declaration involving questions of criminal law where the
facts are clear and undisputed, there are no criminal proceedings pending, and there is a pure question
of law to be decided’. In that case, Waterhouse sought a declaration that the way it conducted its
betting business did not constitute a criminal offence under certain legislation. In the circumstances of
the case, his Honour found that all three of the factors mentioned were satisfied and granted the
declaration

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INJUNCTIONS
Injunctions are orders made by the courts either restraining or requiring performance of a specific act in
order to give effect to the legal rights of the applicant. An injunction that prevents a course of action is
said to be prohibitive in nature, and this is the traditional essence of injunctive relief - it commands
cessation of a wrongful act. Somewhat rarer, yet not too distant from this core principle, are mandatory
injunctions that compel some behaviour of the person to whom they are directed. In cases where
mandatory injunctions are granted it is clear that the defendant, while not positively engaged in
wrongful conduct, has nevertheless, by a failure or omission to act, infringed upon the rights of the
applicant. In commanding the doing of an act by such a defendant, the court is in effect commanding the
harmful dormancy to cease.

Jurisdiction?
The origins of injunctive relief are found in equity’s exclusive jurisdiction where it was used solely in
support of equitable rights. But equity soon developed an auxiliary jurisdiction through which it offered
more flexible forms of relief when those of the common law proved to be inadequate. Thus, in particular
circumstances, injunctive relief is available to restrain breaches of contract, tortious wrongs and an array
of other conduct that infringe upon rights recognised by the common law. In addition to the exclusive
and auxiliary jurisdictions of equity to order injunctions, the common law courts were granted the ability
to do the same through statutory reform enacted in the Common Law Procedure Act 1854 (UK) which
provided a distinct jurisdiction from both the exclusive and auxiliary operations of equity. It was
narrower than the exclusive jurisdiction in that it did not enable the common law courts to issue
injunctions in respect of equitable rights, nor did it enable the making of quia timet injunctions. At the
same time, it was seen as wider than equity’s auxiliary jurisdiction as there was no requirement of either
a proprietary interest or inadequacy of damages

Judicature Act
Judicature Act 1873 (UK) - Section 25(8) stipulated as follows:

 [A]n injunction may be granted or a receiver appointed by an interlocutory order of the court in all
cases in which it shall appear to the court to be just or convenient that such order should be made; and
any such order may be made either unconditionally or upon such terms and conditions as the court
thinks just.

Supreme Court Act 1970 (NSW) s 66;

Exclusive
Injunctions granted in aid of equitable rights (such as the equitable obligation of confidence or a
beneficiary’s rights under a trust) are said to be awarded in equity’s exclusive jurisdiction.

Auxiliary

Injunctions granted in aid of common law rights (such as the restraint of breaches of contract or tortious
wrongs) or statutory rights are said to be awarded in equity’s auxiliary jurisdiction. The distinction is
important because with injunctions in the auxiliary jurisdiction, a plaintiff must first establish that
damages at common law are an inadequate remedy, and secondly, it may be the case in some situations
that he or she must also show that the right being protected is a proprietary right.

Why does it matter?

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The distinction is important because with injunctions in the auxiliary jurisdiction, a plaintiff must first
establish that damages at common law are an inadequate remedy, and secondly, it may be the case in
some situations that he or she must also show that the right being protected is a proprietary right.

However, in the exclusive jurisdiction, neither the inadequacy of damages nor the proprietary in nature
of the plaintiff’s right are relevant in assessing whether the injunction should be granted.

Injunctions Protect Rights

Injunctive relief will not be ordered if there has been no violation of the plaintiff’s rights North London
Railway Co v Great Northern Railway Co (1883) 11 QBD 30

Inadequacy of damages
Graham v K D Morris & Sons Pty Ltd [1974] Qd R 1, Morris was building a significant construction on
adjoining land owned by Graham. A crane on the building site was left to rotate freely and, when the
wind blew in a certain direction, its jib encroached over Graham’s property and was suspended over the
roof of her house. Campbell J held that the invasion of Graham’s airspace constituted a trespass and
that damages at common law were inadequate because the danger of the jib suspended over Graham’s
house were very real and would last for 18 months until the construction work was completed. The
trespass would also negatively impact on the sale price Graham could get if she wished to sell her home
during that time. Morris argued that the grant of the injunction would constitute hardship because it
would have to dismantle the crane at considerable expense. His Honour rejected this defence on the
basis that the positioning of the crane stemmed from Morris’s negligence and its cavalier attitude
towards the building project.

The requirement of a proprietary right

In Attorney-General v Sheffield Gas Consumers Co (1853) 43 ER 119, at 125, Turner LJ, in refusing to
grant an injunction, said that ‘[i]t is on the ground of injury to property that the injunction of this court
must rest’.

However, in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, at 395; 162 ALR 294, at 304, the High
Court held that there is no general requirement that the right must be proprietary before injunctive
relief can be granted.

Most commentators now agree that the availability of injunctive relief in equity’s auxiliary jurisdiction is
not limited to the protection of legal rights that are proprietary in nature. A more accurate statement as
to the relevance of the proprietary nature of the right in question is given by Spry when he writes as
follows:

 [A]lthough it is incorrect to assert that an injunction can be obtained only in aid of property or in aid of
a proprietary right, there are cases where in the particular circumstances the only possible reason for
equitable intervention happens to lie in the support of what may be described as a proprietary right.

Types of Injunctions
Prohibitive or mandatory?

Interlocutory or perpetual injunctions?

Mandatory injunctions
Two kinds

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Mandatory restorative injunctions
The first is the mandatory restorative injunction which compels the defendant to repair the
consequences of some wrongful act that he or she has committed. In order to obtain such an injunction,
the plaintiff must show that, where the wrongful act had not occurred but was merely threatened, he or
she would have obtained a prohibitory injunction in relation to the apprehended wrong. For example, in
a situation where a house has been built in contravention of statutory planning approval requirements,
a mandatory restorative injunction will be granted requiring the defendant to demolish it, provided that,
before the house was built, the plaintiff can establish that he or she would have obtained a prohibitory
injunction preventing the defendant from building it.

Jessica Estates Pty Ltd v Lennard [2007] NSWSC 1434, at [22], in the context of granting a mandatory
restorative injunction where the defendant had almost completed the construction of a house in
violation of a restrictive covenant, Brereton J said:

Relevant Factors:
 the defendant’s knowledge of the wrongful nature of his or her acts;

 whether the defendant has hastened the completion of the wrongful acts so as to steal a march
on the Court (or the plaintiff);

 the hardship which would be caused to the plaintiff by the refusal of an injunction;

 the hardship which would be caused to the defendant by the grant of an injunction;

 and the extent to which the injuries suffered by the plaintiff are compensable by an award for
damages.

Appeal successful in Lennard v Jessica Estates Pty Ltd [2008] NSWCA 121, but test a relevant statement
of the law

Mandatory enforcing injunctions

Compels the defendant to do some positive act that he or she has promised to do for valuable
consideration. In such cases the court will need to be satisfied that the agreement is specifically
enforceable and that, in all the circumstances, it is just and equitable to grant the injunction: Burns
Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492, at 496.

In Businessworld Computers Pty Ltd v Australasian Telecommunications Commission (1988) 82 ALR

499, at 501, it was observed that courts will be extremely reluctant to grant a mandatory enforcing
injunction if specific performance is also available.

Perpetual injunctions
Injunctions can also be classified according to the period of time for which the order is to remain in
force. A perpetual injunction is the injunction granted after a full hearing of the claim on its merits.
Because the merits of the case have been argued, the perpetual injunction is intended to finally settle
relations between the parties.

Interlocutory injunctions
An interlocutory injunction is a provisional order made at an earlier stage in the proceedings before the
court has had the opportunity to assess the merits of the application.

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Generally, interlocutory injunctions are expressed to be in force until the trial of the action or further
order of the court. The term ‘interim injunction’ is often used interchangeably with interlocutory
injunction. However, there is a technical difference between the two, in that an interim injunction is
more temporary than an interlocutory injunction, and is usually expressed to remain in force until a
specified date prior to the final hearing. Thus, in Commonwealth of Australia v John Fairfax & Sons Ltd
(1980) 32 ALR 485, the plaintiff obtained an ex parte interim injunction on 9 November 1980 that
remained in force until 11 November 1980. On that date the defendant entered an appearance and the
court granted an interlocutory injunction pending a final hearing of the matter.

In Films Rover International Ltd v Cannon Film Sales Ltd [1986] 3 All ER 772, at 780–1, Hoffmann J put is
as follows: 

The principal dilemma about the grant of interlocutory injunctions, whether prohibitory or mandatory, is
that there is by definition a risk that the court may make the ‘wrong’ decision, in the sense of granting
an injunction to a party who fails to establish his right at the trial (or would fail if there was a trial) or
alternatively, in failing to grant an injunction to a party who succeeds (or would succeed) at trial. A
fundamental principle is therefore that the court should take whichever course appears to carry the
lower risk of injustice if it should turn out to have been ‘wrong’ in the sense I have described.

In general, interlocutory injunctions will only be granted after notice of the application has been given to
the defendant, so that the defendant has the opportunity to resist the claim. Thus, the hearing of such
application is usually ‘inter partes’. However, in urgent cases, interlocutory or interim injunctions can be
granted in the absence of the defendant, or ‘ex parte’, as occurred initially in Commonwealth of
Australia v John Fairfax & Sons Ltd.

In considering whether an interlocutory injunction should be granted the court must apply the test set
out in Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618, at 622-3, where the High
Court noted that the following two requirements had to be satisfied:

 The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence
remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to
relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely
to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant
would suffer if an injunction were granted.

Prima Facie Case Requirement

Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729, at 735-7, where Mahoney JA
noted the following points:

(i) it did not mean a finding that at trial the plaintiff would win;

(ii) the term prima facie is used in the sense of ‘likelihood’, and does not refer to a prediction,
but rather to the nature of the plaintiff’s case;

(iii) the term ‘prima facie’ may mean something less than ‘more likely than not’, and there is no
requirement that the plaintiff must show a ‘better than even’ chance of ultimate success; and

(iv) a prima facie case must always be established, irrespective of whether the second test of
balance of convenience favours the grant of interlocutory relief.

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In various cases judges use the expression ‘serious question to be tried’ rather than ‘prima facie case’.
Thus, in ABC v O’Neill (2006) 227 CLR 57, at 68; 229 ALR 457, at 466, Gleeson CJ and Crennan J, observed
that a plaintiff had to establish ‘that there is a serious question to be tried as to the plaintiff’s
entitlement to relief’. The use of the ‘serious question to be tried’ formulation stems from a passage in
American Cyanamid Co v Ethicon Ltd [1975] AC 396, at 407: [1975] 1 All ER 504, at 510, where Lord
Diplock said:

The use of such expressions as ‘a probability’, ‘a prima facie case’, or ‘a strong prima facie case’ in the
context of the exercise of a discretionary power to grant an interlocutory injunction leads to confusion
as to the object sought to be achieved by this form of temporary relief. The court no doubt must be
satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be
tried.

Balance of Convenience Requirement

The court must weigh up the comparative injury that will arise from granting or withholding an
injunction pending trial of the action, seeking out the major risk of damage and, in particular, of any
irreparable damage. In Cayne v Global Natural Resources plc [1984] 1 All ER 225, at 237, this aspect was
referred to as ‘the balance of the risk of doing an injustice’. In assessing the risk of damage, it does not
matter that, at the stage of the interlocutory application, the plaintiff has suffered no damage, provided
that actual damage will reasonably result if the interlocutory injunction is not granted: Swimsure
(Laboratories) Pty Ltd v McDonald [1979] 2 NSWLR 796.

Example

In Hermescec v Carcagni [2008] NSWSC 183, Hermescec purchased an Italian restaurant in Newcastle –
the Benevenuti - from Carcagni. Soon thereafter, Carcagni opened up a competing Italian restaurant –
the Grifone - a short distance away from the Benevenuti. Hermescec claimed that this constituted a
breach of a covenant in restraint of trade that was agreed to when Carcagni sold his restaurant. He
initiated proceedings for an injunction to enforce the restraint. Even though Hermescec established that
he had a strong case against Carcagni, the application for an interlocutory injunction failed on the
grounds of the balance of convenience. On this issue, Barrett J, at [21]-[23], said

If an interlocutory injunction is granted, Grifone would have to close down pending the court’s final
decision on the entitlement of [Hermescec] to relief by way of permanent injunction or damages or
both. That would be a drastic result. If Grifone were able to stay open with an injunction in place, it
could only be on the basis that the company of which [Carcagni] is sole shareholder and director was no
longer the operator and [Carcagni] himself was no longer the manager. On [Carcagni’s] evidence, such a
situation would be impossible to achieve in any real sense, given that Grifone is in substance a one-man
business operated by [Carcagni], albeit with the assistance of employees. The practical result of an
interlocutory injunction would be suspension of [Carcagni’s] Grifone business … [T]his is a case in which
any injunction pending trial would produce the very result to be put in issue at a final hearing. Such an
interlocutory injunction would affect rights in a permanent fashion on evidence which may be
supplemented and may be found to bear some different complexion at the trial. At this stage, therefore,
‘the balance of the risk of doing injustice’ favours [Carcagni], even though the prospects that he will in
due course be subjected to a permanent injunction and also be ordered to pay damages and costs
appear, at least at this stage, to be strong.

Interlocutory mandatory injunctions

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Gummow J in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988)
82 ALR 499, at 502-503: 

[M]andatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage
[because]: they usually go further than the preservation of the status quo by requiring a party to take
some new positive step or undo what he has done in the past; an order requiring a party to take positive
steps usually causes more waste of time and money if it turns out to have been wrongly granted than an
order which merely causes delay by restraining him from doing something which it appears at the trial
he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in
the writ and makes it unlikely that there will be a trial … An order requiring someone to do something is
usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring
him temporarily to refrain from action. The court is therefore more reluctant to make such an order
against a party who has not had the protection of a full hearing at trial.

For some time it was said that a plaintiff seeking an interlocutory mandatory injunction would need to
show that there was a ‘high degree of assurance’ that he or she would succeed at trial: Shepherd Homes
Ltd v Sandham [1971] Ch 340, at 351; [1970] 3 All ER 402, at 412. However, this test has now been
rejected: Tymbook Pty Ltd v State of Victoria [2006] VSCA 89

Burke v Frasers Lorne Pty Ltd [2008] NSWSC 988, at [4], Brereton J said that ‘the same considerations
apply to an interlocutory mandatory injunction as to any other interlocutory injunction, although the
mandatory nature of the relief sought, and the potential consequences if it later be undone, is often
telling on [the issue of] the balance of convenience’.

Interlocutory injunctions in the context of defamation

ABC v O’Neill, at CLR 68-9; ALR 466-7, after referring to the basic principles governing the granting of
interlocutory injunctions, Gleeson CJ and Crennan J said:

 In the context of a defamation case, the application of those organising principles will require particular
attention to the considerations which courts have identified as dictating caution. Foremost among those
considerations is the public interest in free speech. A further consideration is that, in the defamation
context, the outcome of a trial is especially likely to turn upon issues that are, by hypothesis, unresolved.
Where one such issue is justification, it is commonly an issue for jury decision. In addition, the plaintiff’s
general character may be found to be such that, even if the publication is defamatory, only nominal
damages will be awarded.

Undertaking as to damages
A usual condition of granting an interlocutory injunction is that the plaintiff must give an undertaking as
to damages. The undertaking operates as a protection to the defendant should the court later rule that
the interlocutory injunction should not have been granted. The undertaking binds the plaintiff to
compensate the defendant for any damage suffered by the defendant on account of the granting of the
interlocutory injunction. If the plaintiff refuses to give the undertaking, the interlocutory injunction will
be refused: First Netcom Pty Ltd v Telstra Corporation Ltd (2000) 101 FCR 77

Thus, in Cambridge Credit Corporation Ltd v Surfers’ Paradise Forests Ltd [1977] Qd R 261, an
undertaking given by an insolvent company that was in receivership was taken to be worthless and
interlocutory relief was denied. However, the interlocutory injunction will be granted if a satisfactory
third person provides the undertaking. It may be the case that the defendant or third party may also

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have to provide adequate security so as to ensure that the undertaking is not rendered worthless or less
valuable by subsequent events leading up to the final hearing of the matter.

Quia Timet Injunctions

Generally, injunctive relief relates to some infringement or alleged infringement of the plaintiff’s rights.
However, inunctions can be granted in relation to circumstances where there has not yet been an
infringement of rights. Injunctions granted on the basis that there is a threat that the plaintiff’s rights
will be infringed are known as quia timet injunctions. The expression ‘qui timet’ means ‘since he fears’.
The essential purpose of a quia timet injunction is to prevent a wrong being committed: Proctor v
Bayley (1889) 42 Ch D 390, at 398. Traditionally the quia timet injunction was only available in relation
to equitable rights, but is now seemingly available in respect of all matters by virtue of the injunction
provisions of legislation implementing the judicature system

In Redland Bricks v Morris, at AC 665; All ER 579, Lord Upjohn observed that a quia timet injunction
arises in the following two types of case: (i) where, as yet, no harm to the defendant has occurred but it
is threatened or intended, and (ii) where harm has been done by the earlier actions of the defendant,
and the plaintiff has been compensated, but the plaintiff fears that future wrongs may be committed by
the defendant

In assessing whether to grant a quia timet injunction the courts have framed the test for the likelihood
of an infringement of the plaintiff’s rights with expressions such as ‘reasonably certain’ in FCA Finance
Pty Ltd v Moreton Central Sugar Mill Co Ltd [1975] Qd R 250, at 253, and ‘very strong probability’ in
Redland Bricks v Morris, at AC 665; All ER 579. As to the necessary loss or damage that is threatened, it
has been said by the courts that it must be ‘grave damage’ in Thynne v Petrie [1975] Qd R 260, at 262,
‘substantial’ in FCA Finance v Moreton Central Sugar Mill, at 253, and ‘very substantial’ in Hooper v
Rogers [1975] Ch 43, at 50; [1974] 3 All ER 417, at 421

Injunctions to Enforce Negative Stipulations

Generally, the equitable enforcement of contractual rights is by means of an order for specific
performance which requires the defendant to carry out his or her contractual obligation. This is the
order that is usually sought in relation to positive contractual obligations. However, where there is a
negative contractual obligation, the injunction is the usual equitable relief that is sought. A negative
contractual obligation is one where inactivity on the part of the promisor is the essence of the
obligation. Negative contractual obligations can be express or implied. The classical illustration of an
enforceable negative contractual obligation is a reasonable restraint of trade.

An important illustration of injunctive relief being sought to enforce negative contractual obligations is
with restraints of trade in the context of personal service contracts. The typical example of such cases
occurs when X, a person with particular skills and talents, promises to provide those skills and talents for
the benefit of Y (the positive contractual obligation), but also promises not to provide those skills and
talents for the benefit of anybody else (the negative contractual obligation). If X attempts to breach the
negative contractual obligation, Y will seek to enforce it by obtaining injunctive relief to prevent X
performing those services for some other person. The usual reason that X wants to breach the negative
contractual obligation is that he or she no longer wants to perform the positive contractual obligation
and wants to offer his or her skills and talents to Z. Y’s motivation for seeking the injunction is that, if X is
prevented from offering his or her skills and talents to Z, X will decide to perform his or her positive
contractual obligation. Y will rarely seek to obtain an order against X for specific performance of the
positive contractual obligation because it will, in most cases, be refused on the basis that contracts for
personal services are rarely specifically enforced

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Lumley v Wagner (1852) 42 ER 687. The background to this seminal case was a cut-throat battle
between the managers of two London opera houses for the services of Johanna Wagner, a famous
opera singer. Lumley, the manager of the established Her Majesty’s theatre, was first to contract
Wagner for a three-months’ season in 1852. Significantly, Wagner was held to have also promised that
during that period she was ‘not to use her talents at any other theatre, nor in any concert or reunion,
public or private, without the consent of Mr Lumley’. Before her contract with Lumley started, Gye, the
manager of the recently established Covent Garden opera theatre, negotiated a contract with Wagner
for the opera singer to perform at Covent Garden. Performance by Wagner of her contract with Gye
would have meant breaching the negative contractual obligation in her contract with Lumley. Lumley
sought, and obtained, an injunction to prevent her from doing so. Lord St Leonards, at 693, observed
that the effect of the injunction was only to prevent Wagner from appearing at Covent Garden and that
it did not require her to fulfil her obligation to Lumley at Her Majesty’s theatre, something which his
Lordship said he could not directly enforce, although he conceded that the injunction could well tempt
Wagner to perform her contract at Her Majesty’s theatre.

Warner Bros Pictures Inc v Nelson [1937] 1 KB 209, - Warner Bros movie studio obtained an injunction
against Bette Davis, precluding the legendary movie star from starring in movies produced by other
movie studios for a period of three years. Branson J, at 219-20, conceded that Davis could well be
tempted to continue to make movies with Warner Bros, but ruled that this was no grounds for refusing
the injunction. A crucial factor in his Honour’s decision was the fact that Davis was an intelligent and
capable woman who could readily obtain alternative employment if she resolved not to work for Warner
Bros. The fact that this alternative employment would be less financially rewarding than acting was not
relevant.

In Page One Records Ltd v Britton [1967] 3 All ER 822, members of the pop group ‘The Troggs’ entered
into a management and agency agreement with Page One Records for a term of five years and promised
not to engage anyone else to be their manager and agent. The Troggs sought to engage another
manager and agent. Page One Records sought an injunction to prevent them from doing so. In refusing
the application, Stamp J, at 827, after referring to Warner Bros v Nelson, said:

[W]here a contract for personal service contains negative covenants, the enforcement of which will
amount either to a decree of specific performance of the positive covenants of the contract or to the
giving of a decree under which the defendant must either remain idle or perform those positive
covenants, the court will not enforce those negative covenants.

Stamp J doubted that The Troggs could continue to function without the services of a manager and
agent or seek other employment, and that they would need a manager and agent to function
successfully as a pop group. According to Stamp J, at 827, this was so because:

 The Troggs are simple persons, of no business experience, and could not survive without the services of
a manager … I entertain no doubt that they would be compelled, if the injunction were granted, … to
continue to employ [Page One Records] as their manager and agent … [I]t would be a bad thing to put
pressure on the Troggs to continue to employ as a manager and agent one, who, unlike the plaintiff in
those cases [such as Lumley v Wagner and Warner Bros v Nelson] who had merely to pay the defendant
money, has duties of a personal and fiduciary nature to perform and in whom the Troggs, for reasons
good, bad or indifferent, have lost confidence and who may, for all I know, fail in its duty to them.

Injunctions to enforce statutory rights

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Where there has been a breach of statute, there are a number of possibilities in so far as obtaining an
injunction is concerned. First, the legislation may expressly or impliedly exclude any remedy other than
those which it expressly provides for, thereby excluding the remedy of an injunction: Ramsay v
Aberfoyle Manufacturing Company (Australia) Pty Ltd (1935) 54 CLR 230, at 239-40, 255-6.

A second possibility is that the statute directly confers upon a person or category of persons the right of
enforcement. This often occurs in the context of local government legislation. Thus, in Cooney v Ku-ring-
gai Municipal Council, the local council was authorised by s 587 of the then Local Government Act in
New South Wales to seek injunctive relief to restrain the defendant from using premises for the
purposes of a trade or business contrary to the provisions of a residential proclamation

The third possibility is that, if no private right is infringed by a breach of statute, a person will be able to
seek injunctive relief if he or she can bring themselves within the principles of Boyce v Paddington
Borough Council [1903] 1 Ch 109

In exercising its discretion to grant relief, a court will grant an injunction only if the breach of statute also
amounts to an infringement of public rights: Ramsay v Aberfoyle Manufacturing Company (Australia), at
239. Repeated infringements of the statute may constitute an infringement of public rights. In Gouriet v
Union of Post Office Workers , at AC 481; All ER at 83, Lord Wilberforce stated that the granting of relief
in such cases was ‘an exceptional power confined … to cases where an offence is frequently repeated in
disregard of a, usually, inadequate penalty or to cases of emergency’. In Newport Borough Council v
Khan [1990] 1 WLR 1185, at 1193, Beldam LJ observed that the discretion to grant the injunction is not
based upon the defendant’s deliberate and flagrant flouting of the law. Rather, the court needs to draw
the inference that the defendant’s unlawful acts will continue unless and until effectively restrained by
the law and that nothing short of an injunction will suffice to so restrain the defendant

Mareva orders
In Fourie v Le Roux [2007] 1 All ER 1087, at 1090, Lord Bingham of Cornhill described the purpose of
Mareva orders as follows: 

Mareva (or freezing) injunctions were from the beginning, and continue to be, granted for an important
but limited purpose: to prevent a defendant dissipating his assets with the intention or effect of
frustrating enforcement of a prospective judgment. They are not a proprietary remedy. They are not
granted to give a claimant advance security for his claim, although they may have that effect. They are
not an end in themselves. They are a supplementary remedy, granted to protect the efficacy of court
proceedings, domestic or foreign.

The Mareva order was initially known as a Mareva injunction. However, in Cardile v LED Builders Pty Ltd
(1999) 198 CLR 380, at 395-6, 401; 162 ALR 294, at 304, 308, Gaudron, McHugh, Gummow and Callinan
JJ pointed out that the word ‘injunction’ was inappropriate and should be replaced with the word ‘order’
on the basis that the doctrinal basis of an injunction differs from that of the Mareva order. The
difference stems from the fact that an injunction protects a claimant’s legal or equitable rights whereas
the purpose of a Mareva order is to prevent the frustration of the court process: RFD Ltd v Harris [2008]
WASCA 87, at [37]. In Cardile v LED Builders, at CLR 412; ALR 318, Kirby J preferred the term ‘asset
preservation order’. In England a Mareva order is generally now referred to as a ‘freezing order’

Jurisdiction
The most controversial issue surrounding the Mareva order when it first appeared was the question of
the jurisdiction of the court to make such an order. The Mareva order’s effect was to prevent an alleged

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debtor from freely dealing with his or her assets. However, established authority had long ago declared
that a person ‘cannot get an injunction to restrain a man who is alleged to be a debtor from parting with
his property’: Lister v Stubbs (1890) 45 Ch D 1, at 14. Initially the English courts asserted that the then
successor provision to s 25(8) of the Judicature Act 1873 granted them jurisdiction to make Mareva
orders. Section 25(8) and its equivalent provisions in Australian jurisdictions enable the court to grant
interlocutory injunctions in any cases where it is just and convenient to do so

Supreme Court Act 1970 (NSW) s 66

3 Requirements for obtaining a Mareva Order
In Glenwood Management Group Pty Ltd v Mayo (1991) 2 VR 49, at 49-54, Young CJ indicated that
there are three basic requirements to be satisfied before a court will grant a Mareva order. They are: (i)
that the plaintiff a good arguable case; (ii) that there is a risk of dissipation or secretion of assets so as to
render any judgment which the plaintiff may obtain nugatory; and (iii) that the balance of convenience
favours the grant of a Mareva order. His Honour, at 54-5, also observed that ‘the three elements overlap
and that the granting of a Mareva [order] is always a matter of discretion’. For example, ‘as the strength
of the arguable case diminishes so the balance of convenience moves in favour of the defendants and
vice versa’.

A risk of dissipation of assets

The risk that the defendant will dissipate assets before judgment refers to the underlying basis of the
Mareva order and has been described as ‘the heart and core’ of the Mareva order: Barclay-Johnson v
Yuill [1980] 3 All ER 190, at 194. There must be a real danger that the defendant will default if judgment
is obtained against him or her

The plaintiff’s cause of action

A Mareva order can only be obtained if the plaintiff has a cause of action that is justiciable within the
jurisdiction. If the Mareva order is not ancillary to some such pre-existing cause of action it will not be
granted. In Siskina v Distos Compania Naviera SA [1979] AC 210, at 256; [1977] 3 All ER 803, at 824,
Lord Diplock said:

A right to obtain [a Mareva order] is not a cause of action. It cannot stand on its own. It is dependent
upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual
or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the
defendant is amenable to the jurisdiction of the court. The right to obtain [a Mareva order] is merely
ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo
pending the ascertainment by the court of the rights of the parties.

Balance of convenience
In exercising its discretion whether or not to grant a Mareva order the court weighs up the strength of
the plaintiff’s cause of action and the risk that the defendant will dissipate his or her assets against
various discretionary factors such as delay and whether there has been a full and frank disclosure by the
plaintiff. In Cardile v LED Builders, at CLR 380; ALR 311, the High Court said:

 Discretionary considerations generally also should carefully be weighed before an order is made. Has
the applicant proceeded diligently and expeditiously? Has a money judgment been recovered in the
proceedings? Are proceedings (for example civil conspiracy proceedings) available against the third
party? Why, if some proceedings are available, have they not been taken? Why, if proceedings are
available against the third party and have not been taken and the court is still minded to make a Mareva
order, should not the grant of the relief be conditioned upon an undertaking by the applicant to

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commence, and ensure so far as is possible the expedition of, such proceedings? It is difficult to conceive
of cases where such an undertaking would not be required. Questions of this kind may be just as
relevant to the decision to grant Mareva relief as they are to a decision to dissolve it. These are matters
to which courts should be alive.

Anton Piller Orders

The Anton Piller order derives its name from the case of Anton Piller KG v Manufacturing Processes Lt

An Anton Piller order is similar to a Mareva order in that it seeks to preserve property and prevent the
defendant frustrating the administration of justice. But, rather than ensuring that the judgment debt will
ultimately be met by the defendant, it aims to gather and protect crucial evidence to the plaintiff’s case,
which may be yet to commence. The Anton Piller order enables this by ordering the defendant to allow
the plaintiff access to the defendant’s premises so that the plaintiff may inspect, copy and collect
material which is necessary for it to successfully bring its case but which it fears will be destroyed: Long
v Specifier Publications Pty Ltd (1998) 44 NSWLR 545, at 547 d [1976] 1 Ch 55

Jurisdiction
In Simsek v Macphee (1982) 148 CLR 636, at 640-1; 40 ALR 61, at 65, Stephen J, in a single instance
decision in the High Court, stated that the power of the court to grant an Anton Piller order stemmed
form the court’s inherent jurisdiction. In other cases it has been said that the jurisdiction rests either on
the inherent jurisdiction of the court or the statutory conferral of powers to aid the operation of the
courts, such as s 23 of the Federal Court Act 1976 (Cth): Microsoft Corp v Goodview Electronics Pty Ltd
(1999) 46 IPR 159. In all Australian jurisdictions the court rules now explicitly confer power upon the
court to grant Anton Piller orders

Requirements for an Anton Piller Order

In Anton Piller KG v Manufacturing Processes Ltd, at Ch 62; All ER 784, Ormrod LJ set out the essential
elements of obtaining this ex parte relief as follows:

 First, there must be an extremely strong prima facie case. Secondly, the damage, potential or actual,
must be very serious for the applicant. Thirdly, there must be clear evidence that the defendants have in
their possession incriminating documents or things, and that there is a real possibility that they may
destroy such material before any application inter partes can be made

The ‘clear evidence’ of both possession and risk of destruction required under the third element is
certainly the greatest challenge to the plaintiff. Despite an early generosity in granting Anton Piller
orders by the courts, it is apparent that more is needed these days than a mere suspicion that the
defendant will shred the evidence. An Anton Piller order is not an investigatory order: Microsoft Corp v
Goodview Electronics Pty Ltd (1999) 46 IPR 159, at 164; Hytrac Conveyors v Conveyors International Ltd
[1982] 3 All ER 415, at 418

The rights of the defendant

A defendant who is confronted on his or her doorstep by a party of persons wishing to execute an Anton
Piller order faces a fairly onerous task in resisting them. Refusal to comply with the court’s order is, of
course, contempt and this will be found even when the defendant has refused to comply in order to
launch an ultimately ill-fated application to have the order dissolved. The order may be challenged on
the ground that any of the requirements the plaintiff was supposed to meet - including the manner of
the order’s execution - have not been properly addressed. Given the high importance which the court

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places upon a plaintiff in respect of meeting these requirements prior to an order being granted, it is
extremely unlikely that such an order will be set aside upon application by the defendant.

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SPECIFIC PERFORMANCE & MONETARY REMEDIES
In Wolseley Investments Pty Ltd v Gillespie [2007] NSWCA 358, at [33], Santow JA (Ipp and Tobias JJA
agreeing) said that ‘the trigger for the commencement of a specific performance suit will be some threat
of refusal, express or at least implied, or some actual refusal, on the part of a contracting party to
perform the contract in whole or part’. His Honour, at [19], also noted that, in cases of a threatened
breach of a contract, the threat does not need to be explicit, but there must be more than merely a
theoretical or remote possibility of a breach. However, in such cases, his Honour, at [47], also observed
that a court has ‘to consider the likelihood or degree of risk of non-performance before granting specific
performance. Also to be considered is the discretionary factor of hardship and balance of convenience’.

In personam
Like most equitable remedies specific performance is in personam in nature. This essentially means that
the remedy attaches to the person of the defendant rather than to his or her property (in rem). This has
the result that, provided the defendant is within the jurisdiction of the court, specific performance can
be ordered even though the property the subject of the contract may be outside the court’s jurisdiction.
Thus, in Richard West & Partners (Inverness) Ltd v Dick [1969] 2 Ch 424, an English court ordered
specific performance of a contract for the sale of land where the property was located beyond the
court’s jurisdiction in Scotland. Because of the in personam nature of specific performance, the sanction
for non-compliance with an order for specific performance focuses on the person and not on the
contract or property the subject of the contract. Thus, a defendant who fails to comply with the order
will be guilty of contempt of court with the ultimate consequence of being imprisoned for such
contempt

Binding contract not for valuable consideration

Need valuable consideration

Inadequacy of damages at common law

If a plaintiff can be adequately compensated by an award of damages at common law the court has no
jurisdiction to order specific performance. The adequacy or inadequacy of common law damages is
determined by reference to the date of the order for specific performance and not the date of the
contract: ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615, at 632

The question to be answered on the issue of the adequacy of damages is ‘whether relegating the
plaintiff to damages would leave it in as favourable a position in all respects as would exist if the
defendant’s obligation were specifically performed’: International Advisor Systems Pty Limited v XYYX
Pty Limited [2008] NSWSC 2, at [41]

Contracts for personalty

Contracts for land

Personal services contracts

Equity will not enforce a contract if to do so would result in compelling the defendant to maintain a
personal relationship with the plaintiff. The underlying rationale for this principle lies in human nature
and the undesirability of maintaining a personal relationship against the will of one of the parties to the
contract. As was observed by Fry LJ in De Francesco v Barnum (1890) 45 ChD 430, at 438, courts ‘are
bound to be jealous, lest they should turn contracts of service into contracts of slavery’

Constant court supervision

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Contracts in which the parties’ obligations are imprecisely defined will generally not be specifically
enforced. The rationale for this principle stems from the fact that that non-compliance with an order for
specific performance is punishable as a contempt of court. Given the quasi-criminal consequence of
contempt, it is entirely appropriate that the obligation to be specifically enforced be sufficiently certain
and precise so as to make the defendant’s duty, in complying with the order, clear. In Co-operative
Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, at 12–13; [1997] 3 All ER 297, at 1302–
3, Lord Hoffmann said:

It is the possibility of the court having to give an indefinite series of rulings to ensure the execution of
the order which has been regarded as undesirable. Why should this be so? A principal reason is that …
the only means available to the court to enforce its order is the quasi-criminal procedure of punishment
for contempt … The prospect of committal or even a fine, with the damage to commercial reputation
which will be caused by a finding of contempt of court, is likely to have at least two undesirable
consequences. First, the defendant … has to make decisions under a sword of Damocles … Secondly, the
seriousness of a finding of contempt for the defendant means that any application to enforce the order
is likely … to be expensive in terms of cost to the parties and the resources of the judicial system.

Hardship
An order for specific performance will be refused if it would result in unconscionable hardship upon the
defendant. It is not any hardship to the defendant that will suffice. As was made clear in Dowsett v Reid
(1912) 15 CLR 695, the court must balance the potential hardship to the defendant that would result if
specific performance were granted with the potential hardship to the plaintiff if specific performance
were refused. If the two cancel each other out, specific performance will be ordered despite the
hardship to the defendant.

Vitiating factors
Equitable relief will be refused if the contract is affected by vitiating factors due to the defendant’s
conduct or actions. Thus, contracts induced by a defendant’s misrepresentation, mistake, duress, undue
influence

Unconscionability
Lack of mutuality
Specific performance is not available to a plaintiff unless the defendant could also have obtained relief
against the plaintiff. This principle of mutuality cannot be raised by a defendant if the reason that the
defendant could not get equitable relief against the plaintiff is to be found in the defendant’s own
conduct or default. Thus, if the defendant cannot get equitable relief because of some
misrepresentation, unconscionable conduct, undue influence, laches and the like on his or her part, the
plaintiff will not be denied relief on lack of mutuality grounds. The classic example of a lack of mutuality
is a contract with a minor. The minor will be unable to receive an order for specific performance against
the other party as that person will be unable to insist upon his or her rights against the minor. Thus,
there is a lack of mutuality, which impairs the minor’s own ability to seek the equitable remedy: Boyd v
Ryan (1947) 48 SR (NSW) 163

The critical aspect of the mutuality principle is the question of when mutuality must be present. In Price
v Strange [1978] Ch 337; [1977] 3 All ER 371, it was held that the critical time for mutuality to be
present is the date on which the court is to make the order for specific performance. The fact that
mutuality may not have existed at an earlier time is irrelevant. In Price v Strange, mutuality was not
present at the time of the breach of contract because the plaintiff’s obligation to repair and renovate an

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aparatment would have required the constant supervision of the court, thus precluding the defendant
from obtaining specific performance

However, by the time of the hearing, the repairs and renovations had been completed, and thus there
was no reason why the defendant would not have been able to obtain specific performance against the
plaintiff. Thus, mutuality was present at the date of hearing and the plaintiff obtained his order for
specific performance.

Price v Strange:

FACTS: Strange leased a flat to Price. Term of the lease was that Price would do certain repairs. Price did
internal repairs and was willing and able to do external repairs but Strange didn’t want Price in the flat
so she repudiated the contract and did the repairs herself

ISSUE: Price sought specific performance but Strange argued lack of mutuality because if SP cannot be
obtained if it requires the court to supervise.

HELD: Strange’s argument was unsuccessful because she had already performed the external repairs.
Price was entitled to SP of lease agreement.

Plaintiff in substantial breach and/or not able to perform

A plaintiff will be denied equitable relief if he or she is in substantial breach of the contract. A substantial
breach means a breach that would enable the other party to terminate the contract for that breach.
Other breaches do not disqualify a plaintiff from obtaining relief in equity. In Green v Sommerville
(1979) 141 CLR 594, at 610; 27 ALR 351, at 363, Mason J said:

It is well settled that a plaintiff in a suit for specific performance is not required to show that he has
strictly complied with all of his obligations under the contract; it is enough that he has performed and is
ready and willing to perform the substance of the contract.

Contracts unenforceable at law and Part performance

The relief given is such cases was described by Young CJ in Eq in Ciavarella v Polimeni [2008] NSWSC
234, at [119], as follows:

[I]f it would be fraudulent in the eyes of equity for the opposing party to rely on the statute, equity will
order that that party execute a note or memorandum of the contract and will then proceed to grant
specific performance. The plaintiff is not given relief because of the contract, rather the conduct of the
parties subsequent to the contract raises an equity.

Equitable compensation and damages

There are two possible bases for an order for the payment of money to an aggrieved party at equity. The
first arises from the inherent jurisdiction of equity to make orders for monetary compensation as an
appropriate means to remedy a purely equitable wrong such as breach of fiduciary duty. This is known
as ‘equitable compensation’. The second is the ability conferred by statute for an order of damages to
be substituted for, or added to, specific performance or injunction where those remedies have been
sought in respect of contracts, torts or any wrongful act. Thus, in certain situations, equity has the
power to provide for a remedy of damages in respect of a common law wrong. This is referred to as
‘equitable damages’.

Equitable compensation

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Although equity courts never ordered damages as a remedy for the infringement of equitable
obligations, they did provide for monetary forms of relief. In Ex parte Adamson (1878) 8 Ch D 807, at
819, James and Baggallay LJJ noted that relief in such cases was by way of ‘a suit … for equitable debt or
liability in the nature of a debt. It was a suit for the restitution of the actual money or thing, or value of
the thing, of which the cheated party had been cheated’. Equitable compensation orders were originally
restricted to cases involving breaches of fiduciary obligations. Thus, in Re Dawson (dec’d) [1966] 2
NSWR 211, a trustee who had improperly dealt with trust funds was ordered to pay equitable
compensation to the trust to restore the trust to the position it would have been in had there been no
default on his part.

The modern authority for the availability of equitable compensation is Nocton v Lord Ashburton [1914]
AC 932 in which Ashburton sought to recover compensation from his solicitor Nocton for advice that
had resulted in a loss for him, but an advantage for the solicitor. Ashburton’s claim for common law
damages in the tort of deceit failed, but the House of Lords was prepared to award monetary
compensation on the basis of Nocton’s breach of fiduciary obligations. Viscount Haldane LC, at 952,
affirmed the longstanding ability of the equity courts to order monetary compensation, and said:

Operating in personam as a Court of conscience it could order the defendant, not, indeed, in those days,
to pay damages as such, but to make restitution, or to compensate the plaintiff by putting him in as
good a position pecuniarily as that in which he was before the injury.

The nature of equitable compensation

In achieving its goal of restoring the position of the plaintiff to the position that he or she was in before
the breach of equitable obligation occurred, equity’s approach to compensation, like all other equitable
remedies, is conditioned by its ‘flexible character’: Cole v Manning [2002] NSWCA 150, at [63]. The
appropriate date for the assessment of equitable compensation is the date on which the court makes
the order for compensation and the quantum of compensation should reflect the amount that is
necessary to put the plaintiff back into the position in which he or she would have been had there been
no breach of equitable obligation: McNally v Harris (No 3) [2008] NSWSC 861, at [12]-[17].

The relationship to the common law conception of damages

An important question in relation to equitable compensation is the extent to which equity’s purpose of
restoring a plaintiff to his or her original position differs from that of common law damages. Common
law damages are also focused upon returning the plaintiff to the position he or she would have been in
had the wrong not occurred: Wenham v Ella (1972) 127 CLR 454. Although both common law and equity
share the aim of providing monetary compensation to a plaintiff, there are significant differences
between them in relation to the principles to be applied in assessing the quantum of monetary relief.
The most important of these differences is that the liability under equity for breach of trust or fiduciary
duty is more absolute than liability that arises under the common law of contract or tort.

Causation
In Maguire v Makaronis (1997) 188 CLR 449, at 473; 144 ALR 729, at 744, Brennan CJ, Gaudron,
McHugh and Gummow JJ observed that, in equitable compensation cases, a common sense view of
causation required that there be ‘an adequate or sufficient connection between the equitable
compensation claimed and the breach of [equitable obligation]’.

A consequence of this approach is that a defendant in equity cannot resist a finding of adequate
causation by arguing that there was a break in the causal connection between breach of loss suffered by

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reason of some intervening act (novus actus interveniens). Equity is not readily susceptible to such
speculation about other possible causes for loss when there is a clearly identifiable breach present

Plaintiff’s contribution to loss

In New Zealand and Canada courts have held that a plaintiff’s claim for equitable compensation may be
successfully defended on the basis that his or her contribution to the loss may be a complete or partial
defence to liability on the part of the defendant: Day v Mead [1987] 2 NZLR 443, at 451; Canson
Enterprises Ltd v Boughton & Co [1991] 3 SCR 534, at 585; (1991) DLR (4th) 129, at 151.

In Australia, however, this approach has been rejected by the High Court in Pilmer v Duke Group
Limited (in liq) (2001) 207 CLR 165; 180 ALR 249. In this case, the facts concerned the takeover by Kia
Ora Gold Corp Ltd of Western United Ltd, a company in which many of Kia Ora’s directors held an
interest. Under such circumstances, law required the preparation of a report by ‘independent qualified
persons’ for the information of shareholders whose approval was ultimately required at a general
meeting. The firm of chartered accountants engaged by Kia Ora had, in fact, a long history of dealing
with both that company and Western United Ltd. The report asserted that the price to be paid for the
shares in Western United was fair and reasonable. In reality this was not the case with Kia Ora paying
out around $26m for $6m worth of shareholdings and thus enabling huge personal profits to be made
by the Kia Ora directors who held shares in Western United. Kia Ora subsequently brought an action
against the partners of the accountancy firm seeking to recover for its loss.

The Full Court of the Supreme Court of South Australia in Duke Group Limited (in liq) v Pilmer (1999) 73
SASR 64 found the accountants to be in breach of the contractual, tortious, and fiduciary duties which
they owed to the company. Ultimately, the court measured the damages payable by the defendants
using the principles relevant to breach of contractual duty, since these resulted in the higher figure.

However, although thus not strictly necessary to decide, the Full Court considered the effect which a
plaintiff’s contribution to loss would have upon an assessment of equitable compensation for breach of
fiduciary duty. In this respect, the Full Court, at 250, said that it would be:

… inherently unjust, and we would say, inequitable, to require a defendant, whose fiduciary breach
unlocked the door to the plaintiff acting in obvious disregard of its own interests, to bear sole
responsibility for the total loss thereby suffered by the plaintiff where the plaintiff’s own conduct has
made a material contribution to that loss.

The appeal to the High Court by the former partners of the accounting firm succeeded on the basis that
the calculation of damages to compensate for Kia Ora’s loss had been incorrect and also that no
fiduciary obligation had been breached. Although Kirby J disagreed on the latter score, the court was of
one mind in rejecting any place for reduction on the basis of the plaintiff’s conduct in the determination
of equitable compensation. The reasons included an appreciation of the essence of the fiduciary
relationship in which the beneficiary has no obligation to protect himself or herself against the fiduciary
and the nature of contributory negligence in tort law. McHugh, Gummow, Hayne and Callinan JJ, at CLR
201–2; ALR 274, said:

Contributory negligence focuses on the conduct of the plaintiff, fiduciary law upon the obligation by the
defendant to act in the interests of the plaintiff. Moreover, any question of apportionment with respect
to contributory negligence arises from legislation, not the common law. Astley indicates that the
particular apportionment legislation of South Australia which was there in question did not touch

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contractual liability. The reasoning in Astley would suggest, a fortiori, that such legislation did not touch
the fiduciary relationship.

Other factors
Mitigation

Exemplary damages - Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298

Aggravated damages - Giller v Procopets [2008] VSCA 236

Equitable Damages

Chancery Amendment Act 1858 (UK), more popularly known as Lord Cairns’ Act

s 68 of the Supreme Court Act 1970 (NSW) which states:

Where the Court has power:

(a) to grant an injunction against the breach of any covenant, contract or agreement, or against the
commission or continuance of any wrongful act, or

(b) to order the specific performance of any covenant, contract or agreement,

the Court may award damages to the party injured either in addition to or in substitution for the
injunction or specific performance.

Lord Cairns Act damages

In Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, at 676; 42 ALR 69, at 72, Gibbs CJ,
Mason, Murphy and Brennan JJ referred to the purpose of Lord Cairns’ Act in the following terms:

The main object of the Act was to enable the Court of Chancery to do ‘complete justice’ between the
parties by awarding damages in those cases in which it formerly refused equitable relief in respect of a
legal right and left the plaintiff to sue for damages at common law.

Jurisdiction to award equitable damages

Before equitable damages can be awarded, the court must have the jurisdiction to order a decree of
specific performance or an injunction. Thus, if such equitable relief is refused on the basis that damages
at common law are adequate, the court has no jurisdiction to award equitable damages.

Equitable damages in addition to specific relief

The provisions of Lord Cairns’ Act clearly envisage the making of an order for damages in addition to
specific performance or injunctive relief. This is especially useful in enabling the court to address the
issue of any losses caused to the plaintiff by the defendant’s breach that are not properly addressed by
an order for equitable relief.

Equitable damages in lieu of specific relief

the fact that specific relief is denied on discretionary grounds does not preclude the court from ordering
equitable damages.

where specific relief once ordered becomes impossible to carry out due to intervening circumstances, a
court will readily make an order for equitable damages in lieu of specific relief.

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INTRODUCTION TO TRUSTS
Defintion

A trust exists when the titleholder of property is obliged to deal with that property for the benefit of
another person

Elements
[Link] trustee — a legal person who holds a vested legal title (or a vested equitable title) in the property,
subject to fiduciary duties;

[Link] property — property in real or personal form which is identified or ascertainable and capable of
being held on trust. The trust property can be legal or equitable property; and

[Link] beneficiary (sometimes referred to as the cestui que trust in older cases, or the object of the trust
in modern cases) — a person, or group of persons, who hold a beneficial equitable estate in the
property and on whose behalf the trustee must act.

Definitions
It should be noted that the person who creates the trust during their lifetime is usually referred to as a
settlor. Such a trust is often described as an inter vivos trust or a settlement. When the trust has been
created in a will, the creator is the author of the will, namely the testator (if male), or testatrix
(if female). A trust created in a will is referred to as a post mortem trust. In this and following chapters,
the word creator will be used as a collective term to cover both settlors and testators/testatrixs.

Actors in the trust

[Link];

[Link]; and

[Link]

The three legal actors need not always be different legal persons. It is possible for a creator and a
trustee to be the same person, for example, when a trust is created by declaration of trust Similarly it is
possible for a creator to be a beneficiary, in cases where the creator instructs the trustee to hold the
property for his or her benefit.

A trustee might also be a beneficiary, but only in situations where the trustee is one of a number of
beneficiaries. It is impossible to be the sole trustee and sole beneficiary because once a person owns
complete legal and equitable estates they are said to merge together, leaving no distinction between
the legal and equitable estates

Merger of estate will come about when trustee and beneficiary are one person and the legal and
equitable estates are equal and co-extensive: Adamstoun Holdings v Brogue (2007).

The three species of trust

[Link] trusts;

[Link] (or sometimes referred to as implied) trusts; and

[Link] trusts.

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Express Trusts include family trusts, charitable trusts; fixed and discretionary trusts and commercial
trusts.

Express trusts are charcterised by the beneficiary’s entitlement.

A fixed trust is where a beneficiary has a set interest in trust property.

A discretionary trust arises when the trustee can control how much each beneficiary gets. Nature of
discretion can vary e.g. discretion relating to hwo much each member of a class gets or whether a
person should be a beneficiary or not. In situations where trustees can choose beneficiaries from
members of a class, the beneficiaries have a very weak interest called an expectancy. In these cases, the
trust can be called a power of appointment.

Bare Trusts occur when trustees hold property until it is demanded, without any further duty to
perform: Wade v Wade (2009). Some managerial duties have been imposed: Curomo Holdings v C Itoh
(1991). E.g. preserve trust property is okay for a bare trustee: Herdegan but carrying on a business goes
beyond bare trustee: Old Papa Franchis v Camisa Nominees (2003). Just because the trust can be
terminated by the rule in Saunders v Vautier (beneficiaries all of adult age and under no disability can
terminate a trust at will) does not mean it will be a bare trust, at least not until they exercise that power.

Bare trusts arise if:

1. Future property is validly assigned – the assignor becomes bare trustee.

2. A vendor of land upon receipt of sale price: Stern v McArthur (1988)

3. A person who holds legal title where purchase price has been given to a third person – resultng
bare trust.

The rights of beneficiaries are broad including transfer of property to self, demanding transfer to
another; dispose of the interes to other either by transfer or sub-trust; tracing. They may NOT assert
their interest against a third party purchaser for value without notice.

Charitable Trusts
Express trusts set up for a particular purpose.

Unit Trust
Punters pay in and the trust invests for them. Many different structures so no fixed normative meaning.

Resulting Trusts
Imposed where court determines a trust was intended but never properly constituted e.g. express trust
fails for want of proper disposition.

Trusts in Terms of Legal Relationships

Contracts and trusts
Gosper v Sawyer (1985) 160 CLR 548 at 568–9; 58 ALR 13 at 26, Mason and Deane JJ stated:

The origins and nature of contract and trust are, of course, quite different. There is however no
dichotomy between the two. The contractual relationship provides one of the most common bases for
the establishment or implication and for the definition of a trust.. Differences are contract obligations

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are contained in the contract while trusts are contained in conscience, trusts do not require
consideration. Also privity, beneficiaries not giving consideration can sue.

These two legal concepts meet occasionally. If A makes a contract with B for the benefit of C, C can sueB
if A refuses to do so IF agreement is found that contractual rights are to be held on trust for C: Fluor v
ASC Engineering (2007). To determine, examine the words of the agreement. Intention must be to
create a trust and not just benefit the third party: Dalton v Ellis (2005). If there is an intention to benefit
a third party and the trust is an effective mechanism, it can be implied: Re Emilco (2002). Parties need
not know that they are creating a trust, sufficient to intend to create a relationship that conforms to a
trust.

Fiduciary relationships and trusts

Trusts are a subset of fiduciary relationships and the duties owed by trustees to their beneficiaries are
fiduciary in character

Fiduciary duties and obligations of trust are not mutually exclusive. A person can owe separate and co-
existing fiduciary and trustee obligations: Chan v Zacharia (1984)

Deceased estates and trusts

Executors of deceased estates occupy a similar function to trustees. Executors, like trustees, are
fiduciaries: Johnson v Trotter (2006). However, an executor’s duties exist in relation to the proper
administration of the deceased’s estate – collect and distribute assets, pay debts: Williams v Williams
(2005). If executors complete their duties under the wil but still retain possession of property, they
become trustees: Pagels v McDonald (1936). NB Beneficiaries under a will gain no proprietary interest in
the estate until it is administered: Commissioner of Stamp Duties v Livingston (1956).

Bailments and trust

Bailments are based on contract. A bailment only confers a weak possessory title on the bailee. It does
not create a trust as the bailee does not take a vested title in the property and hold according to
conditions: David v Heuber (1923). Bailees are similar to Trustees in that they must care for the property
and not use it for their own purposes without permission: Hospital Products v USSC (1984).

Olma v Amendola (2004)

P gave D his compo money when D had offered to invest it for P. P argued money held on trust so
interest earned should be held on trust. D argued gratuitous bailment, thus not bound to pay interest. J
found trust and ordered repayment of interest.

Agency and trust

An agency exists where one person (the principal) authorises another person (the agent) to act as the
principal’s representative. The actions of an agent bind the principal. Like bailments, agency agreements
are based in contract.

Unlike fiduciaries, agents do not have title to the property and are subject to directions of the principal,
unlike a trustee: Re Brockbank; Ward v Bates [1948].

Agent and trustee can exist in the same relationship e.g. Solicitor Client or where agent pruchases
property in his own name on behalf of the principal: R v Hopkins (1915). Agent may be deemed a trustee
if they are bound to keep money in a separate account but if they are allowed to mingle it with their
own funds, it is likely to be treatd as a debt: Walker v Corboy (1990).

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Unsecured debts and trusts
Debtors are not normally trustees for their creditors because they do not hold identifiable funds. The
position of creditors is therefore very different from that of beneficiaries. Beneficiaries have equitable
interests in the property held by the trustee. Creditors do not have an interest in their creditor’s
property. A creditor only has access to common law remedies to pursue the debt – a chose in action.

Questions arise when funds from creditors are bound to be placed in a separate account – held on trust?
Cohen v Cohen (1929). Distinction is important if bankruptcy: Re Kayford Ltd (1975) as trust funds will
not form part of the assets. However, evidence may not support a trust: Walker v Corboy – lack of
separate accounts and absence of the use of the word trust.

An issue may arise where trust funds are inadequate to satisfy all the interests. Ordinarily distributed
proportionally in Pari Passu approach: Re Australian Home Finance (1956)

The institutions of debt and trust can co-exist in the one transaction if there is a common intention that
funds will be held for specific purposes in a separate account eg Quistclose

Loughran v Perpetual Trustee (2007)

Application to produce documents regarding an investment scheme. P argued scheme was a unit trust
but once units were allocated it would become a principle-agent relationship with delegated powers to
enter contracts, make claims and conduct legal proceedings. Turst funds were held in credit as agents.
Despite confusion about nomenclature in agreement, J found use of the word agent and the capacity as
agent was more appropriate.

However OT Computer v First National Tricity Finance (2003) there was a situation where there were
two account, one for customer deposits who had not received good and one set aside to pay urgent
suppliers. Pumfrey J found trusts needed certainty of words to demonstrate intention to create trust,
subject matter and objects and certainty of the clss of beneficiaries.

The first account was deposited into only sporadically and was short. Pumfrey J distributed the fund
parnu passi. Second account for urgent suppliers was to vague to satisfy the list certainty requirement.

Brazzil v Willoughby (2009)

KSF Bank got into trouble. UK regulator ordered it open a segregated account and credit it with deposits
made by customers on two days in 2008 to be held on trust. The order was not made public and
deposits continued. The deposits were credited into the account in an ad hoc fashion and were ordered
to be sifted to two new accounts just before the bank became insolvent.

Creditors argued that funds could not be a trust b/c beneficiaries were not certain at the time of
creation. Othre creditors argued there was a trust but beneficiaries should only be depositers whose
funds were actually deposited. Alternatively argued that beneficiaries should be all depositors who
made deposits after the order.

Held that trust was intended and intended beneficiaries were all depositors who deposited after the
order. The trust property was the amount deposited minus any withdrawals. Shortfall was divvied up
proportioanlly. Because of the ad hoc fashion in which funds were deposited, it is difficult to see how
there could have been certainty of intention. Perhaps solved by the presence of a statutory order.

Bankruptcy Act S122

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Trust can be set aside as a voidable preference if funds were business funds which ewre then declared
to be held on trust.

Quistclose Trusts
Occur when there is an understanding that funds will be used for a specific purpose and repaid if its
impossibe.

Barclays Bank v Quistclose Investments (1970)

RR Ltd borrowed cash from Quistclose on the understanding that it would be used to pay a dividend. RR
deposited the money in a specific account in Barclays who were informed the money was only to be
used to pay dividend. RR went into liquidation before dividend was paid. Barclays wanted to use the
money to pay off debts RR owed to it.

Wilberforce J found mutual intention between RR and Q that funds would not become part of RR’s
assets. Found a primary trust for the shareholders. When this failed due to insolvency, the loan became
a secondary trust for Q. Finally, Barclays had notice of intention and so was bound to respect.

Accepted into Australian law in Ausintel v Lam (1990). However, there is some reluctance to allow it to
be overused so there has been an attempt to limit QTs to situations where money is lent to discharge
debts of the borrower: Re Miles; Ex parte NAB v Official Receiver (1988). Authorities have a approved
QTs for subscription of shares or payment of creditors of the lender: Carreras Rothmans v Freman
Matthews Treasure (1985).

McManus RE v Ward (2009) – money in a mingled account will be harder to claim as a trust.

Securities and trusts

Debts will often be secured. This means that the debtor has agreed to give the creditor a proprietary
interest in one or more of his or her assets. Should the debtor not pay, the creditor can realise the
security by taking possession of the secured property or by ordering that it be sold and the proceeds be
used to satisfy the debt.

The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the
creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The
proceeds of sale can then be used to satisfy amounts due to the chargee: In re Bank of Credit and
Commerce International SA (No 8) [1998]

The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the
creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The
proceeds of sale can then be used to satisfy amounts due to the chargee.

If the transferor intends that the title be transferred, ‘subject to’ payments being made to another, then
it will be construed as a charge. For example, property might be given ‘to A subject to A paying B $1000’.
This transfer evidences an intention that the obligation to pay is annexed to property as opposed to
being a fiduciary obligation imposed on the transferee. The obligation is of a finite nature. It is satisfied
after compliance. As such it is not of the same extent and duration as the trustee’s fiduciary obligations
to care for the beneficiaries’ interest in a trust

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An equitable lien is a remedy used to protect a party against an inequitable loss: Re Stephenson
Nominees v Officil Receiver (1987). It arises automatically to secure the discharge of an actual or
potential indebtedness. It differs from a mortgage in that it does not confer property. It can be
precluded by express agreement

Liens differ from trusts in that they do not crystallise until an event, whereas trust property is always in
existence. Beneficiaries can access the several equitable remedies to enforce their interests while
holders of equitable charges can only sell the property: Associated Allys v ACN 001 452 106 (2000).
Equitable charges do not come with fiduciary obligations.

To differentiate trusts from securities over property, look to the intention of the transferror. If the
transferror intends the transfer will be “Subject To” payments to another, it will be a charge because it is
annexed to property, it is of a short duration and can discharged after compliance.

Conditional dispositions and trusts

Transfers of property, which are subject to obligations being fulfilled to third parties, will ordinarily be
viewed as equitable charges.

If a transferor of property indicates a motive, hope or expectation that the property will be used in a
particular way, the condition will be viewed as precatory and import no legal or equitable obligations.
For example, gifts made in the belief that ‘justice will be done to my relatives’ will impose a moral
obligation which has no force: In the Will of Warren; Verga v Taylor [1907] VLR 325

However, if the transfer is made subject to a binding condition precedent, the transfer will not take
place until the condition precedent is satisfied: Re Gardiner (dec’d) [1971] 2 NSWLR 494. If the condition
is a condition subsequent the property will be forfeited if the condition is not fulfilled: Dal Pont and
Chalmers (2004) at 434-5. If the disposition states that the obligation is to be fulfilled within a time
period it is viewed as a condition precedent: Re Gardiner (dec’d) [1971] 2 NSWLR 494 at 498, per
Helsham J.

It should be noted that courts are reluctant to interpret a condition that requires forfeiture and require
a high degree of certainty as to the transferor’s intention: Re Boning [1997]. This is so even though
words of condition are used: Re Gardiner (1971).

In cases where the conditional disposition is possibly a charge, condition precedent or condition
subsequent, courts prefer to view the disposition as imposing a charge. It has been said that a
conditional disposition will be treated as taking effect as a charge even where words of condition are
used: Re Gardiner (dec’d) [1971] 2 NSWLR 494.

Personal Equitable Obligations

Courts will sometimes interpret a conditional disposition as imposing a personal equitable obligation on
the donee e.g. paying an annuity to a third party: Rees v Engelbach (1871). It can be vage e.g. “take care
of” Re Moore (1886). Such an obligation does not create a property right in the third party and breach
will not give rise to forfeiture. However, the obligation is enforceable and may give rise to SP, injunctions
or equitable compo: Kauter v Kauter (2003).

Gill v Gill (1921)

Disposition of farm to son on condition that son pay testator’s debts and allow three sisters to live there
as long as they remain unmarried. Found not conditions subsequent nor a trust benefitting the sisters

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but there was an equitable obligation to find appropriate accomodation for his remaining unmarried
sister. Awarded damages for breach of quasi-contract.

Retention of title clauses and trusts

Romalpa’ clauses, are contractual clauses used in the sale of goods. They allow suppliers to retain title in
delivered goods until such time as full payment has been made: Aluminium Industrie Vaassen BV v
Romalpa Aluminium Ltd [1976] 2 All ER 552.

Romalpa clauses operate very much like a bailment and are therefore quite distinguishable from a trust
relationship: Dal Pont and Chalmers (2004) at 424. They mean the goods do no become part of the
assets in insolvency. However, where the goods have been mixed with other goods or used in a
manufacturing process or sold, Romalpa clauses can operate like a trust or a charge. E.g some clauses
require sale proceeds to be held in a separate account and failure to do so will leave the buyer to
account as a trustee: Puma v Sportsmen Australia (no 2) (1994). Defence of acqiuiesence is available:
Rondo Building v Casaron (2003).

In Associated Alloys Pty Limited v ACN 001 452 106 Pty Limited (in liq) (2000) Kirby J said they will not be
effective unless:

1. They are clearly accepted

2. The original goods can be identified, retreived intact

3. A separate financial account has been established to receive the proceeds of the sale of goods
possessed by one and owned by another.

Powers of appointment and trusts

In a power of appointment, the titleholder of property (the donor) gives another person (the donee) the
power to deal with, or dispose of, the property that is the subject of the power. Normally the power will
allow the donee to transfer the property to a third party who can be chosen from a class of people
specified in the power (the objects of the power). Unlike a trustee, the donee of a power is not usually
given the title to the property: Webb v McCraken (1906), nor is a donee subjected to fiduciary duties.

There are four types of power of appointment

[Link] powers, where the donee is empowered to appoint the property to anyone including himself
or herself;

[Link] powers, which are powers to appoint the property to specific individuals or classes of objects,
not including the donee;

[Link] powers, where the donee can give the property to anyone in the world except for a particular
group or class or individual; and

[Link] powers, where the donee can add to the specified class of objects in the power.

If the Donee is not obiged to exercise their powers, they have a mere or bare power. Mere powers
confer wide discretion, unlike those of a trustee. Similarly, there is no rule against using the power to
enrich themselves if the power is in the gift. This differs from trustee obligations not to better their own
position. Finally, unlike trustees, powers of appointment have no title or authority to deal with the
property.

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Why does the distinction between trust powers and mere powers matter? Both mere and trust powers
are required to describe their objects with sufficient certainty. It used to be the case that trust powers
and mere powers were subjected to different tests of certainty but no longer: McPhail v Dutton (1971)

However, if the power is obliged to exercise the power and it is either special or hybrid from, the power
is a trust power. This imposes fidiciary obligations and the donee cannot use the power for their own
benefit: Smith v Glegg (2005). Most importantly, the beneficiaries of trust power can compel proper
administration: Gartside v IRC (1968)

If the power states that if it is not used it will devolve to a specified person (A gift over in
contemplation), it will be treated as a mere power: Breadner v Granville-Crossman (2001).

Problem Question
Characterise the following dispositions contained in Jock’s will:

1.I give my Rolls Royce to Isaac, and on the condition that Isaac pays my debts to Christos.

Equitable Charge

2.I give my house in Brewarina to Pauline absolutely, with the hope that she shall allow my mother to
live there until she dies.

Absolute transfer

3.I give $25,000 to David, to be used for the costs of educating Millie and to be hers absolutely when she
attains 21 years.

Personal Equitable Obligation

4.I give the residue of my estate to Frances who may, at her absolute discretion, give such residue to
anyone she thinks fit, barring herself, Isaac, and Pauline. If Frances fails to dispose of the residue in her
lifetime, it shall become the property of Millie.

Hybrid bare power of appointment

FIDUCIARY DUTIES
No universal definition or test of fiduciary duties.

While a fiduciary relationship might exist, it does not cover all aspects of the relationship. E.g. Bell v WBC
(2009) per Owen J:

“the fact that it is categorised as fiduciary does not mean that all of the obligations arising from it
are themselves fiduciary. Unless there are some special circumstances in the relationship, the
duties that equity demands from the fiduciary will be limited to what I have described as the core
obligations: not to obtain any unauthorised benefit from the relationship and not to be in a
position of conflict.

Nature of Fiduciary Duties

Strict, not to act in any way other than in the interests of the principal, Undivided loyalty – Beach
Petroleum v Kennedy (1999).

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No intention to defraud is irrelevant: Nocton v Lord Ashburton (1919).

Loss to the principal is unneccessary: Birtchnell v Equity Trustees (1929)

Liability arises even where the principal is unable to profit from the opportunity exploited: Warman Int
v Dwyer (1995).

Liability even if consent would have been granted if principal had been informed: Murad v Al-Saraj
(2005).

Horizontal – parties owe duties to each other e.g. partnership.

Vertical – duty from one to another e.g. guardian and ward.

Prohibitive Duties
Fiduciary Duties are prohibitive in nature: Wilden v Green (2009). Positive duties are better regulated by
contract and tort – Pilmer v Duke Group (2001).

Exception is the positive duty to seek consent. However, characterised as peripheral to negative duty in
Fitzwood v Unique Goal (2001) – seeking consent as a means of release from a negative duty.

Bell Group v WBC (No 9) – Directors had authorised loans which were in the best interests of the
corporate group but not of some individual companies within that group. Owen J found fiduciary duties
even though to fulfill them would have required positive steps of investigation and consideration of the
interests of all companies in the group – level of unreality. Perhaps enough that duty can be framed as
negative.

Even so, concept of negative duties is firmly lodged in HC – Friend v Brooker (2009)

Unfying Princple: Loyalty, Trust, Confidence, Vulnerability, Undertaking

Breen v Williams per McHugh and Gaudron JJ:

'the existence of a relation of confidence; inequality of bargaining power; an undertaking by one

party to perform a task or fulfil a duty in the interests of another party; the scope for one party to
unilaterally exercise a discretion or power which may affect the rights or interests of another; and a
dependency or vulnerability on the part of one party that causes that party to rely on another'.

Trust and confidence is common but not necessary e.g. cases where principal has never met the trustee.

Vulnerability: Hospital Products v USSC (1984) per Mason J:

'The relationship between the parties is therefore one which gives the fiduciary a special opportunity to
exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to
abuse by the fiduciary of his position'

The Content of Fiduciary Obligations

Conflict between fiduciary's own pecuinary concerns and their mandatory or discretionary functions.

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Must give rise to a sensible, real or substantial possibility of conflict - Hospital Products. So an
anticpatory breach of conflict can be restrained - Re Thomson: Thomson v Allen (1930).

Three Broad Headings

1. Unauthorised Remuneration
Reading v R (1949). Reading was a sergeant in the army. He got bribes for contraband. Court ruled
fiduciary duty to the crown and ordered he repay the amount he received.

Tips are okay if small and made after service - The Parkdale. May not be if it can be shown they were
made to influence future dealings.

2. Assuming a double character

Fiduciary acts as a fiduciary and an undisclosed principal in the same transaction.

Armstrong v Jackson (1917) Stockbroker asked to buy shares for a client and sells his own shares to
them. A wholly false position because duty to buy shares for his client at the best possible price and act
for himself by selling at the height of the market. Court will set aside the transaction.

3. Benefits derived to the exclusion of the principal

Most common type of breach of fiduciary duty.

Chan v Zacharia (1984) - Fid obtains a benefit where 1. a conflict or a signifcant possibility of conflict
existed in the pursuit of the gain.

First step is to ascertain the scope of the fiduciary duty - Phips v Boardman (1967). Look at surrounding
relationship - News Ltd v ARFL (1996).

Clark Boyce v Muat (1994) - solicitors acted for both mother who mortgaged her property to help son
and the son. Sols told mum to seek independent advice but she never did. Sols disclosed potential
conflict several times. Found no breach because sol's undertaking extended only to legal advice, not
financial probity of the transaction.

There need only be a remote possibility of conflict: BlackMagic Design v Overliese (2011).

Once scope is established, only escape is full disclosure and permission.

Phipps v Boardman (1967) - Boardman (solicitor for trust) and Tom P (beneficiary) were unhappy with
the state of a company that the trust had substantial holdings in. B gained knowledge as beneficiary as
to viability of takeover. Advised trust of intention and there was no objection. Advised two of three
trustees, the third was senile. Takeover was successful and resulted in profits all round. However, one
beneficiary sued for profits personally gained by B and Tom P.

HOL by bare majority found breach of fid duty. Held info used by B was trust property and irrelevant
that Trust was not in a position to take advantage. There was at least a remote possibility of conflict and
needed informed consent of ALL trustees. However offset by Boardman's pay "on a liberal scale".

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2. benefit was obtained by use or reason of fiduciary position or by opportunity or kowledge resulting
from it.

Cook v Deeks (1916) - constuction company laid tracks for big railway. Two directors formed a new
company and gained contracts. Breach found.

Towers v Premier Waste (2011) - reaffirmed:

"If a director obtains the opportunity for himself, he will be liable to the company for breach of duty
regardless of the fact that he acted in good faith or that the company could not, or would not, take
advantage of the opportunity."

Regal (Hastings) v Gulliver (1967). Directors of Regal formed a subsidiary with the intention that regal
own all shares. Directors sought lease for subsidiary company but landlord not prepared to lease to
subsidiary without 5000 in the bank. Regal not in a position to top up bank account. Directors decided
Regal would chuck in 2000 and they would invest the balance themselves in exchange for shares.
Directors profited from shares. HOL Held directors liable even regardless of whether Regal could have
bought shares. Held liable SOLELY on the fact that Directos used knowledge gained in their fid position
to garner opportunity for themselves.

Conficts of Duty and Duty

Classic example, lawyers acting for two competing clients. Not a defence that breach caused by a
conflicting duty: Hilton v Barker Booth (2005).

However, advice to seek independent advice is a defence: Dominic v Riz (2009).

Director of two competing companies, there is a rule that they can stay in both jobs until real conflict
arises: London and Mashonoland Exploration v New Mashonaland Exploration (1891).

Western Areas Exploration v Streeter (No 3) (2009) "Real Conflict" = "Where the alleged breach of
fiduciary duty entails a director of a company diverting a commercial opportunity to some other vehicle,
or placing himself in a situation where there is a conflict between the performance of the director’s
duties to the primary company and the performance of his duties or the extent of its interest in some
other company or enterprise, a question arises as to whether or not the fiduciary is entitled to compete
for financial benefit with a company of which he is a director. For there to be a breach of the conflict of
duty or conflict of interest rules it is necessary for the given conflict to be ‘real and sensible’ and more
than purely hypothetical…"

PRESUMED RELATIOSHIPS
Rebuttable presumption if:

Trustee Beneficiary - quintessential

Director - Company - Consul Developments v DPC Estates even though irregularly appointed, if person
acts as a director e.g. investigating opportunities, they are a fiduciary.

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Duties are strict and only escape is informed consent of all interestholders: Regal v Gulliver.

Duties will continue for a reasonable time after cessation of employment: Sothern Real Estate v Dellow
and Arnold (2003).

Held that company only exists by legal fiction and not capable of acting except through it's directors.
Similar to a retarded child per Owen J in Bell Group v WBC (No 9).

Directors don't have a duty to disclose past wrongdoing in Aus: P&V Industries v Porto (2006).

Directors don't ordinrily owe fid duties to shareholders: Joinery Products v Imlach (2008). However may
do in special factual relationship: Peskin v Anderson (2011) e.g. where they are negotiating a takeover of
the company.

Also duty to inform shareholders so they can make decisions at AGMs: Chequepoint v CLaremont Petrol
(1986). Adequacy assessed in comparison to the complexity of the decision: ENT v Sunraysia TV (2007).

McClymont v Critchley [2011] rationale:

"“The general rule is that a director of a company owes a fiduciary duty to the company as a whole and
not to individual shareholders. The bare relationship between a director and shareholder cannot
without more give rise to a fiduciary relationship. However, in some circumstances a director of a
proprietary company may owe a fiduciary duty to a shareholder so long as it does not compete with the
director's duty to the company as a whole. This principle is sensitive to, and requires close examination
of the circumstances of the particular case. Circumstances which may point to the existence of a
fiduciary obligation include the shareholder's dependence upon information known to the director, the
existence of a relationship of confidence, reliance or trust; the vulnerability of the shareholder, the
significance of any positive action taken by or on behalf of the director to promote the transaction; the
structure of the shareholdings; and the significance of the particular transaction to the parties. This is
consistent with the seminal principle that ‘Rules of equity have to be applied to such a great diversity of
circumstances that they can be stated in only the most general terms and applied with particular
attention to the exact circumstances of each case’”

Some circumstances are: family owned company, small number of shareholders, reliance of
shareholders for director's advice.

NB No fid duty of directors to creditors: R v Spies (2000).

Lawyer - Client:
Client Hilton v Barker Booth (2005). Prevents dealings without informed consent and acting
for third parties without consent and where there is an actual conflict: Rigg v Sheridan (2008).

Does the duty survive the termination of the retainer: YES: Pacific Telecom v Optus (2005). Even if not,
breach will probably be caught by breach of confidentiality.

Breach can be anticipatory: Kriackou v CBA (2009) - injinction if reasonable anticipation of misuse of
confidential information.

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Agent - Principal e.g. real estate agents; power of attorney; commercial agency.

Duty to communicate information: Chen v Marcolongo (2009).

McKenzie v McDonald (1927) - REA advised woman to sell farm and buy his own property. Undervalued
woman's property and overvalued his own - BREACH!

Pedersen v Larcombe (2008) REA bought P's property himself. failed to find out market price objectively,
failed to advertise, failed to seek other buyers - BREACH!

However, if a principal appoints an agent they know is working for another principal, could be found
breach is of principal's own making: Beach Petrol v Abbott Tout (1999). But agent must still act in
principal's best intersts

If actual conflict arises, they should cease acting for one or both principals.

McCourt v Cranston (2009) REA acted for both vendor and purchaser. Found breach and agent to
indemnify purchaser for loss.

Partner-Partner
Bristol and West v Mothew one partner must serve other partners as honestly as if he had only one
partner. Breach need not be dishonest but it must be intentional.

Unconscious ommission favouring one principal over another may not breach fiduciary duty but may
breach duty of care and skill.

No inhibition principle - fiduciary must not be inhibited by the existence of his other employment from
serving the interests of his principal as faithfully and effectively as if he were the only employer.

Partnership exists when people work together to make a profit.

Where agency arises from a contract, fiduciary obligtions will be determined by the contract: Hosp
Products v USSC per Mason J.

John Alexander's Clubs v White City (2011) - terms of the contract are all important. If there is no
implied term of fiduciary obligation "It will be very difficult to superimpose the suggested fiduciary
obligation to that limited contract."

Formal partnership is not required for fiduciary duties: United Dominions v Brian (1985). Exists even
though partners my never reach agreement on consensul terms. All that is required is that partners have
embarked in the venture.

Partnership exists after a business has been determined: Chan v Zacharia, not open to one partner to
continue partnership's lease in his own name. Cf Friend v Brooker (2009) Partnership changed to a
corporate structure and partners became directors. Held that directors owed fid duties to the business
but not to each other.

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 Guardian-Ward
Guardian must provide independant legal advice: Bennett v Minister of Community Welfare (1992)
advice about lost fingers while in care.

Trevorrow v SA (No 5) - APB had to advise stolen generation that they had a case against them.

NB Guardians are not trustees of their wards' property Guardianship Tribunal v Perpetual Trustees
(2008).

Clay v Clay (2001) - Mother bought house of her late hubby. At time she was guardian of his children
and kids had equal beneficial share in the house. No breach b/c house bought at fair market value and
payment went into maintaining the kids. Also kids did not have an immediate beneficial interest at the
time the house was sold.

Guardianship cases often mean long delays -> Problems in evidence and laches: Salvation Army v
Rundle (2008).

In Australia, no breach of fid duty for sexual assault by a guardian. Better dealt with in Tort.

Fiduciary Duties outside Presumed Relationships

FD Based on facts. Come up in Commercial Relationships but courts reluctant to impose FD because of
public interest in certainty of transactions: Hospital Products.

However, there are exceptions: United Dominions v Brian. Joint venture to develop land owned by SPL.
JV financed by UDC along with a mortgage signed by SPL. Realised significant profits but no distribution
to Brian. UDC basis was that there was a "Collateralisation Clause" in the mortgage with SPL. Brian was
never informed of the clause and claimed breach of fid duty - BREACH! Both SPL and UD owed FD to
Brian - the relationship itself gives rise to FD.

Cf Hospital Products where HC by bare majority refused to visit gross breach of contract and fraudulent
course of conduct with equitable sanctions. Followed in John Alexander Clubs v White City (2010) and
Rawley v Bell (No 2) (2007) noted that fiduciary relationships are less common in commercial
transactions because there are known advesarial interests and a reasonable expectation of self-relince.

Employee-Employer
Depends on level of trust confidence and vulnerability in the relationship: Michael Wilson and Partners
v Nicholls (2009).

It is necesary to consider the preise activity the employe had agreed to perform and ask if the employee
had agreed to perform solely i the interests of the employer, to the exclusion of their own interests.

FD will arise if the relationship requires a standard of bejavour higher than the contractual standard:
VUT v Wilson (2004) former student approached academics working for the uni. Academics helped and
realised profit. Held that they breached FD and Uni should have been allowed to exploit.

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Cf UWA v Gray (2009) - Uni prof, while working for Uni, patented medicine in his own name. Found no
FD implied in contract. No agreement to invent nor property rights over the inventions.

Generally, employment contracts do not imply FDs.

Financial Adviser-Client
May imply FD: Calvo v Sweeney (2009). Key issue is nature of adviser's undertaking e.g. they hold
themselves out to act in client's best interests. Duty to disclose buyer when relevant; Give best advice.

Lomnar Global v West (2010) - found no duty to disclose offers from competitors in employment
contract but did have duty if they owed fiduciary obligations.

FD will not arise simply because client relied on advice: Pilmer v Duke Group (2001).

P invested heavily in a company on the basis of advice from D. Share price fell. Held no FD because D
had been engaged to value shares, not advise on sagacity of purchasing.

Banks can become FDs if they take on a financial advice role: ANZ v NTSC 31 (2009).

Possible for banks to expressly exclude FD: ASIC v Citigroup (2007). Citigroup advised on takeover of
Patrick by Toll. at the same time they bought lots of shares which they dumped when takeover was
announced. ASIC asserted breach of FD but court found it was successfully contracted out.

Doctor-Patient
Rejected in Australia - Breen v Williams. Said relationship was primarily contractual. However, Dawson,
Toohey, Gaudron and Mchugh JJ envisioned possibility of Doctor-Patient FD in other circumstances e.g.
Doc making secret profits off the patient in clinical trials and duty to disclose medical error (But what
about contract and tort? Isn't this a positive duty?)

Crown - Indiginies
Normally no FD owed by govt to citizens: Habib v Cth (No 2) (2009). However, some jurisdictions have
found FD with abos because their land was taken and the land they occupy is inalienable except to the
crown. Most developed in Canada but mentioned by Toohey J in Mabo v QLD (No 2) (1992).

DEFENCES
Informed Consent
Requires disclosure of all material facts and information that could affect the decision. Includes all facts
known to D and those which a prudent person would have discovered: Oranje v Kuys (1973).

There is no gneral formula. Some cases require the principal receive indpendent skilled advice: Maguire
v Makaronis (1997). No defence that principal would have acted the same if they had been given all the
facts: CBA v Smith (1991).

Fiduciary cannot induce the decision to grant consent: Consul Developments v DPC (1975).

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Still question of who must give consent. In case of a trust, there must be unanimous consent from the
trustees: Phipps v Boardman (1967). Some lords suggested that there must ALSO be the consent of the
beneficiaries.

In context of Directors, Regal (Hastings) v Gulliver (1967) required shareholder consent at an AGM Cf.
QLD Mines v Hudson (1978) which required only consent of the board because board are in a FD to teh
company. However, what if director is on the board that gives consent?

Disclosure alone is not sufficient, there must be consent: Blackmagic v Overliese (2011).

Contractual Exclusion
May be possible: ASIC v Citigroup (2009) but not where FD is intrinsic to the relationshp.

Clean Hands And Illegality

Caratinos v Magafas (2008) - D was a partner accused of breach of FD on property developments.
However, P had lodged numerous false statements to the tax man. Found to be disentitling conduct and
P could only come to equity once tax and penalties were paid.

REMEDIES:
Account of Profits:
Profits Warman v Dwyer

Equitable Compensation:
Compensation O'Halloran v R T Thomas (1998)

Constructive Trust:
Trust Chan v Zacharia - not to be imposed if other remedies are available: John Alexander
Clubs v White City. 3rd party interests must also be borne in mind.

Recission: Armstrong v Jackson

FD must disgorge all profits cleaned from breach but with some discretionary allowance made as
compensation for work and skill Chirnside v Fay (2007).

Guinness v Saunders (1990) - allowance only where it would not have the effect of encouraging others
to breach FD.

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CREATION OF EXPRESS TRUSTS
Ways to create a trust

1. by declaration, where a titleholder expresses his or her intention to hold their property on trust for
another;

2. by transfer, where title is transferred to a person with instructions that it be held on trust for
another; the transfer can occur either via an inter vivos transaction (which is generally referred to as a
‘settlement’) or post mortem (by will); and

3. by direction, where the beneficiary of an existing trust directs the trustee to hold his or her interest
on trust for another.

The three certainties

Intention

Subject matter/Property

Beneficiaries/Objects

Without all three the trust will fail

There may also be a requirement of writing.

Certainty of intention
An express trust will not be valid unless it is clear that the creator has intended to create a trust.

NB: resulting and constructive trusts do not have to satisfy certainty of intention.

The requirement of certainty of intention does not mean that the creator has to be fully aware of the
law of trusts before they can be found to have intended to create a trust : Re Armstrong (1960)

Because of the focus on the creator’s intention it is possible to create a trust without using the words
‘trust’ or ‘trustee’ : Registrar of the Accident Compensation Tribunal (vic) v FCT (1993. However, if the
trust is created by deed, intention will rarely be an issue: Hohone Holdings v Leroy (2004)

There is no set trust-creating formula: Pascoe v Bensch (2008). The intention to create a trust can also
be inferred from conduct: Cth v Booker International (2002).

Commissioner of Stamp Duties v Joliffe (1920) 28 CLR 178 the trust was not valid even though express
words of trust were used.

Foley v Foley (2006) – Alleged that grandparents agreed to hold land on trust for their grandson. GM
made statements indicating a trust and GF did not disagree. GM died and property transferred to GF
who refused to be bound by trust. Mulins J found that failure to arge with GM while she made trust-
creating statements did not, of itself indicate an intention to create a trust.

However, Cf. LaHousse v Counsel (2008) where deceased set up two accounts in his daughters’ names
and said he was trustee. He then used the money in the accounts to buy a house which he left to his ex-
girlfriend. Daughters claimed house on constructie trust. Court found intention to create trust accounts
so constructive trust imposed.

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A Trust must be created presently. Harpur v Levy (2007)

Note that a trust can be created immediately but beneficiaries’ rights may be postponed: Re Armstrong
– two accounts only to be paid once they had matured

A husband opened a trust account and said that he held account in trust for his wife. There was a
purported declaration of trust made in writing so that the form of account was quite clear. Wife died
and commissioner sought to exact duty from wife’s deceased estate on the basis that money in account
was in equity his wife’s property. Jolliffe said that although in name he held money in trust for his wife,
he never intended wifey to have any beneficial interest in the account. Was representing wife’s
deceased estate and he was the administrator. There could be no estoppel raised against him because
not saying this in personal capacity. The HC by majority – Knox CJ, Duffy J – We know of no authority,
and none was cited, which would justify us in deciding that by using any form of words a trust can be
created contrary to the real intention of the person alleged to have created it. Isaacs J gave a long
dissent based on estoppel. That argument is fundamentally misconceived because J was acting in his
capacity as administrator of his wife’s estate.
The burden of proof in cases where the intention of the creator is questioned, lies on the person who
alleges that a trust was intended

Inter vivos: oral and written evidence allowed

Parol evidence rule will not apply in situations where:

1. The disposition of the property that constitutes the trust is not required to be in writing (eg the
disposition was of personal property): Boccalatte v Bushelle [1980] Qd R 180;

2. The document was not intended to be a complete expression of the transferor’s intention: Star
v Star [1935] SASR 263; or

3. The document is ambiguous, Lutheran Church of Australia v Farmers Cooperative Executors &
Trustees Ltd (1970) 121 CLR 628; Boranga v Flintoff (1997) 19 WAR 1,

4. or created in circumstances of fraud, duress or mistake: Rocheford v Boustead (1897).

5. Parol Evidence in needed to estabish the actual intent o fthe settlor: Owens v Lofthouse (2007)

In cases of post mortem trusts,

trusts the law restricting extrinsic evidence in the interpretation of a will also
applies in addition to the parol evidence rule.

If the creator transfers property and expresses a motive, hope or expectation that the property will be
used in a particular way, the condition will be viewed as precatory and impose no obligation. A mere
intention to create a trust which is not acted upon will not satisfy the requirement of certain intention

Precatory Words
Precator words will impart no obligation e.g. in the hopes that it will be used justly. Because they do not
impart certainty of intention: Atwell v Atwell (2002).

Ching v Tihong (2009) – House being held by son on trust for his parents. Dad provided the purchase
money though a combination of his own cash and gifts from his kids. The son died and a dispute arose
about the money from the sale of the house. It was argued the trust was held for the father and when

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he died intestate the proceeds went into his assets. Issue revolved around whether dad had created a
trust based on old letters to the son.

“Look after mum when I’m gone, it is better that she live with a child. Use the money from the home
unit for her. If there is any left over after she is gone, use it for Roy f he still needs it. There are also
others in the family who need the money for their studies.”
Palmer J found an intention to creat a trust, not precatory words

Sole intention of trusee?

Re Kayford Ltd (in liq) [1975] 1 All ER 604 , a mail order company received funds from customer orders
and placed them in a special account. The company went into liquidation and it was held that the funds
were intended to be held on trust for its customers. The company’s anxiety about protecting customers,
coupled with the fact the funds where placed in a separate account, indicated an intention to hold the
funds on trust. This was the case, even though the customers were completely unaware of the
company’s actions. If we treat the customers as being creators and the company as a trustee, one can
understand Re Kayford as supporting the proposition that a trustee’s unilateral decision to create a trust
will be binding.

Stephens Travel v Qantas Airways Ltd (1988) 13 NSWLR 331 , the NSW Court of Appeal upheld an
express arrangement whereby a travel agency collected airfares for an air¬line, paid them into an
account and then made periodic remittances to the airline. The customers of the airline had no intention
to create a trust, yet it found that the agreement between the agency and the airline created an express
trust for the funds.

HOWEVER Peter Cox Investments v International Air Transport (1999) refused to find a trust in
circumstances similar to Stephens because intention of the trustee only, not the clients.

Knowledge of Beneficiaries
Beneficiaries need not know about the trust for it to be valid: Moriarty v Customers fo BA Peters (2008)

However, there are problems in the case of life insurance as to who the beneficiaries are intended to be.
Police Assoc of SA (2008) – De Facto couple, both cops, died together. Woman had been previously
married and filled out her insurance form at that time in favour of her ex hubby and kids or parents.
Man had a son from a prior relationship and had indicated that he wanted payout to go to his brother.
Cops got together in 2003 and had a child together but did not submit new forms. Cop association
argued they were not bound to pay out to the people nominated, brother argued he wanted the money.

Doyle J said there was no direct assignment of rights under a trust because they could be changed up
until death. However, in the context of Police Assoc rules, and found intention to create a trust for
beneficiaries named in the forms – brother got the cash.

With the girlfriend, the ex-hubby’s trust was overturned by the divorce and the failure to submit new
forms could not be taken as approval for him retaining an interest – police are “notoriously inattentive”
to such matters. Her cash went to the kid in the subsequent relationship.

Certainty of subject matter

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An express trust cannot exist without trust property. The trust property must therefore be reasonably
identifiable or ascertainable at the time the trust is created. This requirement of identifiability is known
as ‘certainty of subject matter’, without which, the trust will fail: Re Appleby’s Estates (1930).

Examples of failures:

“Consider my near relatives”: Sale v Moore (1827)

“Make ample provision”: Winch v Brutton (1844)

The quantum of interest must also be certain. E.g. Boyce v Boyce (1849), not clear which house.

One of the equitable maxims that is used here is ‘that which is not certain is capable of being rendered
certain’. As long as it is possible to piece together the clues to determine the identity and quantum of
the property it will be sufficiently certain: Re Golay’s Will Trusts (1965) gift of “reasonable income” were
capable of objective determination

Problems can occur when the trust property is part of a number of identical items, for example, ‘5% of
950 shares’. If the subject matter has not been specifically identified the trust is uncertain: FCT v Clarke
(1927). NB modern companies no longer need to number their shares so it may no longer apply.

Herdegen v FCT (1988). Couple held shares in Onedin, he had 59, she had 41. Sold shares and were
subject to tax but they claimed exempt as bare trustees. Trust arose when they said that they would
hold 37 shares on behalf of Mr Boyden and 38 on behalf of Mr Allen. Trust failed for uncertainty esp not
numbering the shares.

Designating shares may not be required for certainty: Rolleston v Nat Bank (1923) cf Busch v Truitt
(1945). Hunter v Moss (1994) upheld where shares all came from the same company – 50 shares of 950,
all of the same class. Approved in NSW in White v Shortall (2006)

 Palmer v Simmonds (1854) 61 E.R. 704 (TLA p. 66) – Court held that the phrase ‘the bulk of my
said residuary estate’ was uncertain and therefore the trust failed for uncertainty of subject matter. It
was uncertain because the bulk merely meant the greater part.
 Re Golay’s Will Trusts – The phrase ‘a reasonable income from any other properties’ described
subject matter with sufficient certainty because court was in a position to determine objectively what
constituted such reasonable income.
 Sprange v Barnard (1789) 29 E.R. 320 – Testators gave property to a widower ‘for his sole use’
provided that at his death the remainder be divided between several persons. Again the court held that
there was no certainty of subject matter because remainder was uncertain. Courts are moving towards a
common sense view.
 Hunter v Moss [1994] 1 W.L.R. 452 (TLA p. 66-67) – Illustrates common sense view. D owned 950
shares out of 1000 identical shares. Declared himself a trustee for plaintiff of 5% of 1000 shares. 5% of
1000 shares was supposed to be the subject matter of the trust. D later changed his mind and said no
trust because did not specify which 50 of 950 was to be held in trust and there was uncertainty of
subject matter. CA said that this was too technical and they would just take 50 shares and regard those
as trust property. If D had said here are 950 shares, court would not be able identify the 50 shares held
on trust.

Future property cannot be held on trust

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Re Rule’s Settlement (1915) – creator cannot transfer title in proprety in which she does not have a
present interest, it is a mere expectancy. E.g. interests of a discretionary beneficiary or an intended
beneficiary under a will.

Certainty of objects
A trust will fail if the beneficiaries are not identified with sufficient certainty. This is sometimes known as
‘the beneficiary principle’: Morice v Bishop of Durham (1804)

There are two exceptions to this rule. The first exception is charitable trusts. The second exception is a
particular anomalous group of trusts for animals

The level of certainty required by the beneficiary principle changes subject to whether the trust is a fixed
trust or a discretionary trust

 Morice v Bishop of Durham (1805) 32 E.R. 656 (TLA pp. 68-69) – The testatrix gave residue of
estate ‘to such objects of benevolence and liberality as the bishop in his own discretion shall most
approve of.’ Court said trust was void because don’t know what objects are. Court also said that objects
of benevolence and liberality are not exclusively charitable. If knew that charitable trust, could have
upheld it as a purpose trust. No individual beneficiaries and trust was void for uncertainty of objects
Re Denley’s Trust Deed
Trust for maintenance and creation of a sports ground upheld b/c ground was to be used by employees
of the company. Users were held to be beneficiaries. This is not the position in Austrlia: Strathalbyn
Show Jump v Mayes (2001).

Fixed trusts and certainty

In a fixed trust the beneficiaries must be identifiable in such a way as to allow the court to draw up a
complete list of the beneficiaries at the time their beneficial interests come into effect: Kinsela v
Caldwell (1975)

Problems of certainty can be caused by loose terms e.g. friends. In Re Gulbenkian’s Settlements (1970):
The class must be identified as individuals, the court cannot guess at it. “friends” is bad as bein g too
uncertain. Old friends cannot claim the whole property because they cannot prove they are the entirety
of the class.

Lampens v Reid (2009) “Such of them my friends who resided with me from overseas” failed because
deceased had not said who they were and attempts at finding them had failed.

Construction Rules can save the trust e.g. “relations” means blood relations who would have taken
under intestacy rules: Re Fox (1997). Certainty is timed at the date the trust instrument becomes
effective: Kinsela v Caldwell. A trust will not fail if it was effective at creation but later became
unascertainable: Re Hains Settlement (1961).

Prosper v Wojtowicz (2005) – “persons who attend my funeral and who are not at any time related to
me”. No list was kept of funeral attendees but this did not invalidate the trust because it was
ascertainable when it was created.

Problems can occur when the list of possible beneficiaries is extremely long and the job of discerning the
identity of the beneficiaries cannot be completed at the time the trust comes into effect. In Re Sacone

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Shoe Trust Deed said that the task of identifying beneficiaries depended on what was “probably rather
than theoretically possible.”

West v Weston (1998) 44 NSWLR 657 In this case a testator had created a trust for ‘the living issue at
the time of my death of my four grandparents … as attain 21 years’. The executrix had made every effort
to discern the identities of the beneficiaries, which numbered over 1600 people. However, the executrix
was unable to be certain as to the identity of any further beneficiaries. If the trust failed the entire
estate would go to the Crown as bona vacantia.

Once the identity of the beneficiaries has been ascertained the fact that it is difficult to find the
whereabouts or continued existence of the beneficiaries does not affect the certainty of the disposition.
Trustees can always apply to the court for directions or pay the missing beneficiary’s share into court.

Young J’s new formulation was that certainty can be satisfied if, on the balance of probabilities that the
substantial majority of beneficiaries have been ascertained and that no reasonable enquiries could
improve the situation.

Trustees can apply for an order if they have doubts or pay property into court. If a new beneficiary turns
up, they have rights against other beneficiaries, not the trustee: Neville v Benjamin (1902).

Certainty of beneficiaries in discretionary trusts

It should be recalled that discretionary trusts, or trust powers, are forms of trust whereby the trustee is
given the discretion to choose the [Link] cases where the trustee’s discretion is unfettered the
power of the trustee is called a general power. Note, however, that in such circumstances the trustee
will be unable to use the power for his or her benefit. If the trustee is permitted to appoint themselves
under a general power then there will be no trust as such a power is tantamount to ownership. Where
the trustee is allowed to choose from beneficiaries of a particular class, the power is referred to as a
special power. The trustee’s power might also be an intermediate or hybrid power where the trustee is
allowed to choose beneficiaries as long as they are not part of a particular class

Certainty of beneficiaries in discretionary trusts

In Re Baden’s Deed Trusts; McPhail v Doulton [1971] AC 424 removed the list certainty rule as it applied
to discretionary trusts. Created a trust that gve trustees discretion to use the income of the trust for the
benefit of “staff, their relatives and dependants”. Executor aregued trust void because of list
uncertainty. Trustees argued disposition was a mere power so not subject to list certainty.

HOL ruled disposition was a trust power due to mandatory language. Majority devloped the criterion
certainty principle: test for certainty is whether or not it is possible to say with certainty whether a given
individual was a member of a class. However, a class can fail if it is administratively unworkable if e.g.
they class is massive “the residents of greater london”.

‘criterion certainty’ brought the certainty requirment for trust powers in line with the certainty
requirement for mere powers.

Certainty of beneficiaries in discretionary trusts – in McPhail “relatives” and “dependants” were argued
to be semantically uncertain. Held okay if it could be proven that a person met the criteria. Megaw LJ
said it was okay so long as a substantial number could be ascertained even if many were
unascertainable.

Accepted in Australia below HC: Spotlight Stores v Taxman (2004).

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Trusts for Unincorporated associations
Unincorporated assiciations are not legal persons and have no separate identity from their members.
Can fail for beneficiary principle by not describing the objects with certainty. May also offend the
perpetuity rule if the disposition includes gifts to future members vesting beyond the perpetuity period.

Radmanovich v Nedeljkovic (2001)

Can be construed in three main ways:

1. Absolute gift to members to hold as joint tenants (Starting Point Presumption)

2. If presumption rebutted: A gift to the existing members subject to the rules of the association.
Evidence for rebuttal may be: form of the gift; numbers and identity of the members; subject
matter of the gift and the capacity of members to end their relationship and recover interests in
the property: Bacon v Pianta (1966)

Facts: A gift to the Communist Party of Australia for its sole use and benefit. Involved giving the money
to a large number of people, not an entity.

Held: A gift to an unincorporated association operates prima facie, as a gift to the individual members at
the time when the bequest becomes operative – Per McTiernan, Taylor and Owen JJ.
This was invalid as it attempted to create a non-charitable purpose trust. This is because the
membership is constantly changing, and so who can ever be the owners of the property. It is not a gift
solely for the presently members; future members will also be entitled to the property.
If it appears that gift is for future members, it offends perpetuity. If it is for a purpose it must be
charitable.

Basic Principles (Jacobs [1104]):

1.    A gift to an unincorporated association is valid if it operates as one to the individual members at the
time of the bequest.
2.    A gift in trust for the benefit of present and future members will fail as not vesting within the
perpetuity period;
3.    A gift for a purpose will fail unless charitable, even if the association has a charitable “flavour”.

If the disposition is interpreted as an absolute gift, it will not be subject to trust law: Re Goodson (1971),
nor will it offend the rule against perpetuities if ascertained members can take their interests during the
perpetuity period: Re Smith (1914)

However, gifts are subject to the rules of the association e.g. Re Bucks Consatulary Fund (No 2) (1979)
association forbade members from dividing up property, new members take and interest in shares of
retiring members and property cannot be divided up. Members are bound by these rules because they
act as a contract. In such situations, the disposition may fail because it breaches requiremet of certainty
and the rule against perpetuities: Neville Estates v Madden (1962)

3. Trust to be held to further the purposes of the association

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If the association comes to an end Re GKN Bolts and Nuts (1982) Megarry VC said court sould approach
with reasonableness, fairness and common sense. Given the association rules were silent on
distribution, there should be equality among members, irrespective of length of membership.

If the name of the association changes, that is no bar to the gift: Estate of Dulcie Edna Rand (2009).

If the association is reduced to one member Re Bucks Constabulary Fund – Society comes to an end and
cash to the state bona vacantia. Cf Hanschett-Stamford v AG (2008) where court found last remaining
member gets absolute ownership.

If the dispositionis a trust for a charitable purpose, it will be valid: Re Recher’s Will (1972).

Leahy v Attorney General (NSW) [1959] AC 457

There was a trust to provide amenities to certain orders of nuns. The phrase ‘orders of nuns’ embraced
both active orders which were charitable and contemplative orders which were not charitable because
contemplative orders were orders which could not demonstrate the element of public benefit. The issue
was whether the phrase could be severed so that the trust would only apply to the charitable purposes,
namely to active orders of nuns.

Decided that you could sever the non-charitable purposes even though they were contained in a
composite expression which also contained charitable purposes. Viscount Simonds said that the section
did apply to sever from the composite expression such orders of nuns as were contemplative and as
were not active.

Viscount Simonds said very convincingly (Ong) that if the expression had been such order of nuns
whether active or contemplative, the section would have applied. Ong agrees with him. S104 applies to
sever the expressions respectively containing charitable and non-charitable purposes and also to
composite expressions embracing charitable as well as non-charitable purposes. However, there is still a
problem because can have a composite expression which contains charitable and non-charitable
purposes but which is not sufficiently charitable and this is an area that is difficult.

The rule against delegation of testamentary power

NB This rule has been removed by legislation in NSW

Tatham v Huxtable (1950) 81 CLR 639 - High Court struck out a power of appointment in a will on the
basis that the testator was not allowed to delegate his or her will-making power. The executor was given
power to distribute the balance of an estate to people the executor believed had ‘rendered service
meriting consideration by the testator’. This disposition offended the cardinal rule against non-
delegation. Later decisions of the High Court have left the rule undisturbed: Lutheran Church of
Australia v Farmers Cooperative Executors & Trustees Ltd (1970) 121 CLR [Link] constitution of
an express trust

There are four exceptions:

1. General powers of appointment because they are practically equivalent to a gift: Tatham v
Huxtable

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 2. Special Powers if they can satisfy list certainty. The testator is treated as having already disposed
of their property and the donee merely allocates the respective shares: Re Blyth (1997).

3. A hybrid or intermediate power if there is a gift in default of appointment: Lutheran Church v

Farmers Coop (1970) e.g. all to A on basis that she distributes to anyone apart from A and B and
if she fails to do so, all to C. NB If there is no gift over in contemplation, the trust will not stand
even if the criteria is certain.

Horan v James (1982) residue of estate to trustees with power to choose anybody to be a
beneficiary except the testator’s wife. Okay by McPhail v Doulton but not okay as it did not have a
gift over in contemplation.

4. Charitable Trusts are not subject to the rule: Horan v James (1982).

‘Complete Constitution Of An Express Trust

Complete constitution’ generally refers to the irrevocable transfer of the trust property and the creation
of the beneficial interest.

executed trust which has been completely constituted

executory trust, which is merely an uncompleted agreement to create a trust: merely an agreement to
create a trust: Paul v Paul (1882)

An executory trust that is not supported by consideration cannot be specifically performed, nor can
there be an order of part performance in relation to it. This is because equity will not assist a volunteer.
However, this maxim does not apply once the trust is executed. An executed trust is enforceable, even
at the suit of a volunteer, because the trustee has been fully burdened with fiduciary responsibilities.

If there is consideration, the question arises, who should be able to sue on an executory trust.
Beneficiaries can’t sue when they are not a party to the agreement BUT if there is an agreement for the
contractual rights to be held on trust for them, the contracting party can sue on their behalf and, failing
that, they can sue themselves: Fletcher v Fletcher (1844).

Declarations of trust – requirement of writing

When a creator declares herself a trustee, there need be no transfer of property BUT if the trust
property is real property, the trust must be evidenced in writing: S23C(1)(a) of the CA.

Pascoe v Bensch (2008) – married couple divorced. Mrs agreed to transfer her share to Mr if he would
promise to hold the property on trust for their children. Both declared in 1999 that the propety was
being held for the benefit of the “Bensch Family” but not registered because the bank would not allow it
unless Mr refinanced. Man became bankrupt in 2005 and creditor’s wanted the house, arguing that it
did not satisfy S23C(1)(b).

Writing prevents a trustee from revoking the trust. E.g. Wratten v Hunter (1978), son given land by his
dying dad. At the funeral, son declared that he would hold the land on trust for the family. Later,
siblings could not enforce because no writing and no part-performance because they were volunteers.

However, if trustee declares himself to be one of a number of trustees, courts will bind even if property
has not been transferred to other trustees: T Choithram v Pagarani (2001).

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Legal personal property - no writing

Equitable personal property – writing because it is a trust of a subsisting equitable interest and so
covered by S23C(1)(c)

Equitable real property must be in writing to cover both S23C(1)(a) and (c)

Legal Real Property – writing for S23(1)(a)

If a trustee does not comply with writing requirement and then seeks to rely on the failure to deny the
trust, may be fraud.

Conversely, if trustee becomes bankrupt and tries to protect trust property that has not met writing
requirement, it will be difficult: Owens v Lofthouse (2007)

Wratten v Hunter [1978] 2 NSWLR 367, a son was given land by his dying father. At the funeral of the
father the son declared that he was going to hold the land on trust for the other members of the family.
However, his brother and sister later were unsuccessful in enforcing the trust as the trust was not
evidenced in writing. Nor could they seek remedies in part performance as they were volunteers.

Creation by Transfer
Trusts created by transfer will be executed when the title of the trust property has been completely and
irrevocably transferred to the trustee.

Inter vivos – perhaps writing if real property or subsisting interest in a trust but executory trusts may be
enforceable if everything neessery to transfer title has been done by the creator: Milroy v Lord (1862).
However, strictly applied: Corin v Patton (1990) where transger o ftitle to creat a trust was ineffective
b/c settlor had not requested production of title

In Marchesi v Apostolou (2006) a declaration of trust was denied because settlor had not gained
permission from registered mortgagees and trust co would not have been registered without their
permission

Post mortem – wills and their statutory requirements: signed by the testator in the presence of two or
more witnesses: S7 probate and administration act NSW (1898)

Complete constitution of an express trust

Creation by direction
A trust is created when the beneficiary of an existing trust directs the trustee to hold his or her interest
on trust for another. This is a disposition of an existing equitable interest and, as such, needs to be
evidenced in writing: Grey v Inland Revenue, CAS23C(1)(c)

Secret trusts
Form of testamentary trust – made outside the will b/c the will is a public document A secret trust
occurs when the testator leaves property to a donee in a will, but communicates his or her intention
that the donee hold the property on trust for another person.

Fully secret trusts where there is no record of the testator’s intention to create a trust in the will

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Half secret trusts, where the testator indicates his or her intention that the gift is not to be held benefi-
cially, but is held subject to some private instruction that has been communicated by the testator:
Howell v Hyde (2003)

There are three things necessary: Ledgerwood v Perpetual Trustee Co Ltd (1997)

1. the testator must intend to subject the donee to an obligation of trust;

2. the testator must communicate the intention to the donee; and

3. the donee must accept the obligation before the testator’s death.

The nature of the secret trust has been subject to long debate. On the one hand, a secret trust can be
understood as part of the will, on the other, the trust can be seen as an independent trust that exists
separately from the will. It is now accepted that the secret trust is the latter

What is the trust property of a secret trust?

Contsructive?

If the trust is enforceable independently of the will then the trust comes into being at the time the
requirements for a secret trust have been met. This obviously has to occur before the death of the
testator. But at such a time the donee does not have any property interest that can be held on trust. The
donee’s interest is a mere expectancy and as such cannot be held on trust (see XXX). On this view it
might be possible to classify the secret trust as an express trust of the actionable mere equity created
when the donee accepts the duties of being a trustee. This mere equity is created when the donee binds
his or her conscience to the trust. This mere equity would be one with proprietory dimensions and could
thus form the trust property, at least until the will comes into operation. Once the will operates the trust
property is perfected by the transfer of the property of the testator to the donee.

Problem
Eric was a wealthy fashion designer, and was happily married to Stephanie. During the Vietnam War,
while stationed at Darwin, Eric had an affair with Brooke. As a result of that affair Eric and Brooke had a
son named Eric Jnr. Eric’s past was unknown to Stephanie. Eric was concerned that Brooke and Eric Jnr
were satisfactorily provided for in his will. Eric thus made a will, in 1980, and clause 7 of the will read as
follows:

I leave $500,000 to my son Ridge feeling confident that my express wishes in relation to this money will
be carried out.

By clause 15 of Eric’s will, Stephanie was named as beneficiary of the residue of his estate.

On 1 April 1997 Eric showed his will to his son Ridge and handed him a sealed envelope. He said to
Ridge: ‘I want you to carry out the instructions contained in this letter after I die. You are not to tell your
mother about it.’ Ridge said nothing in response but nodded to indicate that he agreed to abide by his
father’s wishes.

On 1 May 1997, Brooke died in an automobile accident. Upon hearing of the news of Brooke’s death Eric
suffered a heart attack and eventually died on 1 June 1997.

After his father’s death Ridge opened the envelope he had been given in April 1990. In the letter Eric
stated that the $500,000 referred to in clause 7 of his will was to be held on trust for Brooke. In trying to

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locate Brooke, Ridge discovered that she had died and had left a will appointing her son Eric Jnr as
executor and beneficiary of her entire estate.

Ridge seeks your advice as to what is to happen to the $500,000 referred to in clause 7 of Eric’s will.

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VARIATION AND TERMINATION OF EXPRESS TRUSTS
There are several reasons why a trustee may want to vary a trust. For example, if the trust instrument
has been drafted in a restrictive fashion it may severely limit the power of the trustee to structure funds
so as to limit the impact of taxation.

Powers to Vary Contained in Express Trusts

A trust instrument can contain provisions which give the trustee the power to make certain
amendments to the trust arrangement. For example, it is common for discretionary trusts to grant a
power to the trustee to add beneficiaries to the class of objects: Ford & Lee at [15260]. In Kearns v Hill
(1990) 21 NSWLR 107 the NSW Court of Appeal found that the power of variation contained in a trust
instrument was to be given its natural and ordinary meaning even where it included a power to vary the
identity of the beneficiaries of the trust.

Inherent Power to Vary Trusts

Emergencies:
Changes in the nature of investments for infants from personalty to realty, Lord Ashburton v Lady
Ashburton (1801) 6 Ves 6; 31 ER 910; Re Jackson (1882) 21 Ch D 786;

Investments in business transactions not authorised by a trust of settled land, Re Collins (1886) 32 Ch D
229; Havelock v Havelock (1881) 17 Ch D 807;

Payment of maintenance out of income , even where there is a direction to accumulate income, Re New
[1901] 2 Ch 534; Re Tollemache [1903] 1 Ch 955; and

Compromises in favour of unborn children, Re Trenchard [1902] Ch 378; Salkeld v Salkeld (No 2) BC
200001626; [2000] SASC 296

Tickle v Tickle (1987) 10 NSWLR 581, Young J decided not to follow the restrictions placed on the courts
power as set down by Chapman v Chapman. Instead, His Honour found at 586 that the inherent power
might embrace circumstances where there was 'an element of salvage and a flavour of compromise and
the combination of these factors may make it a proper case for the court to exercise jurisdiction to vary.'
As such Young J thought it wise to add a fifth category where the power to vary should be exercised
when circumstances have occurred which have tended to thwart the settlor's intention and where the
parties have consented to a course which will effect an alternative scheme in line with the settlor's
intention.

Statutory Power to Vary Trusts

After the Second World War, the taxation of family trusts in Britain led to political pressure to allow
variation of express trusts in ways that would lessen the impact of taxation

Trustee Act 1925 (NSW), s 81

Termination or failure of express trusts

Illegality:
Illegality Trusts are void for illegality. Any estate involved will be allowed to lie where it falls, meaning
that equity will not upset the legal title of the property by imposing a trust: Holman v Johnson (1775).
E.g. Trust dedicated to paying the fines of poachers imprisoned for non-payment invalid because it
encouraged illegality: Thrupp v Collett (No 1) (1858)

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The court’s finding of illegality depends on whether the party has to rely on evidence of his or her own
fraud to prove their title — equity will not assist them: Tinsley v Milligan [1994] NB Not Australian
Position – see Nelson v Nelson below.

Facts

Miss Tinsley sought possession of a house that was solely in her name. Her relationship with her partner,
Miss Milligan, had come to an unfortunate end. Miss Milligan had been living there and had contributed
to the purchase price. It had been in Tinsley’s name alone when they bought it, as a way of claiming
more in social security. Milligan later repented and confessed to the benefit fraud. Then Tinsley moved
out and sought possession of the house, arguing she was solely entitled. Miss Milligan pleaded that it
was the common intention that the property should belong to both of them (and so did not need to rely
on the illegality).

Judgment

The House of Lords held that because Miss Milligan could invoke the presumption of a resulting trust
without relying on the illegal purpose, she did have a share in the house. Miss Tinsley would have to rely
on her intention to defraud the social security system to rebut the presumption of a resulting trust and
get the property in her own name. Lord Browne-Wilkinson said the following.[1]

“ Only in the reply and the course of Miss Milligan’s cross examination did such illegality emerge: it was
Miss Tinsley who had to rely on that illegality....

...Although the presumption of advancement does not directly arise for consideration in this case, it is
important when considering the decided cases to understand its operation. On a transfer from a man to
his wife, children or others to whom he stands in loco parentis, equity presumes an intention to make a
gift. Therefore in such a case, unlike the case where the presumption of resulting trust applies, in order
to establish any claim the plaintiff has himself to lead evidence sufficient to rebut the presumption of
gift and in so doing will normally have to plead, and give evidence of, the underlying illegal purpose.

Termination or failure of express trusts

However, if it is possible to prove title without the need to rely on evidence of illegality, the title can be
upheld in equity. For example, in Tinsley v Milligan, a house had been purchased jointly by the parties
but registered in the name of one party, so as to allow the other to continue to get social security. Given
that one party had provided part of the proceeds an automatic presumption arose of a resulting trust:
see Chapter 21. The resulting trust was found to be valid because it arose without the necessity to bring
evidence of the illegal purpose behind the transaction.

In Australia the Tinsley v Milligan approach has been rejected and a more flexible test adopted that
requires the court to examine the policy behind the law that has been breached

Nelson v Nelson (1995) 184 CLR 538

A mother paid the purchase price of a house which was then registered in her son and daughter’s
names. The purpose behind the transaction was to allow the mother to purchase another home at some
future time, with the benefit of a subsidy under the Defence Service Homes Act 1918 (Cth). The subsidy
was only available for one house. Sometime later the mother purchased another house with the use of
the subsidy, making false declarations that she did not own any other property. The first house was sold.

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The daughter argued that she had a beneficial interest in the proceeds, whereas the mother and the son
claimed a beneficial interest for the mother.

Deane and Gummow JJ found that there should be no general policy of letting the loss fall where it lies.
Instead equity should look at the specific circumstances of the case and the particular policy behind the
law that had been breached. After analysing the Act, Deane and Gummow JJ found at CLR 570; ALR 158
that the policy was to help eligible persons purchase dwellings. It was not to prevent them from owning
more than one house.

As such, the policy did not require the court to automatically refuse equitable relief. Additionally, given
the mother was seeking equitable relief, she was obliged to make good the amounts that she had
defrauded from the government, before a resulting trust would be enforced

McHugh J stated at CLR 613; ALR 193:

… courts should not refuse to enforce legal or equitable rights simply because they arose out of or were
associated with an unlawful purpose unless:

(a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or

(b) (i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the
unlawful conduct;

(ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its
objects or policies; and

(iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute
are to be the only legal consequences of a breach of the statute or the frustration of its policies.

Toohey J, at CLR 5978; ALR 180 did not require the mother to pay back the subsidy as that was a matter
for the government

Dawson J took a different path and found that the false declaration was not sufficiently related to the
circumstances giving rise to the resulting trust. The purchase of the home occurred a substantial period
before the false declaration was made. His Honour rejected at CLR 581; ALR 166 the distinction drawn in
Tinsley v Milligan between cases where the illegality needs to be relied upon and those where it does
not. Like Toohey J, Dawson J did not require the mother to repay the subsidy, given that the government
had the power to recall it.

Day v Couch [2000] NSWSC 230, the plaintiff was in a car accident and believed that he was liable for a
large claim of damages. He transferred properties to his father for the purpose of making them
unavailable to any possible creditors. However, no claim was brought against him. After his father’s
death he sought a declaration that he was the beneficial owner of the properties on resulting trust.
There was no breach of any statute as the consequences of the illegal intent did not occur. As such
Bryson J upheld the imposition of a resulting trust.

Public policy
Immorality: A trust that promotes immorality will be invalid. Under this heading trusts in favour of
future illegitimate children have been struck down: Re Ayles’ Trusts (1875) 1 Ch D 282, although it
would seem highly unlikely that this would be the case in modern times

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Trusts that completely restrain a person from marrying, or which encourage a person to divorce, are
also void: Re Johnson’s Will Trusts [1967] 1 All ER 553.

Trusts which have the effect of separating parent and child will also offend public policy: Re Boulter;
Boulter v Boulter [1922] 1 Ch 75.

A trust for one’s widow or widower which ceases on their remarriage is valid: Lloyd v Lloyd (1852) 2 Sim
(NS) 255; 61 ER 338.

Partial restraints on marriage, such as preventing marriage to a person of a particular religious

denomination, race, ethnicity or class, have also been upheld: Seidler v Schallhofer

Kay v SESAHS
I give the Children’s hospital at Randwick $10,000 for the treatment of White babies

Racial Discrimination Act s 8(2)

This Part does not apply to:

(a) any provision of a deed, will or other instrument, whether made before or after the commencement
of this Part, that confers charitable benefits, or enables charitable benefits to be conferred, on persons
of a particular race, colour or national or ethnic origin; or

(b) any act done in order to comply with such a provision

It was argued that the condition was against public policy and that the condition could be struck off
leaving the disposition free of it. Young J disagreed and found that the condition was an integral part of
the gift which could not be removed. Both the Racial Discrimination Act 1975 (Cth), s 8 and the Anti-
Discrimination Act 1977, s 55, expressly provide that any charitable disposition is not subject to the Act.
On that basis Young J found that there was no public policy against a racist condition of a will. The gift
was a valid charitable gift and on that basis could be upheld. However, Non-Charitable trusts may still
offend public policy because not specifically excluded in the acts.

Restraints on alienation
Once property has been given absolutely on trust, any restraint that is inconsistent or repugnant to that
absolute gift will be invalid. For example, a restraint purporting to prevent the sale of the property after
it has been given absolutely will be void: Public Trustee v Donoghue [1999] TASSC 147. Similarly in
Brandon v Robinson (1811) 18 Ves 429; 34 ER 379, a trust which granted a life interest was given on the
basis that the life interest was not transferable. This restraint was void because the life interest
contained a power to alienate, which was offended by the condition subsequent.

A distinction must be drawn between an absolute gift that is subject to a restraint, and a determinable
interest that automatically ends on the happening of some event. The absolute gift, which is subject to a
condition subsequent, in effect grants a complete interest, that is then divested on the satisfaction of
the condition. As such, this type of condition subsequent is void as a restraint on alienation. If, however,
the interest transferred in trust is determinable, the interest is considered to have ended naturally on
the occurrence of the event:

For example, ‘to A on trust for B for life, but if B ceases to use the property as a hotel, then to C’ is
considered to contain a restraint on alienation. The life interest is granted to B, but can be artificially cut

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short by the event of B no longer using the property as a hotel. Such a condition subsequent is a
restraint on alienation.

However, if the trust was worded ‘to A on trust for B for life until B ceases to use the property as a
hotel’, B’s life interest is always limited in time to the event of the property no longer being used as a
hotel. If and when the property is no longer used as a hotel B’s estate comes naturally to an end. This
disposition is not considered to be an absolute gift with a limitation, as the interest contains the
limitation within itself. As such there is no restraint on the interest granted

The rule against indestructible trusts

A trust instrument that seeks to prevent the beneficiaries from eventually using and exhausting the
capital of the trust funds will be void. Such a trust is objectionable because it prevents the trust property
from being alienable: Re Cain [1950] VR 382 at 391. Such a trust also offends the rights of beneficiaries
under the rule in Saunders v Vautier (1841)

if all of the beneficiaries in the trust are of adult age and under no disability, the beneficiaries may
require the trustee to transfer the legal estate to them and thereby terminate the trust.

Facts

A testator had bequeathed £2,000 worth of stock in the East India Company on trust for Vautier.
According to the terms of the trust, it was to accumulate until V attained the age of 25. The stock's
dividends were to be accumulated along with the capital. Upon reaching the age of maturity (21 at the
material time) he sought access to the capital and dividends immediately.

Judgment

The case was ruled in favor of the defendant. The rights of the beneficiary were held to supersede the
wishes of the settlor as expressed in the trust instrument.

Lord Langdale MR held as follows:

“I think that principle has been repeatedly acted upon; and where a legacy is directed to accumulate for
a certain period, or where the payment is postponed, the legatee, if he has an absolute indefeasible
interest in the legacy, is not bound to wait until the expiration of that period, but may require payment
the moment he is competent to give a valid discharge.”

The rule against perpetuities

The purpose behind the rule is to place time limits on the creation of interests in property that prevent
testators from being able to forever control property from the grave via the use of infinite successive
interests.

McCrimmon states at 130:

While strong arguments can be made for the abolition of the Rule, that fact remains that it is part of our
law and legal practitioners and law students should have an understanding of its application

The modern rule against perpetuities

An interest that is created to vest some time in the future, must vest within a life in being plus 21 years
from the date the instrument becomes effective

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Note that the rule is not concerned with how long an interest will last. It is only concerned that the
interest vest within the perpetuity period.

A ‘vested interest’ is an interest in property that has taken effect in possession, or one that will take
effect in possession through the natural determination of prior estates. To illustrate, consider a gift ‘to A
on trust for B for life, and then to C’. This disposition contains three separate interests: the legal title of
A as trustee, the equitable life estate in B and the remainder to C. All of these interests are considered
to be vested. A’s interest has taken effect in possession.

To contrast, consider a gift of property ‘to A on trust for B for life, then to C if C attains 21 years’. Unlike
the previous example, C’s interest will not automatically come into possession on B’s death. C’s interest
is subject to a contingency, and is referred to as a ‘contingent remainder.’ C’s interest will only vest if C
attains the age of 21.

The perpetuity period is equivalent to a life in being plus an additional 21 years. The phrase a ‘life in
being’ is usually a reference to the life of someone mentioned expressly in the disposition. The life in
being must be human and the person must be alive at the date of the creation of the interest:

For example, in a gift to ‘B for life and then to any children of B who attain 18 years’ the life in being is
taken to be B. The contingent interests of the unborn children must vest within 21 years after the death
of B.

More than one person can be employed in a disposition as ‘lives in being’. When a class is used the 21
years runs from the death of the last survivor in the class. Classes will only be valid if the class is not
capable of increasing in number when the instrument takes effect. Moreover, the class must be capable
of ascertainment at the date the instrument comes into effect.

A popular example of this principle is the ‘royal lives’ clause where the lives in being are defined to be
the descendants of a particular member of the royal family. For example, in Clay v Karlson (1998) 19
WAR 287, the life in being was defined to be the last living survivor of King George V.

If the life in being is an unborn child (en ventre sa mere — ‘in the belly of the mother’) the length of
gestation is added to the perpetuity period.

People are presumed to be able to reproduce no matter what age they are!!!!!

SOME STEPS
1. Is this a perpetuity problem? I.e. is there a contingent remainder

2. When is the interest created? (death? Inter vivos)

3. Who is the life in being? (living person or closed class of living persons)

4. Is there any possibility that it will vest outside the period of LIB + 21 years

5. Is there some mitigating rule or statute (will talk about later)

Examples
An inter vivos gift ‘to A on trust for B for life, and then to any of B’s children that marry’. In this
disposition the life in being is taken to be B. If B is alive at the time of the creation of the trust, the gift is
to the children is void. B’s interest is vested but the children’s interest is contingent on them marrying. B

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may have children after the trust is created and those children might marry more than 21 years after B’s
death

A gift of a gravel pit on trust to A to use until the pit is exhausted, and then to be sold and divided
equally among the testator’s living issue. Assume that the pit is actually exhausted after six years. This
gift will still be void because at the date the gift becomes effective it may take longer than a life in being
and 21 years for the pit to be exhausted. This is known as an example of the magic gravel pit

A testamentary gift ‘to A, my wife, for life, then to A’s children for life, then for such of any children of
my brother and sister who attain 21’. In this example, the wife is treated as the life in being. Assume that
at the death of the testator his parents were both aged 66. Regardless of this fact, it is presumed under
the modern rule that both parents were fertile and could produce more children. Therefore the gift over
to the nephews and nieces is too remote as it was possible that the parents of the testator could have
more children who might then breed and add to the class more than 21 years after the death of the
wife. This is known as the example of the fertile octogenarian

Common Law Amelioration

To soften the Rule against perpetuities, courts developed the Rule in Andrew v Partington (1791) 3 Bro
CC 401; 29 ER 610. It is best explained through example.

TAKE THE VOID GIFT:

‘A on trust for B for life and then such of B’s children that attain 25 years’

RULE IN Andrews v Partington

If one of B’s children turns 25 before the first interest vests, the class of B’s children is closed.

Children born after that date don’t get anything.

So the gift doesn’t offend the Rule

Statutory reform

The primary reform has been the introduction of wait-and-see provisions: Perpetuities Act 1984 (NSW),
s 8(1)

The second major reform is in relation to the calculation of the perpetuity period. The period is set at 80
years automatically: Perpetuities Act 1984 (NSW), s 7

Statutory reform
The third reform consists of an automatic reduction in age for beneficial interests that would fail
because they are stipulated to take effect upon the beneficiaries reaching a specified age beyond 21
years plus a life in being. In some jurisdictions the age can be read down to an age that would not
infringe the modern rule: Perpetuities Act 1984 (NSW), s 9(1)

Question
Sue died leaving a farming property and a large bank account. Under her will, Sue appointed her brother
Lex as executor and trustee of her estate. Sue was a prejudiced woman and disliked Catholics
immensely. Clause 4 of her will stated:

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I give the farm to Lex on trust for Elizabeth for life, on the condition that Elizabeth is not married to a
Catholic.

Clause 8 of her will states:

I give $200,000 to Lex on trust for Anthony, then for any wife he may marry for life, then to Anthony’s
children that attain 25 years.

At the time of Sue’s death, Elizabeth had been married to Patrick (a Catholic) for five years. Sue had
been aware of the marriage and did not approve. Anthony was aged 65 and had not yet married or had
any children. He was, however, considering marriage to Bronwyn, his girlfriend who was aged 70.
Analyse the validity of these trusts.

Solution
Given the use of the phrase ‘on the condition that’ in cl 4, the gift of the life estate to Elizabeth has taken
the form of a disposition with a condition subsequent. The condition subsequent concerning a marriage
to a Catholic can be struck out as being against public policy because it requires Elizabeth to divorce. At
first glance the gift appears to be a valid partial restraint of marriage as the condition restrains marriage
to a person of a particular religious faith

However, if a partial restraint is worded in such a way that it forces the beneficiary to divorce it will be
struck down . It is clear that the testator’s intention is to force the beneficiary to divorce. As the
condition is severable from the disposition, Elizabeth can take her interest free from it.

Clause 8 needs to be examined to determine whether it offends the rule against perpetuities. For the
purpose of calculating the perpetuity period, Anthony must be the life in being as the future wife and
children are not ascertainable at the date the will comes into effect. The gift to the future wife is valid as
it will vest within the life in being, because her interest will vest when she marries Anthony.

However, the children’s interest offends the rule. First it is presumed that Anthony is fertile and that any
wife he marries will also be fertile, regardless of their age. It is therefore possible that Anthony’s wife
will bear him a child that will not reach 25 years of age within 21 years of his death. Therefore, that
child’s interest could possibly vest outside the period.

The gift would be saved by legislation, which automatically reduces the age restriction to bring it within
the perpetuity period. This would have the effect of reducing the age restrictions to 21 years as opposed
to 25 years. Finally, the wait-and-see provisions would allow the gift to survive initial uncertainty

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CHARITABLE TRUSTS
Introduction

Charitable trusts are express trusts which exist for a purpose rather than for identifiable beneficiaries. In
Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209 at 222, Dixon and Evatt JJ stated:

A charitable trust is a trust for a purpose, not for a person. The objects of ordinary trusts are individuals,
either named or answering a description, whether presently or at some future time. To dispose of
property for the fulfillment of ends considered beneficial to the community is an entirely different thing
from creating equitable estates and interests and limiting them to beneficiaries. In this fundamental
distinction sufficient reason may be found for many of the differences in treatment of charitable and
ordinary trusts.

Differences with other express trusts

No beneficiary principle

Public trusts

Indestructible

Courts and AG have power of supervision

‘Charitable’ Purpose
Statute of Charitable Uses 1601 (43 Eliz I, c.4)

 the relief of poverty;

 care of aged persons and the sick;
 care of soldiers and mariners;
 advancement of education through universities and schools;
 repair of bridges, havens, ports, churches and highways;
 the care of orphans;
 the maintenance of prisons;
 the marriage of poor maids;
 support for young tradesmen and persons decayed;
 the relief or redemption of prisoners or captives; and
 relief for poor persons concerning the payment of taxes
Gilmour v Coates [1949] AC 426 at 442-3; [1949] 1 All ER 848 at 852, by Lord Simonds:

[F]rom the beginning it was the practice of the court to refer to the preamble of the statute in order to
determine whether or not it was charitable. The objects there enumerated and all other objects which
by analogy are ‘deemed within its spirit and intendment’ and no other objects are in law charitable. That
is settled and familiar law.

Royal National Agricultural and Industrial Association v Chester (1974) 3 ALR 486 a trust for the
breeding and racing of pigeons failed because there was no analogous charitable purpose in the
preamble.

A trust for the not-for-profit publication of law reports was found to be charitable in Incorporated
Council of Law Reporting (Qld) v Federal Commissioner of Taxation (1971) 125 CLR 659; [1972] ALR
127, on the grounds that the reporting of cases was fundamental to society in the same way that the

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maintenance of roads, and the promotion of agriculture were fundamental and within the spirit of the
preamble

Commissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583. His Lordship stated at

‘Charity’ in its legal sense comprises four principle divisions: trusts for the relief of poverty; trusts for the
advancement of education; trusts for the advancement of religion; and trusts for other purposes
beneficial to the community, not falling under the preceding heads.

Report of Inquiry Into the Definition of Charities and Related Organisations 2001
the advancement of health, which includes the prevention and relief of sickness, disease or of human
suffering;

the advancement of education;

the advancement of social and community welfare, which includes the prevention and relief of poverty,
distress or disadvantage of individuals or families; the care, support and protection of the aged and
people with a disability; the care, support and protection of children and young people; the promotion
of community development to enhance social and economic participation; and the care and support of
members or former members of the armed forces and the civil defence forces and their families

Report of Inquiry Into the Definition of Charities and Related Organisations 2001

the advancement of religion;

religion

the advancement of culture, which includes the promotion and fostering of culture and the care,
preservation and protection of the Australian heritage;

the advancement of the natural environment; and

other purposes beneficial to the community, which without limitation include the promotion and
protection of civil and human rights; and the prevention and relief of suffering of animals.

Charities Bill in 2003

Extension of Charitable Purpose Act 2004.

Public benefit
The benefit must be for the entire public or for a significant proportion of it: Ford & Lee at [19070].
However, the purpose of the trust need not be effected in the jurisdiction for it to be of benefit to the
public: Kytherian Association of Qld v Sklavos (1958) 101 CLR 56.

To illustrate these principles, trusts for the advancement of religion have failed where they have the
object of favouring cloistered or contemplative orders who have little contact with the outside world:
Gilmour v Coats [1946] AC 426. Trusts established to stop the practice of vivisection have also failed
because there would be an overall detrimental effect to the public should such experimentation cease:
Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31.

Re Compton [1945] Ch 123. Lord Greene MR stated at 131,

…[A] gift under which the beneficiaries are defined by reference to a purely personal relationship to a
named propositus cannot on principle be a valid charitable gift. And this, I think, must be the case
whether the relationship be near or distant, whether it is limited to one generation or is extended to

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two or three or in perpetuity. The inherent vice of the personal element is present however long the
chain and the claimant cannot avoid basing his claim on it.

The Compton test has been used to strike down charitable trusts when the potential recipients of the
trust funds have been defined by reference to blood relation, employment or contract

BUT the requirement for public benefit does not apply to trusts for the relief of poverty: Dingle v
Turner [1972] AC 601; [1972] 1 All ER 878. Secondly, trusts for people from particular geographic locales
do not offend the rule, as they can be applied regardless of inherent personal characteristics: Re Tree
[1948] Ch 325; 2 All ER 65. Thirdly, a request by the creator that family members, or others connected
by association or contract, be given preference in the administration of the charity, will not invalidate
the trust

Trusts for Political Purposes

A trust which has a political purpose will not be charitable: Bowman v Secular Society [1917] AC 406;
[1916-17] All ER Rep 1. A trust will be deemed to be political when it has the purpose of changing the
law: Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31. Examples include a trust to
establish a nationalised health service, Re Bushell (dec’d) [1975] 1 All ER 721, or to reform the alphabet,
Re Shaw [1957] 1 All ER 745.

Attorney General (NSW) v The NSW Henry George Foundation Ltd [2002]

 Santow J

There is a crucial distinction, inhering in McGovern, between permissibly changing the law within the
framework of its established policy and impermissibly reversing the law along with its established policy.
Incremental change to the law consistent with its established direction may indeed be permitted today.

That case concerned a trust to further the study of Henry George’s ideas about a unitary land tax
system, and pursuing them via legislative change. His Honour stated at [63-4]:

There is a feeling of what I might call “judicial cop out” in the policy that the court cannot judge the
public benefit of proposals to amend the law. Indeed, in many instances, the fact that diverse arguments
are presented to the public on issues of importance may itself be important to the community. Indeed,
it is clear that when considering what is of benefit to the community, the court rules on what is
beneficial at the date of the trust or at the hearing. Courts are well equipped to do this.

Trusts for the Relief of Poverty

In order to be valid as a gift for the relief of poverty the law does not require that the persons to be
benefited should be destitute, or even on the border of destitution: Re Gillespie (dec'd) [1965] VR 402 at
406, per Little J. Rather a trust will relieve poverty when it provides money to those who would have to
‘go short’ because of their financial status: Re Coulthurst (dec'd)

The Aged

The Impotent

Trusts for the Advancement of Education

It includes gifts to particular educational institutions, such as schools and universities, which, coming
under the preamble, are prima facie charitable

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Educational trusts can embrace specific purposes which are related, sometimes loosely, to education.
Trusts for scholarships, buildings and the dramatic arts are all examples of valid educational trusts

Trusts for the Advancement of Religion

The definition of ‘religion’ was provided by Mason CJ and Brennan J in Church of the New Faith v
Commissioner of Pay-roll Tax (Vic) (1983) 154 CLR 120 at 136:

[F]or the purposes of the law, the criteria of religion are twofold: first, belief in supernatural Being, Thing
or Principle; and second, the acceptance of canons of conduct in order to give effect to that belief,
though canons of conduct which offend against ordinary laws are outside the area of immunity, privilege
or right conferred on the grounds of religion.

Advancement of Religion Generally

Trusts for Buildings, Grounds and Cemeteries

Trusts for Prayers, Masses and Ceremonies

Gifts to Religious Office Bearers

Trusts for Purposes which are Beneficial to the Community

Gifts to a Community

Public Works and Beautification Trusts

Animals and Wildlife

Protection from War and Disaster

Relief of Taxes

Public Recreation and Sport

Public Safety and Defence

Trusts with Mixed Charitable and Non-Charitable Purposes

Compendious gifts include gifts for ‘objects of benevolence and liberality,’ Morice v Bishop of Durham.
Additionally, if the gift is worded to give the trustee a discretion to choose between charitable and non-
charitable purposes, the gift will fail. An example of such a gift is a gift for ‘charitable or benevolent
purposes’

Enforcement and Administration of Charitable Trusts

General Administrative Schemes - Charitable Trusts Act 1993 No 10

12 Attorney General may establish schemes

(1) The Attorney General may by order establish a scheme for the administration of any charitable
trust. In particular, the Attorney General may by such an order:

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 (a) establish a scheme for the alteration of the original purposes of a charitable trust so as to
enable the trust property or any part of it to be applied cy pres if it appears to the Attorney General that
the trust property or any part of it may be so applied, or

(b) establish a scheme to extend or vary the powers of trustees of a charitable trust or prescribe
or vary the manner or mode of administration of any charitable trust, either generally or in a particular
case, if it appears to the Attorney General that it is expedient to do so in the interests of the
administration of the charitable trust, or

(c) in the case of 2 or more charitable trusts, establish a scheme to authorise the trustees to use
common premises or employ common staff in the administration of the trusts, to pool the trust property
for the purpose of investment, or otherwise to combine for any purpose of administration of the trusts.

(2) Without limiting the generality of any provision of this Part, a scheme under this Part may vest
in any trustees of a charitable trust who desire to sell, mortgage or lease the trust property or any part
of it, but who cannot do so for lack of power vested in them by the instrument (if any) creating the trust
or by law, the necessary power for such a sale, mortgage or lease.

(3) If there are no trustees of a charitable trust, a scheme under this Part may appoint trustees for
the purposes of the scheme.

(4) A scheme for the administration of a charitable trust established by the Attorney General under
this Part has the same effect as it would have if it had been established by the Court.

Cy-pres Schemes
"as near as possible" or "as near as may be." When the original objective of the settlor or the testator
became impossible, impracticable, or illegal to perform, the cy-près doctrine allows the court to amend
the terms of the charitable trust as closely as possible to the original intention of the testator or settlor,
to prevent the trust from failing.

The cy-près doctrine applied in England and Wales limited the strictness of the rules of mortmain under
which property disposed of otherwise than to a legal heir was subject to forfeiture in certain
circumstances. Following abolition of mortmain, the modern application of the cy-près doctrine has
predominantly occurred in relation to charities as these are the most important trusts for a general
purpose (not private benefit) permitted under English law.

The Charity Commission for England and Wales has the statutory power to apply the cy-près doctrine on
behalf of a charity where, for example, no trustees remain in a charity or the necessary mandate cannot
be agreed. These powers extend to a corporate charity or unincorporated association (which the
common law rules may not cover). Similar powers apply to the equivalent bodies in Northern Ireland
and Scotland. The cy-près doctrine will not be applied where a charity has alternative powers to redirect
its funds under its constitution.

In jurisdictions which have retained the English cy-près doctrine but do not have an equivalent state
body to the Charity Commission (or in relation to foreign charities' assets in the United Kingdom),
charity trustees may seek the approval of the Court to their entry into cy-près arrangements to avoid
later accusations of breach of trust.

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Initial Impossibility – where the gift fails at inception, it can be applied cy-pres if it exhibited general
charitable intent i.e. the settlor intended to give to charity and this intention supersedes the intention to
give to a particular purpose. AG NSW v Perpetual Trustee (1940) Testator left farm and land for the
establishment of a training farm for “orphan Australian lads” but the pastoral inspector deemed the
land unsuitable for that purpose. HC found general charitable intent not limited to the specific purposes.
Charitable intent required no more than a purpose wider than the execution of a specific plan. This
allowed the court to apply cy-pres and select a valid scheme for the property.

Supervening Impossibility – Where a gift takes effect according to its terms but later becomes
impossible or impractical. Re Lysaght Deed

Facts: Gift to the Royal College of Surgeons to provide scholarships for British born students “not of
Jewish or Roman Catholic faith.” The college refuses to accept the gift on these discriminating terms.

Held: The gift was varied because: “The impracticability of giving effect to some inessential part of the
testatrix’s intention cannot…be allowed to defeat her paramount charitable intention.”

- Court found that the testator wasn’t really a “bigot”. They also held that there was a supervening
impossibility or impracticality. The testator really wanted the College to decide the scholarship.

- This meant the court could institute a cy pres scheme by removing the restrictive provision to ensure
that the College could still get the money

Satisfaction of Original Purpose

Phillips v Roberts
Facts: Testatrix leaves property to “improve biblical knowledge” by establishing a new church.

Held: Giving effect to the intentions of the testator was clearly impractical, but the Court held that the
gift was generally charitable (looking at the will primarily). Problem as to how to apply the principle. The
intentions of the testator were clearly to establish a new church as she was very unhappy with the
current faiths. There were two schemes suggested. Trustees suggested the money should benefit the
Institute of Archaeology. The AG wanted the fund to be divided among seminaries. Hutley J was
prepared to assess evidence from testatrix’s associates to infer what her reactions would have been to
the way her property was disseminated.

Evidence from friend of testatrix disclosed that she would not have wanted money to go to seminaries.
Money can go to the Institute of Archaeology.

Statutory Powers

Valid Non-Charitable Purpose Trusts Morice v Bishop of Durham

• A trust for objects of “benevolence and liberality” is not charitable, and lacking “somebody in whose
favour the court can decree performance”, therefore invalid.

The upkeep of animals:

animals People would leave money in trust to be used to look after their animals. These
trusts do not satisfy the public benefit test. However, these cases have been held valid as an exception.
They cannot live beyond the perpetuity period. This was okay, as the person entitled to the money in
the event of default would always be there to ensure that the gift could be enforced.

Pettingall v Pettingal; Re Dean; Cooper-Dean v Stevens

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The maintenance of graves and tombstones:
tombstones Not charitable to maintain your own grave and
tombstone, but trust can survive so long as it only survives during the perpetuity period. There was a
residuary legatee to bring before the court any failure to comply with the decisions.

Pirbright v Salwey; Re Hooper

Problem
At the end of World War II, Pierre Culliford, a dentist’s assistant, left his birthplace in Belgium and
emigrated to Australia. He settled on a farm he purchased near Sommersby. The farm was in a very run-
down condition when he purchased it. Pierre devoted all his time, energy and resources to establishing
his beloved farm, which he named ‘Schtroumpfland’ (the name of the Belgian village in which he was
born).

In 1989 Pierre contracted motor neurone disease. As a result of his affliction Pierre came into contact
with the NSW Motor Neurone Disease Research Council, an unincorporated body, which was engaged in
research for an effective cure for motor neurone disease, and which had its research centre and
headquarters in Gosford.

In April 1990, the NSW Motor Neurone Disease Research Council was effectively dissolved, but its
functions were taken over by a newly formed body called the Motor Neurone Disease Research Institute
of NSW. At all relevant times the only other institution concerned with motor neurone disease in NSW
was the Newcastle-based Motor Neurone Disease Sufferers Association.

As a result of Pierre’s disease he was unable to work his farm and the farm proceeded to decline rapidly.
In May 1997 Pierre died. At the time of his death the ‘Schtroumpfland’ farm was worth $350,000, but
had ceased to generate any income at all. It was estimated that the costs of repair would run into the
millions.

In his will Pierre appointed his nephew Johan as executor and trustee as well as residuary beneficiary.

Consider the following provisions left by Pierre to his trustee in his will:

a)$50,000 to the Anti-Motor Neurone Disease Centre.

b)The whole of my beloved ‘Schtroumpfland’ farm for a training farm for orphan lads being Australians.

c)$5000 to provide a stone and marble memorial to past and present sufferers of motor neurone
disease..

Answer
The first disposition suffers from an initial impossibility as the gift is to a non-existing institution. Such a
gift will fail in the absence of a general charitable intention that can be effected cy-près. A general
charitable intention is present, given that the gift appears intended to address the woes associated with
motor neurone disease. Such a gift is clearly a trust to aid the impotent:. A cy-près scheme could be
ordered under the inherent power of the court.

The court will examine the evidence of the purposes of the association to see which association carries
out purposes as ‘near as possible’ to the intention of the testator.

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The second gift fails because of initial impossibility. Here the initial impossibility is related to the fact
that the trust is impractical, given the condition of the farm. The facts of this question are very similar to
those in Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209

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RESULTING TRUSTS
Definition
A resulting trust is a trust that arises because equity presumes an intention to create a trust.

They are often referred to as ‘implied’ trusts, although they should not be confused with express trusts
where an intention to create the trust is implied from wording or surrounding circumstances.

Automatic resulting trusts

Westdeutsche Landesbank Girozentrale v Islington Borough Council
Resulting trusts which arise when there has been a failure of an express trust, or, alternatively, where
there is a surplus of trust property after a trust has been terminated. In these situations the remaining
trust property is held on resulting trust for the creator of the trust because it is presumed that the
creator intended to receive any leftover beneficial interest

Presumed resulting trust

Resulting trusts which arise because contributions have been made to the purchase of property but the
contributor has not been given a legal title that is equivalent to that contribution. In such a transaction,
equity presumes that the equivalent legal title is held on trust for the contributor

An institutional trust
Any presumption that equity makes about a person’s intention can be rebutted by evidence of actual
intention

A resulting trust comes into existence from the date of the circumstances giving rise to its presumption

The resulting trust is a property institution like an express trust, rather than a remedy

Rickett and Grantham (2000) at 19:

The resulting trust and its foundational presumptions operate as part of the law of property, simply as a
series of default rules locating the beneficial interest in property when the transfer of the property is
itself ambiguous as to the location of that interest, or ineffective to dispose of that interest

Some scholars, like Chambers (1997), have argued that beyond this basic but fundamental role, lies an
attempt by equity to prevent or reverse unjust enrichment on the part of those who have received legal
title where there was no intention for them to obtain a beneficial interest.

Incomplete disposition of a beneficial interest

A resulting trust will be imposed when there has been an incomplete disposition of a beneficial interest
in a trust. This can occur when an express trust fails, when the purpose of a trust fails or when a trust
surplus exists after satisfaction of the purpose of a trust.

Failure of an express trust

After an express trust fails, equity imposes a resulting trust by presuming an intention on the part of the
creator for the trust property to revert back to the creator.

If a trust fails for illegality, equity looks at the specific circumstances of the case and the particular policy
behind the law that had been breached, before determining whether a resulting trust should be applied:
Nelson v Nelson

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Failure of the purpose of a loan

Quistclose trusts
This trust has been classified by Lord Millet in Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER
377, as a resulting trust

Salvo v New Tel Ltd [2005] NSWCA 281: the majority (Spigelman CJ and Young CJ in Eq) favoured an
express trust treatment

Trust surpluses after satisfaction of the purpose of a trust

A trust surplus might exist after the beneficiaries in a fixed trust have taken all their entitlements or have
died. In such cases there will be a resulting trust of the surplus back to the creator of the trust

Purchase of property in another person’s name

If a purchaser buys property and voluntarily directs the transfer of the property into the name of
another person, equity presumes that the owner holds that property on resulting trust for the
purchaser: Napier v Public Trustee (WA)

For example, if A purchases property from B, and directs that B transfer the title into C’s name, equity
presumes that C holds the property on trust for A.

The presumption applies to both real and personal property

Eg Russell v Scott (1936) 55 CLR 440, the presumption of resulting trust applied to a bank account that
was opened by one party in her own name and the name of her carer. That presumption was rebutted
by evidence of an intention to convey a beneficial interest on the carer

The presumption of resulting trust will not arise in cases where the purchase monies have been
provided as a loan. The presumption only applies when the provider of the monies acts as a purchaser
or directs that the purchase take place

Contributions to the purchase of property

In cases where the purchase money is provided by two or more parties jointly, and the property is put
into the name of one of the parties, equity will presume a resulting trust in favour of the other party or
parties

For the presumption of resulting trust to arise, contributions that are made by the parties must go
towards the purchase price of the property. Importantly, equity determines this by looking at what was
provided by the parties at the date of purchase

Several types of contribution can be recognised as contributions to purchase price. Obviously, direct
payment of money towards purchase will be included, as will be legal fees, stamp duty and incidental
costs associated with the costs of acquisition

If a party has incurred a mortgage liability to provide contributions to the purchase price, that mortgage
liability counts as a contribution

Because equity looks at contributions that are made at the date of purchase, the presumption of
resulting trust will not arise when payments are made towards costs incurred after the property has
been acquired

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Australian courts have refused to recognise payments of mortgage instalments as contributions if they
are made by a party who incurred no mortgage liability at the date of purchase

in England the courts have recognised that some indirect financial contributions, which occur after
purchase, may be considered in the calculation of the beneficial interests

In Midlands Bank v Cooke, the Court of Appeal found that once some direct financial contribution had
been made it was then open to the court to calculate the beneficial interests on the basis of all
contributions, whether direct or indirect, whether prior to or after purchase

Upgrades and maintenance will not be considered as contributions unless there was a common
intention or agreement between the parties that is enforceable or gives rise to an estoppel

The nature of co-ownership in resulting trusts

Ordinarily equity’s presumption of resulting trust is based on the co-owners holding their shares as
tenants in common

However, in cases where the parties made equal contributions, equity presumed that the interests were
held as joint tenants and not as tenants in common.

Why did equity prefer joint tenancy when the contributions were equal? In such circumstances it was
said that ‘equity followed the law’ and the common law always presumed that co-owners took as joint
tenants in the absence of an express declaration of tenancy in common

Statutory reforms have reversed the common law presumption of joint tenancy in some jurisdictions
and imposed a presumption of tenancy in common

In Delehunt v Carmody (1986) 161 CLR 464; 68 ALR 253, the High Court found that equity still followed
the law in these jurisdictions and, given that the law had changed, equity would now presume tenancy
in common when the parties make equal contributions to purchase price.

Rebutting the presumption of resulting trust

When the presumption of resulting trusts arises, evidence can be admitted of the actual intention of the
parties to prove that no such trust was intended

Intention remains paramount in resulting trusts and evidence of the circumstances surrounding the
transfers is admissible, whether it be written or parol evidence. However, it is important to note that the
evidence must relate to the intention of the parties at the time that the interests were created

The presumption of advancement

In some cases equity refuses to presume an intention to create a resulting trust and instead presumes
that any purchase or contribution was intended to be a gift by way of advancement.

This presumption of advancement only arises in cases where purchase monies or contributions are
provided by a husband to a wife or by a parent to a child (not necessarily biological children but
someone to whom the provider of funds stands in the position of a parent).

It does not arise in other fiduciary relationships, like those between companies and directors: SCE
Building Constructions Pty Ltd (in liq) v Saad [2003] NSWSC 796

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The effect of a presumption of advancement is to override the presumption of resulting trust with the
result that the legal and equitable estates will stay where they lie

The presumption of advancement, like the presumption of resulting trust, can be rebutted by evidence
of the intention of the parties at the time of the transfer. If it is shown that there was no actual intention
to confer a beneficial interest on the legal title holder the presumption will not be effective and the
normal presumption of resulting trust will apply

The presumption of advancement arises when a husband either provides the purchase price or makes
contributions to the purchase price of property in which the wife is given a legal interest

It does not arise in cases of transfers from a wife to her husband: March v March (1945) 62 WN(NSW)
111. In the past it has been assumed that the husband had a natural duty to provide for his wife (and
children) and this gave rise to the presumption

In Scott v Pauly (1917) 24 CLR 274 at 282, Isaacs J stated that the presumption of advancement,

… is an inference which the courts of equity in practice drew from the mere fact of the purchaser being
the father, and the head of the family, under the primary moral obligation to provide for the children of
the marriage, and in that respect differing from the mother.

The presumption of advancement

In Calverley v Green (1984) 155 CLR 242 at 268; (1984) 56 ALR 483 at 501, Deane J advocated an
adjustment of the doctrine to ‘reflect modern conceptions of equality in status and obligations of a wife
vis-a-vis a husband’.

The presumption of advancement

The presumption can also arise in cases where a transfer occurs between a man and his intended wife or
fiancee: Wirth v Wirth (1956) 98 CLR 228; Bertei v Feher [2000] WASCA 165. Such a transfer is
considered to be a gift in contemplation of marriage. If the marriage does not occur the gift should be
returned. If the gift is not returned it will be then held on resulting trust: Jenkins v Wynen [1992] 1 Qd R
40

The presumption of advancement does not arise in de facto relationships

Calverley v Green (1984) 155 CLR 242

Mason and Brennan JJ stated at CLR 260; ALR 495 that:

The term ‘de facto husband and wife’ embraces a wide variety of hetero sexual relationships; it is a term
obfuscatory of any legal principle except in distinguishing the relationship from that of husband and
wife. It would be wrong to apply … the presumption of advancement …

There is a presumption of advancement when purchase money is provided by a parent and the legal title
is taken by a child

The key requirement is that the purchase price be provided by someone in loco parentis (in the position
of a parent). As such the presumption can also apply to illegitimate and adopted children, as well as to
other forms of familial relationship, as long as one party has acted as the parent for the other

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Traditionally, it was thought that the presumption of advancement would only arise when a father
provided funds for the purchase of property for his children: Scott v Pauly (1917) 24 CLR 274 at 282, per
Isaacs J. However, in more recent cases the presumption has been recognised as arising between a
mother and her children: Brown v Brown (1993) 31 NSWLR 582

Gifts and resulting trusts

Presumptions of resulting trust and of advancement can also arise in gifts (voluntary transfers of
property). For example, if A makes a gift of property to B, a presumption of resulting trust may arise that
B holds the property on trust for A

Equity treats gifts of realty differently to gifts of personalty. Unfortunately the operation of the
presumptions in gifts of land has been made problematic because of the operation of the Statute of
Uses 1535. Prior to that statute, equity presumed that any interest in land given without consideration
to a stranger (meaning someone to whom a presumption of advancement would not arise) was held on
resulting use

After the statute the use was executed and the ownership reverted back to the grantor, leaving the
transfer ineffectual

To enable people to make gifts of realty, the courts recognised the voluntary transfers if they were
expressed to be given ‘unto and to the use of’ the stranger

Legislation provides that no presumption of resulting trust will arise in a voluntary transfer of realty,
unless the transferor expresses an intention to create a use or a trust: Conveyancing Act 1919 (NSW), s
44

With regards to personalty, if a gift is made to a stranger of personalty which can produce income, then
a resulting trust will be presumed: Hendry v E F Hendry Pty Ltd [2003] SASC 157. Otherwise, gifts of
personalty will not give rise to a resulting trust.

Han and Leia entered into a de facto relationship in 1975. In 1976 they had a child named Luke. In 1987
they purchased a house in Lucastown for $150,000. The purchase price was paid by Han; the money
coming to Han as an inheritance from the estate of his late uncle. At the time of purchase, Han decided
to have the property registered in his, Leia’s and Luke’s names as tenants in common and in equal
shares.

In 1994, when Luke reached his majority age, with the Yavin Bank Ltd in the joint names of Han and
Luke. Han told Luke that he would be making all the deposits into the account and would withdraw from
the account whenever it may become necessary. However, he also said that if anything should ever
happen to him (ie Han) the money then in the account would belong to Luke.

Two weeks ago Han and Leia died in a car accident. In his will Han left his entire estate to Beru, his
daughter that he had fathered in 1972 before he had met Leia. In her will Leia left her entire estate to
Luke. At the time of their deaths the Lucastown property was worth $300,000, and the bank account at
Yavin Bank Ltd had a balance of $5000

Beru seeks your advice as to whether she has any entitlements in the Lucastown property and the bank
account, and if not who is entitled and to what extent.

Solution

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Given that the problem concerns parties who are deceased, it is not subject to any of the legislative
regimes controlling de facto relationships and must be dealt with using equity

Dealing first with the interests in the property at Lucastown, Han, Luke and Leia each owned an
equivalent tenancy in common equalling one-third of the value of the property. Tenancies in common
contain no right of survivorship so at law the interests that will pass through Han’s will to Beru are her
father’s one-third interest in the house. Similarly Luke will receive Leia’s one-third interest, leaving him
with a two-thirds interest at common law. However, it is open to equity to adjust the beneficial interests
of the parties and whatever interests equity believes were beneficially owned by Han at the time of his
death will pass to Beru, via Han’s will. Similarly, any beneficial interests held by Leia will pass to Luke, via
her will.

Given that Han provided the entirety of the purchase price, a presumption of resulting trust is raised in
Han’s favour over both Leia’s one-third interest and Luke’s one-third interest

There is no presumption of advancement in favour of Leia that will override the presumption of
resulting trust. She is a de facto partner and, as such, no presumption of advancement can be raised in
her favour

There does not appear to be any evidence of Han’s actual intention to rebut this presumption. The
beneficial interest therefore belonged to Han and passes to Beru in his will

A presumption of advancement can be successfully raised in Luke’s favour

It matters not that Luke was born out of wedlock

Therefore his interest is not held on resulting trust and one-third legal title stays with him

In relation to the bank account, it should be noted that the presumptions arise over transfers of both
real and personal property

The presumptions of resulting trust and advancement apply to joint bank accounts where one party
provides all the funds for that account: Russell v Scott (1936) 55 CLR 440

The presumption of advancement is obviously paramount here, given the relationship between Han and
Luke. It does not matter that Luke was an adult when the bank account was opened: Brown v Brown
(1993) 31 NSWLR 582. There is no evidence of actual intention that rebuts the presumption of
advancement. Therefore the beneficial interest remains with Luke.

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CONSTRUCTIVE TRUSTS
Definition

A constructive trust is a trust imposed by law. Because a constructive trust arises by operation of law, it
is often said that the intention of the parties subject to a constructive trust is irrelevant to its application

However, as shall become clear below, it is wrong to state that the intention of the parties to a
relationship is completely irrelevant to constructive trusts as there are forms of constructive trust that
arise by way of common intention and agreement. In that sense it is preferable to say that intention is
not a necessary element of the constructive trust, as it is for both express and resulting trusts.

Remedy or institution?
Property institution: This means that the express and the resulting trust reflect defined relationships
between parties that come into existence at a time determined by the conduct of those parties. Once in
existence, the relationships are governed by the institution of trust, meaning that rights, powers and
duties of trust should be exercised and honoured between the parties.

A remedy differs from a property institution in the time of its availability and its discretionary nature

If the constructive trust is an equitable remedy it will exist from the time that an order is made by the
court: Re Polly Peck International plc (in administration) v MacIntosh [1998] 3 All ER 812 at 825

Similarly, if constructive trusts are treated as an equitable remedy, they will be discretionary in nature. A
judge could refuse to order a constructive trust if it was a remedy, whereas if the trust was an institution
it would exist independently of the judge’s exercise of discretion

Muschinski v Dodds (1985) 160 CLR 583 at 612–4 , Deane J:

At times, disputing factions have tended to polarise the discussion by reference to competing rallying
points of ‘remedy’ and ‘institution’. The perceived dichotomy between those two catchwords has,
however, largely been the consequence of lack of definition. In a broad sense, the constructive trust is
both an institution and a remedy of the law of equity. As a remedy, it can only properly be understood in
the context of the history and the persisting distinctness of the principles of equity that enlighten and
control the common law.

The use or trust of equity, like equity itself, was essentially remedial in its origins … Like express and
implied trusts, the constructive trust developed as a remedial relationship superimposed upon common
law rights by order of the Chancery Court. It differs from those other forms of trust, however, in that it
arises regardless of intention. For that reason, it was not as well suited to development as a
conveyancing device or as an instrument of property law. Indeed, whereas the rationale of the
institutions of express and implied trust is now usually identified by reference to intention, the rationale
of the constructive trust must still be found essentially in its remedial function which it has
predominantly retained

The effect of Deane J’s re-classification has been to allow courts to choose the time from which a
constructive trust arises, and in that sense the remedial function of the trust is given effect through the
imposition of the institution of trust

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The effect of Deane J’s re-classification has been to allow courts to choose the time from which a
constructive trust arises, and in that sense the remedial function of the trust is given effect through the
imposition of the institution of trust

If a judge has decided to impose a constructive trust retrospectively, equity regards as done what ought
to have been done and the trust is considered to have existed as an institution from that time onwards,
rather than from the time of the order

The problem with the exercise of such discretion is the uncertainty it generates for third parties who
have an interest in the property in question. This is particularly the case in insolvencies where the
parties are jostling for priority to access property to satisfy their debts

The institutional view of a constructive trust might be signficantly unfair to unsecured creditors who
were not aware of the existence of a constructive trust, but may nevertheless find their claims cannot be
satisfied because the property is held on trust

In Parsons v McBain (2001) 109 FCR 120, when discussing the imposition of common intention
constructive trusts the Full Federal Court held that the trust was created by the conduct of the parties
and arose at that time, even if that had the effect of defeating unsecured creditors.

This has been followed in later cases: Jabbour v Sherwood [2003] FCA 529; Parianos v Melluish (Trustee)
(2003) 30 Fam LR 524.

In Clout v Markwell [2003] QSC 91 at [21], it was said that creditors should be expected to be aware of
constructive trusts which may arise when the debtor is married or in a de facto relationship.

In Australian Building and Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460, parents had
provided funds to their son to purchase land and build duplexes on it, one of which would be
transferred into the parents’ names on completion.

Parents had increased the mortgage on their own home to get the funds.

Property used as security on debts owed by his business.

Business then collapsed

Parents claimed an interest under both a resulting trust (to secure their initial contribution) and a
constructive trust (for later contributions they made to the building effort).

These claims were resisted by the son’s creditors.

Ward J declared that there was a resulting trust for the contributions to the purchase price but did not
order a constructive trust over the further amounts paid by the parents. These amounts were instead
secured by equitable liens which could then be ranked against the other security interests held by the
creditors.

Differences with express and resulting trusts

Millet J in Lonhro v Fayed (No 2) [1991] 4 All ER 961 at 971–2:

It is a mistake to suppose that every situation in which a constructive trust arises the legal owner is
necessarily subject to all the fiduciary obligations and disabilities of an express trustee.

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The second major difference is that constructive trusts are not always subject to the requirement of
certainty of subject matter

Giumelli v Giumelli (1999) 196 CLR 101 at 112 Gleeson CJ, McHugh, Gummow and Callinan JJ, found that
some constructive trusts create or recognise no proprietary interest but rather impose a personal
liability to account for losses sustained by constructive beneficiaries. In that situation there is no
identifiable trust property

When do constructive trusts arise?

institution/remedy dichotomy

The institutional approach is that it limits constructive trusts to defined sets of circumstances and, by
doing so, limits the judge’s discretion in deciding when and how to adjust a person’s beneficial
entitlements.

During the 1970s the United Kingdom’s Court of Appeal, led by Lord Denning MR, adopted a free-
ranging remedial basis for constructive trusts and came to the view that a constructive trust is ‘imposed
by law whenever justice and good conscience require it’: Hussey v Palmer [1972] 3 All ER 744 at 747

Later English decisions rejected the new model of constructive trust: Lloyds Bank v Rosset [1991] 1 AC
107; [1990] 1 All ER 1111. It never took a foothold in Australia where it was criticised as a form of ‘palm
tree justice’: Australia: Bryson v Bryant (1992) 29 NSWLR 188 at 196, per Kirby P.

Deane J - Under the law of this country — as, I venture to think, under the present law of England …
proprietary rights fall to be governed by principles of law and not by some mix of judicial discretion …,
subjective views about which party ‘ought to win’ … and ‘the formless void of individual moral opinion’
… Long before Lord Seldon’s anachronism identifying the Chancellor’s foot as the measure of Chancery
relief, undefined notions of ‘justice’ and what was ‘fair’ had given way in the law of equity to the rule of
ordered principle which is of the essence of any coherent system of rational law. The mere fact that it
would be unjust or unfair in a situation of discord for the owner of a legal estate to assert his ownership
against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or
in part lies, in equity, in that other …

Constructive trusts to enforce agreements concerning property

Incomplete contract for the sale of property - Lysaght v Edwards - equitable conversion

3 quals – specific performance, unconditional, identified property

Incomplete gifts – Corin v Patton

Fraudulent transactions - Avondale Printers and Stationers Limited v Haggie [1979] 2 NZLR 124 ; White
City Tennis Club Ltd v John Alexander’s Clubs Pty Ltd [2009] NSWCA 114

Secret trusts

Mutual wills - wills made as part of an agreement, whereby the parties promise not to revoke their wills
after one of the other parties dies. The essential characteristic of mutual wills is that there be an
agreement between the parties not to revoke their wills Barns v Barns (2003) 214 CLR 169

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(i) it is the disposition of the property by the first party under a will in the agreed form and upon the
faith of the survivor carrying out the obligation of the contract which attracts the intervention of equity
in favour of the survivor;

(ii) that intervention is by the imposition of a trust of a particular character;

(iii) the subject-matter is “the property passing [to the survivor] under the will of the party first dying”
Birmingham v Renfrew (1937) 57 CLR 666 at 689];

(iv) that which passes to the survivor is identified after due administration by the legal personal
representative [Easterbrook v Young (1977) 136 CLR 308 at 319-320] whereupon “the dispositions of
the will become operative”[Attenborough v Solomon [1913] AC 76 at 83];

(v) there is “a floating obligation” over that property which has passed to the survivor

The essential characteristic of mutual wills is that there be an agreement between the parties not to
revoke their wills

Estoppel -Constructive trusts will often be employed as a way of enforcing the equity arising in an
estoppel

Before a constructive trust is imposed to enforce an estoppel, the court should firstly decide whether
there is an appropriate equitable remedy which falls short of the imposition of a trust

Breach of confidence
Constructive trusts are a major remedy for breach of confidence, not only for breaches of agreements to
keep information confidential, but also for situations where information has been acquired by stealth

Common intention to deal with property

Where parties have entered into a relationship with a common intention that property is to be held
between them in a particular way, equity may enforce that common intention by the imposition of a
constructive trust.

While the parties may have had a shared intention or an agreement as to how property was to be held,
such an agreement may not be enforceable as a contract because the agreement is not in writing, or
because the parties may not have evidenced a sufficient intention to enter into legal relations

While the parties may have had a shared intention or an agreement as to how property was to be held,
such an agreement may not be enforceable as a contract because the agreement is not in writing, or
because the parties may not have evidenced a sufficient intention to enter into legal relations

Pettit v Pettit [1970] AC 777

FACTS

In Pettitt, the wife had used her own money to buy a house during the marriage and both she and her
husband resided therein until the wife left the husband. The husband claimed that he had carried out a
considerable number of improvements to the house and garden. These improvements consisted of
internal decoration work, building a wardrobe, laying a lawn and constructing an ornamental wall and a
side wall in the garden. By virtue of these efforts the husband sought a beneficial interest in the
proceeds of sale of the property. Title to the house had been in the wife's name.

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JUDGMENT

No Property right to hubby

In the course of his judgment, Lord Diplock said,

"It would, in my view, be an abuse of the legal technique for ascertaining or imputing intention to apply
to transactions between the post-war generation of married couples "presumptions which are based
upon inferences of fact which an earlier generation of judges drew as to the most likely intentions of
earlier generations of spouses belonging to the propertied classes of a different social era."

Notes

(a) S. 17 of the 1882 Act gives the courts no discretion to vary the property rights of the parties
established on ordinary equitable principles.

(b) Married couples are to be treated no differently from anybody else.

(c) Though Lord Reid expresses doubt, it appears that improving a property, unlike contribution to the
purchase price, will not generally give rise to an equitable interest in it.

(d) The presumptions of advancement have little if any application to this area of law. But see further
McGrath v. Wallis and Tribe v. Tribe.

(e) Legislative reaction was the Matrimonial Proceedings and Property Act 1970, s. 37 - which applies
only to married couples and fiancees.

Gissing v Gissing [1971] AC 886; [1970] 2 All ER 780

FACTS

Mrs Gissing had been married to Mr Gissing for 16 years, and had paid a substantial sum towards
furniture and the laying of a lawn, but the house had been conveyed into the name of Mr Gissing alone,
and Mrs Gissing had made no direct contributions towards its purchase. On their divorce, she claimed a
beneficial interest.

HELD

The House of Lords held that she had no interest.

NOTES

1. Lord Diplock drew a distinction between express agreement and inferred intention, which is
essentially the same as that drawn by Lord Bridge in Lloyds Bank v Rosset between the first and second
categories.

2. The interests of the parties were determined on the basis of their inferred intentions at the time of
acquisition of the property, and not by their subsequent conduct. In the absence of express agreement,
only conduct relevant to the acquisition of the property will generally be relevant. However, subsequent
conduct may be evidence of intention at the time of acquisition.

3. As in Pettitt v Pettitt the fact that the parties were married made no difference.

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A finding of expressed common intention can be made on the basis of evidence of intention prior to or
at the time of purpose: Gissing v Gissing at AC 908; All ER 791. Evidence may also be admissible of
intention in the immediate aftermath of purchase: Lloyd’s Bank plc v Rossett [1991] 1 AC 107 at 132

In the absence of evidence of express agreement, inferences of a common intention to grant a beneficial
interest will arise when the party has made a direct financial contribution to the acquisition of the
property. Indirect contributions, such as homemaking, will not be considered unless there was an
express agreement to recognise them.

Midland Bank v Cooke [1995] 4 All ER 562, where the Court of Appeal found that, once some direct
financial contribution had been made (however minimal) it was then open to the court to calculate the
beneficial interests on the basis of all contributions, whether direct or indirect

Oxley v Hiscock [2005] Fam 211

FACTS

Mrs Elayne Oxley was living at 39 Page Close, Bean, near Dartford, where under the Housing Act 1985
she had had the ‘right to buy’. She and Mr Allan Hiscock, a First Iraq War soldier who had been captured,
bought a new house together in September 1987, 35 Dickens Close. She paid 28%, he paid 48% of
£25,200. They both contributed to household expenditure, improvements, maintenance and paying off
the mortgage. Mrs Oxley claimed 50% of the proceeds.

JUDGMENT

Chadwick LJ held Mrs Oxley was entitled to a 40% share on the facts, not equal in light of the difference
between their initial cash contributions. He said there were two questions (1) was there a constructive
trust, and (2) how was it to be quantified. In particular, when there is no expression of what share each
was to, then it is up to the courts to decide.

Mance LJ and Scott-Baker LJ:

{{69. It must now be accepted that (at least in this court and below) the answer is that each is entitled to
that share which the court considers fair having regard to the whole course of dealing between them in
relation to the property.’ Includes arrangements to meet outgoings like mortgage, council tax, utilities,
repairs, insurance and housekeeping.}}

Stack v Dowden [2007] 2 AC 432

FACTS

Mr S and Ms D formed a relationship in 1975. They cohabited and had four children together. Prior to
1993 they lived in a house which had originally been bought by Ms D at a preferential price from a
deceased relative. The house was bought in her name and the purchase price raised in part by a
mortgage in her sole name, and the balance from a savings account, also in her sole name. When the
property was sold in 1993, she received the net proceeds of £66,613.

They then bought another property in joint names for £190,000. £65,025 was raised by way of joint
mortgage, secured by way of one joint endowment policy and another in Ms D's sole name. The balance
of the purchase price, plus the stamp duty and legal fees (£128,813) came from Ms D's savings account

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(into which had been paid the net proceeds of the Purves Road property). Some other facts relating to
the property:

 Mr S paid the mortgage interest and endowment policy premiums on the joint policy.

 Ms D paid the endowment premiums on her own policy.

 In due course, the mortgage was paid off by way of a series of lump sum payments, as to
£27,000 by Mr S and £38,435 by Ms D.

 The utility bills were all in Ms D's name, although Mr S made some contributions.

 There were some limited improvements to the property.

 Throughout their time together, they kept separate bank accounts and held separate savings
and investments.

The parties separated in October 2002. Mr S left the property. Ms D remained in occupation with the
children. In proceedings in the Family Court, Mr S agreed to stay away upon Ms D's undertaking to pay
him £1,000 per month to reimburse him for the cost of alternative accommodation.

JUDGEMENT:

1. Lord Bridge's two categories, defined in Rosset, still provide the acid test for the
establishment of the beneficial interest.

2. These further propositions should be clearly understood:

(a) "Fairness" is not a basis for establishing a beneficial interest.

(b) Neither a common intention to pursue improvements as a joint venture, nor to occupy as a
family home will be sufficient in itself to establish a beneficial interest.

(c) There is no inference from the purchase of property by a couple for their joint occupation
that it is a family asset in which each is entitled to an equal beneficial interest.

(d) Indirect contributions will only establish a beneficial interest if based on an agreement,
arrangement or understanding to that effect.

Quantifying the beneficial interest – Oxley has significantly clarified the law

A key distinction must be borne in mind from the start - between cases where

(I) there is express evidence of shared intention as to proportions and

(II) there is no evidence of any discussion between the parties as to the amount of the shares.

In class (I) the answer [to the question of the extent of the beneficial interests] will be provided by
evidence as to what the parties said and did at the time of the acquisition (Oxley para 69).

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In class (II), where there is no evidence of any discussion as to the amount of the beneficial interests,
Oxley states:

"[69] the answer is that each is entitled to that share which the court considers fair having regard to the
whole course of dealing between them in relation to the property [which] includes the arrangements
which they make from time to time in order to meet the outgoings (for example, mortgage
contributions, council tax and utilities, repairs, insurance and housekeeping) which have to be met if
they are to live in the property as their home."

Abbott v Abbott (Antigua and Barbuda) [2007] UKPC 53

Fowler v Barron [2008] EWCA Civ 377

Morris v Morris [2008] EWCA Civ 257

The common intention constructive trust has been recognised and accepted by Australian courts

Statements made by the parties such as ‘it’s for you and me’ or ‘this is your house’ our house’ have been
taken as sufficient to prove a common intention to grant a beneficial interest

In Australia Allen v Snyder (1977) 2 NSWLR 685

De facto couple purchased a house that was financed through a loan granted by the War Homes
Services Department. A condition of granting the loan was that the woman, Allen, make a declaration
that she was financially dependent on the man, Snyder. An additional condition of the loan was that the
title of the house should only be held by the man

During the course of the relationship, Allen paid for furniture and Snyder made a will in which his
interest in the house was to be passed to Allen. After the breakdown of the relationship, Allen claimed
that she was entitled to an equal beneficial share on the basis that it was the parties’ common intention
that she be granted such an interest.

Glass JA examined the judgments in Pettitt and Gissing and accepted that a trust could arise through the
common intention of parties, as long as the party asserting the interest made some contribution in
reliance on the agreement. Interestingly, his Honour found that the trust was an express trust that
lacked writing. The trust was enforceable because it would be fraudulent to deny the interest that was
intended: at 692. Most importantly, Glass JA stressed that the intention must be actual or inferred
intention. It could not be an imputed intention; that being an intention ascribed to the parties by
operation of law: at 694.

The factual evidence pointed out that there was a common intention that Allen be granted an interest in
the house upon the occasion of the parties getting married, or on the death of Snyder. However, there
was no intention to grant her an interest during the course of the de facto relationship.

Ogilvie v Ryan [1976] 2 NSWLR 504, an agreement between a testator and his housekeeper to grant her
a life interest in a house in his will in return for her services, was upheld on the basis that it would be
fraudulent to allow the legal title holder to receive the benefit of care without granting the agreed
beneficial interest

Compare to Bogdonovic v Koteff

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o    FACTS
    -    Koteff senior invites Bogdanovics to live
•    Gives Mrs B a life estate
o    Equitable interest under constructive trust
    -    When he dies, house given to son, who knew nothing of equitable or contractual interest to B – wants her out
    -    He became registered proprietor without knowledge of equitable or contractual rights
o    HELD
    -    Indefeasibility provisions apply same to registered proprietor of land who takes interest in land as volunteer
•    Allows rp to take title free from prior equitable interests which she had no notice of
    -    The oral promise to her would be sufficient, however in this case, Koteff’s son became registered proprietor
without prior knowledge of contractual or equitable right, and obtained indefeasible title
    -    King v Smail (Victorian Case) should no longer be followed, as Breskvar v Wall, following Frazer v Walker,
established that the title of each registered proprietor arises from registration

The Court of Appeal held that a registered volunteer obtained an immediately indefeasible title and was
thereby not subject to a prior unregistered interest created by the previous registered proprietor. As the
appellant, who was seeking to upset the title of the registered proprietor, could not point to anything in
the RPA preserving her rights against the registered proprietor who took as a volunteer, s 42 operated
so as to give Mr Koteff, the volunteer, an interest “absolutely free” from any estate or interest in Mrs
Bogdanovic.

A number of authors have suggested that there are no compelling reasons why a volunteer should
obtain the benefit of the paramountcy provision. Indeed Whalan has suggested that the matter of
whether a volunteer’s title should be indefeasible should be put to rest by a legislative provision
withholding the benefit of indefeasibility from a volunteer.

In this context, one problem remains as a result of the decision in Bogdanovic v Koteff. The conclusion
that a volunteer had an immediately indefeasible title (on the basis that this was the overall objective of
the Act) was clearly at odds with the earlier decision of Justice Adam in King v Smail. Justice Adam
reasoned on the basis of repeated references in the Victorian Act to “purchasers for value” and the need
to read the Act as a whole that the indefeasibility provisions considered as a whole suggested that
volunteers ought not to be given the same protections as purchasers. The Victorian equivalent to s 135
was one such provision referred to. As a result of Bogdanovic v Koteff the curious position arises that
volunteers would seem to get the protection of immediate indefeasibility under s 42, yet might still be
liable to a claim for damages for the reason that they do not come within the ambit of s 135. This
apparent result raises an acute problem analogous to that identified by Justice Mason in Franzon. That
is, the need for persons who have an indefeasible title and who cannot therefore be removed from the
register to be equally immune from claims for damages. After Bogdanovic volunteers would seem to be
in precisely this invidious position. This would appear to be another reason for resolving this matter by
statutory amendment.

Clout v Markwell [2003] QSC 91, it was argued that the wife could not claim an interest in property
(even though there had been a common intention with her husband) because her husband had not
denied her interest. Instead the husband had gone bankrupt and the trustee was denying the existence
of the wife’s interest. Aktinson J said that a common intention constructive trust does not require there
to have been an actual denial, but rather it arises because such a denial would be unconscionable. This
explanation appears to bring common intention constructive trusts more in line with the
unconscionability-based construtive trust

Constructive trusts to remedy breach of fiduciary duty

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Constructive trusts are the major remedy for breach of fiduciary duty

The constructive trust that arises in response to a breach of fiduciary duty is institutional, in that it arises
on the occurrence of the breach, not  the court order

Exceptions – loans, voidable contracts, bribes and secret commissions

Western Areas Exploration Pty Ltd v Streeter (No 3) [2009] WASC 213

Recently, the Supreme Court of Western Australia handed down its judgment in the case of Western
Areas Exploration Pty Ltd v Streeter [No 3] [2009] WASC 213. The case is an important reminder that
opportunities presented to a company may not be taken up by its directors, even if the directors believe
that the company cannot take up the opportunity itself.

Facts of the case

In late 1999, a group of geologists contacted Mr Brailey, who was a director of Western Areas
Exploration Pty Ltd, with a proposal that involved mining tenements held by the geologists being sold to
a company that would conduct an IPO and list on ASX. Mr Brailey referred the geologists to Mr Streeter
and Mr Cooper who were also directors of Western Areas Exploration Pty Ltd.

Although Mr Brailey understood that they were considering the proposal for Western Areas Exploration
Pty Ltd, Mr Streeter, Mr Cooper and the geologists agreed that the mining tenements would be sold to a
newly formed company called Western Areas NL (of which Mr Cooper, Mr Streeter and the geologists
would be directors) .

When Mr Brailey discovered this, he resigned as a director of Western Areas Exploration Pty Ltd.

On 28 July 2000 Western Areas NL listed on the ASX and acquired the mining tenements from the
geologists. Mr Streeter and his private company were issued shares and options by Western Areas NL as
consideration for seed capital provided by them. Mr Cooper was also issued options by Western Areas
NL.

At the same time, Western Areas Exploration Pty Ltd held a 70% interest in certain mining tenements
near Cue. Its joint venture partner contacted Mr Streeter and offered to sell the remaining 30% interest
in the tenements to Western Areas Exploration Pty Ltd for $5,000. Mr Streeter did not disclose the offer
to Mr Brailey and instead declined the offer on behalf of Western Areas Exploration Pty Ltd and
arranged for his private company to acquire the 30% interest.

Western Areas NL purchased a 100% interest in the tenements, 70% from Western Areas Exploration
Pty Ltd and the remaining 30% from Mr Streeter’s private company in return for an allotment of shares.

The case against Mr Streeter and Mr Cooper

In 2006, Mr Brailey and others requisitioned an extraordinary general meeting of Western Areas
Exploration Pty Ltd at which Mr Streeter and Mr Cooper were removed as directors. Western Areas
Exploration Pty Ltd then investigated the transactions and commenced proceedings against them
alleging that they wrongfully misused the opportunity to participate in the geologists’ proposal in breach
of their fiduciary duties as directors.

In their defence, Mr Streeter and Mr Cooper argued among other things that:

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1. The opportunity came to them independently of their connection with the plaintiff.

The court did not agree that Mr Brailey independently referred the geologists to Mr Streeter because he
was well-known wealthy investor in mining projects. However, the court commented that if the
opportunity had come to Mr Streeter and Mr Cooper independently of Mr Brailey or of their roles as
directors of the plaintiff, they would have been free to pursue it through Western Areas NL or in any
other form.

2. They were non-executive directors of the plaintiff which reduced the scope of their fiduciary duties.

The court held it was “virtually meaningless” to distinguish between executive and non-executive
directors because, together with Mr Brailey they were the only directors of Western Areas Exploration
Pty Ltd, they were directly involved in its activities and all of the work was performed by them, which
amplified rather than circumscribed their fiduciary duties.

3. The plaintiff was a failed company and was an unsuitable vehicle for the geologists’ proposal.

The court held that Western Areas Exploration Pty Ltd was still intent upon its original ambition of
acquiring interest in mineral tenements, raising further capital via public offers and becoming listed on
ASX and that what it needed was a suitable opportunity, like the geologists’ proposal, to acquire mining
prospects sufficiently attractive to support a prospectus for an IPO and encourage shareholders to
subscribe for further capital.

The court’s decision

The court concluded that Mr Streeter and Mr Cooper breached their fiduciary duties in diverting from
Western Areas Exploration Pty Ltd and using to their own advantage the opportunity to participate in
the geologists’ proposal. Mr Streeter’s private company was also found to be knowingly involved in the
breaches.

The court gave two alternative sets of orders which Western Areas Exploration Pty Ltd was entitled to
elect between.

The first set of orders was that the shares in Western Areas NL received by Mr Streeter and his private
company in return for seed capital and the 30% interest in the Cue tenements were held on trust for
Western Areas Exploration Pty Ltd, subject to Western Areas Exploration Pty Ltd paying to them an
amount equal to the seed capital paid to Western Areas NL and the consideration paid to acquire the
30% interest in the Cue tenements.

Similarly, it was held that shares held by Mr Streeter, his private company and Mr Cooper on the
exercise of options granted to them by Western Areas NL upon listing were held on trust for Western
Areas Exploration Pty Ltd, subject to Western Areas Exploration Pty Ltd paying to them amount equal to
the exercise fees they paid.

The second set of orders was that Mr Streeter, his private company and Mr Cooper be required to pay
to Western Areas Exploration Pty Ltd an amount equal to the market value of the shares referred to
above as at the date of the judgment less the allowances referred to above.

The effect of the orders is that Western Areas Exploration Pty Ltd is entitled to either 11.075 million
shares in Western Areas NL upon payment of $1.75 million to the defendants or to be paid by the
defendants approximately $65 million.

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Lessons learned from the case

The case serves as a reminder for all directors not to act on any opportunities which they come across in
their capacity as directors other than to pursue the opportunity for the company itself. This applies
whether or not the directors believe that the company would be willing or capable of pursuing the
opportunity.

Importantly, it also highlights that in assessing the scope of a director’s fiduciary duties, courts will focus
on the actual role performed by the director and the circumstances of the company, rather than being
whether the director is executive or non-executive.

Finally, the case indicates the increasing willingness of courts to allow incoming boards of directors to
commence proceedings in relation to the conduct of the outgoing directors, even where that conduct
took place several years in the past. In the Streeter case, the proceedings were commenced in August
2006, more than six years after the listing of Western Areas NL.

Michael Wilson and Partners Ltd v Nicholls [2009] NSWSC 1033

FACTS: The case arose out of the employment of two Australian citizens by a law firm operating in
Kazakhstan. The firm commenced proceedings against the employees in the Supreme Court of New
South Wales alleging that they and a partner of the firm had stolen clients of the firm when they left the
firm and set up a rival business. The firm alleged that the employees were liable for breach of contract,
inducing breach of contract, conspiracy to injure, breach of fiduciary duty and knowing assistance. The
partner was not a party. The firm separately commenced arbitration proceedings in London against him,
to which proceedings the employees were not party.

HELD: The Supreme Court of New South Wales held the employees liable to the firm and awarded an
equitable account of profits or equitable compensation, not a constructive trust over the corporate
vehicle.

Constructive trusts to remedy breach of fiduciary duty

The rule in Keech v Sandford- the rule that the trustee of a tenancy who obtains a right to renew that
tenancy holds that renewal on constructive trust for the beneficiaries

Constructive trusts that arise against third parties

Third parties (‘strangers’ to trusts) can be made constructive trustees in three ways:

[Link] acting as a trustee without authority (trustee de son tort);

[Link] knowing receipt of trust property; and

[Link] actively assisting in a breach of trust.

Trustees de son tort

A trustee de son tort is a person who has intermeddled in the affairs of the trust without proper
authority and has, in effect, become a trustee through his or her wrongdoing

To qualify as a trustee de son tort the person must have assumed some measure of control of the trust
property.

Honesty irrelevant

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Knowing receipt
In cases of knowing receipt the plaintiff must prove:

(1)the defendant has received trust moneys;

(2)the defendant knew the moneys paid were trust moneys; and

(3)the defendant knew of circumstances which made the payment a misapplication of trust moneys.

For a person to have ‘receipt’ requires him or her to have possession of the trust property for his or her
‘own use and benefit’

Banks will not generally be treated as having received funds placed in accounts, unless they apply the
proceeds to the reduction of an overdraft, or for security: Evans v European Bank Ltd [2004] NSWCA 82.

In Baden v Societe Generale [1992] 4 All ER 161 at 235, Peter Gibson J stated that there were five
categories of knowledge in a recipient that were relevant to the decision to impose a constructive trust:

1. actual knowledge;

2. wilfully shutting one’s eyes to the obvious;

3. wilfully and recklessly failing to make such inquiries as an honest and reasonable person would
make;

4. knowledge of circumstances which would indicate the facts to an honest and reasonable person;

5. knowledge of circumstances which would put an honest and reasonable person on inquiry.

The first three categories are often collectively described as ‘actual knowledge’ while the last two are
jointly referred to as ‘constructive knowledge’

The courts appear to be split between acceptance of all five categories or with limiting liability to those
cases of actual knowledge. It has been argued that, in cases of receipt, the recipient gets the full
advantage of the breach of trust and, as a result, the liability should be strict

The more recent English approach is to treat the Baden categories of knowledge as flexible aids to
categorisation, rather than as concrete tests

This relaxation in the use of Baden categories reached its zenith in BCCI (Overseas) Ltd v Akindele [2001]
Ch 437

In Australia, it appears that knowing receipt will be established in cases 1 to 4 of the Baden categories,
but confusion exists as to whether the category 5, negligent failure to inquire, should be included

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89

Facts

Farah involved a joint venture between Farah Constructions Pty Ltd and Say-Dee Pty Ltd to purchase and
redevelop a plot of land (no. 11). Following the purchase of the land, 2 development applications were
submitted by Farah Constructions to the Council and each was refused on the basis that the land was
too narrow to maximise its development potential without amalgamation with adjoining sites.

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Following this refusal, Mr Elias (the principal of Farah Constructions), his wife and their 2 daughters
purchased a unit in each of 2 separate plots of nearby land (nos. 15 and 20), and Lesmint Pty Ltd
(controlled by Mr Elias) purchased another plot of nearby land (no. 13). Mr Elias sought to purchase Say-
Dee's interest in no. 11, Say-Dee refused and Farah Constructions bought proceedings seeking a trustee
to be appointed and the property sold.

Say-Dee cross claimed, arguing that Farah Constructions held its interests in nos. 13, 15 and 20 on
constructive trust for the joint venture between Farah Constructions and Say-Dee (although the claim in
relation to no. 20 was abandoned at the start of the trial).

At trial, Palmer J made the orders sought by Farah Constructions in its summons and dismissed Say-
Dee's cross claim. On appeal, Palmer J's findings were overturned by the Court of Appeal (NSW). Despite
neither party raising the issue, the Court of Appeal held as an independent ground for the decision that
the first limb of Barnes v Addy was satisfied (and therefore a constructive trust established) on the basis
of unjust enrichment.

DECISION:

In an unanimous judgment, the High Court allowed the appeal and in doing so reversed many of the
findings of the Court of Appeal. The Court identified 13 issues for determination, the main issues were:

 Whether the scope of the joint venture created a duty on Farah Constructions to disclose the
Council's view of the need for amalgamation and the opportunities to buy nos. 13 and 15 and if so,
whether Farah Constructions had complied with that duty

 Whether the Court of Appeal erred in finding that Mrs Elias and her daughters were liable under
the first limb in Barnes v Addy (knowing receipt)

 whether Mrs Elias and her daughters were liable under the second limb of Barnes v Addy

 whether the Court of Appeal erred in failing to find that Mr & Mrs Elias, their 2 daughters and
Lesmint Pty Ltd had acquired an indefeasible title to the respective properties in their names under s
42(1) of the Real Property Act 1900 (NSW).

FIDUCIARY DUTIES/DISCLOSURE

The court held that Farah Constructions owed a fiduciary duty which was broader than that held by
Palmer J at trial. The duty firstly required Say-Dee to disclose the Council's view on the need for
amalgamation and it was held that this duty had been met.

It was further held that while Farah Constructions was not obliged to disclose the opportunities to
purchase the neighbouring properties, Farah Constructions could not exploit these opportunities
without the informed consent of Say-Dee as this would place Farah Constructions in a position of self-
conflict between its self interest and its duty to Say-Dee in relation to the joint venture land. On account
of the business experience and intelligence of the principals of Say-Dee, it was held that informed
consent had been given by Say-Dee.

As a result, Farah Constructions had not breached any of its fiduciary duties to Say-Dee.

KNOWING RECEIPT

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The Court affirmed that the first limb of Barnes v Addy requires the recipient of property to have notice
of the related breach of fiduciary duty. It was held that Mrs Elias and her daughters could not be liable
under this limb because they never received property to which a fiduciary obligation attached nor was
there relevant notice.

Say-Dee proposed a reformulation of the first limb (effectively disposing with the requirement for
receipt of property and modifying the notice test), which the court rejected on the basis that it would
constitute a radical change to the law and was unnecessary given the availability of relief under other
areas of law. The High Court also addressed the Court of Appeal's attempt to modify the first limb of
Barnes v Addy by abandoning the requirement for notice, actual or constructive in favour of a strict
liability approach based in restitution.

It was held that the attempt was a grave error that flew in the face of previous High Court authority and
was both unjust (as neither party was able to address the issue in their arguments) and likely to cause
confusion among trial judges.

The Court confirmed that the second limb of Barnes v Addy made liable a defendant who assisted a
trustee or fiduciary with knowledge of a dishonest and fraudulent breach of trust or breach of fiduciary
duty on the part of the trustee or fiduciary.

The Court affirmed that Consul Development represents the law that the requisite degree of knowledge
needed for liability under the second limb included the first four categories of knowledge as set out in
Baden v Société Generale pour Favoriser le Development du Commerce et de L'Industrie en France SA
[1993] 1 WLR 509. It was noted that the case of Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
(Royal Brunei Airlines) could have an effect on the operation of the second limb although it was not
necessary to determine the issue in the present case.

Mrs Elias and her children were held not liable under the second limb for two reasons. Firstly, even if Mr
Elias' disclosures did not constitute full disclosure sufficient to result in informed consents by Say-Dee to
the acquisitions of nos. 13 and 15, this would not constitute conduct that was ‘dishonest & fraudulent’.
Secondly, even if Mr Elias' conduct did amount to dishonest and fraudulent design, there was no
evidence that Mrs Elias and her daughters had any sufficient notice or knowledge of it.

Say-Dee proposed a reformulation of the second limb of Barnes v Addy to abandon the 'dishonest and
fraudulent design' requirement and this was rejected on the basis that no sufficient difficulty in the rules
justified the taking of any such step.

The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2009) 70 ACSR 1 at 319

The case concerned a refinancing of the Bell Group's borrowings with a group of Australian banks and a
syndicate of foreign banks, with the effect that debts to certain banks were to be paid in priority to the
claims of other creditors. The court held that in undertaking the refinancing, the group's directors,
knowing that the companies were either "nearly insolvent or of doubtful solvency", acted in breach of
their fiduciary duties. The plaintiffs argued that the banks were liable for the directors' breach of
fiduciary duty, and that with that knowledge they entered into the re-financing documents. As such it
was claimed the banks should be liable to account to the liquidators.

The claims turned on what each bank knew. The plaintiffs maintained that Westpac and Lloyds Bank
were agents for, respectively, the Australian and foreign banks. It was alleged that both "agents"

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undertook obligations to coordinate the sharing of information relevant to the proposed refinancing and
that such information could therefore be imputed to all banks on the basis of the agency relationships.

The court identified the critical element of any agency relationship as being the purported agent's ability
to affect the principal's legal relations with third parties. While the term "agent" is commonly used in
collaborative financing arrangements, whether an "agent bank" is in fact an agent, and owes fiduciary
duties, will depend on the terms of the agreement between the parties. The ability to receive and
communicate information on behalf of another is insufficient, in itself, to constitute a power to affect
legal relations with third parties. In Bell, the role of the "agent banks" was purely administrative. The
court also found that there was no other, broader legal relationship to support the agency claim. Each
bank was required to form its own conclusions as to the borrowing group's financial position and to
contribute separately to the re-financing.

The author concludes that the findings are an important reminder that contractual provisions are highly
relevant to whether an agency relationship exists and, if it does, to the scope of the agent's duties and
the level of knowledge which may be imputed thereby to the principal. The framing of responsibilities
of the agent bank in a syndicated agreement is critical when deciding whether the agent's state of mind
may be attributed to another bank.

Knowing receipt principles have caused difficulties for the courts when applied to interests in land under
the Torrens system. In the Torrens system registered interests can be set aside if they have been
procured by fraud, where fraud refers to actual fraud, personal dishonesty or moral turpitude

In Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133, a majority of the Victorian Court
of Appeal decided that a registered mortgage under the Torrens system could not be set aside in a
situation where the mortgagee acted honestly but with constructive knowledge that the mortgage
document was a forgery, in breach of trust

But what if the registered proprietor has actual knowledge that their interest came via breach of trust?
On this issue the authorities are split. In Tara Shire Council v Garner [2003] 1 Qd R 556, a majority of
the Queensland Court of Appeal accepted that knowing receipt would apply in circumstances where a
registered properietor had actual knowledge that the property was trust property and that the
registered transaction was a breach of trust.

A similar approach was taken in Koorootang Nominees Pty Ltd v ANZ Banking Group Ltd [1998] 3 VR 16
at 105, although that case is distinguishable because it involved actual dishonesty on the part of the
registered proprietor, in addition to knowing receipt

In contrast, the Full Court of Western Australia rejected this use of knowing receipt principles in LHK
Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517. Anderson, Steyler and Pullin JJ all found that, absent
‘Torrens-style’ fraud, knowledge of a breach of trust would not defeat a registered interest, and knowing
receipt principles could not be applied to set aside a registered interest.

Farah Constructions Pty Ltd v Say-Dee Pty Ltd at CLR 169;

Knowingly assisting a breach of trust

There are three elements to the claim of knowingly assisting a breach of trust. They are, first, the
defendant must know that a dishonest and fraudulent design is being implemented. Second, the
defendant must know that his or her acts have the effect of assisting the design. Third, the knowledge of
the assistant (or accessory) must be of actual facts and not knowledge of mere claims or allegations

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The requisite type of knowledge in cases of ‘knowing assistance’, therefore involves complicity in the
fraud, and dishonesty involved in the original breach of trust

the Baden categories have been discarded in the United Kingdom for cases of knowing assistance and
replaced with a more general test of ‘dishonesty’. In Royal Brunei Airlines Snd Bhd v Tan [1995] 2 AC
378 at 390–1; [1995] 3 All ER 97 at 107, Lord Nicholls stated that the test of dishonesty was an objective
test of whether the person acted as ‘an honest person would in the circumstances’ in light of what the
person actually knew at the time, rather than what a reasonable person would have known

The test of dishonesty was further clarified in Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER
377, where a combined test was proposed, encompassing objective and subjective elements. The test
(as proposed by Lord Hutton) required a finding that the defendant’s conduct was dishonest by ordinary
standards of reasonable and honest people, and that the defendant realised that by those standards he
or she had acted dishonestly. Lord Millet, was critical of this test in his dissent, as he believed that this
test should not have to take account of whether the defendant actually knew he or she was acting
dishonestly

Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 - back to
objective test

In NCR Australia v Credit Connection [2004] NSWSC 1, Austin J summarised the position at [168-9] as
follows:

What seems to emerge from these observations is that liability arises where the defendant has assisted
in the trustee's dishonest and fraudulent design and:

 has actual knowledge of the dishonest and fraudulent design; or

 has deliberately shut his or her eyes to such a design; or

 has abstained in a calculated way from making such inquiries as an honest and reasonable
person would make, where such inquiries would have led to discovery of the dishonest and fraudulent
design; or

 has actual knowledge of facts which to a reasonable person would suggest a dishonest and
fraudulent design.

Other Australian cases have indicated support for the test of dishonesty set out in Royal Brunei Airlines
and Twinsectra: Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133; Voss v Davidson
[2002] QSC 316; Maher v Millennium Markets Pty Ltd [2004] VSC 174.

HW – Farah Constructions

Constructive trusts and stolen property

It has been said that a thief holds stolen property on constructive trust for the true owner, even in the
absence of a prior fiduciary relationship: Black v S Freedman & Co (1910) 12 CLR 105. If the thief then
makes a gift of the property to a third party that third party will also be held liable to the trust. However
if the third party provides consideration, the constructive trust will only become effective when the third
party acquires knowledge of the theft

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In Evans v European Bank Ltd [2004] NSWCA 82, Spigelman CJ thought that such a trust was better
described as resulting trust because of its automatic nature and institutional characteristics. A similar
approach was adopted in Port of Brisbane Corp v ANZ Securities Ltd [2003] 2 Qd R 661, a case involving
the theft by an employee of several million dollars from a company, which was then invested in a trust
account with the defendant bank. By the time the theft had been discovered the trust monies had been
dispersed from the trust account

The plaintiff company argued (amongst other things) that the defendant bank had held the monies on
resulting trust for it and that the dispersement of those funds was a breach of that trust. In dismissing
this claim, the Court of Appeal accepted the resulting trust analysis. It was said that these resulting
trusts exist immediately on the transfer of trust property but that third parties are not subject to them
until they become aware of their positions. It was also said that this resulting trust was not a fiduciary
relationship. Finally, it was said that the resulting trust could not exist if the trust property had
disappeared by the time of the judgment.

It is hard to see how the classification of these trusts as resulting trusts can be correct. According to the
presumptions of resulting trust, all the thief need do to destroy the trust is prove that there was no trust
intended by the victim (which will always be the case). Given these trusts are imposed regardless of the
intentions of the parties they are better classed as constructive trusts, albeit of an institutional kind.

Constructive trusts and moneys paid by mistake

To recover money paid by mistake, it's important to let the recipient know about the mistake as soon as
possible.

It's bad enough paying money to someone by accident. What do you do if the recipient has transferred
the money to someone else? A recent case shows that, once you discover the mistake, you shouldn't
waste any time letting the other side know about it.

Background

Singleton Earthmoving Pty Ltd was in liquidation.

Wambo had once owed money to Singleton, but had paid it off. Wambo did however, owe money to
Quensor. Quensor was no relation to Singleton, but did use a similar trading name.

Apparently confused by the similar names, Wambo paid Singleton the money due to Quensor.

Singleton's records were out of date, so its liquidator believed that Wambo's payment was the payment
of a current debt.

The liquidator then directed a transfer of money from Singleton's bank account to his own firm (for
disbursements).

When Wambo found out about the mistaken payment, it informed Singleton and demanded the return
of the money. The liquidator claimed that Wambo was still a debtor. Singleton retained the money.
Another transfer was made to the liquidators firm's account.

Wambo took Singleton and the liquidator to court.

Did Singleton hold the mistaken payments on trust for Wambo?

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Wambo argued that the recipient of money mistakenly paid without consideration holds the money on
trust for the payer.

The Court rejected that argument, but this case involved something a bit more: not only had the money
been paid by mistake, but the recipient had been informed about the mistake.

The Court said that a constructive trust would arise from the retention of moneys known to have been
paid by mistake, and for which there was no consideration (provided the moneys could still be identified
at the time that knowledge was acquired).

It would be "against conscience" for Singleton to use the moneys as its own once it knew of Wambo’s
mistake.

The fact that the recipient of the money in this case was insolvent did not affect this conclusion. It
would, said the Court, be an unwarranted windfall for the company’s creditors to share in the payment.

Did Singleton have the requisite knowledge?

The liquidator's mind was Singleton's mind. On the evidence, the Court concluded that he had not
known that the money had been paid by mistake when the first transfer was made to his firm.

In reaching this conclusion, the Court acknowledged that, before authorising the first transfer, the
liquidator had known that Singleton's records had not been updated. However, the issue was not
whether he ought to have known that the payments were made in error, but whether he "did know that
they had been paid by mistake, or whether he wilfully shut his eyes to that possibility, or wilfully and
recklessly failed to make inquiries, or had actual knowledge of the circumstances which would indicate
the facts to an honest and reasonable person."

That moment only arose when Wambo's solicitors informed him that the payment had been in error.
From that time, the money in Singleton's account had been held on trust for Wambo.

The liquidator's liability

Wambo had taken recovery proceedings against Singleton and its liquidator. The liquidator argued that,
since he was not a recipient of any money, he could not have any liability for the moneys that had been
transferred from Singleton. He pointed out that the transfers had been made to his firm, and that the
firm was not a party to the proceedings.

The Court dismissed this argument, on the grounds that any expenses incurred by the liquidator's firm
could only have been incurred because the liquidator incurred those expenses and the firm had paid
them on his direction. The only person entitled to be indemnified out of Singleton's assets in respect of
expenses incurred in its liquidation was the liquidator.

The Court also dismissed the liquidator's argument that his only fiduciary duty was to Singleton: in this
case, a separate fiduciary obligation (owed to Wambo) arose from the circumstances in which the
constructive trust arose.

Wambo was also entitled to remedies against Singleton, but as Singleton apparently had no assets, this
was, in the Court's words, academic.

The lesson

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Although Wambo got some of its money back, it still ended up out of pocket. Even then, it was probably
a little fortunate.

As noted above, the Court said that a trust would arise if the moneys could still be identified when the
payer notified the recipient about the mistake. In this case, Singleton's bank account was so empty that
it was easy to trace the movement of Wambo's money in and out of the account.

The obvious lesson from this case, of course, is to act quickly if you discover that you've made an
accidental payment. In fact, it is probably a good idea to let the recipient know as soon as you have
reasonable grounds to suspect an accidental payment. A recipient who is put on notice that a payment
may have been mistaken will have difficulty resisting a demand for repayment if he goes ahead and
disburses the money.

Constructive trusts and homicide

Constructive trusts to remedy unconscionable conduct
In Canada, the principle of unjust enrichment has been adopted as the fundamental principle justifying
the remedial constructive trust: Rathwell v Rathwell (1978) 83 DLR (3d) 289. In Pettkus v Becker (1980)
117 DLR (3d) 257, the Supreme Court of Canada accepted that, in the absence of some common
intention between the parties, a constructive trust should be imposed to remedy unjust enrichment in a
domestic property dispute. Unfortunately, the decision in Pettkus v Becker gave rise to the belief that
constructive trusts could only be imposed when there was unjust enrichment

In Australia, unjust enrichment has not yet been accepted as a ground for the imposition of a
constructive trust: In Australia: Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536;
Rush v Keogh [2000] NSWSC 624. The governing principle is that equity will impose a constructive trust
to prevent the unconscionable retention of benefit

Muschinski v Dodds (1985)

FACTS: Hilga Muschinski and Ronald Dodds bought a dilapidated cottage in the country with the
intention of running an arts and crafts centre. They planned to erect a kit home elsewhere on the site. M
paid the purchase price. D was to contribute the proceeds of a pending divorce settlement, and labour.
The property was registered in both names as tenants in common on D’s insistence. Council refused
development consent. D did not get the settlement he had hoped for. The venture failed, and the
relationship soured. By separation, M had contributed $25,000 to the project, and D $2,000. M sought a
declaration that she was the only beneficial owner of the property.

Legally, there was half ownership to each. Was it unconscionable for Dodds to assert half ownership,
requiring the court to impose a constructive trust?

HELD: Deane J: There was a constructive trust here.

At the start, there was a shared intention that each should have a one half beneficial and legal interest
in the property. Dodds should be precluded from asserting or retaining this half ownership to the extent
that it would be unconscionable for him to do so.

If the relationship had been merely commercial, it would have been clearly unconscionable for Dodds to
claim a half share without compensation, as at the time, he had contributed very little, while Muschinski
had contributed almost all that she was supposed to.

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Although not quite a joint venture or a partnership, the law relating to these enterprises may be
appropriate here. In particular, where a joint venture fails, there should be a proportionate repayment
of capital contributions. Here, each party should get back the contribution that they have made, and
then any surplus should be distributed evenly (not 9:1). Since they agreed to go into the project 50:50,
that was their intention, and that was what would have happened if the venture had succeeded.

• Muschinski v Dodds leaves us with the proposition that only when you can identify these situations
as commercial-like situations can you find this result, because Deane J does focus on the fact this was an
enterprise (there was a commercial relationship side-by-side to the personal relationship).

Baumgartner v Baumgartner (1987) 164 CLR 137

FACTS: He and she entered a de facto relationship in 1978. They lived in a unit owned by him. In 1979,
he sold the unit and bought some land with the proceeds of the sale, and a loan taken out in his name.
They pooled resources to meet mortgage repayments. Her income represented 45% of the combined
earnings. They separated in 1982. She sought a declaration that she had a beneficial interest in the
property.

HELD: A constructive trust could be imposed to give her a share of the proceeds of the property.

The land was acquired and the house built for the purpose of their joint relationship, and the pooling of
earnings was for their mutual security and benefit. In these circumstances, the man’s assertion that he
owned it all was enough to be unconscionable, so equity intervened to impose a constructive trust at
the suit of Mrs B.

Equity favours equality and, in circumstances where the parties have lived together for years and have
pooled their resources and their efforts to create a joint home, they should share the beneficial
ownership equally as tenants in common, taking into account any disparity between the worth of their
individual contributions either financially or in kind

The man was given back the deposit, and then the proceeds were divided 55:45.

Turner v Dunne [1996] QCA 272 at 4–5 as:

1. A constructive trust may be imposed even though the person held to be trustee had no intention to
create a trust or hold property on trust.

2. An intention to create a trust may be imputed where it is necessary to do so ‘in good faith and in
conscience’.

3. A principle which may be applied is that which restores to a party contributions made to a joint
endeavour which fails, when the contributions have been made in circumstances in which it was not
intended that the other party should enjoy them.

4. Contributions, financial and otherwise, to the purposes of the jointed relationship are relevant for this
purpose.

In West v Mead [2003] NSWSC 161, Campbell J provided a more detailed breakdown of the
requirements of the Muschinski/Baumgartner trust. Campbell J listed three requirements:

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1. There must be both a joint relationship or endeavour, where funds are spend towards a
common benefit;

2. The joint relationship or endeavour must have come to an end ‘without attributable blame’; and

3. There must be unconscionability/ unconscientiousness

The effect of legislation on constructive trusts in the family context

Section 79 of the Family Law Act 1975 (Cth)

Alteration of property interests

(1) In property settlement proceedings, the court may make such order as it considers appropriate:

(a) in the case of proceedings with respect to the property of the parties to the marriage or either of
them--altering the interests of the parties to the marriage in the property; or

(b) in the case of proceedings with respect to the vested bankruptcy property in relation to a
bankrupt party to the marriage--altering the interests of the bankruptcy trustee in the vested
bankruptcy property;

including:

(c) an order for a settlement of property in substitution for any interest in the property; and

(d) an order requiring:

(i) either or both of the parties to the marriage; or

(ii) the relevant bankruptcy trustee (if any);

to make, for the benefit of either or both of the parties to the marriage or a child of the marriage, such
settlement or transfer of property as the court determines.

(1A) An order made under subsection (1) in property settlement proceedings may, after the death of
a party to the marriage, be enforced on behalf of, or against, as the case may be, the estate of the
deceased party.

(1B) The court may adjourn property settlement proceedings, except where the parties to the
marriage are:

(a) parties to concurrent, pending or completed divorce or validity of marriage proceedings; or

(ba) parties to a marriage who have divorced under the law of an overseas country, where that
divorce is recognised as valid in Australia under section 104; or

(bb) parties to a marriage that has been annulled under the law of an overseas country, where that
annulment is recognised as valid in Australia under section 104; or

(c) parties to a marriage who have been granted a legal separation under the law of an overseas
country, where that legal separation is recognized as valid in Australia under section 104;

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on such terms and conditions as it considers appropriate, for such period as it considers necessary to
enable the parties to the marriage to consider the likely effects (if any) of an order under this section on
the marriage or the children of the marriage, but nothing in this subsection shall be taken to limit any
other power of the court to adjourn such proceedings.

(1C) Where the period for which a court has adjourned property settlement proceedings as provided
by subsection (1B) has not expired and:

(a) divorce or validity of marriage proceedings are instituted by one or both of the parties to the
marriage; or

(ba) the parties to the marriage have divorced under the law of an overseas country and the
divorce is recognised as valid in Australia under section 104; or

(bb) the marriage is annulled under the law of an overseas country and the annulment is
recognised as valid in Australia under section 104; or

(c) the parties to the marriage are granted a legal separation under the law of an overseas country
and the legal separation is recognized as valid in Australia under section 104;

a party to the first-mentioned proceedings may apply to the court for the hearing of those proceedings
to be continued.

(2) The court shall not make an order under this section unless it is satisfied that, in all the
circumstances, it is just and equitable to make the order.

(4) In considering what order (if any) should be made under this section in property settlement
proceedings, the court shall take into account:

(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage
or a child of the marriage to the acquisition, conservation or improvement of any of the property of the
parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned
property, whether or not that last-mentioned property has, since the making of the contribution, ceased
to be the property of the parties to the marriage or either of them; and

(b) the contribution (other than a financial contribution) made directly or indirectly by or on
behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or
improvement of any of the property of the parties to the marriage or either of them, or otherwise in
relation to any of that last-mentioned property, whether or not that last-mentioned property has, since
the making of the contribution, ceased to be the property of the parties to the marriage or either of
them; and

(c) the contribution made by a party to the marriage to the welfare of the family constituted by
the parties to the marriage and any children of the marriage, including any contribution made in the
capacity of homemaker or parent; and

(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and

(e) the matters referred to in subsection 75(2) so far as they are relevant; and

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 (f) any other order made under this Act affecting a party to the marriage or a child of the
marriage; and

(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage
has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.

(5) Without limiting the power of any court to grant an adjournment in proceedings under this Act,
where, in property settlement proceedings, a court is of the opinion:

(a) that there is likely to be a significant change in the financial circumstances of the parties to the
marriage or either of them and that, having regard to the time when that change is likely to take place, it
is reasonable to adjourn the proceedings; and

(b) that an order that the court could make with respect to:

(i) the property of the parties to the marriage or either of them; or

(ii) the vested bankruptcy property in relation to a bankrupt party to the marriage;

if that significant change in financial circumstances occurs is more likely to do justice as between
the parties to the marriage than an order that the court could make immediately with respect to:

(iii) the property of the parties to the marriage or either of them; or

(iv) the vested bankruptcy property in relation to a bankrupt party to the marriage;

the court may, if so requested by either party to the marriage or the relevant bankruptcy trustee (if
any), adjourn the proceedings until such time, before the expiration of a period specified by the court, as
that party to the marriage or the relevant bankruptcy trustee, as the case may be, applies for the
proceedings to be determined, but nothing in this subsection requires the court to adjourn any
proceedings in any particular circumstances.

(6) Where a court proposes to adjourn proceedings as provided by subsection (5), the court may,
before so adjourning the proceedings, make such interim order or orders or such other order or orders
(if any) as it considers appropriate with respect to:

(a) any of the property of the parties to the marriage or of either of them; or

(b) any of the vested bankruptcy property in relation to a bankrupt party to the marriage.

(7) The court may, in forming an opinion for the purposes of subsection (5) as to whether there is
likely to be a significant change in the financial circumstances of either or both of the parties to the
marriage, have regard to any change in the financial circumstances of a party to the marriage that may
occur by reason that the party to the marriage:

(a) is a contributor to a superannuation fund or scheme, or participates in any scheme or

arrangement that is in the nature of a superannuation scheme; or

(b) may become entitled to property as the result of the exercise in his or her favour, by the
trustee of a discretionary trust, of a power to distribute trust property;

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but nothing in this subsection shall be taken to limit the circumstances in which the court may form the
opinion that there is likely to be a significant change in the financial circumstances of a party to the
marriage.

(8) Where, before property settlement proceedings are completed, a party to the marriage dies:

(a) the proceedings may be continued by or against, as the case may be, the legal personal
representative of the deceased party and the applicable Rules of Court may make provision in relation
to the substitution of the legal personal representative as a party to the proceedings;

(b) if the court is of the opinion:

(i) that it would have made an order with respect to property if the deceased party had not
died; and

(ii) that it is still appropriate to make an order with respect to property;

the court may make such order as it considers appropriate with respect to:

(iii) any of the property of the parties to the marriage or either of them; or

(iv) any of the vested bankruptcy property in relation to a bankrupt party to the marriage; and

(c) an order made by the court pursuant to paragraph (b) may be enforced on behalf of, or
against, as the case may be, the estate of the deceased party.

(9) The Family Court, or a Family Court of a State, shall not make an order under this section in
property settlement proceedings (other than an order until further order or an order made with the
consent of all the parties to the proceedings) unless:

(a) the parties to the proceedings have attended a conference in relation to the matter to which
the proceedings relate with a Registrar or Deputy Registrar of the Family Court, or a Registrar or Deputy
Registrar of the Family Court of that State, as the case may be;

(b) the court is satisfied that, having regard to the need to make an order urgently, or to any other
special circumstance, it is appropriate to make the order notwithstanding that the parties to the
proceedings have not attended a conference as mentioned in paragraph (a); or

(c) the court is satisfied that it is not practicable to require the parties to the proceedings to attend
a conference as mentioned in paragraph (a).

(10) The following are entitled to become a party to proceedings in which an application is made for
an order under this section by a party to a marriage (the subject marriage ):

(a) a creditor of a party to the proceedings if the creditor may not be able to recover his or her
debt if the order were made;

(aa) a person:

(i) who is a party to a de facto relationship with a party to the subject marriage; and

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 (ii) who could apply, or has an application pending, for an order under section 90SM, or a
declaration under section 90SL, in relation to the de facto relationship;

(ab) a person who is a party to a Part VIIIAB financial agreement (that is binding on the person)
with a party to the subject marriage;

(b) any other person whose interests would be affected by the making of the order.

(10A) Subsection (10) does not apply to a creditor of a party to the proceedings:

(a) if the party is a bankrupt--to the extent to which the debt is a provable debt (within the
meaning of the Bankruptcy Act 1966 ); or

(b) if the party is a debtor subject to a personal insolvency agreement--to the extent to which the
debt is covered by the personal insolvency agreement.

(10B) If a person becomes a party to proceedings under this section because of paragraph (10)(aa),
the person may, in the proceedings, apply for:

(a) an order under section 90SM; or

(b) a declaration under section 90SL;

in relation to the de facto relationship described in that paragraph.

(11) If:

(a) an application is made for an order under this section in proceedings between the parties to a
marriage with respect to the property of the parties to the marriage or either of them; and

(b) either of the following subparagraphs apply to a party to the marriage:

(i) when the application was made, the party was a bankrupt;

(ii) after the application was made but before it is finally determined, the party became a
bankrupt; and

(c) the bankruptcy trustee applies to the court to be joined as a party to the proceedings; and

(d) the court is satisfied that the interests of the bankrupt's creditors may be affected by the
making of an order under this section in the proceedings;

the court must join the bankruptcy trustee as a party to the proceedings.

(12) If a bankruptcy trustee is a party to property settlement proceedings, then, except with the
leave of the court, the bankrupt party to the marriage is not entitled to make a submission to the court
in connection with any vested bankruptcy property in relation to the bankrupt party.

(13) The court must not grant leave under subsection (12) unless the court is satisfied that there are
exceptional circumstances.

(14) If:

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 (a) an application is made for an order under this section in proceedings between the parties to a
marriage with respect to the property of the parties to the marriage or either of them; and

(b) either of the following subparagraphs apply to a party to the marriage (the debtor party ):

(i) when the application was made, the party was a debtor subject to a personal insolvency
agreement; or

(ii) after the application was made but before it is finally determined, the party becomes a
debtor subject to a personal insolvency agreement; and

(c) the trustee of the agreement applies to the court to be joined as a party to the proceedings;
and

(d) the court is satisfied that the interests of the debtor party's creditors may be affected by the
making of an order under this section in the proceedings;

the court must join the trustee of the agreement as a party to the proceedings.

(15) If the trustee of a personal insolvency agreement is a party to property settlement proceedings,
then, except with the leave of the court, the party to the marriage who is the debtor subject to the
agreement is not entitled to make a submission to the court in connection with any property subject to
the agreement.

(16) The court must not grant leave under subsection (15) unless the court is satisfied that there are
exceptional circumstances.

(17) For the purposes of subsections (11) and (14), an application for an order under this section is
taken to be finally determined when:

(a) the application is withdrawn or dismissed; or

(b) an order (other than an interim order) is made as a result of the application.

Property (Relationships) Act 1982 (NSW)

In New South Wales the definition of de facto relationships includes all relationships between two adult
persons who live together as a couple on a genuine domestic basis

The effect of legislation on constructive trusts in the family context

The ACT, New South Wales and Tasmania have expanded their legislative regimes to include claims
made by parties in ‘domestic relationships’ (in ACT and NSW) and ‘personal relationships’ (in Tasmania)

The remaining importance of equity

Not all relationships

Equity preserved

Deceased parties

Third parties

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TRUSTEES BENEFICIARIES AND TRACING
Appointment, retirement and removal of trustees

Only a legal person (a natural person or corporation) with the capacity to hold and deal with property
can be appointed as a trustee

If, for whatever reason, a prospective trustee is unable to take up the office of trustee, the trust will not
fail

Most trusts will contain an express power of appointment. In the absence of an express power of
appointment, most jurisdictions have granted powers of appointment to particular classes of individuals

In relation to express powers of appointment of trustees set out in a trust instrument, in Scaffidi v
Montevento Holdings Pty Ltd [2011] WASCA 146 at [145]-[152], Murphy JA & Hall J, noted the following:

Whether the power given in an instrument to remove trustees and appoint new trustees is, by its terms, wide
enough in scope to allow an appointor to appoint himself or herself as trustee, is a question as to the proper
construction of the language of the power.

Even where the language is wide enough to permit the appointor to appoint himself or herself as trustee, it is a
‘very salutary’ or ‘most salutary’ rule that the power should only be exercised to that end in ‘exceptional
circumstances’ or ‘special circumstances’.

In a discretionary trust (and subject to the terms of the instrument) the power to appoint trustees may be
construed as a ‘fiduciary power’. In [In re Skeats’ Settlement (1889) 42 Ch D 522 at 526-7], Kay J said:

The ordinary power of appointing new trustees, under a settlement such as this is, of course imposes upon the
person who has the power of appointment the duty of selecting honest and good persons who can be trusted with
the very difficult, onerous, and often delicate duties which trustees have to perform. He is bound to select to the
best of his ability the best people he can find for the purpose. Is that power of selection a fiduciary power or not?
…

Now what is the rule, the universal rule, observed in Courts of Justice as to a duty of that kind? The universal rule is
that a man should not be judge in his own case; that he should not decide that he is the best possible person, and
say that he ought to be the trustee. Naturally no human being can be imagined who would not have some bias one
way or the other as to his own personal fitness, and to appoint himself among other people, or excluding them to
appoint himself, would certainly be an improper exercise of any power of selection of a fiduciary character such as
this is. In my opinion it would be extremely improper for a person who has a power to appoint or select new
trustees to appoint or select himself, for that principal reason. Has, then, the practice of such a person appointing
himself been sanctioned by conveyancers or the profession in general? The answer must be, certainly not.

Even if not correctly technically described as a ‘fiduciary power’ … such a power must nevertheless be exercised
bona fide for the purpose for which it was conferred. The purpose of the power of removing and appointing
trustees is ascertained by reference to the fiduciary nature of the office the object of the appointment. The trustee
is the ‘archetype’ fiduciary. The office exists for the benefit of the beneficiaries. It is an essential element of the
trust that the trustee is under a personal obligation to deal with the trust property for the benefit of the
beneficiaries, an obligation giving correlative rights to the beneficiaries. There is an irreducible core of obligations
owed by the trustees to the beneficiaries and enforceable by the beneficiaries which is fundamental to the concept
of a trust. If these do not exist, or if the beneficiaries have no rights to enforce them, there is no trust. The
minimum duty is the duty to perform the trust honestly and in good faith, for the benefit of the beneficiaries.

Accordingly, notwithstanding the breadth of the discretion conferred on the trustee in an instrument such as the
one in this case, the discretion is to be exercised by reference to the objects and purposes of the trust, having

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regard to the competing interests of the various potential beneficiaries, and without taking into account improper,
irrelevant or irrational considerations. The discretions must be exercised personally and not in conjunction with, or
under the direction of, somebody else …

If, however, on the proper construction of the instrument, the power of the appointor to remove and appoint
trustees may be exercised for the purpose of controlling the trust estate for the appointor’s benefit, the trust
property may be regarded, at least for certain statutory purposes, as effectively owned by the appointor, or as
property in which the appointor has a contingent interest.

It has been held that it is not proper to appoint new trustees without communicating with beneficiaries and
hearing their objections, at least where it is likely that they would oppose the appointment. However, beneficiaries
cannot dictate or control the exercise of the power.

Appointment, retirement and removal of trustees

Retirement

Removal -If the trust instrument is silent on the issue of removal, only the court has the power to
remove a trustee who wishes to remain in office. The welfare of the beneficiaries is the dominant
consideration in determining whether or not it is proper to remove a trustee

The court’s powers of removal were discussed in Deutsch v Deutsch [2011] VSC 345 at [10]-[13], by
Dixon J who said:

The court has a wide discretion to remove or replace trustees. The jurisdiction of the court to remove a trustee is
inherent. It is expressed in the Trustee Act 1958.  Section 48 provides that ‘the Court may, whenever it is expedient
to appoint a new trustee or new trustees, and it is found inexpedient difficult or impracticable so to do without the
assistance of the Court, make an order appointing a new trustee or new trustees either in substitution for or in
addition to any existing trustee or trustees’.

As to when it may be expedient to act, courts have consistently started with observations of Story in Equity
Jurisprudence at s 1289:

But in cases of positive misconduct, courts of equity have no difficulty in interposing to remove trustees who have
abused their trust; it is not indeed every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will
induce courts of equity to adopt such a course. But the acts or omissions must be such as to endanger the trust
property or to shew a want of honesty, or a want of proper capacity to execute the duties, or a want of reasonable
fidelity.

Frequently cited are the remarks of Lord Blackburn in Letterstedt v Broers [(1884) 9 App Cas 371 at 386]:

It seems to their Lordships that the jurisdiction which a court of equity has no difficulty in exercising under the
circumstances indicated by Story is merely ancillary to its principal duty, to see that the trusts are properly
executed. This duty is constantly being performed by the substitution of new trustees in the place of original
trustees for a variety of reasons in non-contentious cases. And therefore, though it should appear that the charges
of misconduct were either not made out, or were greatly exaggerated, so that the trustee was justified in refusing
them, and the court might consider that in awarding costs, yet if satisfied that the continuance of the trustee
would prevent the trusts from being properly executed, the trustee might be removed. It must always be borne in
mind that trustees exist for the benefit of those to whom the creator of the trust has given the trust estate.

The dominant considerations are the preservation of the trust property and the welfare of the beneficiaries. The
power is not exercised as a sanction or punishment of an errant trustee. There is not, in this proceeding, any
question that the court could exercise the power. Plainly, where the management of a corporate trustee is
deadlocked by internecine dispute between two parties, who are equal director/shareholder/appointor and in
consequence the trustee is not attentive to the trust or performing its office, considerations of the need for

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preservation of the trust property and regard for the welfare of the beneficiaries may arise. Commonly, with
corporate trustees, the issue arises in the context of insolvency. There is no evidence here as to the solvency of the
corporate trustees and it is not suggested that they are insolvent.

Rights of trustees
The right to reimbursement and exoneration

The right of contribution

The right to impound a beneficial interest

The right to get directions from the court

Powers of trustees
Powers of sale

Powers of management

Powers of maintenance and advancement

Powers of investment

Duties of trustees
Duty to obey the terms of the trust

Duty to inquire

Duty to keep accounts and give information to beneficiaries -Re Londonderry’s Settlement

Duty to correctly pay beneficiaries

Duty not to profit from the trust

Duty to act impartially between beneficiaries

Duty to sell trust property

Duty to invest

Duty to act personally, unfettered and unanimously

Duty to consider the exercise of trust powers

In relation to the trustee’s duty of management, in Byrnes v Kendle (2011) 279 ALR 212, the High Court
dealt with a case which raised the duties of a trustee of a vacant residential property. Gummow & Hayne
JJ, at 231, noted that in such a case, ‘as a general proposition … it is the duty of the trustee to render the
land productive by leasing it, and this is so even if the trust instrument does not expressly so provide’.
Heydon & Crennan JJ, at 243, elaborated on this duty as follows:

Even if there is no direction in the trust instrument that the trust property be invested, it is the duty of the trustee to
invest the trust property subject to the limits permitted by the legislation in force under the proper law of the trust
and subject to any limits stated in the trust document. If there are no limits of that kind, a trustee who receives a trust
asset, like an executor of a deceased estate, must ‘lay it out for the benefit of the estate’. [Rocke v Hart (1805) 32 ER
1009 at 1010]. That is, it is the duty of a trustee to obtain income from the trust property if it is capable of yielding

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an income. If the property is money, it should be invested at interest or used to purchase income-yielding assets like
shares. If the property consists of business assets, it should be employed in a business. If the property is lettable
land, it should be let for rent. And if the intended means of gaining an income turn out to be unsatisfactory, those
means must be abandoned and others found.

Interests of beneficiaries
Rights of beneficiaries
The right to compel performance

The right to restrain a breach of trust

The right to possession of trust property

The right to approach the court

The right to information

The right to extinguish the trust

Right to trace

Personal remedies
Equitable compensation
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 500, a unanimous High Court
said:

[T]here must be a real question whether the unique foundation and goals of equity, which has the
institution of the trust at its heart, warrant any assimilation even in this limited way with the measure of
compensatory damages in tort and contract. It may be thought strange to decide that the precept that
trustees are to be kept by courts of equity up to their duty has an application limited to the observance
by trustees of some only of their duties to beneficiaries in dealing with trust funds.

Set-off

Account of profits

Just allowance

Personal claims against third parties

Proprietary remedies — tracing

Tracing is available as a remedy in common law as well as in equity. Common law tracing differs from
equitable tracing in that equity recognises that a beneficiary retains his or her property rights over trust
property in cases where the trust property is mixed with other property or converted into a new type of
property

Foskett v McKeown [2000] 3 All ER 97:

Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates
what has happened to his property, identifies its proceeds and the persons who have handled or
received them, and justifies his claim that the proceeds can properly be regarded as representing his
property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant’s

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property. It enables the claimant to substitute the traceable proceeds for the original asset as the
subject matter of his claim. But it does not affect or establish his claim

The existence of a prior fiduciary relationship is an essential prerequisite to a claim of tracing in equity

The effect of grounding tracing in the exclusive jurisdiction is to substantially limit its availability. Many
commentators have been critical of this view of tracing’s origins because, in the absence of a prior
fiduciary relationship, any person whose property is stolen by a thief will be unable to trace that
property in common law or equity, if the thief mixes the property

In addition to the requirement that there be a pre-existing fiduciary duty between the parties, a
claimant seeking to trace trust property must also establish that he or she had an equitable interest in
the property prior to the breach of fiduciary duty and that the property now lies in the hands of the
defendant.

In equity it does not matter, for the purpose of identification, that the property has become mixed with
other property. Nor does it matter that trust funds have been used to purchase other property.

Equity presumes that the trust property continues to exist in both situations

Tracing property into the hands of trustees

If trustees misappropriate trust property and use it exclusively to purchase other property in their own
name, equity allows the beneficiaries to trace the funds into the newly acquired property

The beneficiaries can choose to enforce their beneficial interests in the new property by either asserting
beneficial ownership of it, or by bringing a personal claim against the trustee for breach of trust. This
claim can be enforced by an equitable lien or charge over the new property

Mixed property — the rule in Re Hallett’s Estate

Equity presumes in such circumstances that, once funds are mixed in an account, any following
transactions come from the trustee’s personal funds first. Any funds remaining in the account are
treated as trust funds

The lowest intermediate balance rule

How do you calculate beneficial proprietary interests in cases where deposits and withdrawals are made
over time to accounts of mixed funds?

The lowest intermediate balance rule states that the beneficiaries’ claim is limited to the lowest account
balance in the period starting from the date of mixture to the date of the claim against the account.

Tracing valuable purchases from a mixed fund

An exception to the rule in Re Hallett’s Estate applies when the fiduciary makes a purchase of valuable
property from the mixed fund and then proceeds to dissipate the rest of the account. In such
circumstances the fiduciary is not entitled to use the rule in Re Hallett’s Estate to prevent tracing into
the valuable property. In Re Oatway [1903] 2 Ch 356, a trustee misappropriated trust funds by placing
them in his account and then proceeded to use two-thirds of the money to buy shares. The rest of the
account was then dissipated. The court found that the trust property should be traced into the shares,
overturning the presumption in Re Hallett’s Estate that transactions come from the trustee’s personal
funds first.

Tracing mixed funds into appreciating property

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In cases where trustees mix funds and profitably invest the mixture, beneficiaries will ordinarily be
entitled to a proportionate share of any gain made by the investment

Mixed property in the hands of trustees from more than one trust
Unfortunately, it is not unusual for defaulting trustees to mix funds from more than one trust. In this
situation two rules can be applied to apportion whatever property remains between the different
beneficial interests traced into the mixed fund.

The general approach — pari passu

For example, if $3000 from Trust A together with $2000 from Trust B were used to purchase 500 shares
of equal value, 300 shares would be held in favour of Trust A and 200 shares in favour of Trust B.

The rule in Clayton’s case

It displaces the pari passu rule and states that all beneficial interests in a mixed bank account are subject
to a ‘first in, first out’ rule.

Presume that a trustee mixes $1000 from Trust A with $2000 from Trust B and $3000 from Trust C, in
successive days, totalling $6000.

On the next day the trustee withdraws $2000 from the account, leaving a balance of $4000. Under the
rule in Clayton’s case the withdrawal is presumed to come from Trust A’s funds and from Trust B’s
funds.

The remaining funds in the account are therefore said to be traced to Trust B for an amount of $1000,
and Trust C for an amount of $3000.

The rule in Clayton’s case is difficult to apply where the facts concern large estates with complex bank
accounts. It also works unfairly against the first victims of a breach of trust, by practically eliminating
their attempts to trace.

In Australia it has been found that if there are large numbers of beneficiaries it is better to apply the pari
passu rule to prevent injustice: Re Australian Home Finance Pty Ltd [1956] VLR 1. More recently,
Campbell J overviewed the entire history of the rule in Clayton’s case and decided that it should not be
applied in Australia: Re French Caledonia Travel [2003] NSWSC 1008

Tracing property into the hands of third parties

Bona fide purchasers for value without notice of the breach of trust are immune from tracing claims

However, if a third party recipient has actual or constructive knowledge of the breach of fiduciary duty,
or if the recipient is a volunteer, the property may be traced into his or her hands.

Foskett v McKeown [2000] 3 All ER 97, a trustee misappropriated money from the trust fund and used it
to pay the last two of five premiums on a life insurance policy. The policy was in favour of the trustee’s
children. After the trustee’s suicide, the children received the policy money

The beneficiaries under the trust claimed that they were entitled to trace their money through the
policy into the sum paid out by the insurers. They believed they were entitled to a proportionate share
of the policy money.

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The majority of the Court of Appeal upheld the beneficiaries’ claim but limited it to the amount of the
two premiums together with interest. The beneficiaries were denied a proportionate share of the policy
proceeds.

A majority of the House of Lords upheld an appeal by the beneficiaries: . Lord Browne-Wilkinson said at
102:

Therefore the critical question is whether the assets now subject to the express trusts of the purchasers
trust deed comprise any part of the policy moneys, a question which depends on the rules of tracing. If,
as a result of tracing, it can be said that certain of the policy moneys are what now represent part of the
assets subject to the trusts of the purchasers trust deed, then as a matter of English property law the
purchasers have an absolute interest in such moneys. There is no discretion vested in the court. There is
no room for any consideration whether, in the circumstances of this particular case, it is in a moral sense
‘equitable’ for the purchasers to be so entitled

Defences
Consent, acquiescence and release

Laches

Relief from liability

Indemnity provided in the trust instrument

Indemnity provided by co-trustees

Excusing a breach of trust- acted honestly and reasonably, and ought fairly to be excused for the breach
of trust and for omitting to obtain the direction of the Court in the matter in which the trustee
committed the breach

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EQUITY AND TRUSTS PRACTICE QUESTIONS
Assignments & Dispositions
1. In a voluntary deed Andrew assigned to Brian the verdict of his pending accident compensation claim
against Charles. Two weeks later Andrew obtained a verdict of $50,000-00 against Charles. Andrew then
repudiated the deed between Brian and himself.

Advise Brian of his rights (if any) in relation to the verdict proceeds.

The assignment is not concluded on the basis of champerty and maintenance because Brian is not
participating in the court case in any way: Glegg v Bromley. However, the assignment will not be upheld
because the verdict is future property and Brian is a volunteer: Holroyd v Marshall (1862).

2. Discuss the validity of the following assignments set out in a deed and for which no consideration has
been given:

(a)‘Half of my contractual right to receive royalties from Oxford Publishers in relation to my book
entitled Principles of Equity’. (At the time of the assignment Oxford Publishers had gone into liquidation
without having yet printed the book and it is unlikely that it will be printed at all.)

(b)‘Half of my right to receive interest in relation to my loan to Jack Smith’. (The loan is repayable
immediately on demand with interest to be paid to the date of repayment.)

(c)‘The first $ 800-00 of the yearly net income to accrue to me as dividends from my shares in Acme
Industries Ltd’.

(d)‘All the shares in Fastbuck Enterprises Ltd that I stand to inherit pursuant to my mother’s will when
she dies’.

3. Mrs Dole was the absolute beneficial owner of 10,000 shares in Macquarie Mines Ltd (MML). The
registered holder as trustee of the shares was MML’s bank and it was obliged to transfer the legal title
to the shares to Mrs Dole at any time if called upon to do so by Mrs Dole. One week ago Mrs Dole called
the manager of the bank and said to him: ‘I want my son Bob to have my shares in MML. Please transfer
them to him’. The manager replied: ‘Very well’. Two days later, and before any steps were taken by the
bank manager to carry out Mrs Dole’s instructions, Mrs Dole died. In her will she left her entire estate to
her husband Eric.

Eric seeks your advice as to who is entitled to the shares in MML.

4. Mark is the trustee of shares in Blue Diamonds Ltd under a bare trust in which Kelly is the beneficial
owner. Kelly telephones Mark and directs him to hold the shares on trust for Kelly’s friend Catherine.

What is the effect of Kelly’s direction to Mark?

5. Bill was the sole beneficiary under a trust of a painting by the famous English artist Constable. Bill
agreed to transfer his interest in the painting to Frank for a nominal sum. Bill died leaving his entire
estate to Charles.

Charles seeks your advice as to the extent (if any) of his interest in the painting.

6. Janine is the registered proprietor of Torrens title land known as Greenacre. She was also the
registered shareholder of 2000 shares in Concrete Constructions Ltd. Janine wanted to make a gift of

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property to her niece Eva. To do this she made an oral declaration to the effect that she held Greenacre
and the shares on trust for Eva.

A few days after Janine’s declaration Eva, in a letter to her sister Margot, wrote: ‘I give to you any
interest I have in Greenacre’. In a telephone conversation with Janine on the same day Eva said: ‘I want
Margot to have my shares in Concrete Constructions Ltd. Transfer them to her as soon as possible’.

Eva died the next day. Without knowing of the death, Janine transferred the shares to Margot and the
share transfer was duly registered in Margot’s name. A few days later Margot, claiming to be the
beneficial owner of Greenacre, wrote to Janine and demanded that she be given the certificate of title to
Greenacre and an executed transfer, transferring Greenacre into her name. Janine ignored this letter.

Margot seeks your advice as to the effect of these transactions on the legal and equitable ownership of
Greenacre and the shares.

Confidential Information
1. Ken worked for Carmel in Carmel’s phone counselling business, ‘Phone-a-Friend’. The business
provided personal counselling for clients who registered with the service and paid a fee of each half-
hour of telephonic counselling. The business was very successful primarily because it provided a
particularised service that catered for the individual needs of its clientele. Records were kept of
counselling sessions. The records included details such as the client's personal history and preferred
method of payment.

Carmel worked hard to make the business a success and decided to take a holiday. She left Ken in charge
of the other employees. When she returned she found no one at work and some of the client records
appeared to be missing. She then contacted some of the clients and they told her that they were
informed by Ken that the business was closing but reopening under a new name, ‘Telephone Mates.’
After some hurried searches Carmel discovered that ‘Telephone Mates’ was being run by Ken. All the
employees had crossed over to work for him. After a period of weeks Carmel's business closed
permanently as she had no clients left.

What rights does Carmel have to bring an action in for breach of confidence?

Confidentiality agreements can be implied into contracts: Deta Nominees v Viscount Plastic Products
but do not necessarily depend on contractual relationships: Seager v Copydex (1967) – equity intervenes
to preven unconscientious behaviour. Apart from contract, three elements are necessarry for information
to be held confidential: Coco v [Link] (Engineers) Ltd [1969]: information must have the quality of
confidentiality; the information must have been imparted in circumstances implying confidentiality; and
there must be a detriment caused by the unauthorised use of the information.

Types of Claim:

Tort for taking the physical records.

Restitution for unjust enrichment:

Equitable Compensation for unconscientious behaviour - R v Dept of Health; Ex parte Source Informatics
Ltd [2000]

Delivery up of confidential information

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The information has the quality of confidentiality, it has not entered the public domain. Parts of the
information have the quality of medical records which may, if publicised, subject the patient to ridicule: X
v Y [1988].

N P Generations Pty Ltd v Feneley (2001) – Feneley manager of rental property biz.
Responsibility to keep rent roll up to date. Also kept a hand written diary and address book
including contact details of landlords. Quit employer and went to a new one. Contacted
landlords and some of them took up with her at new place.

HELD:

In the absence of a restraint of trade clause, former employer cannot prevent competition

Employee may not use confidential information to compete that is detrimental to Former Emp.

ADDRESS BOOK contained private contact information. Information had been imparted to her
for her use as an employee and no other purpose.

Address book had to be delivered up.

DIARY related overwhelmingly to her work. Contained contact details which could form the
basis of a contact list but was not compiled from the address book but from meeting and
appointment notes. Not information that LJ Hooker required to be confidential – did not need to
be delivered up.

Restitutionary claim to make good profits obtained from the wrongful use of confidential material

equitable compensation (loss suffered by P) – more common than unjust enrichment (based on profits of
D)

Ken a fiduciary? Could be argued because of the level of trust implied in Carmel leaving him in control of
the business seems to show the requisite level of trust, confidence and vulnerability according to Einstein
J’s test in Michael Wilson and Partners Ltd v Nicholls [2009]. Ken has agreed to take control of the
company so his actions have a practical effect on Carmel’s interests to the exclusion of his own interests.
If Ken is a fiduciary any profits he made as a result of the breach may be held on a constructive trust for
Carmel: Boardman v Phipps [1967] AC 46.

REMEDIES

9.113 Typical remedies granted in cases involving breaches of fiduciary duties include:

* an account for profits: Warman International Ltd v Dwyer;

* equitable compensation: O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262;

* the imposition of a constructive trust: Chan v Zacharia; and

* rescission: Armstrong v Jackson.

Fiduciary Obligations
1. John Smith owns a 1976 Aston Martin sports car. He has been taking the car to Bob Nurk for servicing
and repairs ever since he bought it. It has now become too small for his needs and he decides to sell it.
The next time he takes the car to Bob Nurk for a service, he mentions this to him. Bob Nurk knows the

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car is in good order and thinks it is a good buy. He offers John Smith $ 10,000 for the car, which he
suggests is a fair price. John Smith accepts, but later discovers that the market value for a 1976 Aston
Martin is $ 15,000.

Advise John Smith.

Bob may have breached a fiduciary duty and, if so, John may have the transaction set aside. This will be
difficult to establish. Bob’s position as mechanic does have some of the characteristics of a fiduciary
according to Breen v Williams; vulnerability; trust; a relation of confidence; inequality of bargaining
power and great scope to exercise discretion. He also bought the car himself without objectively
determining the fair market value and a similar fact pattern was held to be a breach by a REA in
Pedersen v Larcombe (2008). The stumbling block, however, seems to be that dealing with the car is
outside the scope of the duties that Bob has undertaken to perform. If the act that breaches the
purported duty is outside the scope of the undertaking, no remedy will be available: Phipps v Boardman
[1967].

2. Rowena is a prominent real estate agent in Campbelltown. Silvester is a developer who has plans
approved by the local council to build a block of four town-houses on one of the few parcels of land in
Campbelltown zoned for such purposes. Due to a cash-flow problem, Silvester decided to sell two of the
town-houses “off the plan” before construction had commenced. Silvester engaged Rowena to find
buyers for these two town-houses. After discussions between Rowena and Silvester on the question of a
sale price, a figure of $ 150,000 per town-house was agreed.

Rowena advertised the sale in the local press and was approached by Zelda. Zelda, who had only $
150,000 to invest, was interested in purchasing one town-house, but only if the town-house was likely to
appreciate by at least 25% by the time it was actually built. Zelda instructed Rowena to make enquiries
along these lines. Rowena discovered that once completed, the town-houses would each fetch $
225,000. She further discovered that $ 170,000 each was the then current market value of the proposed
town-houses. Rowena advised Zelda of the results of her enquiries, and Zelda immediately contracted to
buy one town-house for $ 150,000.

Rowena, with Zelda’s consent, also contacted an old friend Walter. Walter is a retired politician who was
seeking to invest his superannuation payout. He had asked Rowena to keep an eye open for a “good
deal” if one came along. Rowena told Walter:

I have a town-house for sale “off the plan” for $ 150,000 which by the time it is built will fetch $ 225,000
on the open market.

Walter immediately contracted to purchase the second town-house from Silvester.

Rowena did not at any time inform Silvester of the information she discovered as a result of the
enquiries pursued on behalf of Zelda.

Contracts for both sales were completed a few days after Silvester completed the building of the town-
houses.

Silvester has now discovered everything that happened and feels terribly cheated. He seeks your advice
as to remedies, if any, that he may have available to him.

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3. Joe formed Metal Mines Pty Ltd together with Keith who was a major figure in Australian business
and financial circles at the time. Metal Mines was formed for the purpose of exploiting certain uranium
deposits in Queensland. Joe became the company's managing director. Keith was, inter alia, to provide,
through his own companies, financial support for the development of this project. Whilst acting as
managing director of Metal Mines, Joe commenced negotiations with the Tasmanian government for
the issue of exploration licences, in connection with a scheme for exploiting some of Tasmania's iron ore
deposits. Negotiations were carried out through the offices of Metal Mines even though that company
had been formed for a different purpose. Financial difficulties confronted Keith and his companies and
they were unable to support Metal Mines any longer. It had been previously agreed by the board of
directors of Metal Mines and Keith that, if such a situation would arise, the company would be
'mothballed', that is, kept in being, but inactive, until circumstances changed and it again became
possible to continue with the exploitation of the relevant uranium deposits in Queensland.

In the meantime Joe continued with his negotiations with the Tasmanian government and earned
significant profits as a result. Later he resigned as managing director of Metal Mines and this was
communicated to the Tasmanian government.

Joe now seeks your advice as to whether he is liable to account for the profits that he has made, and is
likely to make in the future, as a result of his work with the Tasmanian government in the issue of
exploration licences?

Introduction to Trusts
1. Characterise the following dispositions contained in John's will:

a. I give my Rolls Royce to Eric, and on the condition that Eric pays my debts to Christos;

b.I give my house in Brewarina to Cathy absolutely, with the hope that she shall allow my mother to live
there until she dies.

c.I give $25,000 to Mark, to be used for the costs of educating Penelope and to be hers absolutely when
she attains 21 years.

d. I give the residue of my estate to Francine who may, at her absolute discretion, give such residue to
anyone she thinks fit, barring herself, Eric, and Cathy. If Francine fails to dispose of the residue in her
lifetime, it shall become the property of Penelope.

2. Alain covenants with Bruce that he will settle existing property on Bruce as trustee for Claude. Only
Alain and Bruce are party to the deed, and no consideration has been provided by either Bruce or
Claude. Alain later refuses to settle the property.

(a)Can Claude require Bruce to sue Alain on the covenant?

(b)Will Bruce be allowed to sue Alain on the covenant?

(c)If Bruce can sue, what will his remedy be? If he obtains damages on what basis will they be assessed,
and will he be allowed to keep them for himself?

Express Trusts
1. Jock, a wealthy oil tycoon, is happily married to Ellie. During the Vietnam War, while stationed at
Darwin, Jock had an affair with Wendy. As a result of that affair Jock and Wendy had a son named Ray.

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Jock’s past is unknown to Ellie. Jock was concerned that Wendy and Ray were satisfactorily provided for
in his will. Jock thus made a will, in 1980, and clause 7 of the will read as follows:

I leave $ 500,000-00 to my son Bobby feeling confident that my express wishes in relation to this money
will be carried out.

By Clause 15 of Jock’s will, Ellie was named as beneficiary of the residue of his estate.

On 1 April 1997 Jock showed his will to his son Bobby and handed him a sealed envelope. He said to
Bobby: 'I want you to carry out the instructions contained in this letter after I die. You are not to tell your
mother about it.' Bobby said nothing in response but nodded to indicate that he agreed to abide by his
father’s wishes.

On 1 May 1997, Wendy died in an automobile accident. Upon hearing of the news of Wendy’s death
Jock suffered a heart attack and eventually died on 1 June 1997.

After his father’s death Bobby opened the envelope he had been given in April 1990. In the letter Jock
stated that the $ 500,000-00 referred to in Clause 7 of his will was to be held on trust for Wendy. In
trying to locate Wendy, Bobby discovered that she had died and had left a will appointing her son Roy as
executor and beneficiary of her entire estate.

Bobby seeks your advice as to what is to happen to the $ 500,000-00 referred to in Clause 7 of Jock’s
will.

2. Anita Constructions Ltd is in financial difficulties. Its managing director Mr Hawke, thinks that
liquidation can be staved off if five major creditors, who are owed a total amount of $ 100,000 are paid.
Mr Hawke arranges for a loan of $ 100,000 from an associated company, Paul Acceptance Ltd. Paul
Acceptance Ltd sends a cheque for $ 100,000 to Anita Constructions Ltd with a covering letter which
says, inter alia:

This sum is lent to you on the following conditions:

(a) It is repayable on demand,

(b) It will bear interest until repayment of 10% per annum, and,

(c) It is to be used only for the purposes of discharging your indebtedness to the five major creditors.

Anita Constructions Ltd pays the cheque to the credit of a new account opened with a bank with which
it had not previously dealt with and which was not aware of the terms on which the cheque had been
received. Before any further steps were taken Anita Constructions Ltd went into liquidation.

The five creditors, Paul Acceptance Ltd and the liquidator of Anita Constructions Ltd all claim that the
amount outstanding to the credit of the new bank account.

Advise the bank as to who is entitled to the amount in the bank account.

Variation and Termination

1. Each of the following dispositions fails the modern rule of perpetuity. Why?

(a)An inter vivos gift ‘to A on trust for B for life, and then to any of B’s children that marry.’

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(b) A gift of a gravel pit on trust to A to use until the pit is exhausted, and then to be sold and divided
equally among the testator’s living issue.

(c) A gift ‘to A on trust for B for life, then to anyone who may become B’s wife for life, then for B’s eldest
son then living.’

(d) A testamentary gift ‘to A, my wife, for life, then to A's children for life, then for such of any children
of my brother and sister who attain 21.’

(e) A testamentary gift to ‘A for life, then for such of A’s grandchildren that are alive at my death, or
born within five years after, who attain the age of 21.’

2. Bronwyn died leaving a farming property and a large bank account. Under her will Bronwyn appointed
her brother Brian as executor and trustee of her estate. Bronwyn was a prejudiced woman and disliked
Catholics immensely. Clause 4 of her will stated:

I give the farm to Brian on trust for Sonya for life, on the condition that Sonya is not married to a
Catholic.

Clause 8 of her will states:

I give $200,000 to Brian on trust for Owen, then for any wife he may marry for life, then to Owen’s
children that attain 25 years.

At the time of Bronwyn’s death, Sonya had been married to Lucas (a Catholic) for five years. Bronwyn
had been aware of the marriage and did not approve. Owen was aged 65 and had not yet married or
had any children. He was, however, considering marriage to Rosie, his girlfriend who was aged 70.
Analyse the validity of these trusts

Charitable Trusts
1. Consider the following gifts to trustees in the will of Melina:

(a)$ 200,000 to the Industrial Relations Committee of the Campbelltown Branch of the One Nation Party
of Australia, for the benefit of the said branch.

(b)$ 200,000 to establish a sanctuary for the preservation of the native flora and fauna of New South
Wales.

(c)$ 200,000 for the general purposes of St Vincent’s Private Hospital.

(d)$ 200,000 to those of my friends who are poor.

(e)$ 200,000 for the building of a recreation centre for the benefit of workers in the tobacco industry.

(f)$ 200,000 for the education in the Greek language of police officers of the NSW Police Department.

(g)$ 200,000 for the promotion of croquet in the private schools of New South Wales.

(h)$ 10,000 to the Greek Orthodox Archbishop of Australia for masses for the repose of the souls of my
husband and my parents and my sisters and also myself when I die.

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2. At the end of World War II, Milan Petrovic, a Serbian peasant farmer, left his birthplace in Yugoslavia
and emigrated to Australia. He settled on a farm he purchased near Leppington. The farm was in a very
run-down condition when he purchased it. Milan devoted all his time, energy and resources to
establishing his beloved farm which he named “Flat Tops” (a translation in to English of the Serbian
village in which he was born).

In 1989 Milan contracted leprosy and ultimately had to have his left leg amputated. As a result of his
affliction Milan came into contact with the NSW Leprosy Research Council, an unincorporated body,
which was engaged in research for an effective cure for leprosy, and which had its research centre and
headquarters in Leppington. In April 1990, the NSW Leprosy Research Council was effectively dissolved,
but its functions were taken over by a newly formed body called the Leprosy Research Institute of NSW.
At all relevant times the only other institution concerned with leprosy in NSW was the Newcastle-based
NSW Anti-Leprosy League.

As a result of Milan’s suffering he was unable to work his farm and it proceeded to decline rapidly. In
May 1997 Milan died. At the time of his death the “Flat Tops” farm was worth $ 350,000, but had ceased
to generate any income at all.

In his will Milan appointed his nephew Stanislav as executor and trustee as well as residuary beneficiary.

Consider the following provisions left by Milan to his trustee in his will:

(a)$ 50,000 to the Leppington Anti-Leprosy Centre.

(b)The whole of my beloved “Flat Tops” farm for a training farm for orphan lads being Australians.

3. Consider the following gifts to trustees by will:

(a)$ 200,000 to establish a training farm in Pakistan for refugee boys from Afghanistan.

(b)$ 200,000 to establish a Catholic weekly newspaper.

(c)$ 200,000 for such Order of Nuns of the Catholic Church whether active or

contemplative, as my trustees shall select

Resulting Trusts
1. Jack and Jill entered into a de facto relationship in 1975. In 1976 they had a child named Zac. In 1987
they purchased a house in Richmond for $ 150,000. The purchase price was paid by Jack, the money
coming to Jack as an inheritance from the estate of his late uncle. At the time of purchase Jack decided
to have the property registered in his, Jill’s and Zac’s names as tenants in common and in equal shares.
In 1994, when Zac reached his majority age Jack opened a bank account with the Western Sydney Bank
Ltd in the joint names of Jack and Zac. Jack told Zac that he would be making all the deposits into the
account and would withdraw from the account whenever it may become necessary. However, he also
said that if anything should ever happen to him (ie Jack) the money then in the account would belong to
Zac.

Two weeks ago Jack & Jill died in a car accident. In his will Jack left his entire estate to Lucy, his daughter
that he had fathered in 1972 before he had met Jill. In her will Jill left her entire estate to Zac. At the
time of their deaths the Richmond property was worth $ 300,000, and the bank account at Western
Sydney Bank Ltd had a balance of $ 5,000.

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Lucy seeks your advice as to whether she has any entitlements in the Richmond property and the bank
account, and if not who is entitled and to what extent.

Constructive Trusts
1. Carmel and Brian were brother and sister. Both were raised on the land and wanted to be farmers. In
1965, Brian he bought a farm at Queensland with $20,000 of his own money and a loan from Carmel of
$5,000. Unfortunately, the farm was very run down and in the early stages of its running Brian had to
call upon the aid of his sister (who was a qualified carpenter) to upgrade and maintain the farm. At first
Carmel would work on the farm on weekends and holidays, but eventually Brian invited Carmel to work
on the farm full time in return for her living expenses being paid. She agreed but she stated that she
expected to receive some part-ownership of the farm should she stay for some time. Brian stated that
he would always make sure that Carmel was ‘taken care of.’

Carmel and Brian continued to live and work on the farm. In 1978 Brian fell in love with Ronald, his old
school sweetheart, and Ronald moved onto the farm to live. After Ronald moved in, the parties very
quickly fell into a pattern of work whereby Carmel and Brian would labour on the farm and Ronald
would take care of the household, by cooking, cleaning and organising the siblings and their affairs,
including the farm's accounts. Ronald gave up his job at a country newspaper to devote his time to
helping Brian and Carmel on the farm. Brian never stated that Ronald would receive an interest in the
farm.

Brian and Ronald relationship deteriorated in 1998 and Ronald eventually left the farm. Carmel left soon
after, as she believed that Ronald was unfairly treated by Brian. Brian indicated that both Carmel and
Ronald would never receive any interest in the property. What constructive trusts might arise to give
Carmel and Ronald a beneficial interest in the farm?

2. Tom and Millie, who were husband and wife, orally agreed that each would make a will leaving the
whole of his or her estate to the survivor, who would in turn leave his or her estate to Millie’s sister Fay.
After Millie died leaving the whole of her estate to Tom, Tom married Nancy and used all of his assets,
including Millie’s estate, as the full purchase price for a mansion at Point Piper, title to which was
transferred to his and Nancy’s name as tenants in common in equal shares. Tom executed a will leaving
all of his estate to Nancy, but, tormented by scruples, he later told Nancy that he expected her to devise
the mansion to Fay. Nancy said nothing. Tom then died, without changing his will, and Nancy inherited
his estate. Then Nancy died, leaving the whole of her estate to her brother Bob. Fay has just discovered
the facts.

Advise Fay of her rights, if any, in respect of the Point Piper mansion

3. Alain makes, in the United States, high quality ski-boots. His know-how is not patented. Brian has
successfully distributed Alain’s ski-boots in Canada for many years and is respected by Alain as an
energetic and loyal distributor. Alain confides to Brian that he wants to expand into the Australian
market. Brian successfully persuades Alain to engage Brian as his exclusive distributor for Australia. The
arrangement is that Brian will purchase the ski-boots and promotional material from Alain and then
market the product in Australia by himself. There is no contract recording this arrangement. Brian
stresses that the arrangement for Australia will be like his previous dealings with Alain and that it will
work to their mutual benefit and advantage.

Brian then builds and equips a factory in Australia using his own funds. He plans to identify Alain’s know-
how by “reverse engineering” and then to begin manufacturing his own ski-boots for Australian

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distribution. This he does to great advantage. He winds down the sales of Alain’s product to a negligible
level.

Alain becomes aware of Brian’s activities and terminates Brian’s exclusive distributorship arrangement.
Alain’s solicitor writes to Brian and threatens, in non-specific terms, the institution of legal proceedings
against Brian. Brian then sells the plant, goodwill and undertaking of his ski-boots business to Claude.
Claude is aware that Brian once had a close business relationship with Alain and that Alain is now
threatening legal proceedings of some kind against Brian. Claude is not aware that Brian was Alain’s
exclusive distributor for Australia. Claude makes no further enquiries.

Advise Alain of his rights and remedies in respect of the activities of Brian and Claude.

Rights and Responsibilities

1. Paul was a busy solicitor, who had an unfortunate habit of cutting corners. Paul’s practice, Paul & Co,
had a large trust account of which he was the trustee. Paul was also a co-trustee of the Landwall Family
Trust which had two beneficiaries, Nicole and Marc. The other co-trustee was Richard, who was an old
family friend of the Landwalls and was a retired landscaper. The management of the family trust was, as
a matter of practise, left in Paul’s hands and Richard had very little to do with the decision-making.

Paul had dreams of developing a large landholding into an industrial area but was in desperate need of
capital. The Landwall Trust instrument granted limited investment powers and forbade speculative
investments in land.

On Monday 4 February, Paul was made an offer for the land that he could not refuse. He drew $1 mil
from the firm’s trust account and deposited into his own personal account. The next day he transferred
another $1 mil from the Landwall Trust into the personal account. He knew that both actions were
serious breaches of ethics and law, but he believed that he would able to repay the loans from
development within a year. Paul then used $1.5 mil to purchase the land in his name. Richard was
oblivious to the entire event.

Six months after these transactions Paul’s withdrawal of money from the Paul & Co trust account was
made known. The authorities launched an investigation, discovering numerous serious breaches of
professional standards and they threatened to strike Paul off. Paul became depressed and killed himself.
Paul was insolvent at the time of his death, owing $700,000 to unsecured creditors. At the time of Paul’s
death, his personal account had a balance of $100,000 and the value of the land was $2 mil.

Discuss what remedies are available to the beneficiaries of the Landwall Family Trust and to the
beneficiaries of the Paul & Co trust account.

2. Gordon died on the 1 January 2000. In his will Gordon appointed his sister, Phyllis, as trustee of his
estate and granted his wife, Frances, a life estate, and his three children, Ken (aged 21), Jocelyn (aged
19) and Ronnie (aged 15) an equal beneficial interest in the remainder. The estate consisted of two main
assets: a collection of rare China plates and a farm property in Clunes, in northern New South Wales.
The farm was being leased to Bob, who paid an annual rent payable on 30 June every year. The trust
provides that the children are not entitled to their interests until they reach the age of 25 years.

Discuss possible solutions to the following scenarios:

(a)Upon taking up her office, Phyllis was given advice to the effect that the market for Gordon’s China
plates is falling dramatically and she is fearful that the plates will be worthless in the future.

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(b) Tragedy struck a second time on 1 May 2000. Frances died in a car accident. She left her entire estate
to the Dog Homes Ltd, a statutory corporation, set up to care for dogs. Dogs Home Ltd are claiming part
of the income from the farm rental but Phyllis does not know how much is owed to Phyllis, if anything.
Phyllis’ records indicate that Frances had not receive any amounts for rent from the farm in 2000.

(c) After Frances’ death all three children began demanding that they be given their beneficial interests
in the farm. Phyllis refuses to give them the property on the grounds that it would be a breach of the
trust.

3. Ken is the sole trustee of the Croydon Family Trust (“the Trust”).

The trust has three discretionary beneficiaries. They are Kevin (aged 25), James (aged 21), and Carmel
(aged 17). The Trust property consists of a very large investment account at the Western Bank. The
Trust provides that Ken shall have the discretion to pay income each year to the beneficiaries from the
interest earned on the account. Ken is obliged in the trust deed to distribute all the income every year
but he can choose to whom it is distributed. The Trust deed also gives ken the widest powers to invest
the money as he sees fit to get the best return.

Ken wishes to remain as trustee. However the beneficiaries are not happy with his management of the
trust as Ken has taken some of the money from the account for himself. Ken believes he has done
nothing illegal. He used trust funds to reimburse himself for costs spent in getting advise about how to
invest the trust funds properly.

The beneficiaries are also angry at Ken’s decision to invest with the Western Bank. The beneficiaries
object to this as the Western Bank was responsible for environmental degradation in Nuigini. The
beneficiaries would prefer the funds to be invested with the Green Bank (which has strict environmental
policies), even thought this would mean that there would be less returns on the investment.

Ken is worried that the beneficiaries will seek to call on him the distribute all the funds and terminate
the trust. He is unsure of whether the beneficiaries have the power to make that decision. He is also
worried that they will sue him for the reimbursement monies or force him to invest in the Green Bank.

Discuss and analyse.

Combined Trust Questions with Answer Guides

1. The facts of this question are set in NSW.

Alex, a successful industrialist and founder of Busy Corporation, died on the 1 January 2008. His will
contained two trusts with a residuary beneficiary.

The first trust was for $5 million to be held for ‘the education of employees of Busy Corporation, their
children and dependants.’

The second trust was worded as follows:

I give my property at Rex Lex to my sister Juliette on trust for my children for life, and then to any of my
grandchildren that marry, on the condition that the grandchildren not marry a Scot.’

The property at Rex Lex was a large cattle station in western NSW worth $100 million. At the time of
Alex’s death, Alex’s children were Michael (aged 50), John (aged 32) and Peter (aged 28). At the time of

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his death Alex had one grandchild, Penelope, who was unmarried but had been dating Cameron from
Scotland.

The residuary beneficiary in the will was Patricia, Alex’s estranged wife. Patricia sought to challenge the
validity of the Busy Corporation trust.

At the same time Juliette, who had possession of the certificate of title, saw an opportunity to become
very rich, very fast. Before the sons could collapse the trust and get possession of the title deeds she
entered into a contract for sale of the property with Nidal. It was common knowledge that the property
was held by Alex’s family in a trust for the sons. Nidal realized that the circumstances were suspicious
but he decided that the best thing to do was basic title searching and settle the transaction as soon as
possible. Nidal became the registered owner on 1 June 2008 and Juliette then disappeared.

Answer each of the following

Can Patricia have the Busy Corporation trust struck down and, if so, on what basis? If the trust fails what
trust mechanism could be used to bring the funds back to the estate and into Patricia’s possession.

The first issue is whether the trust fails as a charitable trust. Education is a valid head of charity but it
fails the Compton test of public benefit. The facts are similar to Re Oppenheim

The second issue here is whether it could survive as a private express trust. The trust appears to be
certain according to the criterion certainty test in McPhail v Doulton.

The mechanism, for saving it is the automatic resulting trust

Discuss the wording of the second disposition and whether it offends the rule against perpetuities
and/or public policy.

On perpetuities, it fails the modern rule. The lives in being are the children. The grandchildren could get
married more than twenty five years after the death of the last child. Class closing cannot apply because
the condition is not age related. The Perpetuities Act 1984 would save the disposition from initial
uncertainty and the waiting time would be 80 years. (3 marks)

The restriction on marriage would be upheld: Seidler v Schallhofer [1982] 2 NSWLR 80. Therefore the
disposition survives. (3 marks)

Can Rex Lex be recovered by the sons?

The issue of David’s registration is whether he can claim indefeasibility from the knowing receipt of the
trust property. The rule in Barnes v Addy applies to knowing receipt. Of interest is David’s state of
knowledge which seems to match category 4 of the Baden categories of knowledge. In Australia both
categories satisfy the requirement for knowing receipt but the question here is complicated by the
Torrens system. The High Court has said that outside of fraud knowing receipt does not apply to
Torrens: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22. The most probable answer is that
he has indefeasibility and that tracing will be ineffective.

2. This question occurs in NSW. Luke and Robert were brothers. They purchased a house together with
each providing 50% of the purchase price but Luke did not want the house to be in his name because he
wanted to later access a government scheme for ex-servicemen where they could borrow money from

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the government for their first house at a cheap rate. Luke had fought in the First Gulf War. The house
was registered in Robert’s name. Luke earned income through providing loans to small businesses.

Luke later won the lottery and with the money decided that he would like to provide for his friend Owen
who was in dire financial straits. Luke decided to give Owen 50% of his (Luke’s) right to receive interest
on a large loan he made to a colleague named Jack Smith. The loan was repayable immediately on
demand with interest to be paid to the date of repayment. Luke also had a large holding of shares in
AusSteel Pty Ltd and decided to also give Owen ‘Every year for the rest of Owen’s life, the first $1000 of
the yearly net income to accrue to me as dividends from my shares in AusSteel Pty Ltd’. Finally Luke also
gave Owen ‘all the rights and moneys owed to me as mortgagee pursuant to an equitable mortgage that
I have with Clary Bruce.’ Clary Bruce was another borrower who had borrowed money from Luke and
executed an equitable mortgage in favour of Luke as security for the loan. All the gifts to Owen were
recorded in a deed.

Luke also wrote a will which contained the following clauses:

I give $500,000 to my brother Robert, on conditions that he will be made aware of.

I give the residue of my estate to my sister Lisa who may, at her absolute discretion, give such residue to
anyone she thinks fit, barring herself, and Robert. If Lisa fails to dispose of the residue in her lifetime, it
shall become the property of my nephews, Ethan, Lachlan and Bryce.

Three days after writing the will Luke gave a letter to Robert and asked him to follow the instructions in
the letter, but only after he died. Robert agreed with a wink and wry smile.

Luke died three months later in a motorcycle accident. Robert opened the letter and found that it
instructed him to track down his illegitimate son, Terry, who was born in Saudi Arabia during Luke’s
service, and give the $500,000 gift to him.

(a) Does Luke’s estate have a claim on the house?

The facts of this are similiar to Nelson. The resulting trust will be upheld for Luke’s estate because the
policy of the law has not been offended. Luke’s estate may have to reimburse the government for any
payments they wrongfully received, on the basis of clean hands

(b) Were the gifts to Owen effective or do they form part of Luke’s estate

The first gift is similar to Shephard and is successful. All these parts deal with whether the property
being assigned is present or future property, given that the assignments are for no consideration.
Present property can be assigned for no consideration, but not so future property. Students must know
Shepherd and Norman in particular. The key to this type of question is to make clear that there is a
distinction between assigning an existing right to receive future property (present property) as opposed
to the future property itself. The tree and fruit metaphor is often used. In cases of presently existing
rights to future property being assigned it doesn't matter that it may not ever come to fruition, so to
speak: See Shepherd.

The second fails because it can only be an equitable assignment given it is future property, and it’s a gift.

The third gift is the voluntary transfer of a subsisting equitable interest. Its needs to be in writing as per s
23C(1)(c).

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(c) Of what kind is the disposition to Lisa and is it effective?

This disposition is a mere hybrid power of appointment. The disposition is a mere power because there
is no obligation to exercise the power. This is indicated by the words 'may,' and 'absolute discretion'.
Additionally, the disposition contains a gift in contemplation of default, which is the hallmark of a mere
power. The power is hybrid because the donee is able to choose anyone as the beneficiary of the power,
apart from a named group of persons. Note also that because the disposition contains a gift over it
satisfies the rule against delegation of testamentary power (Tatham v Huxtable). Tatham should be
discussed at length. But it has now been removed via the new Succession Act 2006

(d) Is the gift to Terry effective?

This question concerns a half-secret trust, as the testator has indicated that the donee is not to hold the
property beneficially. To be binding the trust must satisfy the three requirements of intention,
communication and acceptance: Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532 at 535,
per Young J.

Given the statement made by Luke, there is no controversy that a trust was intended. Further
circumstantial evidence could be led if necessary to prove intention on the balance of probabilities:
Voges v Monaghan (1954) 94 CLR 231.

A problem might arise in relation to communication, given that Luke did not speak with Robert
regarding the trust until 17 years after the will was made. Older authority suggested that
communication needed to occur before or at the time of the will for a half secret to be valid: Guest v
Webb [1965] VR 427. However, in Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532, it was
held that communication could occur at any time until death. It is of no relevance that the terms of the
trust were not communicated until after death: Re Boyes (1884) 26 Ch D 531.

Robert has accepted the trust by nodding. Express acceptance of the obligations are not necessary:
Ottaway v Norman [1972] Ch 698; [1971] 3 All ER 1325. A valid secret trust has therefore been created.

3. This question occurs in NSW.

Colin was a busy industrialist who was involved in refinancing of small to medium sized businesses. He
was married to Belinda. Colin also has a son named Roger, who was of school age. Roger’s mum, Loane,
had been a former girlfriend of Colin’s but they were no longer romantically involved. Belinda did not
know that Roger was Colin’s son.

In an effort to save for Roger’s future, Colin opened a joint bank account in his and Roger’s names and
made regular contributions to it. Belinda did not know about the account.

Colin died on the 1 January 2005, from a recurring cancer that he fought for many years. One month
before he died he made a loan of $100,000 to Gilbert, a newsagent who ran a newsagency at Windang.
The purpose of the loan was set out in a letter to Gilbert which read:

This sum is lent to you on the following conditions:

(a) It is repayable on demand,

(b) It will bear interest until repayment of 10% per annum, and,

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(c) It is to be used only for the purposes of discharging your indebtedness to your two largest creditors.

The sum of money was deposited in an account to which Gilbert was a signatory. The account was called
the ‘Gilbert creditor a/c’.

On the same day he loaned money to Gilbert, Colin spoke to his friend Alex and gave him an envelope.
He told Alex that he wanted Alex to follow the instructions in the envelope and Alex agreed. Colin said
that Alex was not to open the envelope until after Colin’s death.

When Colin died his will granted Alex $100,000. Alex opened the envelope and the letter inside said that
the money was to be held on trust for Roger. The will left the rest of the estate to Belinda. When Belinda
confronted Alex about the money Alex told her about Colin being Roger’s father. She was extremely
upset. She became enraged when she discovered the bank account Colin had set up for Roger’s future.

(a) Does Belinda have the right to inherit the entire Bank account in Colin’s and Roger’s names? (8
marks)

This is a resulting trust question. Resulting trusts can be applied to bank accounts: Russell v Scott. Even
though Roger made no contributions there is a presumption of advancement which counteracts the
presumption of resulting trust in Colin’s favour. As such Roger gets to keep the half in his name. He may
also get to keep the other half if the account was held in a joint tenancy (due to the right of
survivourship), but there is no evidence of what was intended so the statutory presumption in favour of
tenancy in common will probably apply. See Radan Stewart and Lynch [21.3.10- 11]

(b) Can Belinda challenge the disposition to Alex? Will Roger be able to beneficially enjoy the $100,000?
(6 marks)

This is a secret trust question. This question concerns a fully secret trust, as the testator has not
indicated that the donee is not to hold the property beneficially. To be binding the trust must satisfy the
three requirements of intention, communication and acceptance: Ledgerwood v Perpetual Trustee Co
Ltd (1997) 41 NSWLR 532 at 535, per Young J.

Given the behaviour of Colin and the letter, there is no controversy that a trust was intended. Further
circumstantial evidence relating to Colin’s approach to the care of Roger could be led if necessary to
prove intention on the balance of probabilities: Voges v Monaghan (1954) 94 CLR 231.

A problem might arise in relation to communication, given that Colin did not speak with Alex regarding
the trust until after the will was made. Older authority suggested that communication needed to occur
before or at the time of the will for a half secret to be valid: Guest v Webb [1965] VR 427. However, in
Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532, it was held that communication could
occur at any time until death. It is of no relevance that the terms of the trust were not communicated
until after death: Re Boyes (1884) 26 Ch D 531.

Alex clearly accepted the trust when being given the envelope. Express acceptance of the obligations are
not necessary: Ottaway v Norman [1972] Ch 698; [1971] 3 All ER 1325. A valid secret trust has therefore
been created which Roger get enjoy beneficially.

(c)After Colin’s death Gilbert was bankrupted. The funds were still in the bank account. Will Belinda,
Gilbert’s two largest creditors, or Gilbert’s trustee in bankruptcy get the money? (6 marks)

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This is a Quistclose trust question. This question is obviously based on Quistclose and deals with the
debt-trust distinction. The loan has an initial purpose which fails hence the initial trust for the creditors
fails. A secondary trust is created with the funds being held on trust for Colin. The bank holds this
money on trust and the funds should not be made available to the trustee in bankruptcy.

Interestingly the courts have not found that the primary trust gives the right to the creditors. If the
Quistclose trust is meant to be an express trust with two limbs then why don’t the creditors get it?. Lord
Millet’s solution is to call the trust a resulting trust but this has been rejected by the NSW Court of
Appeal in Salvo v New Tel Ltd

PAST EXAMS
EQUITY EXAMINER’S COMMENTS WINTER 2010

General Comments

Overall the exam was well done. Many students struggled with time management and were not able to
complete the exam in time. A number of students struggled with questions 1 and 2 in particular.

Question 1

Kim and Lee have been married for 25 years. Originally born in China, Kim and Lee emigrated to
Australia together in 1990. Kim holds a Bachelor of Business from Shanghai University.

In Australia, Kim and Lee have developed a profitable textile business, Draping Delicately Pty Ltd. Both
Kim and Lee are directors and shareholders in that company. While Kim speaks and reads English
reasonably competently, Lee speaks and understands only a little English. Generally, Lee is more
comfortable speaking her native language, Mandarin.

In 1999, Kim and Lee purchased a property in Mosman as joint tenants for $2.55 million. The purchase
was partially funded by a loan from Upright Banking Co of $2 million, secured by a mortgage over the
property.

In 2008 Lee noticed some newspaper and magazine advertisements for Mortgages ‘R’ Us mortgage
brokers. Lee telephoned Mortgages ‘R’ Us and spoke with Gloria, the manager of the company who
spoke Mandarin. Gloria said that DodgyBanker Co was offering loans at a rate below the market, and
recommended that Lee and Kim refinance their home loan with DodgyBanker Co.

On Gloria’s advice, Lee and Kim signed an application form for a loan of $2 million from DodgyBanker
Co, to be secured by a mortgage over the property. The application was submitted to DodgyBanker Co
by Gloria on behalf Lee and Kim. Lee could not read or understand the contracts as they were written in
English. Kim also did not read the contracts, even though he could do so. Other than advising on the
interest rate, Gloria did not explain the contracts to Lee and Kim. In April 2009, Draping Delicately Pty
Ltd’s business started to deteriorate. As a result, in S eptember 2009, Lee and Kim failed to make the
required repayment on their mortgage. DodgyBanker Co is now seeking possession of the Mosman
house.

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Undue Influence
(a) Advise Lee and Kim on any action they may have against DodgyBanker Co in equity. Include a
discussion of remedies in your answer.

Kim and Lee may have an action for undue influence against DodgyBanker if they can show that their
relationship with Gloria was a presumed category, that she used her position to overbear their will and
that DodgyBanker had notice of her unconscionable conduct. If successful, the equitable remedy will be
recission.

Gloria is the mortgage broker for a couple who spoke little english. This would be a class 2B special
relationship: Barclays, if it is found Gloria used her position and the special disabilities of her clients to
procure their acceptance of the new mortgage In Milinex [2011], a mortgage broker acting for a client
who had little understanding of their contract was held to be undue influence. Similarly in Amadio
(1983), lack of english was held to be a factor strengthening the case for undue influence.

However, these disabilities may be offset by their having entered into a mortgage before, their years of
business experience, Kim’s level of education and the fact that the new mortgage was not improvident,
at least to the extent that the loan was for a lower rate. It is also unclear that Gloria knew of their
disadvantage. If she conducted her dealings with the couple it may not have been apparent that Lee had
difficulties with English: Johnson v Buttress.

Assuming that there was undue influence on Gloria’s part, could this be brought back to the mortgagee?
On the facts, Gloria is acting for Kim and Lee so there will not be agent’s notice but there may still be
constructive notice depending on the Bank’s level of knowledge of Lee’s shortcomings: Bank of New
South Wales v Rogers and their relationship with Gloria: Couper Holdings Pty Ltd (in liq) v Bell [1999]
(NZ); Perpetual v Vandenbergh (2010).

If Kim and Lee are successful, the usual rememdy is recission of the contract so DodgyBanker will give up
the equitable lien over the Mosman property and Kim and Lee will have to return the $2 million. Given
their financial hardship, it seems unlikely that this remedy would assist them.

PART B

When Draping Delicately Pty Ltd’s business started to deteriorate, Kim decided that the best course of
action was to sell the business’s book debts to an investor. Kim sold the company’s book debts for
$300,000 to Buy Em Cheap Pty Ltd. The contract included the following terms: The Assignor assigns to
the Assignee the benefit of and all of the Assignor’s rights powers and remedies [in relation to the book
debts] including, but without limiting the generality of the foregoing:

(a) All monies now or which might hereafter become owing or payable; and

(b) All obligations now or which might hereafter become due for performance.

Two weeks after the contract was signed, Buy Em Cheap Pty Ltd sent letters to each of Draping
Delicately Pty Ltd’s debtors which read:

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Dear Sir,

Re: Debt to Draping Delicately Pty Ltd (ACN 123 456 789)

We note that you owe money to Draping Delicately Pty Ltd under a number of bills of sale.

Draping Delicately Pty Ltd has entered into a Deed of Assignment with Buy Em Cheap Pty Ltd dated 12
June 2009, which included the debt due and owing by you to Draping Delicately Pty Ltd, which was
subsequently assigned to our client.

Our client requires the immediate payment of all amounts due and owing

which, as at 22 June 2009, amount to $302,455 …

If we do not receive the payment of $302,455 by 4 pm on 20 July 2009 we will commence, without
further notice, legal proceedings against you to recover the outstanding debt of $302,455, together with
all continuing interest and costs.

In each of these letters, Buy Em Cheap Pty Ltd overstated the amount owing to Draping Delicately Pty
Ltd by up to $200,000.

Assignment of a Chose in Action

(b) Advise Draping Delicately Pt y Ltd’s debtors on who is entitled to the repayment of their debts. (10
marks)

Draping Delicately has assigned a chose in action. The money is not an expectancy in that it is already
owing Depending on the interpretation of the wording, they have assigned either future or present
property and these will be examined in turn.

The assignment refers to “rights, powers and remedies” which, although they concern future property,
are themselves present rights. In this they are similar to the wording: “My right title and interest in” that
was found in Shepherd v FCT (1965) in which the rights were found to be present property.

If the assigned property is present property, it can be assigned under S12 of the Conveyancing Act if
notice is properly given to the debtor. The assignee giving notice is allowed: Norman v FCT; as is notice
after the assignment: Bishop v Financial Trust Limited [2008]; as is notice by post: S170 of the CA and
Leveraged Equities Limited v Goodridge (2011). The contentious point is the overstating of the amount
due but all that is requires is that the debt is identifiable. On the basis of all the other information
provided it would seem that the debt could be identified. If notice is made out, the debt passes to the
assignee: Bateman v Hunt [1904]. Notice accompanying a letter of demand is sufficient: Condor Asset
Management v Excelsior Eastern. The debtors, of course, should not pay more than the amount they
owed draping delicately.

If the assignment is for a future property, that is, for the money when it is paid rather than the right to
the money, the assignment is valid because it was given in exchange for consideration: Holroyd v
Marshall (1862). All that is required is an intention to assign which can be found in the wording of the

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contract: Norman v FCT. The assignment of future property bestows an equitable claim and is not
covered by S 12 of the CA. Again, the assignment is for no more than was owed to DrapingDelicately.

Question 2

Gears ‘n’ Wheels KG is a German company specialising in gears for industrial machines. In 1998, Gears
‘n’ Wheels entered into a licence agreement with the Indian company Bash Thump Wallop Co Ltd. Under
the agreement, Gears ‘n’ Wheels agreed to provide manufacturing information and design specifications
for its gears to Bash Thump Wallop. Bash Thump Wallop would have exclusive licence to manufacture
and sell the gears in India. The contract also allowed Bash Thump Wallop to sell the gears in other
places, like Australia, during the contract’s term.

In return, Bash Thump Wallop was to pay Gears ‘n’ Wheels US$300,000 per year and royalties of 4% on
all articles manufactured and sold or leased under the contract. The contract was for the period of seven
years, with the possibility of extension for three years by mutual consent.

The contract was terminated in 2002. In 2004, Bash Thump Wallop tendered successfully, through an
Australian subsidiary, for a contract to provide gears to a mining venture in North Queensland. The
gears provided to the mining venture made use of the manufacturing information and design
specifications provided by Gears ‘n’ Wheels. Gears ‘n’ Wheels were made aware of Bash Thump
Wallop’s tender in January 2005.

Confidential Information
(a) Advise Gears ‘n’ Wheels on any action they may have against Bash Thump Wallop in equity.
Include a discussion of remedies in your answer.

The question concerns confidential information, namely the gear designs. The gear designs seem to be
trade secrets because they were of a detailed nature and took effort to produce: Robb v Green [1895].
Machinery designs have been held to be trade secrets: Ansell v Allied [1967] and, absent contradictory
facts, it would seem that the designs were trade secrets in that their value to the owner lies in the
inaccessibility of the information to persons whose use of the trade secret is not restricted or controlled,
and the competitive advantage which that gives. The licencing agreement seems to fulfill the objective
test that the information was imparted in a way that implied an obligation of confidentiality: Coco v A N
Clark.

The manufacture of the gears for the mining company and providing of the design specifications to the
subsidiary comprised a breach of confidentiality in that BTW used the information beyond the terms of
their licencing agreement. Imparting the information for the licencee’s use for a period of time does not
authorise unlimited use of the information. Although not necessarily an element of the breach, the
detriment suffered by the licencor in licence fees it otherwise would have collected from BTW may lend
weight to the breach: Moorgate Tobacco, n 5 (1984), Smith Kline (No 2) (1990).

In defence, BTW may argue the equitable defence of laches: AG (UK) v Heinemann (1988). Similarly, their
silence may indicate acquiesence with the breach: Waltons Stores v Maher (1988).

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As to remedies, The Court fashions remedies against an infringer which are appropriate to the
circumstances at hand consistently with equitable principles, and include injunctive relief, delivery up
of the specifications, damages, an account of profits or the imposition of a constructive trust.

(B)

Joe is the sole director of Gumby Pty Ltd. The sole shareholder of Gumby Pty Ltd is Irene, Joe’s wife, who
has been allocated one share in the company. Gumby Pty Ltd is the registered proprietor of land located
in Cairns. The land is primarily used for a golf course (“Golden Birdies Golf Course”), with the rest of the
land remaining undeveloped.

In 2003, Joe met with a group of his golfing buddies. The group agreed that it was scandalous that
Gumby Pty Ltd was sitting on undeveloped land. Something needed to be done! Given Gumby Pty Ltd
did not have the resources to develop the land, it was agreed that a new company, Build Big Pty Ltd,
should be formed for the purpose of developing the undeveloped land. Joe and his golfing buddies
would each invest $200,000 in the project and would each become shareholders in Build Big Pty Ltd.
Keen to ensure there was no impropriety, Joe transferred $300,000 to Gumby Pty Ltd before
transferring the undeveloped land into Build Big Pty Ltd’s name. Market value for the land was approxim
ately $295,000.

Using the invested funds, Build Big Pty Ltd developed a magnificent golf resort on the land. The property
dramatically increased in value to $3,400,000. The last dividend paid to each of the shareholders in Build
Big Pty Ltd was $50,000.

Soon after the golf resort was constructed, Irene left Joe, tired of his golfing ways. In reviewing her
assets to prepare for the divorce, Irene realised that Gumby Pty Ltd no longer owned the (formerly)
undeveloped land.

Fiduciary Relationship
(b) Advise Irene on any action she may have against Joe in equity. Include a discussion of remedies in
your answer.

Irene may have an equitable action against Joe if she can establish that Joe owed her fiduciary duties as
the director and breached those duties. As a director of the company, Joe has undertaken to act in the
best interests of the company and has a fidcuiary duty of “undivided loyalty” to the company: Beach
Petroleum NL v Kennedy (1999). A director of a company is presumed to have fiduciary duties to the
company: Consul Developments v DPC Estates (1975). Furthermore, Joe as sole director of a company
with only one share holder who is also a family member, Joe also may have a fiduciary duty directly to
the shareholder, herself, because there is a greater reliance and vulnerability than in most companies:
Coleman v Myers (1977).

Under his duty, Joe must avoid conflicts of interest: Aberdeen Railway v Blaikie Bros (1854). By
participating in the formation of a new company and selling the land to the new company, it seems that

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Joe has placed himself in a position of conflict of interest. As a collorary, by not iforming Irene, he has
breached his duty to disclose the conflict: Fitzwood v Unique Goal (2001).

It is no defence that by paying above the market price for the land, Joe can demonstrate that he had no
intent to defraud: Nocton v Lord Ashburton [1919]. Nor is it a defence that Gumby Co was unable to
have profited from the opportunity to develop the land: Warman Int v Dwyer (1995). Informed consent
to the transaction is what is required to fulfill the duty: Murad v Al-Saraj [2005].

As noted above, because of the structure of the company and relationships of the principals, Irene may
seek remedies directly for a breach of fiduciary duty owed to her as shareholder. The most likely
remedies are a constructive trust on Joe’s shares in Big Build: LAC Minerals v International Corona
Resources (1989). Alternatively, or even additionally, Irene may be awarded an account of profits reaped
by Joe as a result of his breach: Michael Wilson and Partners Ltd v Nicholls [2009]

Question 3

This question occurs in NSW. Peter, a successful industrialist and founder of Glory Corporation (‘Glory’),
died on the 1 January 2004. His will contained two trusts with a residual beneficiary.

The first trust was for $5 million to be held for ‘the education of employees of Glory, their children and
dependants.’

The second trust was worded as follows:

I give my property at Oakhill on trust to my sister Francesca for my children for life, and then to any of
my grandchildren that marry, on the condition that the grandchildren not marry a Scot.’

The property at Oakhill was a large cattle station in western NSW worth $100 million. At the time of
Peter’s death, Peter’s children were Lawrence (aged 50), Iain (aged 32) and Simon (aged 28). At the time
of his death Peter had one grandchild, Lyza, who was unmarried but had been dating Cameron from
Scotland.

The residual beneficiary in the will was Wendy, Peter’s estranged wife. Wendy sought to challenge the
validity of the Glory trust.

At the same time Francesca, who had possession of the certificate of title, saw an opportunity to
become very rich, very fast. Before the sons could collapse the trust and get possession of the title
deeds she entered into a contract for sale of the property with David. It was common knowledge that
the property was held by Peter’s family in a trust for the sons. David realized that the circumstances
were suspicious but he decided that the best thing to do was basic title searching and settle the
transaction as soon as possible. David became the registered owner on 1 June 2004 and Francesca then
disappeared.

Answer each of the following

Charitable Trust Validity

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A) Is the Glory trust a valid charitable trust? (5 marks)

Eductation is a valid foundation for a charitable trust: London Hospital Medical College v IRC (1976).
However, this trust seems to fail the Compton Test of public benefit. The Compton Test rejects trusts
charitable trusts whose beneficiaries are defined by reference to a purely personal relationship. This
Trust benefits employees and their families, indicating a personal nexus between the donor and the
beneficiaries that would put the trust outside the four categories of charitable trust set out by Lord
McNaghten in IRC v Pemsel despite the recognised aims of the trust. The facts are similar to Oppenheim
v Tobacco Securities Trust (1951) in which an educational charitable trust for employees and ex-
employees was held to be invalid because of the personal connection.

Private Express Trust

(b) Is the Glory trust a valid private express trust? (5 marks)

The Glory Trust is a discretionary trust because the beneficiaries and their individual entitilements to the
trust property are not fixed: The Glory Trust will be a valid private express trust if it meets the three
certainties: Knight v Knight (1888). Determining the subject and intention seem clear from the facts but
determining the object of the trust may present difficulties. The employees and their children can be
readily ascertained, the only difficulty may be in ascertaining the dependants as there is no contractual
or genealogical evidence of their status.

The wording of the trust is very similar to the trust examined in Re Baden’s Deed Trusts (No 1) (1970). In
that case, the word “relation” was used. “Relation” presents the same difficulties as “dependants”, it is
difficult to be certain of who is included as a beneficiary of the trust as there is no defintive meaning of
either word. The House of Lords, however, held 3:2 that the word “relations” was sufficiently certain to
satisfy their new “is or is not” test so, by analogy, it would seem that the word “dependents” is also
sufficiently certain. So the trust survives

Automatic Resulting Trust

(c) Presuming that the trust fails what trust mechanism could be used to bring the funds back to the
estate and into Wendy’s possession? (5 marks)

When trusts fail the trust property is returned to the settlor by means of a resulting trust: per Megarry J
in Re Vandervell’s Trust (No 2). The trust may be deemed “automatic” but there is some controversy
about this term: per Lord Browne Wilkinson in Westdeutsche Landesbank Girozentrale v Islington
Borough Council (1996) and Ong in Trust Law in Australia pps 338 and 379. However, despite this
uncertainty, the property will revert to the estate through a resulting trust and the preponderance of
opinion seems to be that it will be an automatic resulting trust.

Rule on Perpetuities and public policy

(d) Discuss the wording of the second disposition and whether it offends the rule against perpetuities
and/or public policy (5 marks)

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The modern rule against perpetutities states that that the interest must vest within a life in being plus 21
years from the date that the instrument becomes effective. The vesting will not be allowed even if it is
remotely possible that the conditions of the contingent remainder will not be satisfied within this time,
as viewed from when the trust is granted: Caldell v Palmer (1833). The rule against perpetuties applies to
private trusts: National Tourism Development Authority v Coughlan [2009]. In this case, the life in being
is the life of the children and the condition is that the grandchildren marry. It is certainly possible that
the grandchildren will not marry within 21 years of the death of last surviving child so the trust fails the
rule against perpetuities because the property fails to vest within the perpetuities period. The trust may,
however, be saved by S7 of the Perpetuities Act 1984 which decrees that the property will vest after 80
years even if the conditions of the trust have not yet been satisfied.

In terms of the public interest, the issue is the restraint on the marriage to a Scot. Although complete
restraint on marriage has been held to be against public policy: Re Johnson’s Will Trusts (1967), partial
restraint on marriage has been upheld: Seidler v Schalhoffer (1982) though it should be noted that public
policy changes with the times and the same result may not occur today.

Indefeasibility and knowing receipt of trust property

(e) Can Oakhill be recovered by the sons, and if so, how? (5 marks)

Oakhill can be recovered by the sons if they can establish knowing receipt and overcome David’s
indefeasibility through registration. The sale of the property is a disposal of the trust’s property in breach
of the fiduciary duty; Oakhill is traceable as assets of the sons; and David seemed to have knowledge
that his receipt of Oakhill was tracebale to a breach of the fiduciary duty because it was public
knowledge that the property was held on trust and that would have, at least, put him on enquiry: Baden
v Societe Generale [1992]. So the transaction satisfies the requirements of Consul Development Pty Ltd v
D.P.C. Estates Pty Ltd (1975), following Barnes v Addy (1874) and can be categorised as knowing receipt
of trust property.

However, the clash between knowing receipt of trust and torrens indefeasibility was examined recently
in Farah Constructions v Say-Dee [2007]. In that case it was held that knowing receipt can only affect
registered indefeasibility in cases of fraud, which is absent here and that to make an order to divest
would be an unpermissable extension of the reach of equity.

Question 4

This question occurs in NSW. Luke and Robert were brothers. They purchased a house together with
each providing 50% of the purchase price but Luke did not want the house to be in his name because he
wanted to later access a government scheme for ex-servicemen where they could borrow money from
the government for their first house at a cheap rate. Luke had fought in the First Gulf War. The house
was registered in Robert’s name.

Luke also wrote a will which contained the following clauses:

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I give $500,000 to my brother Robert, on conditions that he will be made aware of. I give the residue of
my estate to my sister Lisa who may, at her absolute discretion, give such residue to anyone she thinks
fit, barring herself, and Robert. If Lisa fails to dispose of the residue in her lifetime, it shall become the
property of my nephews, Ethan, Lachlan and Bryce.

Three days after writing the will Luke gave a letter to Robert and asked him to follow the instructions in
the letter, but only after he died. Robert agreed with a wink and wry smile.

Luke died three months later in a motorcycle accident. Robert opened the letter and found that it
instructed him to track down his illegitimate son, Terry, who was born in Saudi Arabia during Luke’s
service, and give the $500,000 gift to him.

A week after Luke’s death a woman called Nora came to Robert’s home. Nora claimed to have been
married to Luke for 10 years. She informed Robert that she and Luke bought a house together in 1998.
Luke provided 75% to the costs of acquisition and she provided the remaining 25 %. The house was
registered in the Torrens system and they were registered as joint tenants. Robert later discovered that
the house was worth over $5m.

Resulting Trust Joint Owners Real Property

(a) Does Luke’s estate have an equitable claim on the house registered in Robert’s name? (6 marks)

Luke’s estate will have an equitable claim on the house either by operation of a presumed purchase
money resulting trust (Napier v Public Trustee (WA)) or, uniquely, by way of a equitable charge (per
Bryson J in Little v Little (1989) 12 Fam LR 800) over the property to the value of his contributions, though
the latter seems not to be a precedent that has been followed.

A resulting trust will be presumed in situations where A has paid C in whole or in part for a conveyance
to B: Turnbull v Gorgievski (2000). The equitable presumptions of resulting trust, however, may be viewed as
the bats of the law —flitting in the twilight, but disappearing in the sunshine of actual facts. The presumption
can be rebutted by evidence of contrary intention on Luke’s part, for example, evidence of the intention
to make a gift of the property which appears to be absent. It may also be rebutted by evidence of
consideration on B’s part in exchange for the property which, again, is absent in this case. The
presumption can also be rebutted by the presumption of advancement. The presumption of
advancement has been found in cases of siblings: McGregor  v Nichol [2003], but that case rested on
extrinsic evidence that is not present here.

Finally, equity requires that applicants come with clean hands. In this case, Luke made the transfer which
created the potential resulting trust in an attempt to achieve an illegal purpose. A similar case was
examined in Tinsley v Milligan (1994) where three law lords to two held that the resulting trust stands so
long as the illegal benefits were purged from the trust. This decision was followed in Australia in Nelson v
Nelson (1995). Since the facts are silent on Luke completing his illegal purpose, no benefit need be
purged and the resulting trust stands. Luke’s estate has an equitable claim on the house.

Disposition of power of appointment

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(b) What kind of disposition is the disposition to Lisa and is it effective? (6 marks)

The disposition to Lisa is a power of appointment to dispose of the estate at her absolute discretion with
the provisions that she not dispose of it in favour of herself or her brother. Because she is not obiged to
exercise the power, it is a bare power. Because the power excludes people, it is an intermediate power.

Because the gift has a reversion to the nephews, the discretionary power of appointment is allowed:
Horan v James [1982], Succession Act 2006 S44 so it is effective.

Secret Trust
(c) Is the gift to Terry effective? (7 marks)

The gift to Terry is by the device of a half secret trust. The trust is half secret because Luke indicated that
Robert would not be the full beneficial owner in his will but he did not indicate who would be the
ultimate beneficiary of the property: Blackwell v Blackwell [1929].

For the half secret trust to be effective it must satisfy the three requirements in Ledgerwood v Perpetual
Trustee Co Ltd (1997): the testator must intend the legatee to be subject to a trust, this is found in both
the will and the letter; the testator must communicate the intention to the legatee, which Luke did when
he gave Robert the letter; and the legatee must accept the obligation before the testator’s death. The
final requirement does not seem to be satisfied. While Robert accepted the letter, Luke did not indicate
at the time that he was creating a half-secret trust and the letter did not provide the opportunity for
Robert to accept the responsibility until after Luke’s death. In this way, the facts are very similar to Re
Keen (1937) in which the English Court of Appeal found that the trust failed because of the failure of
communication and acceptance before the will was executed. On the other hand, in Ledgerwood v
Perpetual Trustee (1997), Young J felt that a half-secret trust could arise even if communication occurred
after the will was executed.

The situation is perhaps clarified by Ong’s conception of a half secret trust in Trust Law in Australia 2004
as giving rise to a proprietary estoppel rather than a fiduciary duty. Luke must have been induced to
make the gift on the understanding that it would be held on trust for Terry but, without Robert’s
acceptance of the duty, there can be no inducement.

Joint Tenancy presumption, married couples, Advancement

(d) Does Luke’s estate have a right to claim a share in the house registered in Nora’s name? (6 marks)

If joint tenancy is established, Luke’s estate will not have a right to claim a share in the house because
Nora will get full beneficial title under the doctrine of survivorship: Hickman v Peacey. There seems to be
no question of severance of the joint tenancy in the facts, nor is any rupture of the four unities.

Although there is generally a presumption against joint tenancies, this presumption can be rebutted by
registration as joint tenants: Conveyancing Act 1919 S26(1). Additionally, there is a presumption of joint
tenancy in the case of married couples despite unequal contributions to the purchase price: Property of
Cummins (a bankrupt) v Cummins (2006).

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Finally, unlike in the case of siblings discussed above, in the case of married couples, there is a
presumption of advancement. Luke’s unequal contribution will be presumed to be a gift to his wife. This
would override the resulting trust that might otherwise convert the joint tenancy to a tenancy in
common.

END OF PAPER

Question 1

Jane has decided that she needs to become more entrepreneurial in managing her finances. Not
knowing where to start, Jane attends a seminar called “Make Money in Property without Trying”
conducted by the charismatic Ned. After the seminar, Jane starts talking with Ned, and they decide to go
into business together with Jane’s friend Allan. To pursue this venture, Jane establishes a company
called Makin’ Money Pty Ltd, of which Jane and Allan are directors. Ned, Jane and Allan become
shareholders in Makin’ Money Pty Ltd. Jane obtains a loan for $400,000, secured by a guarantee from
Jane’s husband Ollie over the family home, which is deposited into an account in the name of the
directors of Makin’ Money Pty Ltd.

The business plan of Makin’ Money Pty Ltd is to purchase an option over a property, with the aim of
selling that option at a profit before it is due to lapse or be exercised. An option was obtained over
Greenacre for $100, which entitled Makin’ Money Pty Ltd to purchase the land for $2.3 million.

A few months later, Ned disappeared, and Jane and Allan decided they should enter into a formal joint
venture agreement together, given their dubious experiences with Ned. The agreement relevantly
provided:

1. The parties shall each share in the profit made by Makin’ Money Pty Ltd (the Company).

2. The parties intend to acquire a property or properties (the Property) and engage in a property
development enterprise using the Company as the vehicle for the conduct of that enterprise (the
Venture).

3. Jane and Allan (the Directors) shall manage and administer the business of the Company and of the
Venture, including financial management.

4. The Venture shall continue until the property acquired by the Company for the purposes of the
Venture is sold until or before its settlement in whatever form or either venturer give one week's notice
to the other venturer or the money is finished to run the business.

5. All decisions of the Venture would be made by the Directors together, including the expenses etc.

6. The Venturers shall at all times act in the utmost good faith in their dealings with each other and will
meet their respective obligations to the Company, the Venture and each other with due diligence.

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Jane and Allan continued to manage the business of Makin’ Money Pty Ltd. Later that year, Makin’
Money Pty Ltd started running out of funds, and Jane was unable to obtain another loan. Jane started
losing confidence in Allan, as he had been unable to find a buyer for the option over Greenacre.

Jane decided to contact a friend from university, Taylor, to see if he knew of anyone who would be
interested in buying the option. Taylor suggested that he buy the option himself for $200,000. Jane
believed this was the company’s best option, given it was running out of funds.

Jane sent a bundle of blank assignment documents to Allan, on the pretence of ensuring the company
did not lose the option. Jane did not tell Allan that she was intending to assign the option to Taylor. Allan
signed the documents and Jane executed the assignment of the option to Taylor.

Jane deposited the money from the sale into her private bank account. Makin’ Money Pty Ltd has now
been placed into administration.

Fiduciary Obligations in a Joint Venture

(a) Advise Allan on any action he may have against Jane in equity. Include a discussion of
remedies in your answer. (10 marks)

Allan will have an action against Jane if a fiduciary relationship and a breach of that relationship can be
established. This can be established either on the basis that Jane was a director of Makin Money or as a
participant in a joint venture.

Jane may owe a fiduciary duty as a director of Makin Money. She will owe the duty to the company

The key issue in this question relates to whether Jane owed fiduciary obligations to Allan, either as part
of a joint venture or through her role as a Director of Makin’ Money Pty Ltd. Good answers examined
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 to determine if a joint venture was
present and, if it was, whether fiduciary obligations were owed. The agreement between the parties
should have informed this discussion.

Students should have considered whether the duty was breached by Jane and, if so, whether any
defence was available. Finally, students should have considered what remedy would be appropriate,
giving particular attention to the impact of third parties on the court’s likely decision.

This question was generally well answered. However, some students failed to adequately examine
whether a fiduciary duty was owed on the facts.

(b) Advise Jane’s husband Ollie on whether he can avoid the guarantee over the family home in
equity. (10 marks)

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The guarantee may be rescinded if Ollie can demonstrate undue influence was present in the transaction
and that undue influence can be sheeted back to the bank. Actual undue influence is difficult to make out
due to a paucity of facts. However, Ollie may be able to invoke the Yerkey v Jones special Wive’s equity.

Yerkey v Jones is a special equity binding lenders in cases where: a) the guarantor did not understand the
purport and effect of the transaction; b) The guarantor obtained no gain from the transaction; c) the
lender is taken to have understood that the guarantor is liable of have been misled by the borrower and;
d) the lender did nothing to explain the transaction. In this case, the facts don’t mention a), seem to
assume b), c) and d).

The problem for Ollie is that Yerkey v Jones protects wives from their husbands. Painting wives as
incapable of making unbiased decisions, independent of their husbands purely on the basis of being
wives has been criticised and there have been moves to expand the category. In Garcia v NAB (1998), the
majority of the HC held the special equity could extend to could extend to long term and publicly

declared relationships short of marriage of the same or opposite sex, which, although it does not include
husbands, seems at least to contemplate that men may be misled. Similarly, In Permanent Mortgages v
Vandenbergh (2010), the category was extended to elderly parents and their children and In Agripay Pty
Limited v Byrne [2011] McMurdo P took the broadest view that the Yerkey v Jones “principles should
apply equally to all vulnerable parties in personal relationships.”

So Ollie may be able to have the guarantee set aside if he can convince the court that he has a special
equity because he did not understand the guarantee, was misled by his wife, the bank was aware of the
situation and did nothing to rectify it.

Question 2

Tully is an elderly member of the racing fraternity. In his advanced years, Tully has decided to invest in a
“good horse” – while he has owned horses before, they have never been winners. This final, good horse,
is intended to change all that. Tully contacted Bob, an old friend, and asked him to help him acquire a
quality racehorse for up to $150,000. Tully offered to pay Bob for his time.

A few months later, Bob found a suitable horse and Tully gave instructions for Bob to buy it on his
behalf. While making these arrangements, Tully said to Bob: ‘I am not going to pay you for getting me
the horse. Instead, why don’t you become half-owner of the horse. I will pay for all the bills, and we can
share any prize money. You can continue to do any paperwork and manage the accounts and talk to the
trainer.’

Bob agreed to take a half-share in the horse.

Tully received the registration papers for the horse a few weeks later. However, he decided that Bob’s
share of the horse would best be regulated by a gentleman’s agreement, and did not immediately seek
to register their respective shares.

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Six months later, Tully died of a heart attack. The registration papers were found half complete on
Tully’s desk. The “Application to Register Horse” was never lodged with the relevant government body.

The horse has continued to race, with success. The prize money from the horse currently stands at
$338,493.

Assignments in Equity and consideration

(a) Advise Tully’s estate on whether the assignment of the half-interest in the horse to Bob was
effective in equity. (10 marks)

The key issue in this case is whether the assignment to Bob was an imperfect gift.

The relevant authority is Milroy v Lord, Corrin v Patton and Costin v Costin. It appears clear that Tully
intended to make the gift to Bob. However, on the facts, it appears that Tully has not done everything
necessary to be done by him to make the transfer effective, which would include execution of the
registration documents. As a result, it is unlikely that the assignment was effective.

Good answers considered whether Bob’s work to find the horse constituted valuable consideration or
whether it was a gift.

Some students struggled to identify the nature of the property being assigned and considered whether
the property was a chose in action or future property. On the facts, the property being assigned was a
half interest in a horse (i.e. a chose in possession and present property).

Estoppel
(b) Assuming the assignment is ineffective, advise Bob on any action he may have against Tully’s estate
in equity. Include a discussion of remedies in your answer. (10 marks)

Bob is most likely to be successful on the basis of an action in estoppel. Bob could argue that he relied
on Tully’s representation to his detriment by procuring the horse and continuing to assist with the
paperwork and finances. Good answers considered whether Bob’s work in finding the horse was actually
done in reliance on this representation, particularly given the representation was only made after the
horse was found.

Students should have addressed whether Bob’s reliance on Tully’s representation was reasonable in the
circumstances. Students also should have addressed what remedy would be appropriate in the
circumstances and whether the court should seek to avoid the detriment or make good the expectation
in determining the remedy. Good answers considered the case of Giumelli v Giumelli and its likely
implications for the court’s decision in this case.

This question was generally well answered.

Question 3

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This question occurs in NSW. Cameron ran and owned a boat building business in Kincumber called
Kincumber Boats. He was a sole trader meaning that the business was not a separate entity to him.
Cameron’s business was struggling and he owed large sums to its major creditor, Radan Steel Ltd.

Peter was an industrialist who had was in the business of money short term business loans. He lent a
large sum to Cameron on the condition that Cameron would use the funds to pay out the debts to
Radan Steel. The agreement required the sums to be paid into a special account at the Eastpac Bank
called ‘Kincumber Boats Creditor Account’. The agreement stated that if the money was not paid to
Radan Steel and Cameron became insolvent, the money should be returned to Peter. Cameron also told
Peter of an investment opportunity that they could share in a joint venture. A large block of land was for
sale at 15 Coast St, Bensville which Cameron believed could be developed into a resort. The title was
Torrens title. They agreed to each provide equal funds and share the profits equally. Cameron and Peter
each

provided 50% of the funds but the land was put into Cameron’s name only, as Peter had previously had
poor relationships with the Council and it was thought that his name on the title might adversely affect
the chance for development approval.

Cameron also owned a house with his wife Nerida at Avoca in the Torrens system. When they bought
the house Cameron provided 20% and Nerida provided 80% of the purchase price. Nevertheless they
were registered as joint tenants.

The boat business was going reasonably well so Cameron held off using the funds in the creditor
account. The development of the land also was proceeding well until the development application was
refused on the grounds that the land was not big enough for the development proposed and that more
land was required. The results of the application were published in the local newspaper.

Seeing an opportunity for making further money, Cameron spoke with the owner of the adjoining land
at 16 Coast St, Bensville and negotiated a price to purchase it.

The land was quickly purchased but registered in Nerida’s name in the Torrens register.

Life went on and nothing much happened for 2 years but then things took a turn for the worse.
Cameron was made bankrupt. The trustee in bankruptcy claimed the bank account, 50% of the house at
Avoca and all of the land at 15 Coast St Kincumber. When it was discovered that Cameron had provided
the purchase price for 16 Coast St, the trustee made a claim for its ownership as well. Peter also
discovered that Nerida was the registered owner of 16 Coast St and was incensed at Cameron’s betrayal.
She was demanding an exorbitant price for the land but Peter could not progress the development of his
land without buying it. He felt that Cameron had broken their joint venture agreement by buying the
adjoining land and putting it into Nerida’s name.

Quitclose Trust
(a) Will Nerida, Peter or Radan Steel get the funds in the bank account?

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(4 marks)

This is a Quistclose trust question: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. These
trusts are based on the mutual intention of the parties.

The mutual intention of the parties can be discerned from the language employed by the parties, the
nature of the transaction and the relevant circumstances attending the relationship between them : Re
Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502–
3; 102 ALR 681 at 693, per Gummow J. A significant factor to consider is the way that the monies are
held in account. If they are banked into a general account and mixed with other monies it will be harder
to infer a mutual intention that the monies be held on trust: Salvo v New Tel Ltd [2005] NSWCA 281 at
[79]; Gliderol International Pty Ltd v Hall (2001) 80 SASR 541.

On that basis the money is held on trust for Peter.

Presumed Resulting Trust of Matrimonial Home

(b) Will the trustee in bankruptcy be able to claim 50% of the house in Avoca? (4 marks)

The purchase of the house by Cameron and Nerida would ordinarily give rise to a presumed resulting
trust in favour of Nerida for 30% which is held by Cameron for Nerida. There is no presumption of
advancement in favour of Cameron as wives are not presumed to advance their husbands. However if
the property is a matrimonial home the house will be presumed to be held in equal shares and there will
be no resulting trust:Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278.
On that basis the Trustee will be able to claim 50% registered in Cameron’s name.

Resulting Trust in Bankruptcy

(c) Does the trustee in bankruptcy have a claim on the house at 15 Coast St, Bensville? (4 marks)

There is a presumption of resulting trust in favour of Peter for 50% of the value of the property as he
provided that amount but was not given an equivalent legal title. The trustee can claim Cameron’s share
of 50%.

(d) Does the trustee in bankruptcy have a claim on the house at 16 Coast St, Bensville? (4 marks)

No 16 is registered in Nerida’s name but will be held by her in resulting trust for Cameron as he provided
the purchase price. A presumption of advancement does arise in favour of Nerida as she is Cameron’s
wife. Arguably this presumption could be rebutted with evidence to show that it was a sham transaction
for Cameron to squeeze funds from the joint venture, with no real intention to benefit Nerida but the
onus would be on the Trustee to rebut the presumption.

Torrens Trust Knowing Receipt

(e) Does Peter have a claim on the house at 16 Coast St, Bensville? (4 marks)

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Peter will struggle to make a claim here. The facts are similar to Farah Constructions Pty Ltd v Say-Dee
Pty Ltd (2007) 230 CLR 89. The issue is whether Nerida can be treated as holding the property on trust
via the doctrine of knowing receipt. In the Torrens system knowing receipt can only work when the
registered proprietor has engaged in fraud, as defined in the Real Property Act. This was a joint venture
and not a presumed fiduciary relationship. There is no confidential information being misused. Nerida’s
registration does not seem to satisfy the definition of fraud and therefore it would appear that she will
not be subjected to a constructive trust over the property in Peter’s favour.

Question 4

Lex was a wealthy man who had made the following dispositions in his will which was dated 1 January
2009:

1. I give $500,000 to my friend Andrew for reasons which will be made known only to him.

2. I give $50,000 to the Kincumber Rugby Club to develop a program for improving first aid at rugby
union matches [the club is an unincorporated association]

3. I give $100,000 to the Australian Law Reform Commission to put towards their charitable work in
reforming the laws of this country.

4. I give $800,000 to John on trust for my sister Melanie on the condition that she is not allowed the
access the m oney until she has married a practising Catholic.

5. I give $50,000 to John on trust for Faye, my wife, for life, then to any of Fay’s children for life, then for
such of any children of Melanie who attain 21.

The will appointed Lex’s friend John as executor and trustee. John was also named as the residuary
beneficiary. Lex died on 30 May 2011. John seeks advice as to what to do in with the will.

It appears clear that Andrew was given a letter by Lex sometime in 2010, after the will was written.
When giving Andrew the letter, Lex told Andrew that he was not to open the letter until after Lex’s
death and that he had to promise to do as instructed in the letter. Andrew agreed to be bound by the
letter. The contents of the letter read: Dear Andrew,

Years ago I had an affair with my secretary and fathered an illegitimate child called Terry. I am going to
leave you some money in my will but you must give the money to Terry.

Andrew has discovered that Terry had died a year before Lex, about a week after the letter was
delivered by Lex to Andrew. Terry had a child called Bruno who was Terry’s sole heir under his will.

(a) Will the $500,000 gift to Andrew go to Bruno or will it fail and go to John? Alternatively, can Andrew
keep it?

(4 marks)

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Secret Trust
This is a secret trust question. The trust is a half secret trust, where the testator indicates his or her
intention that the gift is not to be held beneficially, but is held subject to some private instruction that
has been communicated by the testator:

Howell v Hyde (2003) 47 ACSR 230 at [39]. There are three necessary steps to create a secret trust,
Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532 at 535; Ottaway v Norman [1972] 1 Ch
698 at 711:

1. the testator must intend to subject the donee to an obligation of trust;

2. the testator must communicate the intention to the donee; and

3. the donee must accept the obligation before the testator’s death.

These three requirements appear to have been satisfied so Terry should be the beneficiary.

The second part of the question is concerned with whether Terry’s death means that the trust fails for
the want of a beneficiary. If the trust only comes into being on the death of the testator then the trust
will fail as Terry is already dead.

However older authorities have suggested that the secret trust is separate from the will and exists from
the moment of acceptance of the donee. That means that the trust already exists when Terry dies and
his beneficial interest can pass to

Bruno. The m odel of trust here must be the constructive trust as there is no beneficial proprietary
interest in existence before the testator dies and the only trust that can exists without a defined piece of
property is the constructive trust: Bathurst City Properties.

Charitable Trust
(b) Will the gift to the Kincumber Rugby Club be effective? (4 marks)

As the club is unincorporated the first issue is to examine whether is can be considered a charitable gift.
A trust that merely promotes sport is not charitable: Royal National Agricultural & Industrial Association
v Chester (1974) 3 ALR 486; Amateur Youth Soccer Association v Canada 2007 SCC 42; Re Nottage [1895]
2 Ch 649; [1895–9] All ER Rep 1203.

However the gift here is tied to public safety and looking after the injured. This might fall into the first
heading or fourth heading under Pemsel’s case. It also seems to have an educational aspect in terms of
improving first aid.

Charitable/Political Trust
(c) Is the gift to the Australian Law Reform Commission charitable? (4 marks)

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This trust is arguably political. A trust that has a political purpose will not be charitable: Bowman v
Secular Society [1917] AC 406; [1916–17] All ER Rep 1. A trust will be deemed to be political when it has
the purpose of changing the law: Anti-Vivisection Society v Inland Revenue Commissioners. A gift to an
organisation will be deemed political when the dominant purpose of the organisation can only be
effectuated through legal change: Re Cr ipps [1941] Tas SR 19. However, if changing or maintaining a law
is only an incidental part of the purpose of the association, the gift may succeed: Royal North Shore
Hospital of Sydney v Attorney-General (NSW) (1938) 60 CLR 396.

The Bowman principle has recently been attacked by the High Court in Aid/Watch Incorporated v
Commissioner of Taxation [2010] HCA 42 – although students were not expected to know this case for
the exam.

Restraint on Marriage Trust

(d) Is the trust for Melanie valid? (4 marks)

Yes. Partial restraints on marriage, such as preventing marriage to a person of a particular religious
denomination, race, ethnicity or class, have also been upheld: Seidler v Schallhofer [1982] 2 NSWLR 80;
Duggan v Kelly (1847) 10 Ir E q R 295; Jenner v Turner (1880) 16 Ch D 188.

Rule against Perpetuities

(e) Is the gift to Fay, her children and the children of Melanie effective? (4 marks)

In this example, Faye is treated as the life in being. She cannot have children more than 21 years after
her death so the gift to the children of Faye is valid. The gift to Melanie’s children is contingent. Might
they take more than 21 years after Faye’s death to turn 21? Yes because she is presumed to be fertile
into her old age and it is possible that she has children many years after Faye’s death who will turn 21
outside the perpetuity period.

Age reduction will not help here as the problem is with Melanie’s ability to have children at a later time
in her old age (fertile octogenarian). On that basis the Perpetuities Act will need to be used to wait and
see for the 80 year period.

EQUITY EXAMINER’S COMMENTS SUMMER 2010-11

Question 1

Joe has always been a man with a strong personality and charisma. Over the years, Joe has used this
charisma to build a small property empire consisting of Greenacre, Hillbrook, Vallyview and
Oceanville. However, as he has grown older, Joe has realised that it is not possible to do everything
yourself – sometimes a man needs a helping hand.

To obtain this assistance, Joe approached his old friend Vivienne. While many years younger than
Joe, Vivienne has a similarly strong personality (but without the property empire). Joe promised
Vivienne that, if she would care for him until his death, Joe would transfer Greenacre to Vivienne.

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Feeling this was a reasonable proposition, Vivienne quit her job as a small-town solicitor and
moved onto Joe’s property as his carer.

Eight years later, Vivienne realised that the job she had taken on caring for Joe was a little larger
than anticipated – Joe showed no signs of going anywhere. As a result, Vivienne started to feel that
the eventual transfer of Greenacre was insufficient compensation for her work.

Vivienne approached Joe and said: “This arrangement isn’t fair. Unless you transfer Hillbrook to me
as well, I’m out of here.” Fearing that without Vivienne’s assistance he would need to move to a
nursing home, Joe decided to transfer Hillbrook to Vivienne. Joe handed Vivienne a signed m
emorandum of transfer and a letter to his solicitor authorising the release of Hillbrook’s certificate
of title to Vivienne. Two weeks later, Vivienne obtained Hillbrook’s certificate of title from the
solicitor. Greenacre’s certificate of title remained with Joe’s solicitor.

Three years later, Joe died unexpectedly while feeding his chickens. Joe’s will gave his entire
property empire to his estranged niece Claire. The properties are all still registered in Joe’s name.

Equitable Estoppel

(a) Advise Vivienne on whether she is entitled to the Greenacre property. (15 marks)

The key issue in this question was whether Vivienne could bring an action in equitable estoppel. S
tudents should have addressed whether Vivienne’s reliance on Joe’s representation was reasonable
in the circumstances, particularly given her experience as a solicitor. Students also should have
addressed what remedy would be appropriate in the circumstances and whether the court should
seek to avoid the detriment or make good the expectation in determining the remedy.

Good answers considered the case of Giumelli v Giumelli and its likely implications for the court’s
decision in this case.

Many students struggled to identify the issue in this question, instead considering whether the
transfer was effective in law or equity, drawing on Milroy v Lord. On the facts available, it is fairly
clear that Milroy v Lord is not satisfied. Students were awarded only a few marks for taking this
approach on its own.

Undue Influence / Unconscionable Dealing

(b) Assuming the transfer of Hillbrook to Vivienne was effective, advise Claire on whether she can
challenge the transfer.

(10 marks)

Students could have approached this question as an instance of undue influence or inconscionable
dealing. In relation to undue influence, good answers compared the facts of this case to those in
Johnson v Buttress, particularly considering Joe’s business experience, strong personality and
possession of a property empire, and the likely implications of these factors for the court’s decision.

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In relation to unconscionable dealing, good answers tended to question whether Joe was really
under any special disadvantage or disability given his level of business experience and strong
personality. Exceptional answers considered whether Louth v Diprose could be used to argue that
Vivienne created and exploited an atmosphere of crisis by threatening to leave Joe, thereby leaving
him to enter a nursing home.

Regardless as to the approach taken, the likely remedy to be sought is rescission of the transaction.

Some students answered this question on the basis of Milroy v Lord to determine if the transfer was
effective. Given the question asked students to assum e the transfer was effective, few marks could
be awarded for this approach.

Question 2

(a) Blue Skies Pty Ltd is an aviation company with many shareholders. On 30 June 2010, the Board
of Blue Skies indicated to its shareholders that it intended to declare a dividend in the near future.

On that same day, Joe Fare, a shareholder in Blue Skies, entered into an agreement with his friend
Sally Soar in the following terms:

On the date of this Deed, I, Joe Fare (the A ssignor) transfer and assign to Sally Soar (the A ssignee)
in equity all my Rights which are capable of assignment. “Rights” means all right, title and interest
to receive any dividend determined by Blue Skies Pty Limited.

On the same day, Sally Soar gave an irrevocable direction to Blue S kies to pay the dividends
assigned to her by Joe Fare to her brother, Ben Barry, which read as follows:

With effect from the date of this letter, Sally S oar irrevocably and unconditionally authorises and
directs that any dividend owed to Joe Fare be paid to Ben Barry. Sally Soar undertakes and agrees
with Joe Fare that they will not vary, revoke or alter this irrevocable direction in any way.

On 1 July 2010, Joe Fare gave notice to Blue Skies of his assignment to Sally Soar.

On 30 July 2010, Blue Skies declared a dividend for its shareholders.

Assignment of Shares and Dividends

Advise Blue Skies Pty Ltd on who is entitled to the dividends on Joe Fare’s shares.

(10 marks)

This is an assignment question. The problem raises a number of complex issues. Students were not
expected to identify all the issues – rather, marks were awarded based on the logic of the approach
adopted by each student.

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In relation to the first assignment from Joe to Sally, students should have considered whether the
“right” to the dividends was future or present property. Based on Shepherd v Commissioner of
Taxation, it is likely that this is a transfer of present property. As a result, Joe is assigning a present
chose in action, assignable under s 12 of the Conveyancing Act 1919 (NSW). Students could have
considered whether the requirements of s 12 were satisfied. Alternatively, students could have
considered whether the assignment was effective in equity, including considering whether the rules
in Milroy v Lord applied.

If students considered the first assignment to be effective under s 12, they should then have
considered the implications of Blue Skies receiving notice of the assignment after it received the
direction from Sally. Alternatively, if students considered that the first assignment had been
effected in equity, they should have considered whether the second assignment concerned future or
present property and whether the direction was effective in law or equity.

This question was designed to test students’ understanding of the law of assignments. While some
students struggled, others presented clear and well-reasoned responses.

(b) Ring Ring Pty Ltd and OneCall Pty Ltd are telecommunications companies based in Sydney. Both
Ring Ring and OneCall maintain their own telecommunications networks for carrying phone calls.
However, these networks are interconnected, meaning that both Ring Ring and OneCall’s networks
carry phone calls made by each other’s customers.

Because Ring Ring and OneCall’s telecommunications networks are interconnected, they each have
access to information regarding each other’s telecommunications traffic. This includes information
about the quantity, source, destination, duration, time of occurrence and kind of the
telecommunications traffic, as well as the monetary value of the telecommunications traffic.

Ring Ring and OneCall entered into an agreement which regulated the interconnection of their
networks. The agreements states:

Confidential Information of a party means all information, know-how, ideas, concepts, technology,
manufacturing processes, industrial, marketing and commercial knowledge of a confidential nature
relating to or developed in connection with or in support of the business of the party but does not
include:

(i) information which is or becomes part of the public domain (other than through any breach of
this agreement); or

(ii) Information rightfully received by another party from a third person without a duty of
confidentiality being owed by the other party to the third person, except where the other party has
knowledge that the third person has obtained that information either directly or indirectly as a
result of a breach of any duty of confidence owed to the first mentioned party; or

(iii) information which has been independently developed by another party.

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Each party must keep confidential all Confidential Information of another party which:

(i) is disclosed, communicated or delivered to it by a party pursuant to this agreement; or

(ii) comes to its knowledge or into its possession in connection with this agreement,

and must not

(iii) use or copy such Confidential Information except for the purposes of this agreement; or

(iv) disclose or communicate, cause to be disclosed or communicated or otherwise make available

such Confidential Information to any third person other than its directors, officers, employees,
agents, contractors or representatives to whom disclosure is necessary for the purpose of this

agreement.

In 2006, Ring Ring discovered that OneCall had been using information about Ring Ring’s
telecommunications traffic for marketing, promotional and related purposes, including by
producing and using reports about OneCall’s market share.

Confidential Information

Advise Ring Ring Pty Ltd on any action it may have against OneCall Pty Ltd in equity. Include a
discussion of remedies in your answer.

(15 marks)

This question concerned confidential information. Students should have considered whether, on
the facts, the information about Ring Ring’s telecommunications traffic was of a confidential nature
(including whether it constituted a trade secret). Students could have considered whether the
agreement’s definition of confidential information would be determinative, or whether a court
would still consider equitable principles.

From the facts, it appears that the information was disclosed only for the purpose of the agreement,
thereby importing an obligation of confidence. Further, the disclosure was specifically regulated by
the agreement itself. Using the information for marketing, promotional and related purposes, and
presumably disclosing the information to third parties, was clearly unauthorised use of the
information. It is unclear whether this would have caused detriment to Ring Ring.

Students should have considered whether Ring Ring’s five year delay in bringing an action would
affect their right to a remedy – did it signify acquiescence to OneCall’s breach?

Possible remedies may have included delivery up of relevant documents; an account of any profits
derived from relevant marketing, promotional and related activities; equitable compensation; or an
injunction. Students should have considered the relative merits of each remedy and their suitability
on the facts.

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Some students answered this question on the basis of a fiduciary relationship. On the facts, this
relationship appears more similar to that in Hospital Products Ltd v USSC than to UDC v Brian or
LAC Minerals Ltd v International Corona Resources Ltd – that is, it is more likely to be regarded by
the courts as two commercial parties acting at arm’s length. It is unlikely that this is a partnership
or joint venture in which confidential information was disclosed. Further, the parties have chosen
to regulate their relationship through a contractual agreement, possibly limiting the scope of any
fiduciary obligations in regulating the relationship. As a result, it is unlikely that a fiduciary duty is
owed.

Question 3

This question occurs in NSW. Andrew was a wealthy businessman who spent his time investing in
small businesses and helping them to turn a profit. He was in a long term de facto relationship with
Denise. Andrew had an illegitimate son, Cameron, who was unknown to Denise and aged 20.

Andrew created a trust for Cameron. The main asset of the trust was a house at 25 Waterloo Rd,
North Ryde. The house was held in the Torrens system. The trust stated that the house would be
held on trust for Cameron until he turned 30 years of age.

Andrew was asked to invest in a small business called ‘Hay-Ted Corporation’ run by his friend
Lawrence. Lawrence had got the com pany to declare a dividend to its shareholders but had found
the company without the cash to pay the dividend.

Andrew agreed to loan the money to Lawrence and set out the conditions of the loan in a letter
which stated:

This sum is lent to you on the following conditions:

(a) It is repayable on demand,

(b) It will bear interest until repayment of 10% per annum, and,

(c) It is to be used only for the purposes of paying the outstanding dividends owed to shareholders.

The sum of money was deposited in an account to which Lawrence was a signatory.

It came from Andrew’s own funds. The account was called the ‘Hay-Ted Corporation creditor a/c’.

Andrew also managed an investment trust on behalf of a group of 10 investors (‘The Mt Warning
Trust’). Each investor had deposited $100,000 into a trust with Andrew as the trustee. The rules of
the trust stated that Andrew was to take the funds of the investors and use them to purchase land
around Mt Warning in Murwillumbah in the investors’ names. If after 3 years the title to these
properties had not been secured Andrew was to return the funds with interest.

Unfortunately Andrew was unable to secure the title. Things became worse when it was discovered
that Andrew had cancer. Andrew became depressed. The first thing he did was to sell the house at

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25 Waterloo Rd, North Ryde. He sold the land to James for $500,000. James did his own
conveyancing. James knew that the property was held on trust and he felt that there may have been
something suspicious about the sale so he decided to make no further enquiries. James became
registered as the owner. Andrew took the funds from the sale and banked them into the Mt
Warning trust account.

Andrew also started to make distributions from the Mt Warning trust. Andrew initially gave away
$1,000,000 of the fund to the S isters of Charity. He gave another $480,000 of the fund to the
Christian Brothers who used the funds to pay off a mortgage that they had over a school in Lismore.
He took the last $20,000 and used it to pay off the last 2 premium ($10,000 each) of a life insurance
policy. Andrew had already paid the first premium of $10,000 with his own money and the right to
a payout on death arose with the payment of the first premium. The insurance pay out for death
was $3,000,000. Andrew nam ed Denise as the beneficiary.

Andrew ended up dying from the cancer. His will gave his entire estate to Denise.

At the time of Andrew’s death the Hay-Ted shareholders have yet to be paid out of the creditor
account. Hay-Ted is still operating although a large creditor has started to threaten legal action to
wind the company up. The insurance company have agreed to pay out the entire $3,000,000 death
benefit.

Answer the following:

Knowing Receipt and Constructive Trust of Torrens Land

(a) Can Cameron recover the property at 25 Waterloo Rd from James?

(5 marks)

This question concerns whether a constructive trust can arise under the doctrine of knowing
receipt in B arnes v Addy. The land is in the Torrens system. In The Bell Group Ltd (in liq) v
Westpac Banking Corporation (No 9), Owen J set out the requirements for knowing receipt as
follows:

(a) there must be a ‘trust’;

(b) the trustee must have misapplied ‘trust property’;

(c) the third party must have received trust property;

(d) at the time of receiving the trust property, the third party must have known of the trust

and of the misapplication of the trust property; and

(e) the third party will be taken to have ‘known’ in the relevant sense if the third party:

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(i) has actual knowledge of the trust and the misapplication of trust property;

or

(ii) has deliberately shut his or her eyes to those things; or

(iii) has abstained in a calculated way from making such enquiries as an

honest and reasonable person would make, about the trust and the application of the trust
property; or

(iv) knows of facts which to an honest and reasonable person would indicate the existence of the
trusts and the fact of misapplic ation.

In the Torrens system registered interests can be set aside if they have been procured by fraud,
where fraud refers to actual fraud, personal dishonesty or moral turpitude: Asset Co v Mere Roihi.
However, mere notice of an unregistered interest prior to registration does not am ount to personal
dishonesty. In Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133, a majority of the
Victorian Court of Appeal decided that a registered mortgage under the Torrens system could not
be set aside in a situation where the mortgagee acted honestly but with constructive knowledge
that the mortgage document was a forgery, in breach of trust. As such, both Winneke P and Tadgell
JA found that recipients who act honestly, but in circumstances where they should have discovered
a breach of trust, could not be said to have acted fraudulently under the Torrens system. Therefore
absent ‘Torrens-style’ fraud, knowledge of a breach of trust would not defeat a registered interest,
and knowing receipt principles could not be applied to set aside a registered interest. The High
Court accepted this as the correct approach in Farah Constructions Pty Ltd v Say-Dee Pty Ltd.

Looking then at James’ conduct it could be argued that a deliberate shutting of ones eyes falls within
the definition of Torrens style fraud. It was defined as such in the Asset case. If that were accepted
then a constructive trust could arise.

Another issue that could be mentioned is the in personam exception to indefeasibility which arises
when the he registered proprietor owes an enforceable common law or equitable duty which can
be enforced against the owner, even though they may be indefeasible. Equitable remedies including
constructive trusts have been employed to enforce such obligations. However the High Court in
Farah refused to find that the rule in Barnes v Addy fell within the in personam exception.

This question was generally well answered. However, some students failed to

address all the issues raised.

Quistclose Trust

(b) What rights does Denise have over the funds in the Hay-Ted Corporation creditor a/c?

(5 marks)

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This is a Quistclose trust question: Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.
These trusts are based on the mutual intention of the parties. The mutual intention of the parties
can be discerned from the language employed by the parties, the nature of the transaction and the
relevant circumstances attending the relationship between them: Re A ustralian Elizabethan
Theatre Trust; Lord v Commonwealth Bank of Australia. A significant factor to consider is the way
that the monies are held in account. If they are banked into a general account and mixed with other
monies it will be harder to infer a mutual intention that the monies be held on trust: Salvo v New
Tel Ltd; Gliderol International Pty Ltd v Hall. On the facts it would appear that a trust was created,
and that it would be Lawrence holding the beneficial interest on trust for Andrew as part of a
secondary trust, as explained by Quistclose.

This question was well answered.

Tracing Trust Fund

(c) Can the investors and/or Cameron recover money from the Sisters of Charity?

(5 marks)

This question and the following 2 questions are about tracing. That facts are very similar to Re
Diplock. The money can be traced and recovered. The trust account has$1m from the investors and
$500K from the sale of the house which belongs to Cameron. The sisters of Charity do not appear to
have done anything yet with the funds so they are potentially traceable.

The first issue is whether Clayton’s case should be applied which would meant that the funds come
totally from the investors share. However after French Calendonia it would appear that Clayton’s
case should not to be used. This would allow the funds to be traced as to one third Cameron and
two thirds investors.

This question was answered well by some students. However, many did not address the issue of
the rule in Clayton’s case or that in French Calendonia. Some students tried to address this question
as concerning the validity of a charitable trust.

Tracing Investors

(d) Can the investors and/or Cameron recover money from the Chritian Brothers?

(5 marks)

Here the issue is whether the funds are traceable into the reduction of a security. This would
effectively allowed the investors/Cameron to be subrogated to the position of the mortgagee.
However Re Diplock says that this is not allowed. The funds cannot be traced. This was doubted in
Boscawen v Bajwa but accepted by Einstein J in Commonwealth Bank of Australia v Saleh.

This question was generally answered well. However, some students argued that a charge could be
created over the property.

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 Tracing Insurance Payout

(e) Can the investors and/or Cameron claim all or part of t he life insurance payout held beneficially
by Denise?

(5 marks)

The facts are similar to Foskett v Keown. There the funds were traceable on the proportionate
contribution to the premiums. Here the combined contribution of the investors and Cameron is
2/3s. They should be therefore entitled to $2m. The $2m should also be divided proportionately
between them 1/3 Cameron and 2/3 investors. This will result in a profit but that is permissible
under the rule of tracing. Re Hallett does not prevent the defaulting trustee to retain some of the
funds represented by their own contribution.

Most students recognised that Foskett v K eown was the relevant authority. However, there was
some confusion as to whether the investors and Cameron would be entitled to just the premiums or
to the actual payout.

Question 4

This question occurs in NSW. Lawrence and Andrew were friends and business partners. They
purchased a house together with each providing 50% of the p urchase price, but Lawren ce did not
want the house to be in his name because he wanted to later access the first home buyers grant on
another purchase. The house was registered solely in Andrew’s name.

Lawren ce had a life long interest in tennis and had been a member of the local Tennis Club for man
y years. The Club was unincorporated. He had also collected antique tennis racquets over the years
worth $500,000.

Lawren ce later won the lottery and with the money decided that he would like to provide for his
family and friends. He wrote a will which made his sister Felicity the executor and trustee. It
contained the following clauses:

I give $500,000 to my friend Andrew for reasons which will be made apparent to him.

I also give Andrew my collection of antique tennis racquets on the condition that he pays my
outstanding debts to Terry.

I give another $2,000,000 to the Avoca Tennis Club to encourage the playing of tennis in New South
Wales public schools.

I give the residue of my estate to my sister Felicity who may, at her absolute discretion, give such
residue to anyone she thinks fit, barring herself, and Andrew.

Three days after writing the will Lawren ce gave a letter to Andrew and asked him to follow the
instructions in the letter, but only after he died. Andrew agreed to follow the instructions.

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 Resulting Trust Purchase Price

(a) Does Felicity (on behalf of Lawrence’s estate) have a claim on the house?

(5 marks)

The purchase of the house gives rise to a presumed resulting trust in favour of Lawrence for 50%. If
a purchaser buys property and voluntarily directs the transfer of the property into the nam e of
another person, equity presumes that the owner holds that property on resulting trust for the
purchaser: Napier v Public Trustee; Turnbull v Gorgievski. Students should have discussed the
presumption and whether it could be rebutted.

The next issue concerns the illegality of attempting to hide the beneficial 50% raises the
applicability of Nelson v Nelson and whether the resulting trust is against the policy of the statute.
Like Nelson Lawrence’s intention to get the subsidy should not prevent a trust from arising
although he may have to come with clean hands and the estate may have to pay the subsidy back.
This question was generally well answered. (b) Is the disposition to the Avoca Tennis Club
effective?

Gift to a charitable trust / unincorporated body

(5 marks)

The gift to the Club appears to be a gift to an unincorporated body but on closer inspection it is
probably a charitable trust. The playing of sport is not charitable (Re Nottage) unless it falls under
another head of charity, like education: Kearin v Kearins.

This question was generally well answered.

Power of Appointment

(c) Characterise the disposition to Felicity and describe whether it is effective.

(5 marks)

The gift to Felicity is a power of appointment. It is a mere or bare power as she is not obliged to
exercise the power. The disposition is also in a hybrid form as it excludes members from the class.
In the past such as disposition would have offended the rule in Taham v Huxtable if it did not
contain a gift over in contemplation: Horan v James. This gift does have such a gift over. In any
event the rule in Tatham has been removed by the Succession Act 2006, s 44.

This question was generally well answered.

Half Secret Trust

(d) Will the gift to Craig be effective?

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(5 marks)

This is a secret trust question. The trust is a half secret trust, where the testator indicates his or her
intention that the gift is not to be held beneficially, but is held subject to some private instruction
that has been communicated by the testator: Howell v Hyde. There are three necessary steps to
create a secret trust, Ledgerwood v Perpetual Trustee Co Ltd; Ottaway v Norman:

1. the testator must intend to subject the donee to an obligation of trust;

2. the testator must communicate the intention to the donee; and

3. the donee must accept the obligation before the testator’s death.

These three requirements appear to have been satisfied so Craig should be the beneficiary.

This question was generally well answered.

(e) Does Terry have any rights over the antique tennis racquets? (5 Marks)

This disposition creates a charge in favour of Terry. An equitable charge is a form of security that
allows the creditor (chargee) to order the sale of the property, after a triggering event, like default
of payment. The proceeds of sale can then be used to satisfy amounts due to the chargee: In re Bank
of Credit and Commerce International SA (No 8). If the transferor intends that the title be
transferred, ‘subject to’ payments being made to another, then it will be construed as a ch arge. For
example, property might be given ‘to A subject to A paying B $1000’. This transfer evidences an
intention that the obligation to pay is annexed to property as opposed to being a fiduciary
obligation imposed on the transferee. The o bligation is of a finite nature. It is satisfied after
compliance. As such it is not of the same extent and duration as the trustee’s fiduciary obligations to
care for th e beneficiaries’ interest in a trust: Countess of Bective v Federal Commissioner of
Taxation (1932) 47 CLR 417; [1932] ALR 362.

This question was generally well answered.

END OF PAPER

MARCH 2012
Question 1

Answer BOTH parts of this question.

(a)Walter Fangelli owns a small farm south of Sydney. Gustav Strasser owns an
adjoining property of approximately 2,000 hectares. Gustav, a bluegrass musician, is
planning to hold a week-long bluegrass music festival on his property on 3-4 March
2012. In early December 2011, Gustav began advertising his bluegrass music festival.

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Prior to that point he had spent $200,000 on preparations and facilities for the big
event. At no stage did Gustav seek or obtain local authority approval as he was
required to do by the provisions of the Bluegrass Music Act 2001 (NSW). Gustav’s
failure to do so renders him liable to a possible penalty under the Act of $20,000.

Two days ago, Walter, who had since mid-2011 been holidaying and visiting his parents
in a remote part of Iceland, returned to Sydney. He immediately became aware of
Gustav’s plans. He is greatly concerned, particularly so as his parents (both in their
late eighties) will be visiting for a week at exactly the same time as Gustav’s proposed
festival is scheduled to be held. Walter has already paid $15,000 for their return airfares
from and to Iceland.

Walter has now consulted you because he wants to see if he can get an order to
prevent the bluegrass musical festival from taking place.

He seeks your advice in relation to the possible outcomes of any such application.
(You can assume that the holding of the bluegrass music festival would result in
Gustav being liable to Walter for damages in the tort of nuisance.)

(15 marks)

Injunctions and damages in lieu of an injunction

(b) Explainthedifferenceandsignificancebetweenjurisdictionaland discretionary factors for

declining equitable relief.

(5 marks)

This question invited students to discuss the availability of injunctions and damages in lieu
of an injunction. Most students discussed this question reasonably well.

Part B

A fundamental distinction between damages at common law and the equitable order of
specific performance is that, whereas a plaintiff will always get an award of damages if he or
she establishes a breach of contract by the defendant, the same plaintiff will not automatically
be entitled to equitable relief simply by establishing a breach of contract by the defendant. If a
plaintiff’s application for equitable relief is denied, he or she is confined to obtaining damages
for breach of contract.

It is often said that common law damages for a breach of contract are available to a plaintiff
‘as of right’ but that equitable relief for the same breach is ‘discretionary’. However, such a
statement is, strictly speaking, not correct. It is correct that a damages award will always be
made in favour of a plaintiff, who is ready, willing and able to perform the contract, upon proof
of a breach by the defendant. With specific performance, it is only partially correct to say that it
is discretionary. While the court can refuse such relief in the exercise of its discretion, the

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exercise of that discretion is subject to the court having the jurisdiction to entertain the
application for specific performance. If the court does not have such jurisdiction the question of
exercising its discretion does not arise. It is thus more accurate to say that specific
performance will be denied on jurisdictional grounds and may be refused on discretionary
grounds.

The distinction between jurisdictional and discretionary factors is of practical significance in

relation to equitable damages under s 68 of the Supreme Court Act

1970. If specific performance or an injunction is denied on jurisdictional grounds there

is no power to award equitable damages. If specific performance or an injunction is
refused on discretionary grounds, equitable damages can be awarded.

Before equitable damages can be awarded, the court must have the jurisdiction to order a
decree of specific performance or an injunction. Thus, if such equitable relief is refused on
the basis that damages at common law are adequate, the court has no jurisdiction to award
equitable damages: Waterways Authority of New South Wales v Coal & Allied (Operations)
Pty Ltd. Furthermore, if specific performance or an injunction is impossible to grant at the
time proceedings are commenced, and remains so to the date of judgment, there is no
jurisdiction to award equitable damages: McMahon v Ambrose. However, if at the time of
hearing it has become possible to order such equitable relief, then there is jurisdiction to
award equitable damages: Oakacre Ltd v Claire Cleaners (Holdings) Ltd.

Where the court has no jurisdiction to award specific performance or an injunction, the
court will leave the plaintiff to his or her common law remedy of damages.

Where specific performance or an injunction is denied on discretionary grounds does not

disentitle a plaintiff to equitable damages: Wentworth v Woollahra Municipal. In Waterways
Authority of New South Wales v Coal & Allied (Operations), Beazley JA, speaking for a
unanimous Court of Appeal, referred to the ‘well understood principle that damages under s
68(b) of the Supreme Court Act can be awarded even if the court would not have made an
order for specific performance or final injunction by reason of some discretionary defence’.

The part was done poorly. Most students did not discuss these issues well and many did not
discuss them at all.

Question 2

Chandler and Monica married in 1989. Chandler worked as a marketing manager

for an electronics company in Sydney. Monica did not work, but devoted much of her
spare time as a volunteer preparing meals for a number of charities catering to the
needs of Sydney’s homeless children. Chandler and Monica owned, as tenants-in-
common in equal shares, a Torrens title home unit in Greenwich. Apart from the
home unit, they jointly owned a car and their furniture as well as a joint bank account
with EastPac Banking Corporation. In addition to these interests, Monica was the sole
proprietor of shares in Central Perk Cafes Ltd, having inherited them on the death of
Richard, her former de facto partner, who had died in 1988. Central Perk Cafes Ltd is a

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large corporation operating over 25,000 cafes in over 150 countries.

In 1995 Chandler and Monica executed their wills. The executor and trustee of both
wills was their friend Phoebe. By clause 3 of his will, Chandler left his entire estate to
Monica. Clause 4 of his will stipulated that if Monica predeceased him, the Greenwich
home unit was to go to his and Monica’s best friend, Joey, and that the rest of the
estate would go to Monica’s brother Ross.

Clause 2 of Monica’s will stipulated that her shares in Central Perks Cafes Ltd were to
be sold by Phoebe acting in her capacity as executor and trustee of the will. Clause 2
further stipulated that the sale proceeds were to be applied for

‘such charitable or benevolent purposes as my executor and trustee shall think fit’. By
clause 3 of her will Monica left the rest of her estate to Chandler. Clause

4 of her will stipulated that if Chandler predeceased her she left the Greenwich home
unit to Joey and the rest of her estate to Ross.

At the time of executing their wills Chandler and Monica signed a document which
acknowledged that by executing their wills they had set out their wishes as to what
was to happen to their assets after they died and further that they agreed that, no
matter what happened in the future, they both wanted the Greenwich home unit to go
to Joey after they both died and that the rest of their jointly owned assets to go to
Ross after they had both died.

In 2007 Chandler died. In accordance with his will, Chandler’s entire estate was
transferred to Monica. In 2008 Joey died leaving a will in which his whole estate
was left to his friend Rachel. In 2009 Monica created a joint tenancy between herself
and Ross in relation to the Greenwich home unit by transferring to Ross, for
no consideration, a half-share in the home unit. In January 2012, Monica died.

Phoebe seeks your advice as to the following:

Funds for mixed Charitable and Non-Charitable Purposes

(a)What is to happen to the sum of $1,000,000 being the proceeds of sale of

Monica’s shares in Central Perks Cafes Ltd?

(5 marks)

The funds for ‘charitable or benevolent purposes’ prima facie fails as it is for mixed charitable
and non-charitable purposes: A-G v Wahr-Hansen. However, s. 23

Charitable Trusts Act 1993 would allow it to be applied to charitable purposes by removing the
reference to benevolent. The court would then be approached to order an administrative
scheme in order to give effect to the charity. The court can accept evidence of Monica’s
intentions, beliefs etc and it is likely that the funds may apply to a charity for homeless children

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 or something similar to that.

Mutual Wills
(b)Who is entitled to the Greenwich home unit?

(15 marks)

As to the Greenwich house the issue raised is mutual wills. The requirements of mutual wills
must be set out. In all likelihood they have been satisfied. Upon Chandler’s death the
constructive trust arises in favour of Joey: Birmingham v Renfrew. The fact that Joey died
before Monica does not mean that Joey’s interest lapses: Re Haggar. Whatever Joey gains, if
anything, passes to his beneficiary, Rachel. Monica has transferred the property the subject
of the mutual wills to Ross as her joint tenant. Prima facie this would mean that Ross takes
the property on the survivorship principle. However, this is subject to the issue of whether
Monica had an unqualified right to freely deal with the Greenwich house after Chandler’s
death. According to Birmingham v Renfrew the right is not unfettered. If what she did was
calculated to defeat the mutual wills compact, Ross will not be able to take the property on
Monica’s death. Healey v Brown is a case on the facts of the problem and indicates that
Ross would not get the property and that the mutual wills compact would be enforced, with
Rachel ending up with the property.

Overall this question was done poorly because students failed to recognize the second
part as a mutual wills/constructive trust question.

Question 3

In 1973 Clark Kent came to Australia from the United States of America to take up a
position as the managing director of Kryptonite Enterprises Ltd. As part of his salary
package, 10,000 shares in Kryptonite Enterprises Ltd were transferred, at Clark’s
request, to KC Trustees Pty Ltd to hold as bare trustees for and on Clark’s behalf. In
1974 Clark purchased an old system title property at 12 Batman Road, Chatswood as
his residence. In 1980 he purchased a Torrens title house at 11 Dundas Avenue,
Mosman, but had it registered in the name of his loyal assistant manager at Kryptonite
Enterprises Ltd, Jimmie Olsen. At the time of purchasing the property, Clark told
Jimmie that the house was Jimmie’s for as long as he (Jimmie) lived. Clark kept the title
deed and placed it in his safe at work.

Soon after arriving in Australia, Clark became good friends with Dick Tracey. In 1985
Dick introduced Clark to Lois Lane. Lois, who was five years younger than Clark,
lived in a house that she owned at 43 Gotham Street, Kirribilli. Lois and Clark soon
entered into an intimate relationship which was kept secret from everyone except
their mutual friend Dick Tracey and Clark’s loyal secretary, Della Street. Together, Lois
and Clark had three sons, Larry, Curley and Moe, born in 1988, 1989 and 1990
respectively. Lois and the children never lived with Clark, and the children were never
told that Clark was their father. In

1994 Lois executed a will in which she appointed Dick Tracey as her executor and

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trustee, and left her entire estate to Larry, Curley and Moe in equal shares as joint
tenants.

In March 1995 Clark executed a will. The will was witnessed by Lois and
Jimmie. Apart from Clause 5 which named Dick Tracey as Clark’s residuary beneficiary,
the other substantive provisions of the will were as follows:

1.I revoke all previous testamentary acts.

2.I appoint Dick Tracey my executor and trustee.

3.I give my property at 12 Batman Road, Chatswood to Paul Drake on

condition that he keep the property as a home and provide board for his
sisters Pixie and Dixie Drake.

4.I give my interest in the property at 11 Dundas Avenue, Mosman to Della

Street on trust.

5.I give my bank account with Metropolis Banking Corporation to my trustee to

use the income thereof to provide for the education of the children of
employees and former employees of the said bank.

In September 2003 Clark spoke about his will to Della Street and told her the terms of
Clause 4. He also told Della that he wanted her to be the trustee of his property interest
for Lois. Della said she would do so.

On 18 October 2011 Clark telephoned the manager of KC Trustees Ltd and said to him:
‘I want Larry, Curly and Moe to have my shares in Kryptonite Enterprises Ltd.
Please transfer them to then as joint tenants’. The manager replied: ‘Very well’.

On 21 October 2011 Lois and Clark were involved in a car accident in which Lois
was killed instantly and Clark died the following day. At the time of Clark’s death, the
manager of KC Trustees Ltd had done nothing in relation to the verbal instructions he
had received form Clark on 18 October 2011. Furthermore, the account with the
Metropolis Banking Corporation had a credit balance of $450,000.

On 31 October 2011, Paul Drake advised Dick Tracey that he (Paul Drake)

would not comply with the conditions set out in Clause 3 of Clarks will.

In the light of the above facts, Dick Tracey seeks your advice as to
the following:

Equitable Personal Obligation and a Charge

(a)What rights do Paul, Pixie and Dixie Drake have in relation to the property at
12 Batman Road, Chatswood?

(5 marks)

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Clause 3 of Clark’s will is based upon the facts of Gill v Gill. In that case it was held that the
clause created an equitable personal obligation coupled with a charge. Thus the sisters have
a personal claim against Paul. It would also appear that they have a claim against the property
in the form of a charge in relation to Paul’s failure to act in accordance with the condition

Resulting Trust and Life Estate over Land, Secret Trust

(b) Who is entitled to or has any interest in the property at 11 Dundas
Avenue, Mosman?

At the time of purchase the principle of resulting trust in favour of Clark is partially rebutted in
that there is a life estate for Jimmie and this remains the case following Clark’s death. The
remainder interest is held by Jimmie of resulting trust for Clark, and ultimately Clark’s
successors in title, ie. Dick Tracey as residuary beneficiary. See Napier v WA. The
question then is whether Clark’s interest is held by Della on secret trust for Lois. The elements
of secret trust have been satisfied. However, Lois witnessed Clark’s will and the issue is
whether her interest lapses on this basis. This depends upon whether secret trusts are
testamentary trusts or ones arising outside the context of a will: Re Young, Ledgerwood Case.
Property goes eventually to Lois’ children.

Shares and Requirement of Writing

(c)Who is entitled to the shares in Kryptonite Enterprises Ltd?

(5 marks)

The shares in Kryptonite Enterprises raises the issue of writing under s. 23C(1)(c) of the
Conveyancing Act and Vandervell.

Charitable Trust Test

(d) Who is entitled to the funds in Clark’s account with Metropolis Banking

Corporation?

This question raises the issue of whether the charitable trust is for the benefit of the public. It
is based upon the facts of Oppenheim v Tobacco Securities where is was held that the trust
failed the Compton test. Thus the provision fails and passes to Dick Tracey as residuary
beneficiary.

Most students did reasonably well with this question and some did exceptionally well by
recognizing the issues and identifying the relevant propositions and cases.

Question 4

Rowena is a prominent real estate agent in Campbelltown. Silvester is a developer who has
plans approved by the local council to build a block of four town-houses on one of the few
parcels of land in Campbelltown zoned for such purposes. Due to a cash-flow problem,
Silvester decided to sell two of the town-houses “off the plan” before construction had
commenced. Silvester engaged Rowena to find buyers for these two town-houses. After
discussions between Rowena and Silvester on the question of a sale price, a figure of

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 $150,000 per town-house was agreed.

Rowena advertised the sale in the local press and was approached by Zelda. Zelda, who had
only $150,000 to invest, was interested in purchasing one town-house, but only if the town-
house was likely to appreciate by at least 25% by the time it was actually built. Zelda
instructed Rowena to make enquiries along these lines. Rowena discovered that once
completed, the town-houses would each fetch $225,000. She further discovered that $170,000
each was the then current market value of the proposed town-houses. Rowena advised
Zelda of the results of her enquiries, and Zelda immediately contracted to buy one town-
house for $150,000.

Rowena, with Zelda’s consent, also contacted an old friend Walter. Walter is a retired politician
who was seeking to invest his superannuation payout. He had asked Rowena to keep an eye
open for a “good deal” if one came along. Rowena told Walter:

I have a town-house for sale “off the plan” for $150,000 which by the time it is built
will fetch $225,000 on the open market.

Walter immediately contracted to purchase the second town-house from Silvester. Rowena did
not at any time inform Silvester of the information she discovered as a result of the enquiries
pursued on behalf of Zelda.

Contracts for both sales were completed a few days after Silvester completed the building of
the town-houses. Silvester has now discovered everything that happened and feels terribly
cheated.

Fiduciary Duties
(a)Define ‘fiduciary duties’.

(5 marks)

Students should have gone through the definitions in Hospital Products and the UDC v Brian
cases. The traditional categories should have been discussed.

(b)Who owes fiduciary duties in this question and to whom? Why?

(5 marks)
Rowena is Silvester’s agent so fall into that category of fiduciary relationship. There are no
other relationships present.

Double Character Remedy for Torrens Land

(c)Has Silvester any claim and /or remedy in equity for what Rowena has done?

There has been a clear breach by Rowena acting in a double character and withholding
information. The only relevant remedy is equitable compensation. The cost of reselling the
properties would not justify the cancellation of the contracts and its unlikely that it would be
fraud in any case under Torrens: Farah. No does an account of profits work as a remedy as

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Rowena would have actually sustained a small loss from her breach. Compensation of the
price difference is the only relevant remedy.

Overall this question was done very well by most students

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