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Equity and Trusts in Australia

G E Dal Pont
Professor, Faculty of Law, University of Tasmania
SEVENTH EDITION

[4.15]

Proscriptive nature of fiduciary duties

“The fiduciary standard is encapsulated in two principal duties: the “no conflict” and the “no profit” duties.10 The former prohibits a fiduciary, except with the informed consent of the principal, from placing herself or himself in a position involving a real and sensible possibility of a conflict between the duty as a fiduciary and her or his own interest11 (a “duty-interest conflict”), or between the duty as a fiduciary to two or more persons (a “duty–duty conflict”). The “no-profit” duty prohibits a fiduciary from making a profit or benefit, or exploiting an opportunity arising, out of a fiduciary position except with the principal’s informed consent. The duties in question can, and not infrequently will, intersect; for instance, a breach of the “no profit” duty may reflect a yielding to a conflict.12 A contravention of either duty, in any case, speaks of disloyalty.”

10 Moss v Moss (No 2) (1900) 21 LR (NSW) Eq 253 at 258 per Simpson CJ; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 67 per Gibbs CJ; Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557 (FC).
11 The term “interest” here signifies the presence of “some personal concern of possible pecuniary value in a decision taken, or a transaction effected, within the scope of a fiduciary’s duties”, which “may be a contingent or expectant one”: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [180] (FC).
12 See Boardman v Phipps [1967] 2 AC 46 at 123 per Lord Upjohn; Howard v Commissioner of Taxation (2014) 253 CLR 83 at [56], [57] per Hayne and Crennan JJ; Conaglen, “The Nature and Function of Fiduciary Loyalty” (2005) 121 LQR 452 at 467.

[4.80]

TRUSTEE AND BENEFICIARY

“Beyond the duties imposed upon trustees in equity directed at ensuring the trustee acts in the beneficiaries’ best interests, fiduciary duties are necessary to give effect to the express or implied undertaking of a trustee to give undivided loyalty to those interests: see [22.70].”

[16.05]

Nature of A Trust, DEFINITION AND CHARACTERISTICS

“A trust has been described as existing “when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law”.1 It follows that the essence of a trust is the holding of property by its legal owner (the “trustee”) for the benefit of others (the “beneficiaries”).”

1 Heydon and Leeming, Jacobs’ Law of Trusts in Australia (8th ed, LexisNexis Butterworths, 2016), [1-01]

[16.120]

Distinguishing contract from trust

“A trustee must restore the trust to the position it would have stood had the breach of trust not occurred, a liability unconstrained by common law notions of causation or remoteness: see [24.30]–[24.55].”

[16.185]

Trusts and powers, Distinctions

“In the case of a trust, the trustee must act; a trust is imperative.”
“Fourthly, trusts remain exercisable despite lapse of time.145”
“On the other hand, a trustee, once having undertaken to act in the trust, cannot release (disclaim) the obligations of the trust, but can only retire from the trust according to its terms or the provisions of the trustee legislation: see [21.95].”
“On the other hand, if a trustee fails to act the trust does not fail;”

145 Breadner v Granville-Grossman [2001] Ch 523 at 540 per Park J.

[17.05]

The Requisite Certainties

“However created, an express trust must fulfil the “three certainties” of intention, subject matter and object,2”

2 Knight v Knight (1840) 3 Beav 148; 49 ER 58.

[17.10]

CERTAINTY OF INTENTION

“Fundamental to the creation of an express trust is that the alleged settlor3 exhibit an intention to create a trust.”

3 It should not be assumed that the person who supplies the property to establish the trust is necessarily the “true” settlor of the trust in each instance. In the business context, to (inter alia) avoid the effect of Income Tax Assessment Act 1936 (Cth), s 102, it is common for a lawyer or accountant to settle a small sum to establish the trust on behalf of a client, who is in reality the “true” settlor: see [27.160].

[17.60]

CERTAINTY OF SUBJECT MATTER

“The property of a trust must be defined and identifiable.”

[17.95]

CERTAINTY OF OBJECT, “Beneficiary principle”

“The “beneficiary principle” requires that a trust be in favour of definite beneficiaries, ascertained or capable of ascertainment,...” “A trust that does not fulfil certainty of object fails to take effect, and the intended trustee holds the property in question on resulting trust for the settlor (or the settlor’s estate): see [26.20].”

[18.95]

First element: everything must be done

“In other words, the meaning to be ascribed to Turner LJ’s principle of “everything to be done” is everything that has to be done by the transferor rather than the completion of every single step in the transfer.”

[18.105]

Second element: what must be done according to the nature of different property

“Thirdly, regarding chattels capable of passing by delivery, a transfer is effective where the intending settlor delivers the chattels to the intended trustee or executes and delivers a deed of gift of the chattels.117”

117 Anning v Anning (1907) 4 CLR 1049 (as explained in Corin v Patton (1990) 169 CLR 540 at 551 per Mason CJ and McHugh J); Nolan v Nolan (2003) 10 VR 626 at [145] per Dodds- Streeton J.

[21.45]

Bare trustees

“A “bare” trustee holds property in trust for the absolute benefit and at the absolute disposal of beneficiaries of full age and capacity in respect of that property, but has no interest in that property other than by reason of legal title as trustee, and no (further) duty to perform except to convey the property on demand to the beneficiaries or as directed by them.45”

45 Lysaght v Edwards (1876) 2 Ch D 499 at 516–517 per Jessel MR; Re Cunningham and Frayling [1891] 2 Ch 567 at 571–572 per Stirling J; Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281 per Gummow J; Motor Vehicle Dealers Inst Inc v UDC Finance (1991) [1994] 1 NZLR 659 at 664 per McKay J; CGU Insurance Ltd v One.Tel Ltd (in liq) (2010) 242 CLR 174 at [36] (FC).

[21.90]

DISCLAIMER BY TRUSTEE

“A person appointed as a trustee may disclaim the trust office, whether because the appointment is made without her or his consent or in light of changed circumstances, before doing any act in performing the trust that could be interpreted as its acceptance.114”

114 Lady Naas v Westminster Bank Ltd [1940] AC 366 at 401 per Lord Wright.

[22.15]

Fundamental duty to obey the terms of the trust

“A trustee’s plainest and overriding duty is to obey the terms of the trust. This is because a trustee is duty-bound to give effect to the settlor’s intention as expressed in the trust instrument, irrespective of how seemingly insignificant its terms may appear. The duty of obedience qualifies virtually every other duty of a trustee.”

[22.45]

Duty not to delegate and its exceptions

“Pursuant to the non-delegation duty, “each individual trustee has a separate responsibility to ensure that the terms of trust are carried out”.32 The law does not, in the main, countenance a “passive” trustee who simply delegates responsibilities to the “active” trustee.33” “The delegation permitted in the territories, New South Wales, Tasmania and Victoria is limited to where a trustee is out of State, or is about to depart from it.”

32 Re Mulligan (deceased) [1998] 1 NZLR 481 at 502 per Panckhurst J.
33 Selkirk v McIntyre [2013] 3 NZLR 265 at [44] per Katz J.

[24.05]

Breach of Trust

“A breach of trust has been described as “nothing more nor less than an act by the trustee in contravention of the duties imposed on him by the trust or in excess of his powers”.1”

“Importantly, liability for a trustee’s breach of trust is strict;3 it is not premised on proof of any bad faith or dishonesty,4 and may not be precluded simply because the trustee acted in accordance with skilled professional advice.5”

1 Re Spedding (deceased) [1966] NZLR 447 at 463–464 per Spedding J. See also Re Wood (deceased) [1961] Qd R 375 at 378 per Mansfield CJ.2 Pitt v Holt [2013]
3 Proprietors of Wakatu v Attorney-General [2017] 1 NZLR 423 at [692] per Glazebrook J (“A trustee cannot justify a breach of trust or escape the consequences by saying it thought the trust property belonged to it”).
4 The same applies, more generally, to breaches of fiduciary duty by a fiduciary (including a trustee): see [4.35].
5 Pitt v Holt [2013] 2 AC 108 at [78]–[81] per Lord Walker. Depending on the circumstances, however, acting on the advice of a skilled and properly instructed professional may justify the trustee being excused from liability pursuant to the court’s statutory jurisdiction to do so: see [24.200]–[24.215].

[24.30]

Compensation

“Where a breach of trust causes loss to the trust estate, the trustee is liable to restore the trust estate to the position it would have been in absent the breach.34”

34 Target Holdings Ltd v Redferns (a firm) [1996] AC 421 at 433– 434 per Lord Browne- Wilkinson; Re Mulligan (deceased) [1998] 1 NZLR 481 at 507 per Panckhurst J; AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503 at [93], [134] per Lord Reed JSC. As to compensation in equity generally see [34.05]– [34.60].

[25.120]

TERMINATION OF TRUST

“The termination of a trust may be achieved through one of the following methods:

References

Articles đź“° Noticing
đź“° Breach of Trust

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