LAWS12060 Trusts

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LAWS12060 Trusts

• Module 4 Constructive / Resulting Trusts

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INTRODUCTION - Constructive Trusts

• Arises by operation of law.
• Intention is not a necessary element.
• Not necessarily subject to fiduciary
  responsibilities Lonhro v Fayed (No 2).
• No subject to requirement of certainty of subject
  matter Westdeutsche Landesbank Girozentrale v
  Islington LBC Giumelli v Giumelli.
• Has a remedial function Muschinski v Dodds.

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Constructive trusts to enforce agreements
concerning property

• Incomplete contract for sale of property
• Rule in Lysaght v Edwards when valid contract
  for sale of property exists vendor becomes
  constructive trustee for purchaser. Beneficial
  ownership passes to purchaser. Vendor has right
  to purchase money, charge or lien w.r.t. money
  and right to retain possession until paid.
• Three qualifications Interest of purchaser must
  be protected by equity obligation to transfer
  property must be unconditional transfer must
  relate to identified property Re Goldcorp
  Exchange Ltd (in rec).
• Rule applies to both real and personal property
  Acorn Computers Ltd v MCS Microcomputer Systems
  Pty Ltd Shaw v Foster Re Wait.

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Mutual wills

• Here parties promise not to revoke their will
  after one of them dies Dufour v Pereira Albrow
  v Cunningham.
• Essential characteristic agreement by parties
  not to revoke their wills Baird v Smee.
• If testators breach their promise, equity will
  impose a constructive trust Birmingham v
  Renfrew Barns v Barns.
• Survivor is free to write another will, but
  beneficiaries will hold property on constructive
  trust Fazari v Cosentino.
• Survivor can deal with property freely as long as
  agreement between parties is not destroyed
  Birmingham v Renfrew.
• Survivor cannot make testamentary gifts during
  their lifetime Palmer v Bank of New South Wales.

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Common intention trusts in Australia

• Recognised by Australian courts Stowe v Stowe
  Engwirda v Engwirda.
• There must be actual or inferred common
  intention Muschinski v Dodds Sheperd v Doolan.
• Evidence of intention its for you and me
  our house etc Hohol v Hohol Zaborskis v
  Zaborskis Parianos v Melluish (Trustee). Can
  also be gathered from nature of payments to
  acquisition of property Jin Yang.
• Constructive trust will arise if a party has
  acted with detrimental reliance on the basis of
  that intention Green v Green Carruthers v
  Manning Brandling v Weir. However, detriment
  must relate to parties common intention
  Australian Building and Technical Solutions Pty
  Ltd v Boumelhem Cambouya Pty Ltd v Buchanan.

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Common intention trusts in Australia cont.

• Courts will base pfs quantum of interest on what
  parties had agreed to Australian Building and
  Technical Solutions Pty Ltd v Boumelhem. If
  theres no such agreement court will impose a
  constructive trust which reflects their
  intentions Sheperd v Doolan. The Full Court of
  the Federal Court reviewed the Australian
  position in Grimaldi v Chameleon Mining NL (ACN
  098 773 785) (No 2) (2012) 200 FCR 296 287 ALR
  22. The Full Court was critical of the practical
  effect of Lister v Stubbs. While the Full Court
  accepted that constructive trusts could arise
  over bribes and secret commissions, it did
  recognize that the constructive trust was not the
  only remedy available.

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Constructive trusts that arise against third
parties

• In Barnes v Addy, Lord Selbourne stated that
  third parties (strangers to trusts) can be made
  constructive trustees in three ways
• By acting as trustee without authority (trustee
  de son tort)
• Through knowing receipt of trust property (first
  limb of Barnes v Addy)
• Through knowingly assisting in breach of trust
  (second limb of Barnes v Addy).
• Imposition of such trust is remedial in that it
  compensates for losses occasioned to the trust.

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Trustees de son tort

• Has intermeddled in trusts affairs without
  authority and has become trustee through own
  wrongdoing Dubai Aluminium Co Ltd v Salaam Mara
  v Browne.
• But such person must have assumed some degree of
  control of trust property Re Barney.
• Liability even if acted with honesty Life
  Association of Scotland v Siddai.
• Constructive trusts can also be imposed where
  interference comes from other relationships e.g.
  Some acts as executor without authority James v
  Williams Nolan v Nolan.

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Knowing receipt of trust property

• See detailed discussion of knowing receipt
  requirements in The Bell Group Ltd (in liq) v
  Wespac Banking Corporation (No 9) see Evans p
  605. In The Bell Group Ltd (in liq) v Westpac
  Banking Corporation (No 9) (2008) 225 FLR 1, 536,
  the court rejected the suggestion that the first
  limb in Barnes v Addy required that the
  recipients have been dishonest. The finding was
  repeated by the Court of Appeal of Queensland in
  Quince v Varga 2008 QCA 376 Armstrong Scalisi
  Holdings Pty Ltd v Abboud 2012 NSWSC 268
  Fodare Pty Ltd v Shearn 2011 NSWSC 479 and
  Varma v Varma 2010 NSWSC 786.

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Knowing receipt of trust property cont.

• First limb in Barnes v Addy requires property to
  have been receivIn The Bell Group Ltd (in liq) v
  Westpac Banking Corporation (No 9) (2008) 225 FLR
  1, 536, the court rejected the suggestion that
  the first limb in Barnes v Addy required that the
  recipient have been dishonest. The finding was
  repeated by the Court of Appeal of Queensland in
  Quince v Varga 2008 QCA 376 Armstrong Scalisi
  Holdings Pty Ltd v Abboud 2012 NSWSC 268
  Fodare Pty Ltd v Shearn 2011 NSWSC 479 and
  Varma v Varma 2010 NSWSC 786. In Grimaldi v
  Chameleon Mining NL (ACN 098773 785) (No 2)
  (2012) 200 FCR 296 287 ALR 22 the Full Court of
  the Federal Court said that the first limb in
  Barnes v Addy extended to property held or
  controlled subject to a fiduciary duty. In
  Westpac Banking Corporation v The Bell Group (In
  Liq) (No 3) 2012 WASCA 157, Drummond AJA said
  that the first limb in Barnes v Addy should be
  regarded as extending to dispositions of company
  property made by a director in breach of his
  fiduciary duties to the company.

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Knowing receipt of trust property cont.

• ed St Vincent de Paul Society Qld v Ozcare Ltd.
• Property can be real or personal or even a
  mortgage Super 1000 v Pacific General
  Securities.
• If trust property is absent first limb fails
  Farah Constructions Pty Ltd v Say-Dee Pty Ltd.
• Person has receipt if they have possession of
  trust property for their own use and benefit
  Stephens Travel Service International Pty Ltd v
  Qantas Airways Ltd Spangaro v Corporate
  Investment Australia Funds Management Ltd.
• Five categories of knowledge in a recipient are
  relevant to decision to impose a constructive
  trust see Baden in Evans p 607. Three categories
  are actual knowledge and the other two
  constructive knowledge.
• In Australia knowing receipt can be established
  in cases (i) to (iv) of the Baden categories but
  whether category (v) negligent failure to inquire
  should be included is not decisive as such
  Spangaro v Corporate Investment Australia Funds
  Management Ltd Consul Development Pty Ltd v DPC
  Estates Pty Ltd.

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Knowingly assisting a breach of trust

• Three elements
• D must know that dishonest/fraudulent design is
  being implemented
• D must know their acts have the effect of
  assisting the design
• Knowledge of the assistant/accessory must be of
  actual facts and not knowledge of mere claims or
  allegations.
• There is support in Australia for test of
  dishonesty enunciated in Royal Brunei Airlines
  and Twinsectra Macquarie Bank Ltd v Sixty-Fourth
  Throne Pty Ltd Voss v Davidson see also Gertsch
  v Atsas.
• In Equiticorp Finance Ltd v Bank of New Zealand
  the orthodox approach has been to use the Baden
  categories.

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Knowingly assisting a breach of trust cont.

• High Court has discounted the differences between
  the traditional approach (as set out in Consul
  Developments) and that adopted in Royal Brunei as
  not soundly based Farah Constructions Pty Ltd
  v Say-Dee Pty Ltd. It has been recognised that
  the second limb in Barnes v Addy also attaches to
  assistance given to non-trustee fiduciaries such
  as company directors Wespac Banking Corporation
  v The Bell Group (In Liq) (N0 3) 2012 WASCA
  157 Grimaldi v Chameleon Mining NL (CAN 098773
  785) (No 2) (2012) 200 FCR 296 287 ALR 22. In
  City of Sydney v Streetscape Projects (Australia)
  Pty Ltd 2011 NSWSC 1214 Einstein J stated that
  the doctrine of knowing assistance could be
  applied to breaches of confidence bearing
  features of a fiduciary relationship.

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Remedying unconscionable conduct

• Muschinski v Dodds High Court ordered a
  constructive trust to protect beneficial interest
  of someone who provided the entirety of the
  purchase price of some land.
• Deane J where a joint relationship/endeavour
  fails, equity will not permit one party to assert
  or retain the benefit of property as it would be
  unconscionable for that party to do so.
• Test of unconscionability is a legal one.
• High Court rejected unjust enrichment as a ground
  for imposition of a constructive trust in
  Australia.
• Deanes approach was accepted by the High Court
  in Baumgartner v Baungartner.

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Practical equality

• Baumgartner v Baumgartner equity will normally
  favour equality especially 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.
• Court will not conduct complicated factual
  inquiries which will result in relatively
  insignificant differences in contributions and
  consequential beneficial interest.
• High Court noted that in many cases it might be
  necessary to account for non-financial
  contributions.

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Elements of unconscionability constructive trust

• According to Turner v Dunne, the combined effect
  of Muschinski and Baumgartner is
• 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.
• An intention to create a trust may be imputed
  where it is essential to do so in good faith and
  in conscience.
• A principle which may be applied is that which
  restores to a party contributions made to a joint
  endeavour which fails, when the contribution has
  been made in circumstances in which it was not
  intended that the other party should enjoy them.
• Contributions, financial or otherwise, to the
  purposes of the joint relationship are relevant
  for this purpose.
• Both the Muschinski and Baumgartner judgments
  refer to the general equitable principle that
  restores contributions to a party to a joint
  endeavour which later fails.
• See also West v Mead for a breakdown of these
  elements Evans p 623.

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Joint relationship or endeavour

• Agreements expressed in writing or orally may be
  relevant in assessing where a relationship of
  joint endeavour exists Waterhouse v Power.
• Such agreements may assist court in assessing the
  unconscionability of any denial of interest
  Meehan v Fuller.
• Binding agreements will normally be enforceable
  West v Mead.
• Absence of express agreement is not fatal to a
  claim for a constructive trust Brown v Manuel.
• Mere fact that parties are sharing living
  arrangements does not imply existence of a joint
  endeavour Barker v Linklater.
• The fact that one party is paying towards the
  beneficial acquisition of property will not give
  rise to a joint endeavour Downham v McCallum
  Draper v Official Trustee in Bankruptcy.

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Termination without attributable blame

• Test of attributable blame does not require the
  court to establish which one of the parties to
  the relationship was at the greater fault for its
  demise Henderson v Miles (No 2) see also
  Australian Building and Technical Solutions Pty
  Ltd v Boumelhem.
• Relationships ending without attributable blame
• Kriezis v Kriezis relationship between mother
  and daughter had irretrievably broken down
• Cetojevic v Cetojevic joint endeavour was
  terminated due to death of plaintiffs son by
  drowning
• Australian Building and Technical Solutions Pty
  Ltd v Boumelhelm here the son was declared
  bankrupt.

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Unconscionability

• Final requirement for imposition of constructive
  trust is that one party must unconscientiously
  retain the benefit of contributions and deny the
  interests of the other party Sivritas v
  Sivritas.
• If financial contributions have been made, it is
  easier to prove unconscionability when interests
  are denied. Evidence of pooling financial
  resources will support such claims Hibberson v
  George.
• Provision of labour in renovations will support a
  claim Miller v Sutherland, just as care and
  support given to the deceased Saliba v Tarmo.
  See also Swettenham v Wild.
• Non-financial contributions might prove to be
  difficult in the assessment of unconscionability
  see Bryson v Bryant for a discussion of
  equitys inability to fully recognise
  non-financial contributions made by homemakers
  Evans p 627.

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RESULTING TRUSTS

• Equity sometimes presumes a trust was intended
  and will impose one on the parties to a
  transaction.
• Two types of resulting trusts according to
  Westdeutche Landesbank Girozentrale v Islington
  Borough Council
• Automatic resulting trust - these arise due to
  failure of an express trust or where there is
  surplus of trust property after termination of
  trust. Remaining trust property is held on
  resulting trust for the creator of that trust.

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RESULTING TRUSTS cont.

• Presumed resulting trust these arise because
  contributions have been made to the purchase of
  property but contributor has not received a legal
  title for their contribution. Equity presumes
  that the equivalent legal title is held on trust
  for the contributor. It also arises where
  property has been voluntarily transferred to a
  person who has not provided any consideration
  (i.e. a volunteer). In Jones v Kernott 2012 1
  AC 776 2012 1 All ER 1265, the Supreme Court
  of the United Kingdom stated that the presumption
  of resulting trust no longer had any role in
  cases of family homes held in joint names for
  married or unmarried couples. The Supreme Court
  affirmed that the intention of the parties may be
  imputed in cases where it is not possible to
  discern an actual or implied intention.

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Resulting trusts that arise in property transfers

• Where purchaser buys property and voluntarily
  transfers it into the name of another person,
  equity presumes that the owner holds property on
  resulting trust for purchaser Napier v Public
  Trustee (WA) Turnbull v Gorgievski.
• Equity presumes owner holds the title on trust
  for the one who provided the purchase price
  Tesoriero v Tesoriero.
• Presumption applies to both real and personal
  property Russell v Scott.

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Contributions to the purchase price of property

• Where purchase money is provided by two or more
  parties jointly, and property is put into the
  name of one of the parties, equity will presume a
  resulting trust in favour of the other parties
  Calverley v Green.
• Buffrey v Buffrey the presumption of resulting
  trust which arises when joint tenants have made
  unequal contributions to the purchase price may
  be rebutted by evidence to the contrary i.e.
  the common intention of the parties was for
  equality of interests despite inequality of
  contributions.
• Several types of contribution such as direct
  payment of money are recognised as a
  contribution Field v Loh.
• Mortgage liability also counts as contribution
  Brennan v Duncan Bloch v Bloch Dinsdale v
  Arthur Buffrey v Buffrey.
• Costs of acquisition include legal fees, stamp
  duty and incidental costs Currie v Hamilton
  Ryan v Dries Damberg v Damberg.
• No resulting trust will arise where there has
  been an upgrade of property or its maintenance
  Pettitt v Pettitt - unless there was a common
  intention/agreement between parties that is
  enforceable or gives rise to an estoppel Patrick
  Jones Photographic Studios Pty Ltd v Catt
  Sivritas v Sivritas.
• Where parties make equal contributions, equity
  presumes that the interests are held as joint
  tenants (and not as tenants in common) such that
  there is a right of survivorship if one of them
  dies, their interest will be divided equally
  among surviving tenants.

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Presumption of advancement

• In some cases equity refuses to impose a
  resulting trust. Instead it presumes any
  purchase/contribution was intended to be a gift
  by way of advancement.
• If there is no actual intention to confer a
  beneficial interest on the legal title holder,
  the presumption of advancement will not be
  effective and so the normal presumption of
  resulting trust will apply Calverley v Green.
• There is presumption of advancement when husband
  either provides the purchase price or makes
  contributions towards purchase price of property
  in which the wife is given a legal interest Kais
  v Turvey. This does not apply where wife
  transfers to husband March v March Trustees of
  the Property of Cummins (a bankrupt) v Cummins
  it has been assumed that a husband had a natural
  duty to provide for wife and children.
• Presumption also applies between man and fiancee
  Wirth v Wirth Bertel v Feher. Such transfers are
  considered as gifts in contemplation of marriage.
  

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Joint purchase of matrimonial home

• In Cummins the High Court held that where a
  husband and wife purchase a matrimonial property
  it will generally be inferred that the property
  will be divided equally between them irrespective
  of their original contributions. In Jones v
  Kernott 2012 1 AC 776 2012 1 All ER 1265,
  the Supreme Court of the United Kingdom stated
  that in the context of the purchase of a family
  home or flat, in joint names for occupation,
  where both parties are responsible for any
  mortgage, there is no presumption of a resulting
  trust arising from their having contributed to
  the deposit in unequal shares. The presumption is
  that both parties intended a joint tenancy both
  in law and in equity. That presumption can be
  rebutted by evidence of a contrary intention,
  which may more readily be shown where the parties
  did not share their financial resources.
• If property has been registered in joint names,
  equity will not interfere with that joint tenancy
  by creating disproportionate shares reflecting
  their contributions.

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Joint purchase of matrimonial home cont.

• The Cummins decision was reviewed by the Full
  Federal Court in Sui Mei Huen v Official Receiver
  for Official Trustee in Bankruptcy. It found that
  the Cummins presumption of joint tenancy was not
  irrebuttable. It could be displaced by an express
  or constructive agreement between husband and
  wife concerning their interests.
• In Sui Mei Huen the agreement between the parties
  had created a constructive trust of the mans
  legal half-interest in the property in favour of
  the wife, which was conditional on the wifes
  obligation to pay the mortgage and to forbear
  from suing for maintenance.
• Presumption of advancement does not apply in de
  facto relationships Napier v Public Trustee
  (WA) Calverley v Green.

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Transfers

• Presumption of advancement exists when purchase
  money is provided by a parent and legal title is
  taken by the child Calverley v Green.
• Child does not need to prove need for financial
  support in such cases Callaghan v Callaghan.
• Applies to illegitimate/adopted children and
  other forms of familial relationship, but one
  party must act as parent for the other National
  Executors Agency Co of Australasia Ltd v Fenn.
• Presumption exists between a mother and her
  children Wong v Wong Brown v Brown Nelson v
  Nelson.
• Presumption applies to adult children Brown v
  Brown Sellers v Siemianowski Sleboda v Sleboda
  but it gets weaker as child becomes more
  independent Lasker v Lasker.
• Presumption can be rebutted with evidence of
  intention Rix v Mahony Macquarie Bank Limited v
  Lin Australian Building and Technical Solutions
  Pty Ltd v Boumelhem Damberg v Damberg.