Exam (elaborations) LAW 4024 Equity and Trusts Exam Revision - The Three Certainties (Answer Structure & Key Cases)

4024LAW Equity and Trusts

Lecture overview
• Elements of a trust?
• The three certainties
 Certainty of intention
 Certainty of subject matter
 Certainty of objects
• Other similar relationships

What is a trust?
Trust is where proprietary rights are held by one person on behalf of another
 The person creating the trust is the settlor
 The person holding the rights is the trustee
 The person for whom the rights are held is the beneficiary

Elements of a trust
The common elements of a trust are:
 A trustee holding legal ownership (or legal title) to the trust property
 Property held by the trustee for the benefit of a beneficiary
 Clearly identifiable property held by the trustee

Role of the settlor
• Sid is a settlor. He has placed $10,000 in trust for his nephew Ben
• Sid may create a trust inter vivos (while alive) or post mortem (in a will)
• Sid may make himself the trustee and/or one of the beneficiaries of the trust
• Sid might ask a trustee to hold money on trust for him (Sid) as the sole beneficiary of
the trust. This is a bare or nominee trust

Role of the trustee
• Tina is the trustee of Sid’s trust of $10,000. She is the legal owner and manager of
Sid’s $10,000. Her powers are usually discretionary
• Tina owes fiduciary obligations to the beneficiaries of the trust. Her fiduciary
obligations include the following duties:
 Duty to avoid any conflict of interest or make any unauthorised profit from
the trusts
 Duty to invest trust property
 Duty to act impartially between beneficiaries
 Duty to act personally
 Duty to account

Role of the beneficiary
• Every trust must clearly identify all its beneficiaries (certainty of objects)
• In general, beneficiaries have no power to direct trustees in the management of the
trust
 But see the rule in Saunders v Vautier (1841) EWHC Ch J82 for one exception

, • Beneficiaries have rights:
 in rem
 in personam

Taxonomy of trusts




Express trusts
• Intentionally created
 Trust deed defines the rights, duties, powers and obligations of the trustee in
respect of the trust property
 Inferred from the facts (eg to overcome privity of contract problem)
o Bahr v Nicolay
 The 3 certainties (intention, property and beneficiaries)
• Fixed v Discretionary
 Fixed – beneficiary can enforce both the administration and distribution of
trust property
 Discretionary – beneficiaries have no enforceable claim to distribution of trust
property, it is at the trustees discretion

The 3 certainties …
• The intention on the part of the settlor to create a trust
• The identity of the trust property
• The identity of the beneficiaries by reference to the deed or circumstances

Non-express trusts (equity recognises a trust)
• Resulting (implied) trusts
 The settlor intended to create a trust but either failed to complete the
formalities, or the intention to create is not rebutted

, o Person contributes to house payments but their contribution is not
reflected in the legal title
• Constructive trusts
 The court imposes a trust where it would be a fraud for a person to assert
beneficial ownership
o Persons made accountable where it would be inequitable for those
persons to escape accountability

Express trust
• Created in one of 2 ways
 declaration of trust where settlor declares himself to hold property on trust
for a beneficiary
 transfer of property + intention for transferee to be beneficial owner
• Necessary elements
 certainty of intention (by the settlor)
 certainty of subject matter (trust property)
 certainty of objects (beneficiaries)

1. Certainty of intention
• Express trust only upheld if there is certainty of intention to create a trust on the part
of settlor
• Matter of construction of the trust instrument
 Consider words used
o no particular words necessary
o words given ordinary meaning
o words must be imperative not permissive (precatory)
 Determining intention
o equity looks to intent rather than form
o determined by construction of language (in context)
o can be express or inferred
• If there is no certainty of intention, then the alleged trust does not exist (may be a
different relationship)

Dean v Cole (1921) 30 CLR 1
“I give devise and bequeath unto my wife ... all my real and personal estate, but subject to
the following conditions … [first, leaving two identified sums (£1000 and £300) for his
executor and executrix to invest for his son, and] … Second, with the exception of these two
sums of money just before named, I give all and every portion of my real and personal estate
to my wife ... trusting to her that she will at some time during her lifetime or at her death
divide in fair just and equal shares between my children …”

Dean v Cole (1921) 30 CLR 1 …
• The appellant contended that the phrase “trusting to her” were mere precatory
words and so imposing no obligations (trust)
• Do these words “trusting to her” establish a trust?

, • The High Court majority (Knox CJ, Gavin Duffy and Rich JJ) held that the will should
not be construed as imposing a trust upon the testator’s wife, and therefore that the
gift to her of “all and every portion of the testator’s real and personal estate” with
the exception of the two specified sums was absolute
• The High Court minority (Higgins J) considered the words did establish a trust

Hayes v Nat’l Heart Foundation [1976] 1 NSWLR 29
On a will form a testator wrote:
“I direct that [certain legacies be made, and] That the balance of my estate be given
to my Daughter … including all B Share Holdings in various Companies. These Shares to be
retained by her as a source of income on the understanding that She write into Her Will,
that, at Her death, these Shares are to be sold and the Capital received to be divided in
equal parts between The National Heart Foundation of Australia, … The NSW Cancer
Research Council … [and] Sydney Legacy”

Hayes v Nat’l Heart Foundation [1976] 1 NSWLR 29 …
• Whether the daughter received a life interest in the shares subject to a trust in favour
of the named charities, or merely a moral obligation to the charities?
• Held that no absolute entitlement to the shares, an entitlement to the income during
her life, and a trust to dispose of them equally between the named charities on her
death

Bahr v Nicolay (No 2) (1988) 164 CLR 604
• To raise funds to develop land the original owner sold it to the 1 st purchaser who
leased it back to him for 3 years. The sale contract provided that at the end of the
lease the vendor would repurchase the land for $45,000 with a 10% deposit
• The land was subsequently sold to a 2nd purchaser under a contract that
acknowledged the existence of the repurchase provision of the earlier contract. The
2nd purchaser told the original owner that he ‘recognized’ the repurchase clause and
would agree to sell the land for $45,000 with a 10% deposit
• The original owner later paid the deposit, but the 2nd purchaser refused to sell the
land

Bahr v Nicolay (No 2) (1988) 164 CLR 604 …
• Whether the 2nd purchaser was under a trust obligation to the original owner?
• Mason CJ and Dawson J found an express trust. They considered that the 2nd
purchaser’s acknowledgment of the repurchase arrangement had created an express
trust with the effect that the 2nd purchaser held the land subject to rights created in
favour of the original owner by the first contract
• Wilson, Brennan and Toohey JJ considered that a purchaser who has undertaken to
hold his title subject to a third party’s right to repurchase remains bound by his
undertaking. They considered that the arrangement imposed a constructive trust so
that the 2nd purchaser held his title on trust for the original owner to the extent of
the original owner’s interest

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107