Week 3 Native Title

LWB234 Murray McCarthy

Week 7

THE CONSTITUTION OF A TRUST

Requirements for a valid trust:

Settlor intends a trust (intention)
Over defined property (subject matter)
For defined beneficiaries (objects)
And transfers that property to trustee/declares self a trustee (complete constitution)

This section deals with the creation of express trusts and how they can be enforced. The essential point is that unless the settlor is bound by the trust he or she has created, there can be no trust.

The settlor will be bound if

(a)The trust is completely constituted; OR

(b)Consideration has passed to the settlor.

An express Trust may be created inter vivos (during the settlor’s lifetime) or post mortem (by will to take effect on death)

Trusts Intervivos

ELEMENT 1: Is the trust intervivos completely constituted?

A trust is completely constituted if the trust has been properly created and binds the settlor, because he or she has been divested of the equitable interest in the property.

A complete constitution can occur by an EFFECTIVE ASSIGNMENT. The most important ways are:

An Effective Transfer; OR
Declaration of Trust

Sub-element 1: Has the trust been created by Effective Transfer to a trustee?

The transfer or assignment of the property to the trustees must be effective at least in equity.
If the transfer is voluntary, it will only be effective in equity if the donor has done everything necessary to be done by him or her to effect the transfer: PLA s.200; Corin v. Patton. (See element 2)

A mere voluntary promise to transfer property is not sufficient.

Refer Element 2

Sub-element 2: Has the settlor declared him/herself to be a trustee?

A settlor can simply declare himself or herself trustee of property for another.

As the settlor retains the legal title to the property and becomes trustee, it unnecessary to effect a transfer,
However requirements of writing must be complied with.

Requires the necessary intention to make trusts final and binding on him or her.

Refer Element 2

Milroy v. Lord

-Settlor was Mr Medley (Me) who executed a deed poll to transfer 50 shares to L as trustee for Mrs M.

-Transfer to a trustee on trust – had he effectively transferred legal title? No b/c he needed to fill in transfer docs, collect share certificates and send to the Bank and get them to register the docs.

-When the bank declared dividends on the shares, those dividends were given to L and he managed them on behalf of M – so he dealt with them as trustee.

-M asked L if he would buy shares in another coy (Nth American Fire Insurance). He did buy them, but in the name of Me.

-Me died and the legal position was that he was owner of both Mrs M’s shares and the NAFI shares.

-So L transferred both lots to Me’s executor.

-M sued for the shares.

Held:

-There was no trust of the bank shares – not enough had been done to transfer.

-But Mrs M did own the NAFI shares.

-Turner LJ – “in order to render…” – settlor must have done everything, which according to the nature of the property, that could be done. Must do one of the following:

actually transferring the property
transfers property to trustee for purposes of settlement
declares that he himself holds it on trust

-Me hadn’t filled in the transfer forms and hadn’t had the transfer registered.

-L was Me’s Attorney (had power of attorney) so he could have filled in the transfer.

-M argued that L should have done that as trustee. Ct said you could revoke a power of attorney. The Ct wouldn’t order Me to execute, so it couldn’t order L.

-The NAFI shares were held on trust b/c they’d been purchased with M’s money and she’d authorised the purchase and it was irrelevant that they weren’t in her name.

-When the dividends had been issued by the bank, the money had effectively been given to her by Me. So, she’d properly been given the money but not the bank shares.

ELEMENT 2: Has the settlor done everything that is necessary for them to do?

The Settlor must have done everything which, according to the nature of the property is necessary to be done in order to transfer the property or declare the trust: Milroy v. Lord

The transferor must do only those acts which were obligatory for the transferor to do and no-one else:

Anning v. Anning

-Each judge put a different interpretation on the words “everything necessary to be done…”

-Griffiths J. said it meant everything necessary to be done by the settlor, and anything else could be done by someone else.

-Isaacs said that a literal reading was that the settlor has to do everything necessary to effect the transfer.

-Higgins J. settlor had to do everything that was within the settlor’s power to do.

-Isaacs view was preferred.

The law now follows Griffiths view – the property is transferred in equity once the settlor has done all the things that only the settlor can do.

Corin v. Patton

-Husband won b/c she didn’t dispose of her interest effectively.

-She didn’t effectively create a trust even though she signed the memorandum and gave it to trustee (brother). The CT was still held by mortgagee, not the trustee. She needed to do that to transfer the interest.

-Settlor must do everything that the settlor can do and put the other party in a position to get in the legal title.

-Mason and McHugh (& Deane agreed) confirmed Griffiths view in Anning.

s.200PLA has legislatively applied Corin v. Patton in Qld.

What must be done is dependent on the nature of the property: Milroy v. Lord

Transferor must use the appropriate mode of transfer according to the nature of the property.

Leases – transfer is by way of assignment

Shares – transferor must deliver a duly executed instrument of transfer to the trustee

Land not registered – transferor must deliver a duly executed deed of conveyance to the trustee

Land registered under Torrens – transferor must deliver a duly executed instrument of transfer to the trustee.

IF THE SETTLOR HAS FULFILLED THE NECESSARY STEPS OUTLINED, THE GIFT IS COMPLETE IN EQUITY AND THE TRUST IS ENFORCEABLE BY THE BENEFICIARIES.

Equity will enforce it even if they are volunteers because the settlor has demonstrated his intention.

IF NEITHER EFFECTIVE TRANSFER NOR DECLARATION OF TRUST, GO TO ELEMENT 3 - AGREEMENT TO CREATE A TRUST

If the trust is not completely constituted it CANNOT be enforced by a volunteer.

It can take effect only as an agreement to create a trust.

Equity Does Not Perfect An Imperfect Gift

Where a trust is intended to be constituted by one method which is not complete, it cannot be saved by being construed according to another method: Milroy v. Lord

Exceptions:

The rule in Milroy v. Lord; PLA s.200 (see element 2)
Other exceptions include the rule in Re Ralli’s Will Trusts; the rule in Strong v. Bird; the doctrine of equitable estoppel; and the doctrine of donatio mortis causa (gifts in contemplation of death).

NOTE:

-Look for the settlors chosen route and then apply all appropriate rules for that route.

-A voluntary settlement will be valid if the settlor has done everything necessary…

-If the settlor appoints himself or herself as trustee, the formalities have to be complied with.

ELEMENT 3:Is it an agreement or contract to create a trust in which CONSIDERATION has passed to the Settlor?

An agreement must be supported by CONSIDERATION to be enforceable in equity since equity will not assist a volunteer, therefore SP will not be available: Re Plumptre’s Marriage Settlement

Is the agreement being enforced by volunteers?

IF YES – The agreement is NOT enforceable because equity will not assist a volunteer

IF NO – The agreement is prima facie enforceable

Effect of Consideration

If the beneficiary or the trustee on behalf of the beneficiary has supplied valuable consideration, then specific performance is prima facie available to compel the settlor to make good his or her promise by requiring that the trust be completely constituted

Upon receipt of consideration, the conscience of the assignor is bound and will be treated as an assignee

What amounts to sufficient Consideration in Equity

Consideration must be valuable consideration – an advantage conferred or a detriment suffered by the promisee in relation to the promise.

1. A deed under seal will NOT be sufficient consideration

So if there is a deed, what you should be thinking is that the purported beneficiary is a VOLUNTEER.

2. Marriage Consideration

This is an exception to the requirement of valuable consideration

The parties coming within marriage consideration are the husband, wife and issue of the marriage, but not next of kin and the grandchildren.

Pullen v. Koe

-marriage settlement and the wife received 285 pounds and spent some and then bought bonds with the rest in her husbands name.

-When her husband died, the executors thought he had title to the bonds. The trustees of the marriage settlement disputed this.

-The beneficiaries of the marriage settlement were the children.

-The property hadn’t been transferred to the trustees legally so there was no proper legally created trust – this was a contract to create a trust out of those bonds.

-Could they be handed over? Is there a special rule that will help b/c this is a K. The children had provided consideration (as part of the marriage settlement) so they could enforce the promise.

-CT said that in those circumstances the constructive trust arose as soon as the wife got her 285 pounds (the children go their interest immediately).

-If there had been a trust for people other than children, there wouldn’t have been consideration (not part of marriage settlement)

Who must Provide Consideration

Consideration must move from the beneficiary, trustee OR another person for the benefit of the beneficiary

Particularly when looking at another person on behalf of the beneficiary look at s.55PLA and the effect of Trident v McNiece

ELEMENT 4: Remedies available to VOLUNTEERS when trust NOT completely constituted

1: Enforcing Contracts to Create Trusts

contract to assign property to trustee – if valuable consideration, enforceable in equity and law

Valuable consideration recognised in equity – get either SP or damages

deed to assign property to trustee – no valuable consideration, enforceable only in law (damages) – no specific performance

2: Beneficiary is a party to a deed under seal

Beneficiary party to deed under seal may sue for breach of promise and sue for damages
Although a deed is NOT enforceable in Equity it may be enforceable at law. – Cannon v Hartley
if property is land, s 13 PLA may make beneficiary a party to the deed.

3: Beneficiary NOT a party to a deed under seal: Is it possible to have a Trust of a Promise?

If the beneficiary is not a party to deed between settlor and trustee, then ONLY TRUSTEE CAN SUE.

QN: Is The TRUSTEE Under A Duty To Sue For Damages And Hold The Proceeds For The Benefit Of The Beneficiary?

One view:

: Fletcher v Fletcher

-If there is an intention by the settlor to create a trust of the promise to transfer property to the trustee for the benefit of the beneficiary, then there may be a completely constituted trust of the promise and the beneficiary may compel the trustee to sue and recover damages

-A completed trust of a promise was found and that was a voluntary deed b/w a settlor and trustee that if the settlor’s illegitimate sons survived him, his executor would pay 60,000pound to the trustees on trust for them.

-And the executor refused to pay.

-So the surviving son brought an action that there was a trust of the promise contained in the voluntary deed and the trust was that the money would be paid to the trustee so the trustee would be obliged to sue and recover damages.

Another:

Re Pryce (trust of promise NOT recognised)

-beneficiaries could not bring action themselves and court will not allow trustees to obtain what beneficiaries couldn’t directly

-therefore, no point in allowing trustees to sue as beneficiaries won’t be able to keep the property and therefore would be a resulting trust to the settlor anyway.

-Voluntary deed – a wife covenanted to settle future property to her children for life and then to her next of kin

-There were no children and the next of kin brought an action.

-The primary trust appeared to be a trust of this future property, but you can’t have an immediate trust of future property so the court found that the next of kin had no right.

-The next of kin tried to say that perhaps there was a promise to hold this property on trust for them when it came into existence.

-The court would not “give them by indirect means what they could not obtain directly” (Eve J.)

-The court wasn’t prepared to find trust of a promise.

Re Cooks Settlement Trust

-the subject matter of the proposed trust was classified as future property, which could not be the subject of a trust unless supported by consideration.

- no immediate trust of a promise because it was future property

-It was a settlement in a voluntary deed agreeing that if paintings were sold the proceeds would be held on trust

-The CT tried to reconcile Fletcher and Pryce.

-Why was it possible to have a trust of promise in Fletcher and not in Pryce?

-The distinguishment was whether the property was present or future.

-Future property cannot be the subject matter of an immediate trust.

-Re Cook decided on its facts that the proceeds of the paintings would be future property so would fall under Re Pryce.

Wrights Article

The article makes two comments

Summarizes Re Cooks

–the subject matter was incorrectly classified as future property

-You could use Shepherd v. FCT to construe it as a present right involving a debt payable in the future – Kitto – although they’re not in existence, there is a present right to the proceeds even though they won’t come into existence until the future).

-The promise to pay a sum ascertained in the future is just as good as a promise to pay a specified sum.

Re Cooks probably took the wrong tact to reconcile the cases and the crux of whether there can be a trust of a promise, doesn’t rely on whether it’s future property etc. but look to whether there is an intention of settlor to create the trust of a promise.

–In Fletcher, the obligation to pay arose on the settlor’s death but in re Pryce the obligation was contingent upon future property being acquired. This is the relevant question - Was there an intention to create an immediate trust of a chose in action as opposed to the creation of a trust when the money is settled. The Courts are more willing to infer an intention to create a trust where that would be the best way of giving effect to the settlor’s intention: Trident v. McNiece; Bahr v. Nicolay

It has been argued therefore that the critical factor is the intention of the covenantor.

Qn - Was there an intention (express or inferred) to create an immediate trust of a chose in action as opposed to the creation of a trust when the property was settled?

-intention inferred in Fletcher v Fletcher

-intention not inferred in Re Pryceand Re Cook’s Settlement

In the absence of a cmpletely constituted trust of a promise, can an should the trustees sue?

The beneficiaries, being volunteers, cannot compel trustees to sue as they are not parties to the contract and there is no completely constituted trust.

any action would be futile as resulting trust would arise: Re Pryce

Trusts Post Mortem

The issue here is X is obliged to hold the home on trust for Y?

Question raises issue as to whether it is a secret trust for Y

ELEMENT 1: Does the Trust comply with s.9 Succession Act

A trust post mortem is generally created by will and is valid if it complies with the formalities of theSuccession Act (Qld) – s.9

In writing
signed by testator (writer of will)
witnessed by 2 independent beneficiaries.

-s 9(b) – if substantially complete, possibly still enforceable

Since the elements have Not been satisfied, it is important to determine whether the secret arrangement falls within one of the exceptions.

Exceptions:

Rule in Strong v. Bird
Secret Trusts
Half-secret Trusts

ELEMENT 2: Is it a secret trust?

This occurs where the testator comes to a secret understanding that property left by will is to be held pursuant to a trust.
If the elements of a secret trust can be established the will can be enforced,

ELEMENT 3: What type of trust is it?

FULLY SECRET TRUST

A fully secret trust arises where the testator intends that the property which he/she leaves by will to a legatee, apparently absolutely, is in fact to be held by that legatee upon trust.
On the face of the will the legatee appears to take beneficially, e.g. “In my will I leave $10,000 to John”

But really the Settlor has arranged with John that he holds the money on trust for someone else

HALF SECRET TRUST

Half secret trusts arise where the fact of the trust appears on the face of the will, but it is not stated what the trusts are.
E.g. “I leave $10,000 to John on Trust for the purposes discussed with him”
It is apparent from the terms of the will itself that John is not intended to take beneficially, but the terms of the trust are not set out.

ELEMENT 4 : Onus of Proof

The onus of establishing a secret trust is on the person alleging its existence
The standard of proof, where no question of fraud arises, is the ordinary civil standard of balance of probabilities: Re Snowden
There is also authority that the elements must be established to the reasonable satisfaction of the court: Voges v. Monaghan

ELEMENT 5: What are the elements of a secret trust?

Sub-element 1: Intention on the part of the donor to create a trust

Sub-element 2: Communication of the intention to create a trust to the trustee

FULLY SECRET TRUST

Communication must be made before death

The testator must have communicated to the secret trustee BOTH:

the fact of the trust; and

-Communicates his or her intention that property to be left to him/her by will is to be held on trust

-If the fact of the trust is not communicated to the secret trustee before the testator’s death, the secret trustee’s conscience is NOT bound and he/she will take the property beneficially: Wallgrave v. Tebbs

-However, if the trust is communicated, then the trustee’s conscience is bound: Blackwell v. Blackwell