Equity Tutorial Notes

Week 1

Discuss the following questions:
(a) What is ‘equity’? Does the meaning change depending on the context?

Equity refers to that body of law that derives from the specific jurisdiction established and exercised by the English High Court of Chancery before 1873.
Bridge v Campbell Discount Co Ltd [1962] AC 600, 626.
Law engaged in bridging the law and conscious morality
(b) What is your understanding of why the equitable jurisdiction developed? Can the common law exist without equity? Can equity exist without common law?
support and protect the common law from shifts and crafty contrivances against the justice and the law. Equity therefore does not destroy the law, nor create it, but assists it.”
No, helix relationship.
(c) Explain your understanding of equity’s concurrent, exclusive and auxiliary jurisdictions.
Concurrent jurisdiction is where equitable and common law remedies are both available, but equity provides a superior or alternative remedy (e.g., specific performance instead of damages);
its exclusive jurisdiction covers rights and remedies that exist only in equity (e.g., trusts, fiduciary duties);
and its auxiliary jurisdiction supports common law claims by providing equitable assistance, such as discovery or injunctions to preserve legal rights.

Consider the case of Harris v Digital Pulse (2003) 56 NSWLR 298, to clarify the distinction between common law and equitable claims and remedies, and to better understand the debate about the role of Equity in our contemporary legal system.
Come to the tutorial prepared to discuss these questions:

What was the nature of the claim at first instance? What was Palmer J’s decision?
- Digital Pulse Pty Ltd was a small multi-media services company.
  - Harris and Eden were employed and held senior responsibilities in the company, so they owed both contractual (common law) and equitable (fiduciary) duties to their employer, not to compete with the employer while employed, or make unauthorized use of the employer’s property or client connections.
  - Nevertheless, Harris and Eden set up a rival company (‘Juice’), and tried to divert projects away from Digital Pulse to Juice while still employed
- At first instance — Palmer J
  - Harris and Eden had clearly breached their fiduciary duties to Digital Pulse.
  - The appropriate equitable remedies for a breach of fiduciary duty are either an account of the profits made by the fiduciaries, or equitable compensation for the loss caused to the employer.
  - But in this case, these remedies produced a ‘relatively low monetary recovery’ ([240]), because Harris and Eden had not made much from their wrongdoing, nor caused any clearly proven loss to Digital.
  - So Palmer J decided to award ‘exemplary damages’, to make sure that Harris and Eden were punished for their consciously dishonest conduct.
On appeal, why did Mason P find that the appeal should be dismissed?
- Mason P (in dissent)
  - The Australian legal system accepts exemplary damages awards in cases of egregious conduct: [113].
  - Equitable remedies are not only compensatory — see injunctions, specific performance, and account of profits: [120].
  - The Judicature Act 1873 (UK) did not merge the substantive principles of common law and equity, but that does not ‘condemn law and equity to the eternal separation of two parallel lines’: [1401.
    - Equity (like the common law) had powers to ‘adopt and adapt concepts from each other’s system well before’ that enactment, and nothing in the statute prevents that continued development: [141].
  - ‘Unnecessary barriers of separation’ between the two systems (common law and Equity) have been broken down in other jurisdictions with longer experience (US, UK, Canada): [148].
  - Equity has developed remedies designed for ‘deterrence’ of certain conduct.
    - He challenges the notion that deterrence and punishment are entirely distinct concepts: [164]-[166].
  - Fiduciary duties are more akin to tortious duties because they are imposed by law rather than by private agreement, so aligning fiduciary principles to contract law is misconceived: [185].
    - [Compare this to Spigelman CJ’s view that, in this particular case, the fiduciary relationships arose only as a consequence of an employment contract.]
  - Our legal system must be coherent — it is incoherent that a different attitude to remedies should be taken if a case is argued in the tort of deceit, than if the same facts were argued as a contumelious breach of fiduciary duty:
    - [1951. ‘There is no reason why appropriate assimilation of law and equity should not continue to be achieved through the principles development of Equity so that it comes into line with common law if it thinks fit’: [197].
  - The maxim, ‘Equity will not suffer a wrong to be without a remedy’ justifies the development of remedies: [205].
What do you understand by the concept ‘fusion fallacy’ from these judgments?
- The ‘fusion fallacy’?
  - What did the Judicature legislation achieve?
    - Merely administrative / procedural simplification?
    - Or a substantive fusion of the principles of equity and common law – including a mingling of remedies and defences?
    - And regardless of what the Judicature legislation achieved, can Equity and the Common Law now evolve together as a unified system of principles and remedies?

Equitable Estates and Interests:

What did Justice Brennan mean when he said an equitable interest is not ‘carved out of a legal estate but impressed upon it’: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 474 (Brennan J).
- Legal and equitable interest form one absolute interest, not two separate ones
What are some examples of how equitable interests are created; what was the nature of Mrs Coulson’s interest in Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12
- A testator (T) died in NSW, and his estate held property located in Queensland.
- He left 1/3 of his estate to Mrs Coulson (C).+
- “What equity did not do was to recognize or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of the administration”
- BUT: she did have a right to have the estate properly administered.
- This chose in action was itself a property interest, capable of being transferred to C’s heirs.
- “the legatee of a share of residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate properly administered and applied for his benefit when the administration is complete”
Equitable interests arise through intention or operation of law (by contract)
- By agreement
- By express trust
- Contract for sale of property
- By implication of law
- By operation of law
Identify any potential legal or equitable interests in the following scenario:
Vi is the registered owner of Blackacre. This land is actually held by Vi as a trustee for a family trust benefiting her younger sister Emma.

In January Vi verbally agrees to sell the land to Alex for 200,000, using the land as security. The clerk who arranges the mortgage is Vi’s partner and knows that Vi is a trustee. FirstBank registers their mortgage on the property.
In March, Vi signs a contract to sell the same land to Beth for 55,000 and immediately registers a caveat on the property.
In April, Alex learns about Beth’s contract and quickly registers their own caveat.
In May, Emma, the beneficiary of the family trust, discovers Vi’s actions and asserts her equitable interest in the property under the trust.

Legal Interest
- Vi is the registered owner (bare trustee)
Equitable Interest
- Emma holds an equitable proprietary interest in Blackacre as the beneficiary of the family trust.
- Vi is merely a trustee and should not be dealing with the land for her own benefit.
Priority given to first registered caveat unperfected equitable interest
Is engaging a surveyor and plans consideration?
Clerk is aware of Vi’s position, but not on the facts aware of situation - likely good faith. FirstBank’s Mortgage (February) – Legal Interest with Notice
- Vi used the land as security for a registered mortgage with FirstBank for $200,000. A mortgage is a legal interest, probably first priority
- Bonda fide purchaser for value without notice
Beth is not aware on the facts, registers a caveat first, signed a written contract, and has consideration (deposit)
As a beneficiary, Emma has an equitable proprietary interest in Blackacre.
- Vi, as trustee, should not have mortgaged or sold the property without complying with the trust terms

Week 2: Undue Influence and Unconscionable Conduct

Consider and prepare to discuss the following questions in this seminar:
1. Why does equity intervene in what the common law determines to be a valid contract or gift? (what is the difference between a contract and a gift?)
- Equity intervenes in valid contracts or gifts where enforcing them would be unconscionable, such as when a party exploits a special disadvantage (Commercial Bank of Australia v Amadio) or induces reliance to the other party’s detriment (Waltons Stores v Maher). A contract involves mutual promises and consideration, whereas a gift is a voluntary transfer of property without consideration, but both may be set aside in equity if obtained through undue influence, unconscionable conduct, or fraud.
  - Mistake
  - Misrepresentation
  - Duress
  - Coercion
  - Undue influence
  - Unconscionable conduct
1. Explain the distinctions between actual and presumed undue influence. Who bears the onus of proof in each situation? Pay particular attention to category 2A and 2B undue influence.
- Class 1: actual undue influence
- Class 2A: Presumed undue influence in recognised relationships of risk;
- Class 2B: Presumed undue influence where a relationship of trust and confidence is proven to exist.
- ‘The jurisdiction of a court of equity to set aside gifts [and contracts] inter vivos which have been procured by undue influence is exercised where
  - 1. undue influence def is proved as a fact, or [‘actual undue influence’]
    - 1. The defendant must have a capacity to influence the plaintiff;
    - 1. influence must have been exercised;
    - 1. the influence must have been undue; and it must result in the plaintiff’s entry into the transaction
  - 1. where, undue influence being presumed from the relations existing between the parties, the presumption has not been rebutted.’ [‘presumed undue influence’]
    - Presumed undue influence (Category 2B)
      - Step 1: Prove that the relationship is one in which one party exerts dominance over the other.
      - Step 2: Any transaction whereby the weaker party benefits the stronger is now presumed to have been secured by undue influence unless the stronger party proves otherwise.
        
        requires evidence of relationship of ascendancy/dominion
        
        does not require evidence of victimisation/ intent
        
        does not require evidence of a disability or incapacity
        
        See Johnson v Buttress (1936) 56 CLR 113
    - Presumed Undue Influence - Rebutting the presumption
      - The defendant must prove that the transaction 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 per Dixon J.
        
        (a) Independent (legal) advice: although not a blanket rule
        
        (b) Proving transaction “not improvident” ie there was adequacy of consideration (gifts may be more closely scrutinized)
1. Can the list of relationships that equity presumes to be at risk of undue influence be justified in modern society? Should there be any such presumptions made at all?
- Yes, none of these really changed much:
  - Parent over child (not child over parent: McFarlane v McFarlane [2021] VSC 197
  - Solicitor over client
  - Trustee over beneficiary
  - Doctor over patient: Bar-Mordecai v Hillston [2004] NSWCA 65
  - Religious leader over adherent to the faith: McCulloch v Fern [2001] NSWSC 406: Allcard v Skinner (1887) 36 Ch D 145
  - Guardian over ward
  - Powers of Attorney Act 1988 (Qld) s 87
1. Why is independent advice regarded as rebutting a presumption of undue influence? If a person receives independent advice, is the effect of any undue influence necessarily removed?
- Independent legal advice?
  - [123] It is not a sufficient response to the conclusion of unconscionable conduct to point to the fact that Ms Thorne received independent legal advice about the two agreements and chose to reject her solicitor’s recommendation on each occasion.
  - The fact that Ms Thorne was willing to sign both agreements despite being advised that they were “terrible” serves to underscore the extent of the special disadvantage under which Ms Thorne laboured, and to reinforce the conclusion that in these circumstances, which Mr Kennedy had substantially created, it was unconscientious for Mr Kennedy to procure or accept her assent.
1. Why was the loan arrangement in Stubbings v Jams 2 Pty Ltd [2022] HCA 6 unconscionable?
- At [38] they cite Kakavas at [20] – it is not enough that the transaction is improvident or risky.
- They find S was incapable of understanding the risks involved in the transaction, and AJ Lawyers (and hence its client) had knowledge of that, and exploited that special disadvantage.
- Interposing a company to borrow the funds, and requiring the certificates, with ‘bland boilerplate language’, did not negate their actual knowledge of dangerous nature of the transaction for S.
1. What was the ‘special disability’ of the plaintiff in Louth v Diprose (1992) 175 CLR 621 [1992] HCA 61? What is your view on the outcome?
- Louth v Diprose (1992) - a majority set aside a gift of real estate from a solicitor who was besotted with the woman to whom he gave the gift.
- How the intention was produced (Bank of NSW v Rogers (1941))
  - Woman used man’s love and suicide threats to manipulate him
  - Woman was aware of man’s infatuation and inability to judge his best interest.
- Unconscionable conduct def
  - A relationship exists that places one party at a special disadvantage vis-a-vis the other the party with the advantage has knowledge of the special disadvantage of the other; and
  - that has been and unconscientious exploitation of the weaker party’s special disadvantage
Consider the following scenarios:
- 1. Natalie is a 40 year old academic with a PhD in physics. Until recently, she lived with her mother. Although highly intelligent, Natalie is shy and very lonely. She was heavily involved with the ‘One Faith for Australia Party’ (‘One Faith’) - a new political party that seeks to enshrine certain religious principles into the Federal Constitution. The head of the Party is a self-styled clergyman called ‘Reverend Dan’, who is also about 40. Although he has little formal education, Reverend Dan is an articulate man with a charismatic personality.
- At one of the Party’s first meetings, Reverend Dan raised the issue of funding. He said that it was the responsibility of every Party member to do all he or she could ‘within the means that God had afforded them’ to help One Faith to ‘do its good work’. Later, he arranged a private audience with Natalie to discuss how she might serve the Party. They immediately became very close friends. She was devoted to Dan and agreed to give up her job and to work, on a voluntary basis, as his assistant.
- Natalie had been working for Dan for three months, when he called her into his office and tearfully exclaimed, ‘Natalie, it’s all over! … Unless the Good Lord sends me a miracle’. He went on to say that the Party needed funds urgently. Natalie immediately offered to donate all her worldly goods - an investment property (worth 50 000 - to One Faith. Dan thanked her profusely, but advised her to take some time to think it over and get some advice. Natalie protested that she was a grown woman and she knew her own mind. The next day, Natalie handed over to the Party’s treasurer, Fred, an executed transfer of the investment property and a cheque for $50 000 – each made out to One Faith for Australia Pty Ltd. When Natalie said she hoped her donation would help the Party in its time of crisis, Fred stared blankly at her and said ‘Crisis? What crisis?’
- Six months later, Natalie’s mother died, leaving all of her property to her brother. Natalie now has no place to live and no savings. Dan has become rather aloof.
- Natalie seeks your advice. She now says that she ‘doesn’t know what she was thinking’ when she gave her property away and wants to know whether she can get any of it back. The value of her investment property has increased significantly recently. It would now be worth $1 000 000.
Advise Natalie as to whether the doctrine of undue influence and/or unconscionable transaction may assist her. Explain which equitable remedies she might seek and whether you consider that she would be likely to be successful in attaining them.
If you need any further information, say what it is that you need to know and why.
- Category 2B: PUI
  - Step 1: Dan was a clergyman, head of political party, and charismatic boss.
  - Step 2: Unsocialized shy PhD academic quitting her job due to ideological devotion. He did advise her to seek advise, but also fabricated the claim and made the claim seem urgent and devastating.
- Presumed Undue Influence - Rebutting the presumption
  - The defendant must prove that the transaction 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 per Dixon J.
      - (a) Independent (legal) advice: although not a blanket rule
      - (b) Proving transaction “not improvident” ie there was adequacy of consideration (gifts may be more closely scrutinized)
        
        Did she receive a benefit from transitioning her investment property (the money isn’t really debatable)
- Progresses to actual undue influence (category 1)
  - Must be such an actual influence over the midn of the disponor that it cannot be considered to be the free act of the disponer (Johnson v Buttress, Thorne v Kennedy)
  - Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134:
    - (a) Dan has the capacity to influence Natalie immensely;
    - (b) the influence was exercised in a private conference;
    - (c) its exercise was undue as a false emergency; and
    - (d) its exercise brought about Natalie’s transferrence.
  - Kakavas v Crown Melbourne, Stubbings v Jamms 2
- Unconscionable Conduct
  - Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
    - (1) Natalie was affected by a special disadvantage in emotional ability;
    - (2) Dan was aware of this, or should have been aware, of this disadvantage; and
    - (3) Dan took advantage of Natalie’s disadvantage in circumstances where the transaction was not fair, just and reasonable.
1. In June 2021 Marco visited his mother at her Earlwood home and asked her to guarantee a bank loan that he wanted to take out for his video business. Marco was always telling his parents “how well the business was doing”, and they were very proud of him. Marco assured his mother that that the guarantee “would only be for six months and that his business debts would not exceed $40,000”. Anna wanted to help her son and accepted his request. The following week, Marco brought home the bank’s loan manager and a bank guarantee form for Anna to sign.
- Anna does not speak or read English well; therefore, she relied upon Marco to briefly explain the relevant guarantee forms to her. The bank manager introduced himself to Anna, did not engage in any other discussion with Anna at the time. Anna proceeded to sign the documents in front of the bank’s loans manager, believing the loan was a “short term loan limited to $40,000”. In fact, the bank guarantee was unlimited and secured “all debts” of Marco’s business against the Earlwood family property.
- By January 2022, Marco had not made several of the required repayments under the loan. Therefore, the lender bank is now moving to sell the Earlwood house in order to pay Marco’s accumulated debts of $750,000.
Advise Anna
- Allcard v Skinner
- Unconscionable conduct elements
  - The weaker party is under a special disadvantage that seriously affects their ability to make a judgment about their own best interests.
  - The stronger party knows, or ought to know, of this special disadvantage.
  - The stronger party takes unfair advantage of the weaker party’s condition in a way that makes the transaction not fair, just, or reasonable.
- (1) Anna’s Special Disadvantage
  - Language Barrier – Anna does not speak or read English well, meaning she could not understand the full terms of the guarantee.
  - Trust and Reliance on Marco – Marco misled her by stating that the guarantee was limited to $40,000 for six months, when it was actually unlimited and secured all debts.
  - Lack of Business and Legal Knowledge – Anna is not commercially experienced and did not obtain independent legal or financial advice.
  - A key factor in Amadio was that the parents did not receive independent legal advice, and the bank failed to insist on it.
  - Here, the bank manager did not explain the guarantee and did not advise Anna to seek independent legal advice.
  - The failure to recommend legal advice strengthens Anna’s claim, as it demonstrates the bank’s indifference to her vulnerability.
- 🔹 (2) Knowledge by the Stronger Party
  - Marco Knew → Marco knew his statements were misleading and that Anna relied on him entirely for information about the guarantee.
  - The Bank Knew or Ought to Have Known →
    - The bank loan manager did not explain the guarantee to Anna.
    - The bank knew or should have known she relied entirely on Marco for explanations.
    - A reasonable banker would have been alerted to potential unfairness, given Anna’s age, language difficulties, and lack of engagement with the bank officer.
- 🔹 (3) Unfair Taking of Advantage
  - The bank failed to ensure Anna understood the transaction.
  - The guarantee was extremely unfair—Anna believed she was liable for $40,000, but was actually liable for Marco’s unlimited business debts.
  - The transaction is harsh and oppressive—Anna is losing her home due to debts of $750,000, far beyond what she ever agreed to guarantee.

Week 3: Estoppel

Estoppel Questions for Discussion

What is the underlying purpose of all estoppels by conduct?
- The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party… But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.’
What was the effect of the House of Lords decision in Jorden v Money?
- Estoppels by Conduct following Jorden v Money
  - At Common law: not a cause of action
    - estoppel by representation - remains evidentiary, restricted to fact.
    - Alters of establishes the basis on which other causes of action may be brought or defended.
  - In Equity: can be a cause of action
    - Equity had long allowed estoppel to be used as a cause of action in relation to non-contractual promises (representations of future intention) in relation to land (proprietary estoppel).
    - Over time, non-contractual promises that did not relate to land came to be accepted under English law, though only as a defence (shield) not a cause of action (sword) (promissory estoppel).
    - Under Australian law, in the case of Waltons Stores (Interstate) Ltd v Maher, (1988) 164 CLR 387, the High Court of Australia accepted that in equity, a non-contractual promise that did not relate to granting an interest in land could found a cause of action. This form of promissory estoppel, has been accepted in Australia but not in the United Kingdom.
What is the difference between the forms of proprietary estoppel? How do the elements differ?
- Proprietary estoppel
  - The term ‘proprietary estoppel’ appears to have first been used by a court in the decision E R Ives Investment Ltd v High [1967] 2 QB 379. The description was found in the text, Snell’s The Principles of Equity, (Sweet & Maxwell Ltd, 26th ed, 1966).
  - Relates specifically to assumptions induced by the defendant of the grant of an interest in land.
- Two ways in which the assumption can be induced
  - By active encouragement
    - Proprietary estoppel by encouragement
      - Equitable form of estoppel by conduct
      - Dillwyn v Llewelyn
    - Promise-based
  - By passive acquiescence
    - Proprietary estoppel by acquiescence
      - Another equitable form of estoppel by conduct in relation to interests in land.
      - Not promise-based; rather arises where:
        
        a person improves land in the mistaken assumption that it is their own;
        
        The true owner is aware of the mistake;
        
        Does nothing to disabuse the person of their Mistake.
      - Ramsden v Dyson
How did the HC decision in Waltons Stores v Maher (1988) change the law of estoppel in Australia?
- Not a promise of a grant of an interest in land (like proprietary estoppel)
- No pre-existing legal relationship (like High Trees) used as a cause of action, not merely defence,
- Gave rise to new legal rights.
  - Expanded promissory estoppel to create new legal rights (i.e., can be used as a sword, not just a shield).
How can you reconcile the doctrine of estoppel with the requirement of consideration for an enforceable contract?
- Estoppel and consideration are reconciled by recognising that while consideration is required to create contractual obligations, estoppel prevents a party from unconscionably denying an expectation they have induced, thereby enforcing reliance-based obligations rather than bargained-for exchanges.
What is the difference between proprietary and promissory estoppel?
- Proprietary estoppel is about promises in relation to making changes or granting property, it is a positive right.
- Promissory estoppel prevents a party from going back on a promise not to enforce existing legal rights, typically in a contractual or commercial context. Traditionally, it was a negative right (a shield, not a sword), but in Waltons Stores v Maher (1988), the High Court of Australia expanded its scope to create new legal rights in some circumstances.
How does the law of promissory estoppel differ between English law and Australian law?
- The key difference is that English law strictly limits promissory estoppel to being a defence (“a shield”), preventing enforcement of strict legal rights but not creating new ones (High Trees), whereas Australian law initially expanded it to allow a cause of action (“a sword”) in Waltons Stores v Maher (1988). However, in NSW, Saleh v Romanous (2010) has since limited promissory estoppel to being a defence only, bringing it closer to the English position, though other Australian jurisdictions may still allow it as a cause of action in certain circumstances.
What difference did Saleh v Romanous make to the scope of promissory estoppel in New South Wales? Do you think that it is consistent with the findings of the High Court in Waltons Stores?
- Saleh v Romanous (2010) limited promissory estoppel in NSW to a defensive role (“a shield”), rejecting its use as a cause of action (“a sword”), which appears inconsistent with Waltons Stores v Maher (1988), where the High Court recognised promissory estoppel as capable of generating new rights in equity.
What is the appropriate remedy in a successful claim in estoppel?
- Prima facie expectation enforcement (Plimmer v Wellington (1884)).
- Proportionality considered – Court can order lesser relief if enforcing expectation is inequitably harsh (Giumelli v Giumelli (1999)).
- Constructive trusts may be imposed but avoided if it affects third parties (Sidhu v Van Dyke (2014)).
- Promissory estoppel
  - Prevent unfair enforcement
  - Prima facie enforcement of the expectation.
  - There is no rule of ‘proportionality’ - but where that relief would be ‘inequitably harsh’ some lesser form of relief may be granted.
- Proprietary Estoppel
  - Grant property interest/compensation
What was the effect of the High Court’s ruling in Stone v Kramer?
- Clarifies and reinforces the doctrine of proprietary estoppel by encouragement in Australia.
- Confirms that a promisor’s silence or inaction is not necessary for an estoppel claim to succeed.
- Aligns with prior cases such as Giumelli v Giumelli (1999) and Sidhu v Van Dyke (2014) in shaping equitable estoppel principles in Australian law.
- Elements of Equitable Estoppel: Kramer v Stone (2023) 112 NSWLR 564, 582
  - The Court referred to Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, in which Brennan J, established the following elements common to each equitable estoppel doctrine (including proprietary estoppel):
    - The plaintiff assumed that a particular legal relationship existed, or would exist, between the parties, and that the defendant would not be free to withdraw from this expected legal relationship.
    - The defendant has induced the plaintiff to adopt that assumption or expectation.
    - The plaintiff acts or abstains from acting in reliance on the assumption or expectation.
    - The defendant knew or intended him to do so.
    - The plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled.
    - The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
      Estoppel Problem for discussion:
      1.Consider the problem of Natalie and Reverend Dan from last week. Assume that Natalie expresses concern to Reverend Dan about the impact her donations will have on her financial position, and he replies promising her a monthly ‘blessing’ of $3000 if she is ever in ‘financial need’. Specific promise
      Later, when Natalie requested to receive this monthly payment, Reverend Dan refused to provide it.
      Could Natalie successfully argue that Reverend Dan should be legally prevented from going back on his promise, based on the principle of estoppel?
Yes,
- Equitable estoppel
- Clear representation, expectation of reception of aid
- Natalie requested her monthly blessing
- The reliance was for financial need and not reversing a donation, so clear detriment
- It was her money, he is a political leader and a clergyman
- Expectation of enforcement for promissory estoppel

Giuseppe Pirelli has worked on his Central Coast farm property, growing organic crops of fruit and vegetables, for over 30 years. Planning ahead for his retirement, he wishes the farm to stay in the family. intention Therefore, last year Giuseppe asked his son Dino to stay on the family farm and to keep working the crops, instead of moving on to other jobs or activities. detriment In return for staying on the farm and continuing the farming activities, Giuseppe promised to leave one of the paddocks to Dino. Dino agreed and last month he completed the construction of a modest house on his chosen paddock.
Giuseppe and his wife Anna also jointly own property, which is situated in a corner block near a popular northern beach, and which has been leased as a coffee shop (Café Roma) over the last decade. However in the past year the shop has not been running as profitably as previously. Therefore, the business owner of Café Roma approached Giuseppe in December 2023, and requested “a 30% reduction in rent, for a while, till things improve and return to the good old days specific promise with general ending time.” At that time, Giuseppe felt sorry for the tenant and “agreed to reduce rent for twelve months specific wording (assuming 30%)”.
Two months later, however, Anna’s concerns about (and disagreement with) Giuseppe’s oral arrangement for the rental reduction have made Giuseppe change his mind. At the end of February 2024, Giuseppe demanded that Café Roma pay the full rent, or move out so that a new tenant who could afford the rent could move in.

Advise Dino regarding his possible rights in the farming.
- Assumption – Dino believed a legal relationship existed with his father.
- Inducement – Giuseppe encouraged the assumption through continuous work.
- Reliance – dino acted based on that assumption and constructed his house.
- Knowledge/Intention – Giuseppe knew Dino would rely on this, evidenced by construction.
- Detriment – Dino suffers a construction and job opportunity loss if assumption is not upheld.
- Unconscionability – Giuseppe failed to avoid the detriment if he renegs.
Advise Giuseppe and Anna regarding the lease of their shop and the rental.
- Assumption – Cafe Roma Owner believed a legal relationship existed between lessor and lesee.
- Inducement – Giuseppe encouraged the assumption verbally reducing an unknown percent for 12 months.
- Reliance – Cafe Roma Owner acted based on that assumption by continuing to operate.
- Knowledge/Intention – Giuseppe knew plaintiff would rely on this rent reduction, because he continued over several months to pay it.
- Detriment – Cafe Roma Owner suffered financial loss if assumption is not upheld, potentially losing his business.
- Unconscionability – Giuseppe failed to avoid the detriment by agreeing in the first place and not advising within a reasonable timeframe of change.

Week 4: Fiduciary Obligations

Fiduciary obligations questions for discussion:
1. What factors determine whether a fiduciary duty might exist? What does it mean when we say the conduct complained of must be within the ‘scope’ of the fiduciary duty?
- A. Relationships That Automatically Give Rise to Fiduciary Duties (“Established Categories”)
- B. Commercial Relationships – Case-by-Case Basis
  - Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 – Fiduciary duties are not presumed in commercial settings; courts assess the nature of the relationship.
  - Factors Indicating a Fiduciary Relationship:
    - Undertaking to act in another’s interests (Hospital Products).
    - Power to unilaterally affect another’s rights (United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1).
    - Vulnerability and reliance (Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6)
- General definition: Representation + Vulnerability
1. Are fiduciary duties proscriptive or prescriptive (and what does this mean)? What is/not protected by a fiduciary duty?
- Proscriptive (Negative) Duties
  - No Conflicts Rule
    - A fiduciary must not place themselves in a position of conflict between:
      - Duty & personal interest (Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461).
      - Two competing duties (Farrington v Rowe McBride & Partners [1985] 1 NZLR 83).
    - No Profits Rule
      - A fiduciary must not make unauthorised profits from their position (Boardman v Phipps [1967] 2 AC 46).
  - No Prescriptive (Positive) Duties
    - Fiduciaries are not required to act in the best interests of the principal (Breen v Williams (1996) 186 CLR 71).
    - Duties to act arise from contract, tort, or statute, not fiduciary principles (Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165).
1. There is obviously significant overlap between the doctrines of presumed undue influence and fiduciary obligations. Is the doctrine of undue influence really just an example of fiduciary law?
- Fiduciary obligations do not impose a general duty to act in the principal’s best interests but rather prevent the fiduciary from preferring their own interests over those of the principal. Presumed undue influence is remedial rather than proscriptive—it seeks to restore fairness by setting aside unfair transactions, focusing on the quality of the acceptance, rather than imposing ongoing duties like fiduciary law.
1. What were the circumstances in Hospital Products Ltd v United States Surgical Corporation (1984) and Breen v Williams (1996). What definitions of fiduciary relationship did the High Court employ? Was a fiduciary duty found? Why/why not? Compare the reasoning in Boardman v Phipps [1967]
- Hospital Products Ltd v USSC (1984) 156 CLR 41
  - Circumstances:
    - USSC, a US manufacturer of surgical stapling products, appointed Blackman and his company, Hospital Products Ltd (HPL), as its Australian distributor.
    - Blackman secretly manufactured and sold competing products, misleading customers into believing they were USSC products.
    - USSC sued, alleging a breach of fiduciary duty and seeking an account of profits.
  - Commercial contracts do not automatically impose fiduciary duties.
  - Was a Fiduciary Duty Found?
    - ❌ No. The High Court ruled that HPL did not owe fiduciary duties to USSC.
      - The relationship was purely commercial—there was no undertaking by Blackman to act exclusively for USSC’s benefit.
      - USSC was a sophisticated commercial entity that could protect itself contractually.
      - The case confirmed that commercial contracts do not automatically impose fiduciary duties unless a special relationship of trust and confidence is present.
- Breen v Williams (1996) 186 CLR 71
  - Circumstances:
    - Ms Breen underwent breast implant surgery and later suffered complications.
    - She requested access to her medical records, but Dr Williams refused unless she signed a liability waiver.
    - She argued that the doctor-patient relationship imposed fiduciary duties, requiring Williams to provide access to the records.
  - Fiduciary obligations are proscriptive, not prescriptive (Gaudron & McHugh JJ).
    - Fiduciaries must not place themselves in a position of conflict.
    - Fiduciaries must not make unauthorised profits from their position.
    - However, fiduciaries do not have a positive duty to act in another’s best interests.
  - Was a Fiduciary Duty Found?
    - ❌ No. The High Court ruled that Dr Williams did not owe a fiduciary duty to provide access to records.
      - The doctor-patient relationship involves trust and confidence, but does not give rise to fiduciary obligations in all respects.
      - Unlike trustees or company directors, doctors are not required to put patients’ interests before their own in every aspect.
      - Fiduciary law does not impose positive duties—contract or negligence law is more appropriate for regulating doctors’ obligations.
- Boardman v Phipps [1967] 2 AC 46
  - Circumstances:
    - Boardman was a solicitor for a trust that held shares in a company.
    - He realised the company was poorly managed and, using information obtained in his fiduciary capacity, personally acquired a controlling stake.
    - The trust and its beneficiaries also benefited from the transaction.
    - A beneficiary sued Boardman, arguing he had improperly profited from his position.
  - Definition of Fiduciary Duty (Majority):
    - A fiduciary must not profit from their position without full, informed consent.
    - The fiduciary’s good faith is irrelevant—the duty is strict.
  - Was a Fiduciary Duty Found?
    - ✅ Yes. Even though Boardman acted in good faith and the trust benefited, he used confidential trust information for personal gain.
      - The no-profit rule required him to account for the profits, though he was allowed compensation for his efforts.
1. In Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294 the NSW Court of Appeal held that the relationship between an employee and their employer is an established fiduciary relationship, overturning the earlier decision of Justice Ward. Does it make sense that all employees should be fiduciaries in respect of their employers? Will an employee be in breach of a fiduciary duty if they ask for a pay rise? Or go on strike?
- The extent to which an employee owes fiduciary obligations to the employer in addition to contractual obligations is a question of degree, and depends on the scope of the obligation. Unless the employee is very senior or has a large degree of authority, there is unlikely to be conduct that falls within the scope of the obligation
1. What remedies are available for breach of a fiduciary duty?
- Account of profits.
  - Note that courts will sometimes make allowances for skill, effort or financial contributions of the fiduciary or others.
    - Examples: Warman International Ltd v Dwyer; Boardman v Phipps.
- Compensation for loss.
  - Example: Nocton v Lord Ashburton [1914] AC 932.
- Proprietary remedies:
  - constructive trusts, equitable charges, tracing.
- Rescission of contracts:
  - Example: Maguire v Makaronis (1997) 188 CLR 449.
Fiduciary obligations problem for discussion:
1. From 2015 till late 2023, Maria Pirelli worked in partnership with her cousin Rosa Martini. They are accountants. Until recently they operated the accounting partnership out of leased premises in Haberfield. Rosa married in November 2023 and has talked about being unsure whether to continue with the business after marriage. She left in November 2023 for a long honeymoon in Europe. The business lease was due to be renewed in March 2024.
In December 2023, while Rosa was still away, Maria began seeing clients at her home in Leichhardt, and realised that she could run the practice without leasing offices. So she assigned the right to renew the lease to another accountant, for a sum of $50,000, and banked this sum in her personal bank account. Maria also told all of Rosa’s clients that Rosa was leaving the business and so they should make appointments to see Maria instead, at her Leichhardt home office. Soon many of Rosa’s best clients were visiting the Leichhardt office for their accounting needs. Maria set up a separate bank account, in her own name only, to bank the proceeds of her accounting work.
Rosa returned from her honeymoon on 1 March enthusiastic to resume her professional career, only to find that the office premises were now leased to a rival accounting firm, and most of her clients were now consulting Maria alone. Advise Rosa.
- Step 1: Identify the Fiduciary Relationship
  - 1.1 Is the relationship in an established fiduciary category?
    - Partnership (Chan v Zacharia)
    - Established that fiduciary duties continue until all partnership affairs are fully resolved.
- Step 2: Scope of Fiduciary Duty
  - 2.1 Does the alleged conduct fall within the fiduciary’s role?
    - A fiduciary must not place themselves in a position of conflict between:
      - Duty & personal interest (Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461).
  - 2.2 If not, fiduciary duties do not apply (Clark Boyce v Mouat).
- Step 3: Breach of Fiduciary Duty
  - 3.1 the fiduciary had a conflict of interest
    - Self-dealing (Aberdeen Railway)
  - 3.2 Did the fiduciary profit from their position?
    - the gain was obtained using fiduciary knowledge or opportunity (Boardman v Phipps)
  - informed consent was not explcitly given? (Queensland Mines v Hudson)
- Step 4: Defences
  - 4.1 The principal was not fully informed and did not gave consent
  - 4.2 Was there a contractual exclusion of fiduciary duties?
    - Unknown on the facts
- Step 5: Remedies
  - 5.1 Account of profits (Boardman v Phipps)
  - 5.2 Equitable compensation (Nocton v Lord Ashburton)
  - 5.3 Constructive trust (Grimaldi v Chameleon Mining)
  - 5.4 Rescission of contract (Maguire v Makaronis)
1. Consider the problem of Natalie and Reverend Dan from week 2 & 3. Assume that Natalie contacted her investment advisor, Bruce, and asked him if he could liquidate her shareholdings quickly to enable her to donate cash to One Faith. Bruce told Natalie he would sell the shares on the open market. Later that afternoon, Bruce transferred 50,000 directly to One Faith.
Natalie has since discovered that Bruce actually purchased her parcel of shares himself and has since sold them for $100,000 on the open market.
Advise Bruce whether his actions attract any liability.
- Step 1: Identify the Fiduciary Relationship
  - 1.1 The relationship in an established fiduciary category
    - Arguable investment agent as he has been advised to make an action on her behalf (Daly v Sydney Stock Exchange (1986) 160 CLR 371).
  - 1.2 If not, apply Hospital Products factors to determine if a fiduciary duty arises.
- Step 2: Scope of Fiduciary Duty
  - 2.1 Does the alleged conduct fall within the fiduciary’s role?
    - Directly within his role as an investment advisor, particularly once entrusted to liquidation
  - 2.2 If not, fiduciary duties do not apply (Clark Boyce v Mouat).
- Step 3: Breach of Fiduciary Duty
  - 3.1 Did the fiduciary have a conflict of interest?
    - Self-dealing (Aberdeen Railway)
      - Yes, sold to himself then resold for a profit
  - 3.2 Did the fiduciary profit from their position?
    - The gain was obtained using fiduciary knowledge or opportunity (Boardman v Phipps)
  - informed consent to his specific action was not given (Queensland Mines v Hudson)
    - The consent was to the open market
- Step 4: Defences
  - 4.1 The principal was not fully informed and did not gave consent
    - The consent was to an open market sell, not to the advisor, so not fully informed
  - 4.2 Was there a contractual exclusion of fiduciary duties?
    - None listed
- Step 5: Remedies
  - 5.1 Account of profits (Boardman v Phipps)
  - 5.2 Equitable compensation (Nocton v Lord Ashburton)
  - 5.3 Constructive trust (Grimaldi v Chameleon Mining)
  - 5.4 Rescission of contract (Maguire v Makaronis)

Week 5: Accessorial Liability

General discussion questions:

When would a plaintiff seek to bring a claim against a third party? Why not seek remedies against the primary wrongdoer?

A plaintiff may seek a claim against a third party (e.g., for knowing assistance in a fiduciary breach) when the primary wrongdoer lacks sufficient assets to satisfy a judgment or when the third party substantially benefited from or facilitated the wrongdoing, making equitable remedies such as an account of profits more effective.

What are the elements of liability for knowing receipt and knowing assistance?

Knowing receipt: 4 elements
- 1. The existence of a trust or fiduciary duty
- 1. A transfer of property in breach of trust or fiduciary obligation: Robb Evans of Robb Evans & Associates v European Bank Ltd (2006) 61 NSWLR 75, [160] (Spigelman CJ, Handley & Santow JJA agreeing)
- 1. “Beneficial” receipt of legally recognised form of property the subject of fiduciary duty by the defendant: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 (not information); Stephens Travel Services International Pty Ltd v Qantas Airways Ltd (1988) 13 NSWLR 331 (when a bank receives “beneficially” – an agent receives ministerially, not beneficially.) Agip (Africa) Ltd v Jackson [1990] Ch 265, 291-2 (Millett J).
- 1. Knowledge of the facts amounting to the breach of trust or fiduciary duty.
Knowing assistance (barnes v addy)
- 1. A trust or other fiduciary relationship
- 1. The defendant (ie 3rd party) must know that a dishonest and fraudulent design is being implemented (by the fiduciary).
- 1. The defendant must know that their acts have the effect of assisting the design (assistance should “make a difference: and forward or advance the primary breach or misconduct in some way”).
- The knowledge of the assistant (or accessory) must be of actual facts and not knowledge of mere claims or allegations.
- ‘Knowing assistance’ involves complicity in fraud.

In what sense is a third party who knowingly assist in a fiduciary’s dishonest and fraudulent design a ‘constructive trustee’?

Proprietary remedies: Property held by the constructive trustee is held for the beneficiary.
Consequently, the beneficiary has an equitable interest in the property.
Personal remedies: Where a person is held to be a constructive trustee, they will be bound by the duties and responsibilities of a trustee, including the duty to compensate the beneficiary for any loss of trust funds.

Consider the ‘Baden scale’ of knowledge. How is this used to determine third party liability?

The ‘scale’ from Peter Gibson J’s judgment in Baden v Societe Generale pour Favouriser le Developpment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509:
- 1. Actual knowledge.
- 1. Deliberate ignorance = ‘willful blindness’.
- 1. Willfully and recklessly failing to make enquiries that an honest and reasonable person would make.
- 1. Knowledge of circumstances that would indicate facts to an honest and reasonable person.
- 1. Knowledge of circumstances that would put and honest and reasonable person on notice.
- 1-3 = knowledge; 4-5 = notice
The content of the knowledge: what must the knowledge relate to?
- The property was subject to a trust or fiduciary duty;
- It was transferred in breach of trust or fiduciary duty.

Consider the case of Turner v O’Bryan-Turner [2022] NSWCA 23. What are the facts of this case? What was the courts decision and why?

Facts:
John Turner, who suffered from dementia and lacked capacity by mid-2016, owned six farming properties in Trundle, NSW.
His wife, Wendy O’Bryan-Turner, acting under an enduring power of attorney, transferred all of John’s properties to herself and their two sons, David and Karl, without consideration.
Wendy sought legal advice about the transfers, and no solicitor or barrister advised her that she lacked the authority to make the transfers.
The transfers were allegedly done to give effect to John’s will in advance of his death and to prevent his children from a prior marriage, particularly Nicholas (Nick), from making a claim on the estate.
The primary judge found Wendy had breached her fiduciary duty but did not declare a constructive trust or order full equitable compensation, instead fashioning relief that would secure John’s financial needs.
Ratio Decidendi (Legal Principles):
- A breach of fiduciary duty by an attorney under a power of attorney does not automatically amount to fraud or dishonesty for the purposes of Barnes v Addy (Farah Constructions v Say-Dee (2007) 230 CLR 89).
- Young, inexperienced beneficiaries who receive property in a transaction facilitated by legal advice are not liable for knowing receipt unless they possess actual knowledge or awareness that the transaction was improper.
- Proprietary relief (constructive trust) can be ordered against a defaulting fiduciary (Wendy’s estate), but recipients of property (David and Karl) are protected by the principle of indefeasibility under the Real Property Act 1900 (NSW).
- Equitable compensation is available against a defaulting fiduciary’s estate, even if the estate is insolvent.
Significance:
- Clarifies the limits of liability under Barnes v Addy, particularly in relation to knowing receipt and knowing assistance for young, unsophisticated recipients of trust property.
- Affirms the principle of indefeasibility under Torrens title land law, protecting innocent third-party recipients of land transferred in breach of fiduciary duty.
- Demonstrates the court’s willingness to impose constructive trusts on the estates of defaulting fiduciaries, even when the estate is insolvent.
- Shows the courts’ focus on practical relief rather than strictly theoretical equitable remedies, particularly where a plaintiff is elderly or vulnerable.
  Problem questions for discussion:

Marco works three days a week as a retail client manager in his uncle Tony’s company which imports and distributes Italian tyres. Marco’s old school friend, Polo, said to Marco: “Why do you work so hard for Tony, when you could be in business for yourself? Why don’t we set up our own tyre importing business?” Marco thought this was a good idea. He spoke to some of his uncle’s contacts in Italy and explained that he was setting up a new dealership with Polo, called Marco Polo Premium Tyres Pty Ltd. He persuaded Pagani Tyres in Italy to change from supplying his uncle to supplying Marco Polo Premium Tyres Pty Ltd. Marco and Polo have been working day and night setting up the company. Marco persuaded Tony’s personal assistant, Stella, to leave and come to work for Marco Polo Premium Tyres. Marco did not tell Tony about the new company. After three months, he resigned from his job with Tony. Marco Polo Premium Tyres Pty Ltd has made $30,000 profit in the first three months to 1 April 2024.
Consider whether Tony can make any claim against Polo, and Marco Polo Premium Tyres Pty Ltd.

Step 1: Identify the Primary Breach of Duty
- Was there a fiduciary duty?
  - Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 – Fiduciary relationships require trust & confidence.
    - Senior employee? Anderson
    - Hospital products make out the elements of reliance
- Was there a breach of duty?
  - Fiduciary must avoid conflicts of interest and secret profits.
    - Creating a rival business, poaching employees, and business suppliers
Step 2: Identify the Basis for Third-Party Liability
- Knowing Receipt?
  - Did the third party receive trust property in breach of duty?
    - No?
  - Did they beneficially receive the property (Farah Constructions)?
    - No?
  - Did they have actual or wilful blindness knowledge (Grimaldi)?
    - N/A
- Knowing Assistance?
  - Did the third party assist a dishonest and fraudulent design (Barnes v Addy)?
    - Polo encouraged the dishonest conduct
  - Was the assistance causally significant (Harstedt Pty Ltd v Tomanek (2018))?
    - Yes
  - Polo may be personally liable for knowing assistance
Step 3: Assess the Third Party’s Knowledge
- 1. Apply the Baden Scale:
  - Categories 1-3 = actual knowledge → liable.
  - Categories 4-5 = constructive notice → not liable.
    - Actual knowledge
- 1. Did the third party wilfully ignore clear signs of a breach? (GP Building Holdings).
  - N/A
Step 4: Determine Available Remedies
- Constructive Trust?
  - Where property is still held → Proprietary claim (Westpac v Bell Group).
    - No property was stolen, only suppliers and employees were transferred
- Personal Liability?
  - Where property is lost → Equitable compensation or account of profits (Ancient Order of Foresters).
    - Likely applicable
    - Polo and MPPT may be liable to account for profits of $30,000 (see Ancient Order of Foresters).
    - Marco and Polo may be required to compensate Tony for lost business, calculated based on the value of diverted contracts.
Step 5: Consider Any Defences
- Bona fide purchaser for value without notice? (Leeming JA in Fistar).
  - No, intentional
- Did the third party act in good faith, without dishonesty? (Royal Brunei Airlines v Tan).
  - No, clearly dishonest
Conclusion: Tony’s Likely Claims
Defendant
Claim
Remedy
Marco
Breach of fiduciary duty
Account of profits ($30,000) + Equitable compensation for diverted business
Polo
Knowing assistance
Account of profits + Potential liability for further losses
MPPT
Corporate liability for Polo’s and Marco’s conduct
Possible equitable compensation

Rex Lear is a property investor. For many years, Rex has used the services of an expert property lawyer, Edgar Gloucester, to do all of the legal work involved in Rex’s property investments. In January 2021, Rex decided that his portfolio of property investments had grown so large that he needed to employ an executive assistant to assist him in managing his portfolio and to advise him on new investments, so he employed Chester Rogue. Over the course of the past year, Rex has left Chester in charge of dealing with Edgar about legal matters, and Chester and Edgar have become friends. Rex has now discovered the following facts:
In January 2022, Chester suggested to Edgar that they should buy a warehouse in Ultimo themselves and redevelop it, for a total cost of 1 million of Edgar’s own money in a half share in the Ultimo warehouse. Chester, on the other hand, took 4 million. Chester gave his share of the proceeds to his wife Belle. Belle used this 1.5 million, and she paid off 2 million share of the proceeds to pay back a loan he took out to make the investment (this used up 900,000 off his own home loan. After an audit of Rex’s business accounts, Rex discovered the missing $1 million and raised it with Chester. Chester resigned, and promptly left the country, leaving his wife Belle behind. Rex now claims that he would have been very interested in the Ultimo warehouse project, and is angry that his long time solicitor, Edgar, did not mention the project to him.
Advise Rex on any claims he might bring against Edgar, and Belle, and assess his prospects of success.
Edgar

Step 1: Identify the Primary Breach of Duty
- Was there a fiduciary duty?
  - Solicitor-client
- Was there a breach of duty?
  - Fiduciary must avoid conflicts of interest and secret profits. There may be, but not definite
  - Failure to Disclose an Investment Opportunity
    - Edgar had direct knowledge of the Ultimo warehouse investment opportunity but did not inform Rex.
    - A solicitor must disclose opportunities relevant to the client’s interests (Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134).
    - Edgar asked if Rex was interested but did not verify the extent of his interest.
  - Conflict of Interest & Secret Profits
    - Edgar personally invested in the warehouse without first offering it to Rex, creating a conflict of interest (Boardman v Phipps [1967] 2 AC 46).
Step 2: Identify the Basis for Third-Party Liability
- Knowing Receipt?
  - Did the third party receive trust property in breach of duty?
    - No
  - Did they beneficially receive the property (Farah Constructions)?
    - No
  - Did they have actual or wilful blindness knowledge (Grimaldi)?
    - No
- Knowing Assistance?
  - Did the third party assist a dishonest and fraudulent design (Barnes v Addy)?
    - Yes
  - Was the assistance causally significant (Harstedt Pty Ltd v Tomanek (2018))?
    - Yes, he put up half the investment
    - He co-invested with Chester.
    - He knew Chester did not inform Rex.
    - However, Edgar did not know Chester used Rex’s money.
Step 3: Assess the Third Party’s Knowledge
- 1. Apply the Baden Scale:
  - Categories 1-3 = actual knowledge → liable.
  - Categories 4-5 = constructive notice → not liable.
  - Likely category 5
- 1. Did the third party wilfully ignore clear signs of a breach? (GP Building Holdings).
  - Maybe, category 5
Step 4: Determine Available Remedies
- Constructive Trust?
  - Where property is still held → Proprietary claim (Westpac v Bell Group).
    - Property is not still held
- Personal Liability?
  - Where property is lost → Equitable compensation or account of profits (Ancient Order of Foresters).
    - He may seek compensation, not a concrete case though
Step 5: Consider Any Defences
- Bona fide purchaser for value without notice? (Leeming JA in Fistar).
  - N/A
- Did the third party act in good faith, without dishonesty? (Royal Brunei Airlines v Tan).
  - Maybe, since he asked about Rex’s interest, but he still acted in conflict.
Rex has a strong claim for breach of fiduciary duty but a weaker case for knowing assistance.
Belle
Step 1: Identify the Primary Breach of Duty
- Was there a fiduciary duty?
  - Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 – Fiduciary relationships require trust & confidence.
  - No
- Was there a breach of duty?
  - Fiduciary must avoid conflicts of interest and secret profits.
  - No
Step 2: Identify the Basis for Third-Party Liability
- Knowing Receipt?
  - Did the third party receive trust property in breach of duty?
    - Belle received $2 million that Chester misappropriated from Rex.
  - Did they beneficially receive the property (Farah Constructions)?
    - She bought a studio apartment and paid business debts with the stolen money.
  - Did they have actual or wilful blindness knowledge (Grimaldi)?
    - Likely
- Knowing Assistance?
  - Did the third party assist a dishonest and fraudulent design (Barnes v Addy)?
    - She was a beneficiary, not an assistnat
  - Was the assistance causally significant (Harstedt Pty Ltd v Tomanek (2018))?
    - No
Step 3: Assess the Third Party’s Knowledge
- 1. Apply the Baden Scale:
  - Categories 1-3 = actual knowledge → liable.
  - Categories 4-5 = constructive notice → not liable.
    - Likely category 3
- 1. Did the third party wilfully ignore clear signs of a breach? (GP Building Holdings).
  - Very likely
Step 4: Determine Available Remedies
- Constructive Trust?
  - Where property is still held → Proprietary claim (Westpac v Bell Group).
    - The warehouse was sold, but Belle still owns the studio apartment.
    - Rex may seek a constructive trust over the apartment (worth $1.5M).
- Personal Liability?
  - Where property is lost → Equitable compensation or account of profits (Ancient Order of Foresters).
  - If the apartment is unavailable, Rex can claim $2 million in compensation.
Step 5: Consider Any Defences
- Bona fide purchaser for value without notice? (Leeming JA in Fistar).
  - Unlikely though possible
- Did the third party act in good faith, without dishonesty? (Royal Brunei Airlines v Tan).
  - Unlikely, nothing in the facts indicates this.
Rex has a strong claim against Belle for knowing receipt.

Defendant
Claim
Remedy
Prospects of Success

Edgar
Breach of fiduciary duty
Account of profits (1M)
Strong

Edgar
Knowing assistance
Equitable compensation (weaker claim)
Weak to moderate

Belle
Knowing receipt
Constructive trust over apartment (2M)
Strong

Week 6: Equity and property

Questions for discussion:
1.What are examples of legal property? What are examples of equitable property?

Legal property
- refers to property interests that are recognised and enforceable at common law. The legal owner has formal title or registration, and the rights are usually enforceable in a court of law.
- Ex: Choses in possession
Equitable property
- refers to interests recognised by a court of equity, typically where the legal title is held by another person, but that person is bound by conscience (e.g., as a trustee) to hold it for the benefit of someone else.
- Ex: Sub-trusts

How do we transfer interests in legal property? What is the process of determining when equity will recognise an incomplete legal transfer?

Legal property must be transferred according to formal legal requirements, which differ based on the type of property.
Equitable Assignments of Legal Property
- If legal formalities not met, equity may still recognise transfer if:
  - Assignor has done everything necessary to complete the assignment (Milroy v Lord).
  - Equity won’t assist a volunteer unless consideration is given.
- Corin v Patton (1990)
  - Equity recognises assignment where:
    - Donor has done all necessary acts.
    - Donee is in position to complete legal title.

What is the purpose of s12 Conveyancing Act 1919?

Assignment at Law – Conveyancing Act 1919 (NSW) s 12
- Applies to legal choses in action.
  - Requirements:
    - Clear intention to assign immediately and irrevocably.
    - Assignment must be absolute.
    - In writing, signed by assignor.
    - Notice in writing to debtor.

Look at the cases of Grey v IRC, Vandervell v Inland Revenue Commissioners and Oughtred v IRC. What was the question the court was determining? What was the outcome?

Grey v IRC [1960] AC 1 – Oral direction to hold for another = disposition ⇒ requires writing (s 23C(1)(c)).
- a direction to a trustee to hold for another IS a disposition of an equitable interest.
- H transfers shares to trustees to hold for H.
- H then orally directs trustees to hold the shares for grandchildren.
- Trustees execute new declarations of trust, citing H’s instructions.
- Question: Was Grey’s oral direction successful in disposing of his equitable interest without writing (and hence with no liability to stamp duty)?
- NO. It was a ‘disposition’ of a subsisting equitable interest, so failed for want of writing.
Vandervell v IRC [1967] 2 AC 291
- NP Bank (NPB) holds shares in Vandervell Products Ltd (VP Ltd) as nominee (on bare trust) for V.
- V wants to provide a big tax-free donation to Royal College of Surgeons (RCS).
- So V instructs NPB to transfer shares – absolutely – to RCS.
- VP Ltd spits out a handsome dividend.
- Question: Who pays tax on the dividend?
  - The IRC said V must – because V retained beneficial ownership of the shares.
- The essential issue …
  - Did V need to give a written direction to dispose of V’s equitable interest in the shares?
  - IRC argued that V always retained the equitable interest in the shares: an oral direction was not effective to dispose of it.
  - Held: There was no need for separate writing to pass a beneficial interest in the shares. The whole interest in the shares transferred when legal title passed from NPB to RCS. At that point, V had no claim in equity against RCS.

What is ‘future property’? Can future property be transferred? If so, when?

Assignment of Future Property
- Future property = something not yet owned or not yet in existence.
  - Cannot be assigned at law (Norman v FCT)
  - Equity enforces a contract for value to assign future property
    - → Tailby v Official Receiver
    - → Holroyd v Marshall (1862) 11 ER 999
- ✔ Must distinguish:
  - – Tree = presently existing right (e.g., royalty contract)
  - – Fruit = future income (e.g., royalties not yet earned)
  - → Shepherd v FCT (1965) confirms that even uncertain future payments can be presently assignable if tied to an existing right.

Problem questions for discussion:
Question One:
Giuseppe Pirelli has operated a building business as a sole trader for over thirty years, but he now thinks it is time to retire. He is not confident that his son Marco has the skills to run the business; nonetheless, he wants to provide some financial assistance to his son. Last month, Giuseppe rang Marco and said: “Son, I give you half of the debts that are still owed to me by the old business clients. Your sisters can share the remaining half”. Marco happily agreed.
Giuseppe and his wife Anna owned a house at Pearl Beach as joint tenants. Giuseppe rang his daughters Maria and Tina to tell them that he wanted to transfer his share in the Pearl Beach house to their uncle Bruno (who is Giuseppe’s brother), to be held on trust for them (Maria and Tina) in equal shares. Giuseppe thinks that such an arrangement will protect the property from Marco’s reckless spending.
Accordingly, Giuseppe executed a memorandum of transfer and gave it to Bruno in January. Giuseppe also rang his solicitor, Franco, with instructions to do whatever was necessary to transfer his share of the Pearl Beach house to Bruno.
Franco is Anna’s cousin. Franco decided to hold on to the certificate of title to the Pearl Beach property until he had received Anna’s approval for the transfer to Bruno on trust for the daughters. Last week Franco left for a long overseas holiday and forgot to ask Anna about the certificate of title which is still in the law firm’s safe for safekeeping. Bruno has tried calling Franco’s office but no one has returned his calls. Giuseppe believes it has all been taken care of.
Examine and advise on the validity of the purported transfers by Giuseppe:

The half of the business debts to Marco, and the remaining half to Maria and Tina equally;
The share in the Pearl Beach property to Bruno as trustee.
Question Two:
Anna has always had a passion for writing Italian romantic poetry, and has published online for many years. The quality of her verses attracted the interest of a major publisher, and earned Anna a publication contract for her poetry in a forthcoming anthology, to be released before Christmas.
To celebrate her daughter Tina’s 21st birthday last week, Anna gave Tina a birthday card stating: “My dearest Tina, for the love of poetry that we share, I give you the royalties from my forthcoming book. With my love, eternally. Mum.”
Advise Tina regarding the nature and effectiveness of Anna’s gift.
- 1. Identify the Type of Property
  - property can be assigned
    - → Must be proprietary, not personal.
  - Classify the property:
    - Real property = land and interests in land
    - Personal property =
      - – Chose in action (intangible enforceable rights)
      - Shepherd v FCT (1965) – Right to future royalties was a presently existing contractual right.
        
        But – Fruit = future income (e.g., royalties not yet earned)
- 1. Identify Legal or Equitable Interest
  - Legal interest: held by registered/legal title (e.g. Torrens title, share register).
- 1. Identify the Transaction Type
  - It is:
    - Attempted gift of future property - but contract is signed so book will be published and there is a right to royalties
- 1. Legal Assignment of a Legal Chose in Action
  - Apply Conveyancing Act 1919 (NSW) s 12
  - To be effective at law, assignment must be:
    - 1. In writing, signed by the assignor;
    - 1. Absolute (not partial or conditional);
      - Arguable but plausible
    - 1. Intended to be immediate and irrevocable;
    - 1. Notice given to the debtor or obligor.
      - Unknown on the facts
  - → Brice v Bannister (1878) 3 QBD 569
  - → Norman v FCT (1963) 109 CLR 9 (formalities not met = failed at law)
- 1. Equitable Assignment of Legal Property
  - If s 12 not satisfied, equity may still recognise assignment if:
    - → There was clear intention to assign immediately and irrevocably, even if informal.
    - → Equity will not assist a volunteer (Milroy v Lord (1862) 45 ER 1185).
      - No consideration at all
  - Test: Has the assignor done everything necessary to complete the assignment?
  - → Corin v Patton (1990) 169 CLR 540:
    - “If the donor has done all that is necessary on their part, equity will treat the gift as complete.”
  - Different judges in Anning v Anning (1907) interpret “everything necessary” slightly differently.
    - → Most accepted view: formalities the assignor must complete themselves must be done.
- 1. Assignment of Future Property
  - Future property = something not yet owned or not yet in existence.
    - Cannot be assigned at law (Norman v FCT)
    - Equity enforces a contract for value to assign future property
      - → Tailby v Official Receiver
      - → Holroyd v Marshall (1862) 11 ER 999
  - ✔ Must distinguish:
    - – Tree = presently existing right (e.g., royalty contract)
    - – Fruit = future income (e.g., royalties not yet earned)
    - → Shepherd v FCT (1965) confirms that even uncertain future payments can be presently assignable if tied to an existing right.
- 1. Sale vs Gift – Does Consideration Matter?
  - Gift: strict — equity won’t enforce unless full formalities met.
  - Sale for value: more lenient — equity may recognise even informal or incomplete transactions.
    - → May raise constructive trust (s 23C(2) – does not affect operation of resulting, implied or constructive trusts)

Question Three:
Some years ago Giuseppe settled a parcel of shares in the Pirelli Family Trust. His solicitor Franco is the trustee, and both Giuseppe and Anna have beneficial interests in the trust. Giuseppe telephoned Franco to instruct Franco to transfer to his three children equally his beneficial interest in the shares held in the Pirelli Family Trust.
Examine and advise on the purported transfer by Giuseppe of his interest in the shares in the Pirelli Family Trust to the three children equally.

Nature of the Interest
Giuseppe holds a beneficial (equitable) interest in shares held in the Pirelli Family Trust.
The trust is a discretionary family trust, with Franco (his solicitor) as trustee and Giuseppe and Anna as beneficiaries. Shares are personal property, not land.
Type of Disposition Attempted
Giuseppe telephoned the trustee and orally instructed him to transfer Giuseppe’s beneficial interest to his three children equally.
This is an attempt to make a voluntary assignment (by way of gift) of an equitable interest in personal property.
Formal Requirements
(a) Statutory Formalities?

s 23C(1)(c) Conveyancing Act 1919 (NSW) applies only to equitable interests in land.
Giuseppe’s interest is in shares (personal property), so s 23C(1)(c) does not apply.
(b) No NSW equivalent to s 53(1)(c) UK LPA 1925
In the UK, s 53(1)(c) Law of Property Act 1925 (UK) requires dispositions of equitable interests to be in writing.
NSW has no equivalent statutory requirement for non-land property.
Therefore, the question depends on equitable principles.

Equitable Principles: Requirements for Assignment
To make a valid equitable assignment, equity requires:
(i) Clear intention to assign
Milroy v Lord (1862) 4 De G F & J 264: Equity will not perfect an imperfect gift.
(ii) Complete act of transfer
Corin v Patton (1990) 169 CLR 540: Equity recognises an assignment if the assignor has done everything necessary to effect the transfer.
(iii) Compliance with trust structure
The trustee must act within powers and consistent with the trust deed. A mere instruction by a beneficiary may be insufficient without formal execution or consent mechanisms.
Application to Giuseppe’s Case

Giuseppe’s oral instruction to Franco is not in writing, and
He did not execute a formal deed or assignment document, nor did he communicate with the children directly.
He retains legal control, and Franco has not acted on the instruction.
Therefore, the attempted disposition is incomplete and equity will not perfect it.
Similar to Norman v FCT (1963) 109 CLR 9 — oral instructions were found to be an incomplete assignment, ineffective in equity.

Conclusion
Giuseppe’s oral instruction is not effective to assign his beneficial interest in equity to his children.
There has been no valid equitable assignment, and thus his interest remains with him.
To validly transfer the interest, Giuseppe would need to:

Execute a written deed or signed instrument, and
Clearly identify the equitable interest being assigned, and
Ensure communication or formal direction to the trustee.

Question Four:
Giuseppe is the beneficiary under a trust. Giuseppe told his favourite nephew Luigi that he (Giuseppe) now holds his beneficial interest on trust for Luigi.
Advise Luigi on the effect of Giuseppe’s purported gift to Luigi.
Question 5 (note this question is from the 2024 supplementary exam)
Pebbles is seeking your advice in relation to her interest in property her mother Wilma purported to assign to her.

Wilma is the writer of the words and music to a famous pop song entitled ‘Yabba Dabba Doo’ recorded in 2008 by Barney Rubble. Wilma has been receiving royalties ever since from Flintstone Records Inc. In March 2022, for valuable consideration, Wilma assigned to her daughter Pebbles ‘my royalties from “Yabba Dabba Doo “payable to me by Flintstone Records Inc. for the 2023-2024 financial year’. On 1 July 2024, Stellar Records Inc. deposited 30,000. On 2 July 2024, Pebbles telephoned Wilma and directed Wilma to hold her (Pebbles’s) interest in the $30,000 on trust for her friend Dino.
Wilma was also the absolute beneficial owner of 10,000 shares in Bedrock Enterprises Ltd (BEL). The registered holder as trustee of the shares was BEL’s bank and it was obliged to transfer the legal title to the shares to Wilma at any time if called upon to do so by Wilma. On 1 July 2024 Wilma telephoned the manager of the bank and gave them the following instructions: ‘I want my daughter Pebbles to have my shares in BEL. Please transfer them to her’. The manager replied: ‘Very well’ and transferred the shares accordingly.
On 1 July 2024 Wilma’s mother Pearl died. Wilma immediately wrote to Pebbles and promised her (Pebbles):
- ‘All the real property that I stand to inherit pursuant to my mother Pearl’s will when she (Pearl) dies, and
- 20,000 debt owed to me by Mr John Slate.
What interest (if any) does Pebbles acquire on 1 July 2024 in the $30,000 royalties?
What interest (if any) does Dino acquire in the $30,000 royalties?
Does Wilma retain any interest in the BEL shares?
What interest (if any) does Pebbles have in her grandmother Pearls estate?
Is Pebbles entitled to the $10,000 owed to Wilma by Mr Slate?

Week 7: Express Trusts

Discussion Questions

How is a trust distinguished from a debt; a bailment; a condition; an equitable personal obligation (and why is it important?)

To be a valid express trust, four core elements must be established:
- A trustee (a fiduciary with obligations arising from the trust);
- Identifiable trust property;
- A beneficiary or charitable purpose;
- A personal obligation attached to the property to deal with it for another’s benefit.
Compare with other relationships:
- Agency: Agent may owe fiduciary duties but does not necessarily hold on trust (Walker v Corboy (1990) 19 NSWLR 382).
- Debt: Debtor holds no specific property; obligation is to repay (Henry v Hammond [1913] 2 KB 515).
- Bailment: Bailee holds possession only, not legal title; no equitable interest arises (common law).
- Equitable personal obligation: These arise in equity but do not involve the separation of legal and beneficial title characteristic of trusts.
Why is the distinction important?
- Because only a trust imposes fiduciary duties over specific property enforceable in equity — affecting remedies, standing, and proprietary claims.

What is the result of a failure of certainty of either intention, subject matter or object?

Certainty Requirements (Knight v Knight (1840))
- 1. Certainty of Intention
  - Must intend to create a trust objectively (Byrnes v Kendle (2011) 243 CLR 253).
  - Subjective intention is irrelevant.
- 1. Certainty of Subject Matter
  - Trust property must be identifiable (e.g., White v Shortall (2006) 68 NSWLR 650).
  - Reasonable income: acceptable (Re Golay’s Will Trusts [1965] 2 All ER 660).
- 1. Certainty of Objects
  - Must be specific individuals or a valid charitable purpose (Morice v Bishop of Durham (1804) 32 ER 656).
A failure in any one of the three certainties means the trust will not be validly constituted, and the property will generally revert to the settlor or fall into the residue of the estate.

What do we mean when we say a trust must be ‘fully constituted’

6.1 Constitution
- The trust must be properly constituted — legal title must vest in the trustee.
- If the transfer is incomplete, the maxim applies: “Equity will not assist a volunteer” (Milroy v Lord (1862) 4 De G F & J 264).
- Exception: Where the donee becomes executor and the gift is perfected (Strong v Bird (1874) LR 18 Eq 315).

What is a fixed trust? What is a discretionary trust? what is the test for certainty of object for both types of trust?

Types of Trusts
- Fixed Trust
  - Beneficiaries’ shares fixed (e.g., “1/4 each to my 4 siblings”).
  - Certainty of Object Test: Complete list test — It must be possible to compile a complete list of all beneficiaries (IRC v Broadway Cottages Trust [1955] Ch 20).
    - List certainty
- Discretionary Trust
  - Trustee has discretion to distribute among a class (e.g., “to those most in need”).
  - Certainty of Object Test: Any given postulant test — It must be possible to say with certainty whether any given person is or is not a member of the class (McPhail v Doulton [1971] AC 424; adopted in Kinsella v Caldwell (1974) 8 ALR 481 (Aus)).
    - “Any given postulant” test

What are some of the reasons a valid trust might still fail?

In Re Baden’s Deed Trusts (No 2) [1973] Ch 9:
- Sachs LJ: Conceptual certainty suffices; evidential uncertainty does not defeat the trust.
- Megaw LJ: Trust valid if a substantial number of beneficiaries are certain.
- Stamp LJ: Must be able to conclusively decide about each individual.
Limitations:
- A class that is administratively unworkable (e.g. “all people in NSW”) will invalidate the trust (McPhail v Doulton [1971] AC 424).
A capricious power (arbitrary or irrational selection criteria) will also fail (Re Manisty’s Settlement [1974] Ch 17).Step 7: Public Policy, Illegality, and Perpetuity
- A trust will fail if it promotes illegality or is contrary to public policy (e.g. restraining marriage).
- Must vest within the perpetuity period (Perpetuities Act 1984 (NSW) ss 7–9) → 80 years maximum.
  Problem Questions
  Question 1
  Anna wanted to create a Trust over some property she owned by herself, and she visited an accountant to seek relevant advice last year. Anna’s accountant, Larry Smart, advised her to establish private express trusts and to transfer her entire property into it, to which she agreed without much delay. Anna’s property comprised inter alia - -
a parcel of 50,000 shares in Telco Ltd;
$300,000 in a current account with Mega Bank;
a beach house in Palm Beach.
Larry prepared trust deeds and Anna completed valid transfers of all her property to her husband Giuseppe, to her sister Bianca, who is a successful author of children’s literature, and also to Larry, as trustees.
The trust deeds contained the following clauses:
“all realty is held on trust by Larry, Giuseppe and Bianca for such of Anna, Giuseppe and the children of Anna and Giuseppe as the trustees shall select”;
“all personalty is held on trust by Larry, Giuseppe and Bianca for Giuseppe.”
Larry was recently declared bankrupt and sadly passed away last week. Anna has no real understanding of the law of trusts or how trusts operate. She is interested to know - -
(a) whether the Trusts, that she purported to create, are valid, and whether Larry’s death and/or bankruptcy are relevant to the operation of the alleged Trusts;
(b) who is entitled to the real property and who is entitled to the personal property?

Question 2 (previous exam question)
Rex Lear was a wealthy industrialist who decided to retire to go travelling. In December 2023 he made the following gifts:

To Abe and Ben, my trusted former associates at Lear Enterprises Ltd, 100,000 grants to such employees, former employees, and dependants of employees and former employees, of Lear Enterprises Ltd, that my trustees shall in their absolute discretion select. The trust shall be called the Lear Enterprises Benevolent Fund.
To my sister, Susan, $5 million, in the hope that she will use this money to look after my disabled brother, Tom, who is incapable of looking after himself.
$500,000 to the University of Technology to be used to provide scholarships for children of current employees of Lear Enterprises Ltd to study engineering.
After transferring funds to each of the recipients of these gifts, Rex went travelling, and unfortunately he was killed in an aeroplane accident. Rex’s will left his entire estate to his wife, Wendy.
Wendy is now seeking your advice on the following issues.
Wendy wants Abe and Ben to pay the $5 million in the Lear Enterprise Benevolent Fund to her, since she is now heir to Rex’s estate. None of the funds in the Lear Enterprise Benevolent Fund have been paid out yet.
Susan used 4.5 million to Rex’s estate, since Susan has not spent this portion of Rex’s gift on Tom.
Wendy also wants to require UTS to return the $500,000 gift in respect of scholarships.
Advise Wendy of her prospects of succeeding in each of these claims against Abe and Ben, Susan, and UTS.

Lear Enterprises Benevolent Fund — Abe and Ben
1.1. Is there a valid trust?
To determine whether Rex’s disposition to Abe and Ben created a valid trust, we must apply the three certainties required for the formation of an express trust (Knight v Knight (1840) 3 Beav 148; (1840) 49 ER 58).
1.1.1. Certainty of Intention

The use of the words “to be held on trust” creates an express intention to impose binding trust obligations (Byrnes v Kendle (2011) 243 CLR 253).
Intention assessed objectively — formal language (“shall,” “trustees,” “trust”) supports enforceability.
✅ Likely satisfied.
1.1.2. Certainty of Subject Matter
The trust property ($5 million) is clearly identified.
Distribution is by way of $100,000 grants: not fixed shares, but trust property is defined.
✅ Satisfied.
1.1.3. Certainty of Objects
Beneficiaries are “employees, former employees, and dependants” of Lear Enterprises Ltd.
This is a discretionary trust, so the any given postulant test applies (McPhail v Doulton [1971] AC 424; followed in Kinsela v Caldwell (1974) 8 ALR 481).
The class is arguably administratively workable, as per Re Baden’s Deed Trusts (No 2) [1973] Ch 9.
✅ Likely satisfied.
1.1.4. Is the purpose valid?
The fund is for the benefit of individuals (employees, dependants), not a non-charitable purpose trust.
Labelled a “Benevolent Fund” but construed as a discretionary trust for persons, not a purpose trust — consistent with Re Denley’s Trust Deed [1969] 1 Ch 373.
✅ Not a problematic purpose trust.
1.2. Can Wendy recover the funds?
Valid discretionary trust = legal title vested in Abe and Ben.
Unless the trust fails, the funds are not part of Rex’s estate and not recoverable by Wendy.
➡ Conclusion: The trust is valid and enforceable. Wendy is unlikely to succeed in recovering the $5 million from Abe and Ben.

Gift to Susan — “in the hope that she will use [it] to look after Tom”
2.1. Was this an outright gift or a trust?
2.1.1. Certainty of Intention

Phrasing “in the hope that she will use this money…” lacks imperative language.
Courts distinguish between precatory and imperative words (Lambe v Eames (1871) LR 6 Ch App 597).
Hope is precatory and insufficient to impose a trust (Re Adams and Kensington Vestry (1884) 27 Ch D 394).
❌ Unlikely to satisfy intention.
Result: Likely an absolute gift, not a trust.
2.2. If not a trust, can the unused funds be reclaimed?
Once valid gift is made, donor (or their estate) cannot impose post hoc limitations (Commissioner of Stamp Duties (Qld) v Livingston (1965) 112 CLR 12).
No fraud or misrepresentation alleged.
Susan has legal title and can use the gift as she pleases.
➡ Conclusion: The gift to Susan was likely absolute. Wendy cannot reclaim the unused $4.5 million.

Gift to UTS for scholarships
3.1. Is this a valid charitable trust?
To be a valid charitable trust, the gift must:

Be for a charitable purpose (as recognised in law);
Be for public benefit (Commissioners for Special Purposes of Income Tax v Pemsel [1891] AC 531).
3.1.1. Is this a purpose trust?
Yes: gift to UTS “to provide scholarships” is a trust for a purpose.
3.1.2. Is the purpose charitable?
“Scholarships” = advancement of education = recognised head of charity (Pemsel).
“Children of employees of Lear Enterprises” narrows the class — possible issue re public benefit.
Compare Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297: if the class is defined by employment relationship, may not be a “section of the public.”
However, Re Koettgen’s Will Trusts [1954] Ch 252: partial restriction on public class may still be charitable if dominant purpose remains public.
✅ Arguably valid charitable trust.
3.2. Can Wendy recover the $500,000?
If the trust is validly charitable, UTS holds it on trust and cannot return it.
Even if the trust fails (e.g., lacks public benefit), court may apply cy-près doctrine (Charities Act 2013 (Cth) s 79).
➡ Conclusion: The gift is likely a valid charitable trust. Even if it fails, funds will be applied cy-près. Wendy cannot reclaim the $500,000.

Overall Advice to Wendy

Gift
Valid Trust?
Remedy for Wendy?
Lear Enterprises Benevolent Fund
Yes (discretionary trust for persons)
No – held on trust, not part of estate
Gift to Susan
No (precatory language = absolute gift)
No – gift vests absolutely in Susan
Gift to UTS
Yes (charitable trust – education)
No – valid charity; fallback cy-près if needed

Question 3 (previous exam question)
John was a barrister and had recently retired to the small country town of Oakville in NSW, after a distinguished career at Ellesmere Chambers. On 1 January 2023, John attended his daughter Rachel’s law graduation. After toasting her success with several glasses of expensive champagne, he said to Rachel:
“Rachel, I know you’re going to be so successful in your career, but I want to help you along the way. The investment property I own at 10 Equity Drive Oakville is leased at 10,000 for some work I completed for him. So you can have a head start, I’ll tell him to pay that money to you.”
John immediately texted Bryan and copied in Rachel. The text read:
Bryan! I’m so proud of my girl, she’s graduated! I want you to pay that 100,000 from my Centenary Bank Account to my trustee to be held on trust by her and used in her absolute discretion to pay for the maintenance and support of my great Aunt Maude.
Clause 3: I leave my primary residence “Maxims” at 100 Judicature Way Oakville to my brother Bryan absolutely, trusting he will allow my sister-in-law Cathy to live there until she dies.
Clause 4: I give the rest and residue of my estate to the Salvation Army.

Answer the following 4 questions:
(1). After making inquiries, Fatima found that the National City Bank account had a balance of $500,000, and that while 30 people attended the church in person for John’s funeral, another 300 watched via a live stream.
Advise Fatima on the distribution under clause 1.

(2). After making inquiries, Fatima found that the Centenary Bank account had a balance of $100,000, and that great Aunt Maude passed away on the 6th January 2023, two days after John.
Advise Fatima on the distribution under clause 2.

(3). Fatima advised Bryan of the terms of Clause 3 of John’s will, to which Bryan replied that he would never want to live in the same house as Cathy.
Can Bryan accept the gift of Maxim’s from the estate, given that he does not intend to allow Cathy to live there?

(4). Will the house at 10 Equity Drive and/or the $10,000 will form part of the residue of the estate and be distributed to the Salvation Army?

(1) Clause 1 — National City Bank Account ($500,000): Trust for Colleagues Attending Funeral
1.1. Issue
Is Clause 1 a valid express trust? If so, who are the beneficiaries: in-person attendees only, or also live-stream viewers?
1.2. Certainty of Intention

Language of Clause 1 uses the term “on trust… to be distributed,” which is sufficiently imperative (Byrnes v Kendle (2011) 243 CLR 253). ✅ Intention is satisfied.
1.3. Certainty of Subject Matter
Trust fund clearly identified: “my bank account with National City Bank,” with a known value ($500,000). ✅ Subject matter is satisfied.
1.4. Certainty of Objects
Beneficiaries must be ascertainable individuals or a valid charitable purpose (Morice v Bishop of Durham (1804) 32 ER 656).
“Such of my valued colleagues at Ellesmere Chambers that attended my funeral”:
- Satisfies fixed trust certainty test: “complete list” test from IRC v Broadway Cottages Trust [1955] Ch 20.
- Attendance is factually determinable: 30 individuals can be proven to have attended in person.
- Unlikely that live-stream viewers meet the test — “attended” ordinarily implies physical presence (Re Hummeltenberg [1923] 1 Ch 237).
  ✅ Only the 30 in-person attendees are valid objects.
  1.5. Conclusion
  Fatima should distribute the $500,000 equally among the 30 colleagues who physically attended the funeral. Live-stream attendees likely do not satisfy the object requirement.

(2) Clause 2 — Centenary Bank Account ($100,000): Discretionary Trust for Aunt Maude
2.1. Issue
Does the trust fail due to Aunt Maude’s death two days after the testator?
2.2. Nature of Trust

Clause 2 creates a discretionary trust: “to be used in [Fatima’s] absolute discretion to pay for the maintenance and support” of Aunt Maude.
Trust is not a gift to Maude herself, but to Fatima as trustee to apply funds for Maude’s benefit.
✅ Valid trust on its face.
2.3. Lapse and Survivorship
At common law, a gift to a deceased beneficiary lapses unless a contrary intention appears (Jones v Westcomb (1711) 1 Eq Cas Abr 245).
Here, Maude survived the testator, albeit briefly. She was alive at the time the trust vested.
✅ The trust did not lapse.
2.4. Discretionary Trust and Deceased Beneficiary
However, no payments were made before her death, and the trustee was given discretion to apply the funds.
Where the discretion is not exercised before the death of the sole object, the gift fails: see Re Wood [1949] Ch 498.
✅ The unexercised discretionary trust fails.
2.5. Conclusion
Fatima no longer has any valid trust purpose to fulfil. The $100,000 should fall into the residuary estate and pass to the Salvation Army.

(3) Clause 3 — Gift of Maxims to Bryan with Hope He Allows Cathy to Reside There
3.1. Issue
Does the “trusting” language impose a legal obligation on Bryan to allow Cathy to live at Maxims?
3.2. Certainty of Intention

Clause uses precatory language: “trusting he will allow…”
Precatory words (e.g. “hope,” “desire,” “trusting”) are insufficient to impose binding trust obligations (Lambe v Eames (1871) LR 6 Ch App 597).
✅ This is an absolute gift, not a trust.
3.3. Effect of Refusal
Bryan is not legally obliged to permit Cathy’s residence.
Refusal to follow the precatory hope does not invalidate the gift (Re Adams and Kensington Vestry (1884) 27 Ch D 394).
✅ Gift stands, regardless of Bryan’s intentions.
3.4. Conclusion
Bryan may accept the gift of Maxims absolutely, even if he does not intend to allow Cathy to reside there.

(4) Informal Gifts — Equity Drive Property and 10,000 debt?

4.2. Equity Drive Property — Was a Trust Created?
4.2.1. Certainty of Intention

“I’ll hold the property on trust for you” indicates clear intent.
Express oral declaration of trust by legal owner of land is valid in equity (Rochefoucauld v Boustead [1897] 1 Ch 196).
✅ Sufficient intention.
4.2.2. Certainty of Subject Matter
Specific property (10 Equity Drive) is identified.
✅ Satisfied.
4.2.3. Certainty of Object
Rachel is a named individual.
✅ Satisfied.
4.2.4. Formalities
s 23C(1)(b) Conveyancing Act 1919 (NSW): declaration of trust of land need not be in writing if made by the legal owner (Rochefoucauld).
✅ Valid oral declaration.
Conclusion (Equity Drive): Rachel has a beneficial interest in the Equity Drive property. It does not fall into the residue and cannot be claimed by the Salvation Army.

4.3. Assignment of $10,000 Debt from Bryan
4.3.1. Is there a valid gift or trust of the debt?

An assignment of a debt must be in writing and signed by the assignor to be valid at law (Conveyancing Act 1919 (NSW) s 12).
No such formal assignment exists here — only a text message.
❌ No legal assignment.
4.3.2. Gift of a Chose in Action in Equity
Equity will not perfect an imperfect gift (Milroy v Lord (1862) 4 De G F & J 264).
No trust is created — John told Bryan to “pay” the debt to Rachel, but did not declare himself trustee of the debt or transfer title.
❌ No trust and no perfected gift.
Conclusion (Debt): The $10,000 debt remains payable to John’s estate. It falls into the residue and passes to the Salvation Army.

Overall Summary of Dispositions

Gift / Clause
Outcome
Reason
Clause 1 (Bank account for colleagues)
100,000 falls into residue
Trust fails post-death; no exercise of discretion
Clause 3 (Maxims to Bryan)
Valid absolute gift
Precatory language only
10 Equity Drive
Valid trust for Rachel
Express oral trust by legal owner effective
$10,000 debt from Bryan
Falls into residue
Imperfect gift; no assignment; no trust

Week 8: Trustee Duties, Rights and Liabilities, and Rights of Beneficiaries

Questions for discussion:

What was the duty of the trustee in Byrnes v Kendle 243 CLR 253? How was it breached?

Byrnes v Kendle (2011) 243 CLR 253, [42]-[43] (Gummow and Hayne JJ): ‘The references to accounting by Mr Kendle as trustee indicate the several senses in which the term “duty to account” may be used, namely, (i) a duty to keep records, (ii) a duty to report to the beneficiaries or to the court concerning the administration of the trust, and (iii) a duty to pay amounts the trustee is obliged to pay to the beneficiaries. … [A] trustee should gain no advantage by failure to keep proper records and the court will resolve doubts against a trustee who fails to do so.’
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.

Explain the difference between a power and a duty. What duties are trustees subject to ? What standard are they held to? Are there any requirements or limitations imposed on a trustee in the exercise of a power?

Duties vs Powers
- Duty = must act or refrain (mandatory)
- Power = may act (discretionary)
Exercise
- Adhere to terms of the trust
  - Youyang v Minter Ellison (2003) – strict compliance required
  - Turner v Turner [1984] – honesty is no defence to breach
  - Subject to:
    - Court directions (s 63, s 81 Trustee Act)
    - Saunders v Vautier (if beneficiaries are sui juris + absolutely entitled)
- Get in trust assets
  - Associated Alloys (2000) – trustee must take control of trust property
- Keep trust property separate
  - Associated Alloys – assets must not be mixed with personal funds
- Keep and render accounts
  - Byrnes v Kendle (2011) – core and ongoing duty
- Provide information to beneficiaries
  - Fixed beneficiaries: Hawkesley v May
  - Discretionary beneficiaries: No general right – Schmidt v Rosewood, Segelov v EY
  - Debate on trust documents: proprietary vs discretionary right
    - Schmidt, Hartigan Nominees, Avanes, McDonald v Ellis, Palmer v Ayres, Rinehart v Rinehart
- Exercise due care and skill
  - Speight v Gaunt (1883) – prudent person standard
  - s 14A Trustee Act: higher standard for professional trustees
- Act impartially
  - Between beneficiaries and classes (e.g. life tenant vs remainderman)
  - s 14B(2) Trustee Act
- Act personally
  - No delegation of discretionary powers
  - Can engage professionals if proper care taken (Speight v Gaunt)
  - s 64 Trustee Act allows delegation with limits
- Invest trust property prudently
  - Byrnes v Kendle (2011), Cowan v Scargill [1985]
  - s 14A–14C Trustee Act – duties and relevant investment criteria
- Consider exercise of powers
  - Trustee must periodically consider powers
  - Re Hay’s Settlement Trusts [1982], Karger v Paul

What is the rule in Saunders v Vautier? What are its limitations?

allows beneficiaries who are sui juris and absolutely entitled, to wind up the trust.
Limitations
- All must be sui juris and absolutely entitled
- CPT Custodian (2005) – trustee’s indemnity must be satisfied first

Explain the trustee’s right of reimbursement and indemnity. What is the nature of the right? What might prevent the trustee from being reimbursed or indemnified for an expense?

Is expense “properly incurred”? → Gatsios Holdings, Re Raybould
Indemnity via:
- Recoupment (for personal outlay)
- Exoneration (to pay creditors directly)
Equitable lien secures indemnity: Carter Holt Harvey
“Where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust, although the trustee is ordinarily personally liable to the third person on the contract, he is entitled to indemnity out of the trust estate. If he has discharged the liability out of his individual property, he is entitled to reimbursement; if he has not discharged it, he is entitled to apply the trust property in discharging it, that is, he is entitled to exoneration.”
Problem Questions - The Pirelli Family Trust:
The Pirelli Family Trust was settled by Giuseppe in 2019 to be managed in accordance with a Trust Deed.
Bruno and Franco Pirelli (Giuseeppe’s two older brothers) are the trustees and the beneficiaries are Marco, Maria and Tina, Giuseppe’s three children.
The property of the trust consists of:
(a) A parcel of land on which an industrial block was located at Windsor, NSW;
(b) 100,000 shares in Best Bank;
(c) $500,000 in an account No: 115533 with Best Bank in names of Bruno and Franco Pirelli.
Question 1:
Clause 1 of the trust deed provides that any dividends earned on the shares are to be paid out annually in equal shares to the three children: Maria, Marco and Tina.
The shares earned dividends in 2020, 2021, 2022 and 2023. However, no distributions were made in 2020. 2021 or 2022. In 2023 Giuseppe instructed Bruno to pay his favourite daughter Tina three quarters of the total dividends earned by to the trust to help her with her university studies. Bruno told Tina not to tell the other children about the distribution. Tina told Sophia, Maria’s best friend about the money. Sophia told Maria.
Maria confronted Giuseppe. Giuseppe told her that he did not really intend for the dividends to be held on trust – he just did that for tax avoidance reasons and that he “can do what he likes with the funds”, because it is his money.
Assume you are appearing in the Equity Division of the Supreme Court briefed to appear on behalf of Maria and Marco in proceedings brought against the trustees and Tina in relation to the dividend payment to Tina. Assume that Giuseppe has been joined in the proceedings and was cross-examined about his intention on settling the moneys. You can assume that his evidence was that he never intended the dividends to be really held on trust but that he put it in the trust deed for tax avoidance reasons.
Outline the nature of any claim you would make on behalf of Maria and Marco in relation to the payment to Tina.
Certainty of Intention
• Clause 1 uses mandatory language: “dividends are to be paid annually in equal shares” → this is not discretionary.
• Giuseppe’s subjective intention (e.g. tax avoidance or “it’s my money”) is irrelevant.
• Trust law uses objective construction to determine intention – i.e. what a reasonable person would understand from the deed’s language.
✅ Intention to create a trust is established.
Certainty of Subject Matter
• Trust property (dividends from shares) is clearly identified.
✅ Subject matter is certain.
Certainty of Objects (Beneficiaries)
• Beneficiaries (Maria, Marco, and Tina) are named individually.
✅ Beneficiaries are certain.
✅ Conclusion: Clause 1 creates a valid fixed express trust. The trustees are bound to distribute dividends equally each year.
1. Identify the Source of Trustee Duty
The duty arises from: • Express terms of the trust deed (Clause 1 – fixed distributions);
• General equitable duties (e.g. impartiality, loyalty);
• Statutory duties under Trustee Act 1925 (NSW) (e.g. duty to act diligently).
1. Identify the Duties at Issue
Duty to follow trust terms – the trustees are required to distribute dividends equally each year.
Duty to act impartially among beneficiaries.
Fiduciary duty not to favour one beneficiary for extraneous reasons.
Duty to account – trustees must inform beneficiaries about trust management when asked. Bruno refused Maria’s request.
1. Assess Breach of Duty
There are two categories of breach:
A. Non-distribution (2020–2022)
Clause 1 requires annual payments → failure to pay any dividends breaches the duty to carry out the trust.
B. Unequal distribution in 2023
Bruno, acting on Giuseppe’s instruction, paid ¾ of total dividends to Tina, which violates the fixed equal entitlement.
Trustees cannot follow settlor’s personal instructions if inconsistent with trust deed.
Concealment (telling Tina not to inform the others) breaches the duty to act transparently and account.
✅ Bruno has committed a clear breach of trust. Franco may be liable if he was aware of the breach and acquiesced or failed to act (based on fuller facts).
1. Consider Trustee Defences or Excuses
Statutory relief under s 85 of the Trustee Act requires that Bruno:
1. Acted honestly;
2. Acted reasonably; and
3. Ought fairly to be excused.
→ Bruno’s actions were:
Dishonest (attempted to conceal distribution);
Unreasonable (acted outside the deed’s clear terms);
Not excusable.
✅ s 85 defence is unavailable.
1. Remedies Available to Maria and Marco
Against Bruno (trustee):
Equitable compensation for share of dividends wrongly withheld and/or misdistributed.
Account of trust – compel full disclosure of all income and payments.
Restitution or tracing – to recover the value of misapplied funds.
Against Tina (beneficiary):
Knowing receipt – if Tina knew she received more than her entitlement (which she did), she may be liable to repay the excess.
Constructive trust – may be imposed over the excess funds.
Unjust enrichment – alternative remedy if trust-based claims are unavailable.
1. Trustee’s Indemnity Rights?
Bruno cannot claim indemnity from the trust fund because: • His action was not properly incurred in the administration of the trust. • It was a breach of trust, not a permissible exercise of discretion.
1. Beneficiary Rights – Maria and Marco
As fixed beneficiaries, they have: • Right to compel performance of the trust; • Right to an account of income and distributions; • Right to tracing if trust property was misapplied; • Right to equal entitlement under the trust deed.
Conclusion
Maria and Marco are entitled to:
Equitable compensation for non-payment of dividends (2020–2022) and underpayment in 2023.
Account and disclosure of trust funds.
Restitution or tracing remedies against Tina for knowingly receiving more than her lawful share.
Injunctive or declaratory relief to prevent further misapplication.
Bruno has breached multiple duties and is not entitled to indemnity or statutory relief. Giuseppe’s evidence about tax motives is irrelevant to the trust’s validity. The trust is enforceable.
✅ Maria and Marco have strong grounds for relief in equity.
Question 2:
Meanwhile, Marco learned that in April 2024, the land at Windsor has been sold to a company called Fully Franked Properties Pty Ltd. Marco has obtained a copy of the trust deed and has discovered that Clause 2 of the trust deed provides that the real property at Windsor was not to be sold but was to be rented out, and any profit from rentals retained in the trust. Maria learned from Sophia’s mother, who works as Franco’s secretary, that Franco is the sole director and shareholder of Fully Franked Properties Pty Ltd and that Franco has also paid himself $10,000 from the trust account which he said was on account of “trustee’s expenses” incurred in the sale of the parcel of land.
Assume you are appearing in the Equity Division of the Supreme Court briefed to appear on behalf of the beneficiaries of the Pirelli Family Trust. Outline the nature of any claim you may bring against the trustees in relation to:
The sale of trust property to Fully Franked Properties Pty Ltd;
The money which was withdrawn from the trust funds on account of trustee expenses.
Question 3
Clause 3 of the trust deed provides that if a beneficiary of the trust purchases real property as their primary residence, the trustees may in their absolute discretion make a distribution of fund in the account No: 115533 with Best Bank to that beneficiary up to a maximum of 100,000 to assist with the payment of the deposit. Bruno and Franco email straight back saying the request is denied and she should not be living with her boyfriend before they get married.
Maria comes to you for advice.
Question 4
Clause 4 of the trust deed provides that if a beneficiary undertakes any vocational training, apprenticeship or higher education, the trustees may, in their absolute discretion, make a distribution from the account No: 115533 with Best Bank up to a maximum of 50,000 to your account and you can buy a new Amarok. Show me when you get it!”
Maria has seen Marco’s new car and cannot understand where he got the money from. She asks Bruno for a copy of the trust account. Bruno refuses.
Maria seeks your advice again.
1. Identify the Source of Trustee Duty or Power
Clause 4 of the trust deed gives the trustees a discretionary power to make educational distributions up to $50,000 per year per beneficiary.
The discretion is limited to educational purposes only (vocational training, apprenticeship, or higher education).
Power to distribute does not extend to business support or personal vehicle purchases.
✅ The source of the trustee’s power is express and conditional.
1. Identify the Specific Duties at Issue
Duty to act in accordance with the trust deed – Trustees must only exercise powers for the purposes specified.
Fiduciary duty to act in good faith and for proper purpose.
Duty to act impartially between beneficiaries.
Duty to provide information/accounting to beneficiaries – particularly relevant given Bruno’s refusal to disclose the trust account.
1. Assess Whether the Trustee Breached Their Duty
Bruno’s payment of $50,000 to Marco for a ute falls outside the permitted scope of Clause 4:
Not educational in nature – landscaping business start-up is not vocational training or study.
Bruno did not genuinely consider the purpose of the distribution as required under a discretionary power.
Apply: Karger v Paul Test for Proper Exercise of Discretion
Good faith? – Arguably yes (personal support for nephew), but…
Real and genuine consideration of proper purpose? – No, the funds were used for a commercial purchase outside clause 4.
Improper purpose? – Yes, funds were used for non-trust purposes (business vehicle).
✅ The exercise of discretion is voidable or void, as it breaches the purpose and limits of the power.
1. Consider Trustee Defences or Statutory Relief
Bruno may seek relief under s 85 of the Trustee Act 1925 (NSW):
However, this defence is unlikely to succeed: – Bruno failed to apply the clause properly, did not seek confirmation or evidence of study.
– No reasonable grounds to believe a vehicle for a landscaping business fell within the education-related purposes of the clause.
✅ Trustee is not likely to be excused.
1. Apply Appropriate Remedies
Maria may claim:
Equitable compensation for the unauthorised payment – trust assets were misapplied.
Account of the trust – Bruno must produce financial records to disclose all disbursements.
Injunction or direction from the court – to prevent further misuse of trust funds.
Restitution or tracing against Marco – trust funds may be traceable into the Amarok.
1. Assess Trustee’s Right to Indemnity
Bruno is not entitled to indemnity from the trust fund for the $50,000 because:
The expenditure was not properly incurred under the trust.
Trustees cannot claim indemnity for actions outside the trust powers.
1. Assess Beneficiary Rights (Maria)
As a fixed and discretionary beneficiary, Maria is entitled to:
Demand an account of the trust’s activities and disbursements (Bruno’s refusal is improper).
Enforce the trust to ensure it is administered in accordance with its terms.
Challenge the exercise of discretion that is improper or for an unauthorised purpose.
Seek equitable relief against Marco as recipient of misapplied trust funds (via tracing or constructive trust).
Conclusion
Bruno has:
Breached his duty by making a distribution outside the purpose and scope of Clause 4.
Improperly exercised a discretionary power — failing the Karger v Paul test.
Refused to provide an account of trust funds, in breach of Maria’s entitlement to information.
Maria and other beneficiaries are entitled to:
Equitable relief, including compensation and disclosure orders.
Restitution or tracing against Marco as a recipient of misapplied trust funds.

Week 9: Resulting Trusts

Questions for Discussion

Explain the distinction between a ‘presumed’ and an ‘automatic’ resulting trust.

Presumed Resulting Trusts:
Arise from voluntary transfers or where one party contributes to purchase money but is not named on title.
Automatic Resulting Trusts:
- Arise where there is failure to properly dispose of beneficial interest (e.g. failed trust, surplus trust funds).

What is the difference between the Australian and and UK analysis of a Quistclose trust arrangement?

The key difference is that Australian courts treat Quistclose trusts as a form of resulting trust arising from the failure of a specific purpose, whereas UK courts often conceptualise them as express trusts or trusts arising at the outset for the lender’s benefit, leading to different implications for timing, control, and insolvency.

When will a ‘presumption of advancement’ apply, and what is the effect of such a
presumption? Do you think a ‘presumption of advancement should still apply in Australia today?

Presumption of Advancement
Reverses presumption of resulting trust in limited relationships:
- Husband → Wife
- Parent → Child
- Male fiancé → Female fiancée
- Not: Wife → Husband, De Facto, Same-sex partners
Leading authority: Wirth v Wirth (1956) 98 CLR 228; Bosanac [2022] HCA 34 – remains a “weak” presumption.
Effect: Precludes the resulting trust from arising (Soar v Foster (1858) 4 K&J 152).
Can be rebutted by slight evidence of contrary intention (Anderson v McPherson [2012] WASC 19).

What are the circumstances in which a presumed resulting trusts will arise?

Husband → Wife
Parent → Child
Male fiancé → Female fiancée
Not: Wife → Husband, De Facto, Same-sex partners

What did Calverley v Green decide?

Appeal allowed. Matter remitted for further determination of precise contribution ratios if not agreed by the parties. Each party holds a beneficial interest proportionate to their financial contribution.
Resulting trust based on contributions: mortgage contributions did not affect beneficial title.
(Purchase Money Resulting Trust).
Calverley v Green (1984) 155 CLR 242: The presumption arises where one party contributes to the purchase price but does not receive legal title.
The case confirms that equity does not recognise the presumption of advancement in de facto relationships, distinguishing them from spousal relationships in property law.

What did the High Court say about the presumptions of resulting trust and presumptions of advancement in Bosanac v Commissioner of Taxation?

The High Court emphasised that the creation of a resulting trust turns on the parties’ objective intention at the time of acquisition.
- In this case, the history of separate asset ownership, the lack of any express trust, and the fact that Ms Bosanac was the sole contracting and registered party all pointed to an intention that she be the sole owner. The Court refused to abolish the presumption of advancement and reaffirmed its continuing, albeit limited, role in Australian equity.
A resulting trust will not arise where objective evidence establishes no intention to create a trust. The presumption of advancement remains part of Australian law, though it is weak and readily rebutted. Legal title and intention must be evaluated based on all relevant facts.
Reaffirms the relevance and evidentiary frailty of the presumption of advancement.
Clarifies that equitable presumptions yield to clear evidence of contrary intention

Should an applicant be entitled to claim a resulting trust if they have transferred property to their child to avoid tax or claim a benefit? What is an example of where that occurred, and what did the court say?

Effect of Illegality on relying on a resulting trust
- A question arises as to whether the presumption of a resulting trust applies where A transfers property to B as the legal owner to give effect to an illegal purpose (ie so that the property is not recorded as being in the name of A.)
- If the illegal purpose has not been carried out, the presumption will still arise.
- If the illegal purpose has been carried out, the claim by A to an equitable interest under a resulting trust will depend upon whether it would be contrary to the policy of the law that has been breached to permit the interest to be recognized.
- In other words, equity does not reject the resulting trust from its own doctrines; rather it examines the policy of the law which makes the conduct illegal
Effect of Illegality - Nelson v Nelson (1995) 184 CLR 538
- “Accordingly, in my opinion, even if a case does not come within one of the four exceptions to the Holman dictum to which I have referred, 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”

How do automatic resulting trusts affect money donated to charities or causes like a bushfire relief fund where all the money does not get used?

Re Gillingham Bus Disaster Fund [1958] Ch 300
- Memorial fund raised from donations to defray funeral costs and assisted disabled bus crash victims.
- What should happen to the surplus? (Crown claimed it as ‘bona vacantia’ – money without an owner.)
- Held: Donors had not been shown to have given the money ‘out-and-out’ – so the surplus resulted to the donors. ‘There must be an inquiry for the subscribers to this fund.’
Air Jamaica Ltd v Charlton [1999] 1 WLR 1399
- FACTS:
  - The airline’s superannuation scheme (or pension scheme as they are known in the UK) was discontinued after the airline was privatised.
  - After the defined benefits were paid out, a $400 million surplus remained. The Privy Council held that the balance was held on resulting trust for the contributors and that so much that was attributable to the members (living and deceased) should be divided amongst them pro rata.
- HELD:
  - “Prima case the surplus is held on a resulting trust for those who provided it. This sometimes creates a problem of some perplexity. In the present case, however, it does not. Contributions were payable by the members with matching contributions by the company. In the absence of any evidence that this is not what happened in practice, the surplus must be treated as provided as to one half by the company and as to one half by the members.”
    Question 1:
    In 2017 Anna and Giuseppe purchased a house on Torrens title in Leichhardt for Maria to live in when she moved out of home. The property was registered in Maria’s name, but over dinner one night after the purchase was made the family discussed the fact that Anna and Giuseppe intended the house to be part of their own estate and registering the house in Maria’s name was just to help Maria feel independent at the time — and in case it helped her with her newly established accounting business to be registered as a property owner.
    However, Anna and Giuseppe no longer trust Maria’s boyfriend Ricardo. They think Ricardo “really wants the house” and that he does not love their daughter. They want to transfer the house instead to their other daughter Tina, who is a studious and dutiful daughter. They share their thoughts about Ricardo with Maria who becomes furious and says that the house is hers and that they cannot transfer it to Tina as it is registered in Maria’s name.
    Assume you are appearing in the Equity Division of the Supreme Court briefed to appear on behalf of Anna and Giuseppe. Outline the nature of any claim you would make on their behalf and why the court should grant relief if any.
Step 1: Identify the Nature of the Transaction and Legal/Equitable Title
- Determine whether the property was:
  - Voluntarily transferred by A to B with no consideration (Voluntary Transfer Resulting Trust).
- Establish:
  - Maria holds legal title
  - On the facts, only Anna and Giuseppe made direct contributions to the deposit, stamp duty, legal fees, and mortgage liability (not repayments)Step 2: Determine Whether the Presumption of Resulting Trust Arises
Step 2: Determine Whether the Presumption of Resulting Trust Arises
- A presumed resulting trust arises where:
  - 1. A pays (wholly or in part) for property in B’s name, and
  - 1. There is no contrary evidence of an intention to gift.
- Purpose of the presumption:
  - Allocates burden of proof by inferring a trust in the absence of clear intention (Bosanac v Commissioner of Taxation [2022] HCA 34, [105]).
- Objective inquiry:
  - Courts examine the words and conduct at the time of the transaction, not later conduct (Bosanac, [106]).
Step 3: Assess Whether the Presumption of Advancement Displaces the Resulting Trust
- Equity may presume that the legal title holder is intended to take beneficially where:
  - Parent → Child (Murless v Franklin (1818) 1 Swan 13),
- This presumption:
  - Precludes a resulting trust from arising, unless rebutted by evidence of a contrary intention (Soar v Foster (1858) 4 K&J 152).
- The presumption is “weak” and readily rebutted:
  - Bosanac, [31]: Courts are more willing to draw inferences from modern arrangements that deviate from traditional gender roles and property norms.
Step 4: Rebutting the Presumptions – Intention and Objective Evidence
- The key question:
  - Did the person contributing to the purchase intend to make a gift?
    - Debatable considering no consideration, and the offhand comments about ownership prior to the dispute. However, there is some difficulty in determining whether it was originally a gift while Maria behaved then attempted to revert the gift once she was no longer in good standing.
- Evidence that may rebut the presumption:
  - Statements made at the time of purchase (Russell v Scott (1936) 55 CLR 440 – a statement that the other party could take the balance if funds remained rebutted the trust),
  - Pattern of financial separation (Bosanac, [30]),
  - Written agreements or arrangements indicating equal or unequal beneficial interests (Zhang v Metcalf [2020] NSWCA 228),
  - Relationship dynamics and obligations (Buffrey v Buffrey – no gift intention found).
- The rebuttal must be established by the party who made the financial contribution (Anderson v McPherson, [157] – six objective factors rebutted the presumption).
  - Anna and giuseppe would need evidence here.
Step 5: Determine the Beneficial Interests at the Time of the Transaction
- A resulting trust arises at the time of acquisition, not later:
  - DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 – the equitable interest arises at the moment of the transaction.
- Contributions to mortgage repayments made after purchase do not affect the beneficial interest (though may be relevant in equitable accounting):
  - Calverley v Green – repayments after acquisition may support equitable relief but do not alter the original share.
- Irrelevant on the facts, but helpful in determining equitable interests.
Step 6: Confirm Final Allocation of Equitable Title
- If presumption not rebutted:
  - Equitable interests are proportionate to purchase contributions (Calverley v Green).
  - 100% in this case (assumption on the facts).
- If presumption rebutted:
  - Legal title reflects full beneficial ownership (i.e., gift or trust not intended).

Question 2:
Giuseppe agreed to make a loan of 10,000 is to be used ONLY to pay the Pagani Tyres debt.’ Giuseppe transferred 10,000 from Megabank Ltd. Advise Giuseppe

Step 1: Identify the Nature of the Transaction and Legal/Equitable Title
- Giuseppe transferred $10,000 to Marco for a specific purpose: to pay Pagani Tyres.
- Giuseppe’s words and the bank transfer annotation (“Loan to repay Pagani debt”) suggest no intention to gift the funds.
- The money was transferred into Marco’s account but earmarked for a specific purpose.
- This sets up a potential Quistclose trust.
Step 2: Determine Whether a Resulting Trust Arises (Quistclose-Type)
- A Quistclose trust is a form of purpose trust:
  - Legal title is held by B (Marco),
  - Beneficial interest remains with A (Giuseppe) until the purpose is fulfilled.
  - If the purpose fails, the beneficial interest results back to A.
- Key authority:
  - Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
  - Twinsectra Ltd v Yardley [2002] 2 AC 164
  - Bosanac v Commissioner of Taxation [2022] HCA 34 – supports that intention at the time of the transaction is key
Step 3: Confirm Existence of a Quistclose-Type Trust
- Was money transferred for a specific purpose?
  - Yes – to pay a named creditor.
- Was the money intended to be kept separate?
  - Strong inference due to annotation and the condition placed on the use.
- Did the purpose fail?
  - Yes – Megabank applied the funds to the overdraft; Pagani was not paid.
- Therefore, the conditions for a Quistclose-type resulting trust are met.
Step 4: Determine Who Now Holds the Beneficial Interest
- The money is no longer in Marco’s account.
- Megabank received and applied the funds to its own benefit (discharging Marco’s overdraft).
- If Megabank knew (or should have known) that the money was held on trust for a specific purpose, it may be liable as a constructive trustee or liable to repay under tracing principles.
- See: Twinsectra and Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135
  - In Raulfs, tracing failed where funds were mixed and purpose wasn’t clearly defined or restricted. In contrast, Giuseppe’s annotation gives clear notice.
Step 5: Can Giuseppe Recover the Money from Megabank?
- Was the bank aware or on notice of the purpose?
  - Arguably, yes. The annotation “Loan to repay Pagani debt” is a red flag indicating a restricted purpose.
  - If the bank knew or ought to have known the funds were trust funds, using them for another purpose may expose it to liability in equity.
- Equitable tracing may apply:
  - Funds were misapplied, and Giuseppe (as equitable owner) can attempt to trace into Megabank.
  - Potential equitable remedies: constructive trust, equitable compensation, or account for profits.
- Re Diplock’s Estate [1948] Ch 465 – beneficiaries of misapplied trust funds can trace and recover.
Step 6: Remedy and Relief Sought
- Giuseppe may seek:
  - Equitable compensation from Megabank for the value of the misapplied funds;
  - A declaration that the funds were held on resulting trust for him;
  - An order compelling Megabank to repay the $10,000, as they wrongfully applied trust funds.
Conclusion
- Giuseppe has a strong claim in equity that the 10,000 from Megabank in equity.

Week 10: Constructive Trusts

General questions:

What is a constructive trust? How is a constructive trust distinguished from an express or resulting trust?
- Definition: A trust imposed by operation of law, not intention, where it would be unconscionable or fraudulent in equity for a legal titleholder to deny beneficial ownership to another.
  - Beatty v Guggenheim Exploration Co (1919) 122 NE 378
  - Paragon Finance v DB Thakerar [1999] 1 All ER 400 – must distinguish constructive trust from personal liability “as if a trustee”
- Key Features
  - No formalities required: Conveyancing Act 1919 (NSW) s 23C(2)
  - Distinct from:
    - Express trust: Based on intention
    - Resulting trust: Based on failure of intention or presumed intention
    - Personal remedies: No proprietary remedy (e.g., Paragon Finance)
In what circumstances will a constructive trust arise? Is there a common theme to all of these circumstances?
- Types:
  - Institutional: Arises automatically from the time of conduct (not discretionary)
  - Remedial: Arises by judicial discretion, typically from date of judgment (Muschinski v Dodds (1985) 160 CLR 583)
What is the meaning of ‘liability as a constructive trustee’ for a third party who is found liable for assisting a breach of trust or fiduciary obligation?
- Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 408-9
  - “Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff.
  - The person does not assume any actual trusteeship.
  - They may never even have received trust property.
  - Their liability arises because of their dishonest assistance, not because they hold property on trust.
- A third party who assists in a breach of trust or fiduciary duty may be held personally liable to account to the beneficiaries for the loss caused.
- However, they are not a “trustee” in a real or substantive sense.
- They are called a “constructive trustee” only because equity forces them to act as if they were a trustee — to account for wrongdoing.
- It is purely a remedial, not institutional, label.
What does it mean to say that a constructive trust is ‘institutional’ or ‘remedial’? What are the different features of each?
- Institutional vs remedial constructive trusts
  - Institutional
    - Tend to date from conduct that give rise to the trust
    - Not discretionary – arises by operation of law
    - Only form recognized under English law
  - Remedial
    - Tends to date from date of judgment
    - Discretionary – one of a range of potential remedies for a court to impose
    - Recognised under Australian law
- 1. Summary – Institutional v Remedial Constructive Trusts
    Feature
    Institutional
    Remedial
    Timing
    Arises at time of conduct
    From date of judgment
    Discretionary?
    No – arises automatically
    Yes – remedy imposed by court
    Recognition
    UK + Australia
    Australia only
    Examples
    Theft, fraud, common intention
    Failed joint ventures, proprietary estoppel, equitable remedies
What are some examples of institutional constructive trusts?
- See above
What are some examples of remedial constructive trusts?
- See above
Why was Mushinski v Dodds not a simple case of resulting trust?
- The purchase was for a joint venture purpose, not merely a financial transaction.
- The purpose failed: the land was not developed as intended.
- Why Not a Simple Resulting Trust?
  - Because:
    - At the time of purchase, the purpose of the trust was still intended to proceed.
    - The intention was not simply “I own the land” — it was “We jointly own the land to build together”.
    - A resulting trust is measured at the time of acquisition — it does not adjust for later failure of purpose.
  - Thus, a simple resulting trust (based on contributions alone) would have ignored the agreed joint purpose and how it had collapsed unfairly.
- Gibbs CJ, Mason & Deane JJ said equity could not “simply” impose a traditional resulting trust — an adjustment based on conscience was necessary.
How do you prove intention in a common intention constructive trust?
- 3.1.2. Evidence of Intention
  - Direct: promises, agreements
  - Inferred: financial or substantial contributions to acquisition or mortgage (Green v Green (1989) 17 NSWLR 343)
  - Mere domestic contributions insufficient (Pettitt v Pettitt [1970] AC 777)
- 3.1.3. Quantum of Interest
  - Based on intention or inference
  - If unclear: presumption of equality, subject to disproportionality or contributions (Shepherd v Doolan)
    Problem Questions for discussion:

Three years ago Sylvia bought a block of land in Haberfield with a view to starting an outdoor pizzeria with her then boyfriend Enzo. They bought the block as tenants in common. In fact Sylvia used her own money to purchase the block and Enzo who was a chef and handyman was going to build the pizza oven and renovate the block to create an eating area. However, Enzo was lazy and forever procrastinating about the plans. He did a little bit of work but kept saying he needed to work on the “vision” of the place before he could build anything. Sylvia has broken up with Enzo and wants his name off the title to the land. However he says that he is legally entitled to half the property.
Assume you are appearing in the Equity Division of the Supreme Court briefed to appear on behalf of Sylvia. Outline the nature of any claim you would make on her behalf and why the court should grant relief, if any.

Step 1: Standing and jurisdiction? → Yes (Sylvia has a proprietary interest; NSWSC has jurisdiction).
Step 2: What type of constructive trust?
- Not institutional (no misappropriation).
- Likely a remedial constructive trust for failure of joint endeavour (Muschinski v Dodds principle).
Step 3: Identify the Grounds
- Remedial constructive trust due to breakdown of joint venture (Muschinski v Dodds; Baumgartner v Baumgartner).
- Key facts: joint venture intended, contributions unequal, venture failed.
Step 4: Timing: Arises at date of judgment (because it’s remedial).
Step 5: Is a proprietary remedy appropriate? Likely yes — Enzo’s share adjusted to reflect his minimal contributions (maybe nothing).
Step 6: Relief and orders: Declaration of trust adjusting interests; possible order to remove Enzo’s name or for sale and division.

In 2020, Maria decided to purchase a studio apartment ‘off the plan’ for 250,000. Tina said: ‘I am saving for an apartment myself, so I can’t afford to lend you the money.’ Their mother, Anna, intervened and suggested that Tina should provide the 250,000 to Maria, and Maria used this as part of the settlement funds for the apartment. As Maria’s was the only name on the sale contract, the apartment was registered in Maria’s name only. At the beginning of 2024, Tina told Maria that it was time for Maria to buy out Tina’s share of the apartment, so that Tina could buy her own apartment. The studio apartment has now been valued at 390,000. Maria believes she should only have to pay Tina $250,000. What should Maria now pay Tina (and why)?

Step 1: Standing and jurisdiction? → Tina has equitable interest claim; NSWSC appropriate.
Step 2: What type of constructive trust?
- Institutional constructive trust likely (common intention constructive trust).
Step 3: Identify the Grounds
- Common intention trust: clear agreement at time of contribution (Allen v Snyder).
- Detrimental reliance: Tina provided funds based on this shared purpose.
- Unconscionable denial: Maria cannot deny Tina’s equitable interest.
Step 4: Timing: Trust arose when Maria accepted the funds and settled the property.
Step 5: Is a proprietary remedy appropriate? Yes — Tina should get an equitable share.
Step 6: Relief and orders:
- Tina’s share = proportion of total value.
- 500k = 50% share → 50% of 390k.
- Tina is entitled to 250,000.

Franco is the trustee of the Pirelli Family Trust. Giuseppe is a beneficiary of this trust. Franco found himself in need of money so he transferred 50,000 from this account to pay Franco’s own credit card bill with Amex. Giuseppe discovered the unauthorised 50,000 remaining in her Commonwealth Bank Account, and whether she has any liability for the $50,000 used to pay Franco’s Amex account.

Step 1: Standing and jurisdiction? → Giuseppe, a beneficiary, has standing.
Step 2: What type of constructive trust?
- Institutional constructive trust for misappropriated trust funds.
Step 3: Identify the Grounds
- Misappropriation Constructive Trust: Black v Freedman principle — stolen/misapplied trust funds are impressed with a trust in equity.
- Innocent volunteer liability: Heperu v Belle — once Isabella is aware of the misappropriation, she must account for remaining funds.
Step 4: Timing: Institutional — trust over the $100k arose immediately when misapplied.
Step 5: Remedy?
- Isabella must return the $50k remaining in her bank account.
- Liability for the $50k spent? No, unless she knew before it was spent (Heperu v Belle).
Step 6: Final orders: Repayment of $50k remaining; no liability for spent amount if innocent at the time.

Week 11: Money Remedies - Account of Profits and Equitable Compensation

Discussion questions:

What is the custodial trustee’s duty to account?
- (1) When a custodial trustee is liable to give an account, and the account shows a deficit, the trustee is liable to restore the fund. breach of trust: Re Dawson [1966] 2 NSWLR 211; Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484; 196 ALR 482. Strictly speaking this is not ‘equitable compensation’ but the duty to account.
Will a defendant always have to pay over the whole of any profit made? What is an example of a case in which less than the whole profit was paid, and why?
- Warman v Dwyer (1995) 182 CLR 544
- Where a business opportunity is exploited, it may be inappropriate to require the fiduciary to account for the whole of the profits, indefinitely;
Can a plaintiff have both an account of profits and equitable compensation? Explain what factors are important in any decision as to the remedy to pursue.
- Plaintiff must elect between account of profits and equitable compensation (mutually exclusive: gain vs loss)
- Election must be made before judgment, not necessarily at pleading
What happened in Ancient Order of Foresters v Lifeplan Australia (2018) 265 CLR 1? What remedy was awarded? Why was a remedy available against
- Alleged breach of fiduciary duty and knowing assistance by Foresters following the defection of Lifeplan’s senior employees, Woff and Corby, who established a competing business with Foresters using confidential information and business connections from Lifeplan.
- Reason for Trial:
  - To determine whether Foresters, as a knowing assistant in a dishonest and fraudulent breach of fiduciary duty by Woff and Corby, was liable to account for profits, and if so, to what extent.
- Material Facts
  - Woff and Corby were senior employees at Lifeplan and had access to confidential financial and business information.
  - In mid-2010, while still employed, they prepared a Business Concept Plan (BCP) and approached Foresters with it.
  - The BCP was based on confidential Lifeplan data and proposed a strategy to replicate Lifeplan’s success by targeting its clients.
  - Foresters knowingly received and used this information, employed Woff and Corby, and implemented the plan, growing its business dramatically.
  - Lifeplan’s business declined concurrently.
- Legal Reasoning
  - A person who knowingly assists in a fiduciary breach must account for any benefit received “as a result” of the participation (Consul, at 397).
  - Equity does not confine remedy to actual profit; anticipated profits may be recoverable where they arise from enforceable contracts or acquired business advantage (Potton Ltd v Yorkclose Ltd [1990] FSR 11).
  - The causation standard in equity differs from tort law; it is enough that the breach made a material contribution to the benefit (Warman, at 558).
  - The deterrent purpose of equitable relief requires full disgorgement unless the wrongdoer proves that profit is beyond the scope of liability (Birtchnell v Equity Trustees (1929) 42 CLR 384 at 398).
  - Foresters failed to discharge the onus of proving that any portion of profits were due to factors unrelated to the wrongdoing.
- Ratio Decidendi
  - Where a party knowingly assists in dishonest and fraudulent breaches of fiduciary duty that materially contribute to the acquisition of a valuable business opportunity or ongoing profits, equity requires the party to account for the entire value of the benefit, including the anticipated profits, unless they can prove that some portion of the benefit is unrelated to the breach.
- Result
  - High Court dismissed Foresters’ appeal
  - Allowed Lifeplan and FPM’s cross-appeal
What is the goal of equitable compensation? What is the difference between ‘substitutive’ and ‘reparative’ compensation?
- Equitable compensation purpose: Restore plaintiff to position absent breach (Nocton v Lord Ashburton [1914] AC 932)
- Types:
  - Substitutive: breach of custodial duty (e.g., unauthorised disposal of trust assets)
  - Reparative: breach causes independent loss (e.g., bad advice, misuse of power)
- Causation:
  - Flexible; “but for” test applied contextually
  - No foreseeability/remoteness tests as in common law (Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484)
- Calculation:
  - Measured at date of judgment (Youyang, at [32])
- Strict liability for trust breaches (Re Dawson [1966] 2 NSWR 211)
- Key Cases:
  - Youyang: breach of trust terms — full compensation of $500K
  - Re Dawson: full restoration required for misapplied funds
  - O’Halloran v RT Thomas (1998) 45 NSWLR 262: fiduciary caused loss by unauthorised share transfer
  - Nocton v Ashburton: fiduciary advice breached loyalty despite no fraud
  - Giller v Procopets (2008) 24 VR 1: emotional distress damages awarded as equitable compensation for breach of confidence
What are some of the similarities and differences between equitable compensation and common law damages?
- equitable compensation is assessed at the time of judgment and does not apply common law concepts of remoteness or foreseeability,
- while common law damages are typically assessed at the time of breach and require proof of foreseeability and direct causation.
- Common law
  - Any breach of a legal norm where money sum is payable
- Equity differences
  - Unclean hands
  - Laches - prejudiced delay
  - Can’t get exemplary damages
What factors are relevant in deciding whether to seek personal monetary remedies or a proprietary remedy?
- 2.1. Personal remedies:
  - Account of Profits – gain-based
  - Equitable Compensation – loss-based
- 2.2. Proprietary remedies? (Constructive Trust, Equitable Lien, Tracing)
  - Note if proprietary relief is claimed and whether it attaches to specific property (Youyang)
- Choice factors: insolvent/money
When will a court of equity award damages under the Lord Cairns Act provisions (in Supreme Court Act 1970 (NSW) s 68)?
- Equitable Damages (Lord Cairns Act):
  - Monetary substitute for injunction or SP
  - 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.
  - Sandpiper Kooragang Pty Ltd v Fortis Products Pty Ltd [2020] NSWSC 1256

Problem Questions:
Question 1
Bruno and Franco have been appointed trustees of the Pirelli Family Trust. The trust instrument required them to use some of the funds settled on trust to purchase securities and then to pay the balance to an investment company which promised to make a significant return on speculative investments. The securities would allow the Trust to recover the initial capital sum in five years’ time. Bruno was very busy at the time and forgot to obtain the securities. Instead, he paid the whole amount to the investment company for speculative investments. The investment company has just announced that a liquidator has been appointed. All the money is lost.
The trust property also included a significant collection of paintings. Bruno knew that Giuseppe had no taste for art – he had inherited most of the paintings from his father Giovanni. Bruno took one small painting from the collection and gave it to his wife Lidia for her birthday. Lidia did not like the painting and sold it and put the money in their joint bank account.
Advise Bruno as to his potential liability for his actions as trustee of the Pirelli Family Trust.

IDENTIFY THE EQUITABLE CAUSE OF ACTION
1.1 Primary Equitable Breach:

Breach of trust: Bruno misapplied trust funds by failing to acquire securities and instead disbursed the entire trust capital to a speculative investment contrary to the trust instrument (cf Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484).
Breach of fiduciary duty: He exercised powers without due care and in conflict with the settlor’s intention, and used trust property (the painting) for personal purposes.
Misappropriation of trust property: Taking a painting from the trust corpus and transferring its value for personal use.
1.2 Equitable Relationships:
Bruno and Franco are trustees, owing fiduciary and custodial duties to the beneficiaries of the Pirelli Family Trust.

IDENTIFY THE REMEDY SOUGHT – PERSONAL OR PROPRIETARY?
2.1 Personal Remedies:

Equitable compensation for misapplication of funds (loss-based)
Alternatively, account of profits if gain-based relief is relevant (e.g., for painting)
2.2 Proprietary Remedies:
Constructive trust or equitable lien over proceeds of the painting (sold and proceeds deposited into joint bank account).
Tracing into identifiable bank account assets: Foskett v McKeown [2001] 1 AC 102.
2.3
Knowing receipt
Baden scale

APPLY RULES FOR ACCOUNT OF PROFITS (IF CLAIMED)
3.1 Gain-based Relief:

Account of profits may arise from Bruno’s unauthorised use of trust property (painting).
No dishonesty is required (Warman v Dwyer (1995) 182 CLR 544 at 557); mere fiduciary breach suffices.
However, any profits from sale of the painting must be disgorged: see Lifeplan v Foresters [2018] HCA 43, where the defendant was required to account for profits made “as a result of” knowing assistance.
3.2 Deductions/Allowances:
No clear evidence that Bruno contributed effort or capital to increase value of painting → unlikely to justify a deduction (cf Warman at 561).

APPLY RULES FOR EQUITABLE COMPENSATION (IF CLAIMED)
4.1 Substitutive Compensation:

This is a custodial breach. Bruno’s failure to obtain securities and disbursal of entire trust capital is a strict breach of express trust: Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 at 500; Re Dawson [1966] 2 NSWR 211.
The loss is total. Bruno must restore the $[X] amount (exact amount of loss), assessed at the date of judgment, not breach.
4.2 Reparative Compensation:
For breach of fiduciary duty (e.g. use of painting), equitable compensation could be sought for diminution in trust assets or loss of opportunity: Nocton v Lord Ashburton [1914] AC 932.
4.3 Causation:
Equitable causation is established if the loss would not have occurred but for the breach (Youyang at [32]; Re Dawson).
Foreseeability and remoteness are irrelevant in equity: Canson Enterprises v Boughton (1991) 85 DLR (4th) 129.
4.4 Limitations:
Contributory negligence is not a defence (see Harris v Digital Pulse (2003) 56 NSWLR 298).
Exemplary damages not available.

ELECTION BETWEEN REMEDIES
5.1 Mutual Exclusivity:

Plaintiff must elect between equitable compensation (loss-based) and account of profits (gain-based): Youyang; Lifeplan v Foresters.
5.2 Application:
For the $ investment, equitable compensation is the appropriate remedy.
For the painting, plaintiff may elect between:
- an account of profits (if Lidia sold it for a profit),
- or proprietary remedy (constructive trust over proceeds).

DISCRETIONARY CONSIDERATIONS
6.1 Equitable Relief is Discretionary:

The court may tailor relief to do practical justice.
6.2 Bars to Relief:
No facts suggest laches, acquiescence, or unclean hands by the plaintiff (but could be raised hypothetically).
6.3 Terms of Relief:
Court may grant equitable lien over joint bank account (cf Warman), to secure return of value from painting sale.

FINAL CONCLUSION
7.1 Remedy Likely to be Granted:

Equitable compensation for breach of trust in failing to obtain securities — Bruno liable to restore full value lost.
Proprietary relief or account of profits for misappropriation of painting — either constructive trust over proceeds or disgorgement of sale value.
Equitable lien may secure any amount recovered from sale proceeds.
7.2 Summary of Liability:
Bruno is strictly liable as a trustee for unauthorised disbursement of trust capital;
He is also liable for unauthorised removal and sale of trust property, triggering both personal and proprietary remedies;
Plaintiff will be required to elect between remedies for each breach before judgment is entered.

Question 2
Pirelli Sydney Tyre Sales Pty Ltd employed Enzo as the manager of their workshops across Sydney where new and retread tyres were fitted. There are 4 workshops in different locations. The workshops make a modest turnover of around 300K for the business of all four workshops. Enzo thinks selling the business is a bad idea – he thinks it could grow and be even more profitable.
On 1 January 2022 Enzo approaches Budget Tyres Pty Ltd with an idea to form a new company Wheel Deals Pty Ltd for the purpose of renovating some old factory units and starting a tyre fitting business using the customer list from Pirelli Tyres. Enzo immediately resigns from Pirelli Tyres Pty Ltd. Budget Tyres Pty Ltd drops out of the negotiations to purchase the business and takes Enzo on as a director and manager. They form the company Wheelie Deals Pty Ltd and in April 2022 purchase and fit out two factory units spending 100K in the second half of 2022, and $500K in 2023.
The directors of Pirelli Tyres come to you for advice in October 2024.

IDENTIFY THE EQUITABLE CAUSE OF ACTION
1.1 Primary Equitable Breach:

Breach of fiduciary duty by Enzo: Enzo, as a managerial employee (senior role), owed fiduciary duties to Pirelli Tyres (cf Hospital Products Ltd v US Surgical Corp (1984) 156 CLR 41; (Anderson v Canaccord Genuity Financial Ltd)).
- Misused confidential information (client list)
- Diverted corporate opportunity (Budget Tyres acquisition)
- Acted in conflict by secretly forming a rival company
Knowing assistance by Budget Tyres/Wheelie Deals: They knowingly assisted in Enzo’s breach by taking over the client base and replicating the business (Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89).
1.2 Fiduciary Relationship:
Enzo’s position as workshop manager likely carried fiduciary responsibilities due to access to strategic and confidential business info and autonomy over business operations (Anderson v Canaccord Genuity Financial Ltd0

IDENTIFY THE REMEDY SOUGHT – PERSONAL OR PROPRIETARY?
2.1 Personal Remedies:

Account of profits: Against Enzo and Wheelie Deals – profits gained from misuse of client base and business opportunity. Larger number
2.2 Proprietary Remedies:
Possibly constructive trust over identifiable profits (e.g. retained earnings) if traceable to breach, though more difficult here due to passage of time and commingling.

APPLY RULES FOR ACCOUNT OF PROFITS
3.1 Breach and Profit:

Enzo gained a business opportunity which arose directly from his employment and fiduciary position (cf Chan v Zacharia (1984) 154 CLR 178 at 198).
The benefit was gained “as a result of” fiduciary breach and must be disgorged (Lifeplan v Ancient Order of Foresters [2018] HCA 43 at [9], [115]).
Use of confidential information (client list) further supports the link between breach and benefit.
3.2 No Dishonesty Required:
Profit need only result from breach; loss to Pirelli is irrelevant (Warman v Dwyer (1995) 182 CLR 544 at 557).
3.3 Quantum of Account:
$600K total profit made by Wheelie Deals (2022–2023). Disgorgement is not limited to actual profits; may include anticipated profits if linked to secured contracts or foreseeable income (Lifeplan at [115]).
Enzo and/or Wheelie Deals may argue for deduction for capital, skill, or resources (e.g. $200K fit-out). Burden lies on them to prove this (Warman at 561).
Reasonable approximations are sufficient if full accounting is difficult (Warman at 558).

APPLY RULES FOR EQUITABLE COMPENSATION (Alternative Remedy)
4.1 Reparative Claim:

Loss of $300K potential sale to Budget Tyres may form basis for reparative equitable compensation – breach caused the collapse of the sale.
Apply Nocton v Lord Ashburton [1914] AC 932; Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129.
4.2 Causation:
Enzo’s breach led directly to:
- Budget Tyres withdrawing from the sale, and
- Diversion of customers to Wheelie Deals.
Apply equity’s “but for” test (Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484), considering common-sense connection.
4.3 Time of Assessment:
Damages assessed at time of trial or judgment, not date of breach (Youyang at 500).

ELECTION BETWEEN REMEDIES
5.1 Plaintiff Must Elect:

Pirelli Tyres must elect between account of profits and equitable compensation prior to judgment – cannot receive both for same breach.
5.2 Strategic Choice:
Likely to elect:
- Account of profits: Given that profits are large and ongoing.
- Equitable compensation: If sale opportunity is more valuable and easier to quantify.

APPLY DISCRETIONARY CONSIDERATIONS
6.1 Conduct of Plaintiff:

No evidence of delay, acquiescence, or unclean hands. Action brought in 2024, after discovery of 2022–23 conduct – likely reasonable timing.
6.2 Allowances and Adjustments:
Enzo/Budget Tyres may argue for deductions for effort and investment.
Court may grant partial allowance (cf Warman), but onus is on wrongdoer to prove.

FINAL CONCLUSION
7.1 Likely Outcome:

Account of profits will be the preferred remedy, requiring Enzo and Wheelie Deals to disgorge up to $600K, subject to deductions.
Alternatively, equitable compensation of $300K (lost sale) could be sought, but recovery may be lower than profits earned.
7.2 Final Advice:
Enzo is liable as a fiduciary for diverting a corporate opportunity and misusing confidential information.
Wheelie Deals and Budget Tyres may be liable as knowing assistants under Barnes v Addy (1874) LR 9 Ch App 244.
Court will likely grant account of profits, and will impose personal liability on Enzo and possibly proprietary remedies depending on the facts about asset tracing.

Week 12: Tracing

Discussion questions

What is the difference between tracing, following and claiming?
- Processes:
  - Following: Track same property, same form.
  - Tracing: Track proceeds of property into another form.
  - Claiming: Assert a right over original/substituted property.
Explain the distinctions between the rules in Re Hallett’s Estate, and Re Oatway.
- Rule 1: Presume wrongdoer spent own money first (Re Hallett’s Estate (1880) 13 Ch D 696).
- Rule 2: Asset purchased presumed to preserve trust funds (Re Oatway [1903] 2 Ch 356).
What happens when there have been multiple beneficiaries whose moneys have been mixed and then a withdrawal made? What principle is applied to determine their shares?
- 6.1 General Approaches
  - 1. Clayton’s Case (First-in, First-out) – rare (Keefe v Law Society of NSW (1998) 44 NSWLR 451).
  - 1. Simple Pari Passu – equal pro rata sharing.
  - 1. Lowest Intermediate Balance Rule – preferable where tracing possible (Caron v Jahani [2020] NSWCA 117).
When can a beneficiary trace their interest in trust property against a third party who has acquired that property, or the proceeds of that property?
- The original trust property, or its direct substitute, can still be identified
- Following the same asset (e.g., car, painting)
- Tracing into proceeds (e.g., sale money used to buy shares)
- → Foskett v McKeown [2001] 1 AC 102.
- The third party is not a bona fide purchaser for value without notice
- Equity’s Darling defence applies if third party acquired property innocently.
- → Akers v Samba Financial Group [2017] UKSC 6; Grimaldi v Chameleon Mining (No 2) (2012) 200 FCR 296.
- The property has not been dissipated beyond identification
- Cannot trace into spent money (e.g., rent, food).
- → Re Diplock [1948] Ch 456.
- If property is mixed with wrongdoer’s personal funds, tracing applies:
- Presume wrongdoer spent own money first → Re Hallett’s Estate (1880) 13 Ch D 696.
- Presume trust money funded surviving asset → Re Oatway [1903] 2 Ch 356.
- Apply lowest intermediate balance rule → Lofts v MacDonald (1974) 3 ALR 404.
- If property is mixed with multiple beneficiaries’ funds, special rules apply:
- Preferable method: Lowest intermediate balance rule (modern view).
- → Caron v Jahani [2020] NSWCA 117.
- Remedies available after tracing:
- Proprietary (e.g., constructive trust, equitable lien).
- Personal (e.g., equitable compensation, account of profits).
What principle do we draw from the case of Lofts v MacDonald?
- Plaintiff can only claim up to the lowest balance after trust money deposited (Lofts v MacDonald (1974) 3 ALR 404).
What happened in Foskett v McKeown and Others [2000] 5 LRC 664
- Procedural History:
  - Appeal from the Court of Appeal (Sir Richard Scott V-C, Hobhouse LJ (majority), Morritt LJ (dissenting)) to the House of Lords. The Court of Appeal held that the claimants were only entitled to a lien for the stolen amounts. The House of Lords (by majority) reversed this, allowing the purchasers a pro rata proprietary share in the insurance proceeds.
- Original Dispute:
  - Whether beneficiaries of misappropriated trust funds could claim a proportionate proprietary share in life insurance proceeds after their money was used to pay two premiums on the policy — even though the policy payout would have occurred without those two payments.
- Reason for Trial:
  - To determine the appropriate remedy for trust beneficiaries whose funds had been used in breach of trust to pay life insurance premiums — lien vs proportionate ownership.
- Material Facts:
  - Mr Murphy took out a life insurance policy (£1m) for his children and others.
  - Paid first two premiums from his own funds.
  - Paid fourth and fifth premiums using trust funds held for land purchasers (the plaintiffs), in breach of trust.
  - The policy would have paid out the same death benefit even without the fourth and fifth premiums.
  - Purchasers sought a proprietary share in the £1m death benefit payout after Mr Murphy’s suicide.
- Issue Raised:
  - 1. Can trust beneficiaries trace into the insurance proceeds and claim a proportionate proprietary share?
  - 1. Does it matter that the misappropriated funds did not causally increase the death benefit?
- Foskett v McKeown and Others [2000] 5 LRC 664
  - Procedural History:
    - Appeal from the Court of Appeal (Sir Richard Scott V-C, Hobhouse LJ (majority), Morritt LJ (dissenting)) to the House of Lords. The Court of Appeal held that the claimants were only entitled to a lien for the stolen amounts. The House of Lords (by majority) reversed this, allowing the purchasers a pro rata proprietary share in the insurance proceeds.
  - Original Dispute:
    - Whether beneficiaries of misappropriated trust funds could claim a proportionate proprietary share in life insurance proceeds after their money was used to pay two premiums on the policy — even though the policy payout would have occurred without those two payments.
  - Reason for Trial:
    - To determine the appropriate remedy for trust beneficiaries whose funds had been used in breach of trust to pay life insurance premiums — lien vs proportionate ownership.
  - Material Facts:
    - Mr Murphy took out a life insurance policy (£1m) for his children and others.
    - Paid first two premiums from his own funds.
    - Paid fourth and fifth premiums using trust funds held for land purchasers (the plaintiffs), in breach of trust.
    - The policy would have paid out the same death benefit even without the fourth and fifth premiums.
    - Purchasers sought a proprietary share in the £1m death benefit payout after Mr Murphy’s suicide.
  - Issue Raised:
    - 1. Can trust beneficiaries trace into the insurance proceeds and claim a proportionate proprietary share?
    - 1. Does it matter that the misappropriated funds did not causally increase the death benefit?
What defences exist to tracing?
- 1. Property dissipated:
  - E.g., spent on non-traceable improvements (Re Diplock).
- 1. Bona fide purchaser for value without notice (Equity’s Darling):
  - Akers v Samba Financial Group [2017] UKSC 6
  - Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296:
    - Notice includes constructive notice.
    - No defence if constructive notice exists.
- 1. Change of position defence:
  - Gertsch v Atsas (1999) 10 BPR 18,431.
- 1. Torrens Title Indefeasibility (NSW only):
  - Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732.
Who is a bona fide purchaser for value without notice?
- 2. Bona fide purchaser for value without notice (Equity’s Darling):
  - Akers v Samba Financial Group [2017] UKSC 6
  - Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296:
    - Notice includes constructive notice.
    - No defence if constructive notice exists.
- Bona fide purchaser – Equity’s Darling
  - Consideration
    - Purchaser must give valuable consideration
    - Nominal consideration will not suffice, but to be ‘valuable’ the value does not have to equal the market value of the property or interest transferred.
    - Equity does not assist a ‘volunteer’.
  - Good faith
    - The purchase must be in good faith.
    - Bona fide
    - Not unconscientiously
  - Without notice
    - To take free, the purchaser of the legal interest must acquire their legal title without notice of the existence of the earlier equitable interest.
  - A bona fide purchaser of a legal estate for value without notice of any prior equitable interest takes the legal estate free from any such interest.
    Questions for discussion:
    Question 1:
    Marco has been working as a retail client manager in his uncle Tony’s company which imports and distributes Italian tyres from Pagani tyres. Marco decided that he wanted to make some money on the side, so he took 10,000 of his own money, and used the sum of 40,000, and returned the 30,000 into his own bank account. Tony has discovered what Marco has done. Advise Tony whether he can make any claim against Marco. Can Tony lay claim to any of the money in Marco’s bank account? If so, how much of this money belongs to Tony?

Question 1: Marco and Tony – Tracing Claim

Legal Nature of Claim

Tony is asserting a proprietary claim over the proceeds from misuse of trust property (Foskett v McKeown [2001] 1 AC 102).
Breach of fiduciary duty of senior employee (Hospital products?)
Theft of money resulting in constructive (Black v S Freedman, Quistclose trust)
Claim type: Constructive trust or equitable lien over Marco’s $30,000 bank deposit.

What Happened to the Property?

Marco took $10,000 from Tony (trust money).
Mixed it with $10,000 of his own.
Used $20,000 to buy tyres.
Sold tyres for $40,000.
Returned $10,000 to Tony.
Retained $30,000.

Apply Tracing Rules
(a) Mixed Funds – Wrongdoer + Beneficiary

Re Oatway Trust funds presumed to be used to buy identifiable assets.
Beneficiary entitled to asset via constructive trust or equitable lien.
But: Where trust and own money mixed, and proceeds identifiable, beneficiary may claim a proportionate share (Foskett v McKeown).
(b) Calculation
Trust money = $10,000.
Total investment = $20,000.
Proportion = 50%.
Proceeds = $40,000.
Tony’s share = 50% of 20,000.
(c) Repayment
Marco repaid $10,000 already.
Tony still entitled to 30,000 balance in Marco’s account.

Remedies

Constructive trust over $10,000 in Marco’s bank account (Foskett v McKeown).
Alternatively, equitable lien for $10,000.
Personal remedy: Equitable compensation if necessary (but proprietary remedy preferred).

Defences

No bona fide purchaser (Marco is wrongdoer).
No dissipation of identifiable funds.
No change of position defence.

Conclusion
✅ Tony can successfully follow and claim $10,000 from Marco’s bank account.

Question 2:
On 30 June 2021, Giuseppe transferred a sum of 300,000) 50,000) 50,000) 100,000 100,000

The credit card payment made from this account related to Franco’s personal credit card account with Amex. The parcel of Nu Co shares registered in Franco’s name has now been valued at 200,000 belonged to Franco and must be used to pay his creditors.
What claim, if any can Giuseppe make to these assets (the Megabank account balance, and the Nu Co shares)?
Step 0: Cause of Action

Giuseppe entrusted $300,000 to Franco to invest on trust for him (express trust created).
Franco breached fiduciary duty by misapplying the funds into his personal account (Foskett v McKeown [2001] 1 AC 102).
✅ Right to trace arises: breach of trust by fiduciary.

Step 1: Identify Legal Nature of Claim

Proprietary Claim: Giuseppe wants to assert rights over the proceeds of his trust property (money and Nu Co shares).
Personal Claim: Alternative equitable compensation (but Giuseppe will prefer proprietary claim to defeat general creditors).

Step 2: What Happened to the Property?

Substituted? ❌ (some spent)
Mixed with wrongdoer’s personal funds? ✅
Can the property still be identified? ✅
- Account balance ($100,000 cash)
- Parcel of Nu Co shares ($200,000)

Step 3: Apply Relevant Tracing Rules

A. First Principle: Mixed Fund (Wrongdoer + Plaintiff)

Re Hallett’s Estate (1880) 13 Ch D 696: Presume wrongdoer spent own money first.
Giuseppe’s trust money presumed still available unless dissipated.

B. Step-by-Step Application of Events:
Date
Event
Tracing Law
Effect on Giuseppe’s Rights
30/6/21
300k trust money deposited
1/7/21
$50k credit card payment (personal debt)

1/12/21
$50k renovations (personal improvement)
Scott v Scott, Boscawan v Bajwa

1/12/22
100k left in account
Lowest intermediate balance

C. Lowest Intermediate Balance Rule (Lofts v MacDonald (1974))

Account dropped to 100,000.
✅ Giuseppe can claim the $100,000 cash balance.

D. Nu Co Shares (Purchased Asset)

Re Oatway Rule: Trust funds presumed used to buy shares.
Value of Nu Co shares today = $200,000.
Worked Example:
Trust money used = $100,000 (no other money left)
Purchase price = $100,000
Current asset value = $200,000

✅ Giuseppe can claim the entire value of Nu Co shares ($200,000) under a constructive trust.

Step 4: Remedies

Proprietary remedy preferred:
- Constructive trust over the Nu Co shares ($200,000).
- Right to the $100,000 cash balance in the Megabank account.
  ✅ This excludes Franco’s creditors from these specific assets (trust property is immune from bankruptcy estate).

Step 5: Defences

No bona fide purchaser: Franco is the wrongdoer.
No change of position defence: Wrongdoer can’t raise it.
No Torrens issue (shares and cash, not land).

Step 6: Conclusion

✅ Giuseppe can trace and claim:

The $100,000 cash remaining in the Megabank account; and
The full value of the Nu Co shares ($200,000) under a constructive trust.
The Official Receiver cannot seize these assets for Franco’s general creditors.

🏁 Final Answer Summary:

Asset
Claim
Basis
Megabank Account (200,000)
Giuseppe entitled to whole value
Re Oatway

Alternative Transactions

G Deposit
- 300k
Credit card payment
- 100k
Deposit from Anna
- 200k
Purchase shares
- 100k
Final Balance
- 300k

Pay credit card. 300-100 = 200 + 200k from anna. Purchase shares for 100k (lowest intermediate balance is 200k) out of 400k. Investment input is 50% for each person, final balance is 300k. G gets back 200 as he gets half the balance (150k) + half the share value(50k) = 200.

Scenario:

Trustee money: $100k
Beneficairy money added: $100k (200k. 50% wrongfully taken funds)
Payment for yacht: $150k
Pay off credit card: $50k

Re hallaway for 50k from the trust money applied to the yacht (100k from the beneficiary’s money first). Credit card payment is dissipated. Trustee receives ⅓ of value of yacht sale (50k/150k), but because beneficiary dissipated the rest of the 50k from the trust, they are no longer honest (rebutting the hallaway presumption). Yacht proportions become 100k from trustee and beneficiary 50k. Thus new proportion becomes ⅔ of the yacht sale price for trustee.

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