Lecture #4 Notes: Incompletely
Constituted Trusts
Different modes of creating a trust:
- declaration – the owner of property declaring a trust over it
(declaration of trust); and
- transfer – transferring/assigning the property to another trustee
(trust by transfer).
It is a basic principle that a trust will not be valid unless title to the
property is vested in the trustee.
- The question of vesting is more relevant to trusts by transfer.
- Whether property has been vested in a trustee will depend on
the nature of the property.
Statutory restrictions may mean that property cannot be assigned.
General law restrictions may mean that property cannot be
assigned.
- Assignment of public pay: Arbuthnot v Norton (1846) 13 ER 474,
479.
- Bare rights to litigate: Glegg v Bromley [1912] 3 KB 474;
Trendtex Trading Corporation v Credit Suisse [1982] AC 679;
Brownton v Edward Moore Inbucon Ltd [1985] 3 All ER 499.
- Certain contractual rights, eg where there is a contractual
prohibition on assignment: Linden Gardens Trust Ltd v Lenesta
Sludge Disposal Ltd [1994] 1 AC 85.
- Contracts for personal services: Stevens v Benning (1855) 43 ER
1218.
Examples of legal requirements for assignment of property:
- Debts or other legal choses in action – in writing signed by the
transferor and notice to the debtor or other party of the transfer:
Property Law Act 1969 (WA) s 20.
- Shares in a company – signed share transfer, delivery of
certificates to the transferee and registration in books of
company of a transfer: Corporations Act 2001 (Cth) s 1071B.
- Torrens system land – registration of instrument of transfer,
signed by transferee and transferor: Transfer of Land Act 1893
(WA) s 58.
- Chattels capable of passing by delivery – delivery to the intended
transferee or execution and delivery of a deed of gift: Anning v
Anning (1907) 4 CLR 1049.
Commissioner of Taxation v Everett (1980) 143 CLR 440: ‘[T]hough
the interest of a partner is an equitable interest, it may be assigned
under s 12 of the Conveyancing Act 1919 (NSW), as amended… The
interest, being a chose in action, falls within the expression “debt or
other legal thing in action” because the section, in providing that
notice shall be given to a trustee “as a person liable in respect of
such debt or other legal chose in action”, appears to contemplate
the assignment by a beneficiary of an equitable chose in action
against a trustee. There would be no point in referring to a trustee if
the section made provision only for the assignment by strangers to
the trust of debts owing by, and choses against, persons who
happen to be trustees. The expression “legal chose in action” may
be read as “lawfully assignable chose in action”.
- This case involved the assignment of part of a partnership.
- In obiter, at 447, it was said that if the assignment was absolute
then it could have been assigned.
To effect an equitable assignment, whether of legal or equitable
property, there must be a clearly manifested intention to assign (or
divest the assignor of property) and vest it in the assignee: see
Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385
(legal property); Norman v Federal Commissioner of Taxation (1963)
CLR 9 (equitable property); Comptroller of Stamps v Howard-Smith
(1936) 54 CLR 614.
Even if a purported legal assignment of legal property fails, it may
be that the assignment is effective in equity.
- Equity looks at intent rather than form – need to ask, has the
donor done all that they must do to make the assignment
effective?
- If the trust is not completely constituted, then it can take effect
only as an agreement to create a trust and it must be supported
by consideration to be enforceable in equity.
Milroy v Lord (1862) 45 ER 1185 (Turner LJ): ‘In order to render a
voluntary settlement valid or effectual, the settlor must have done
everything which... was necessary to be done in order to transfer
the property’.
-
- Does ‘necessary to be done’ mean steps which:
only the transferor can do; or
the transferor or a third party can do; or
only a third party can do?
The following cases consider this question.
- Per this case, if it is intended that a trust be created by one of the
specified modes (in this case, by transfer), then the Court will not
save the trust by construing it as if another mode was intended.
Anning v Anning considers when the equitable assignment of a legal
choses in action will be effective.
-
- Held: the deed fails as an assignment of everything (including
the bank deposits and book debts).
- The judges in this case each interpreted Truner LJ’s words in
Milroy v Lord differently:
Re Rose [1952] Ch 499 considers when equity will recognise and
enforce the transfer of shares if transfer of legal title has not
occurred.
-
- Held: the gift was complete in equity, because Rose had done all
in his power to transfer his interest in the shares.
Corin v Patton (1990) 169 CLR 540 consider when equity will
recognise and enforce the transfer of title if a transfer of legal title
has not occurred.
-
- Held (per Mason CJ, Deane and McHugh JJ): Mrs Patton has not
alienated any interest in the land as she had not done all that
was necessary to effect the transfer.
The relevant test is (at 582):
[W]hether the donor has done all that is necessary to place
the vesting of the legal title within the control of the donee
and beyond the recall or intervention of the donor. Once the
stage is reached and the gift is complete and effective in
equity, the equitable interest in the land vests in the donee
and, that being so, the donor is bound in conscience to hold
the property as trustee for the donee pending the vesting of
the legal title.
Marchesi v Apostolou [2007] FCA 986 also dealt with an equitable
assignment of Torrens land.
-
- Held, at [62] (Jessup J): Mr V did not do everything necessary to
vest title in the transferee and the gift failed.
The transfers were always in the custody of Mr V or his
agent – the solicitor took instructions from Mr V and
expected that he would pay the stamp duty.
The solicitor held the transfer as Mr V’s agent until he
received instructions to proceed with payment – when he
did not, he returned the documents to Mr V.
An assignment in equity can arise in the following situations:
a) Property is legal property and either:
i) the donor has done everything necessary to be done by the
donor in order to transfer the property and the property is
beyond the donor’s recall: Milroy v Lord;
ii) the beneficiary or the trustee on behalf of the beneficiary
has supplied valuable consideration to the settlor;
iii) the trust otherwise falls within the exceptions to the
principle that equity will not assist a volunteer (eg see the
rule in Strong v Bird (1874) LR 18 Eq 315); or
iv) the property is not capable of assignment at law but
capable of assignment in equity and there is a clear
intention to assign.
b) Property is future property (legal or equitable) – but only for
valuable consideration.
c) Property is equitable property – for consideration or if there is a
clear act of assignment and an intention to assign.
Future property is property that does not presently exist but may
exist at some time in the future.
Future property is only assignable in equity and only for valuable
consideration: Holroyd v Marshall (1862) 11 ER 999.
To determine whether the property that has been assigned is
present or future property, it is necessary to consider the nature of
the settlor’s rights: Commissioner of Taxation v Everett.
- And then construe the deed of assignment to determine whether
the property assigned is present or future property: Norman v
Federal Commissioner of Taxation; Shepherd v Federal
Commissioner of Taxation; Everett.
Halloran v Minister Administering National Parks & Wildlife Act 1974
(2006) 224 ALR 79, 96 (Gleeson CJ, Gummow, Kirby and Hayne JJ):
‘Where an interest to be transferred is… a creature of equity, equity
requires a clear expression of intention to make an immediate
disposition; that, in the absence of an applicable statutory
requirement suffices.’
If A promises B for consideration to transfer property to B, then B
can invoke equitable or common law relief.
If A promises B by deed to transfer property to B and B is a
volunteer (that is, they have provided no consideration), then B can
invoke equitable relief (eg compel specific performance or an
injunction) but can still bring an action at law for damages.
If A promises B to transfer property for no consideration and not by
deed, then B will have no rights as against A either at equity or
common law.
If, in the above three scenarios, A was promising to transfer the
property to B to hold on trust for C, then there will be no trust
between A and B but as between B and C there may be a
completely constituted trust of B’s rights in respect of A’s promise:
Fletcher v Fletcher (1844) 67 ER 564 but consider Re Pryce [1917] 1
Ch 234; Re Kay [1939] Ch 329; Perpetual Trustee Co (Ltd) v Willers
(1955) 72 WN (NSW) 244; Re Cook’s Settlement Trust [1965] Ch
902.
Other reasons why a trust may fail:
- illegality (eg a statute may prohibit the trust, make the trust
voidable or subject to certain conditions);
- trusts contrary to public policy;
- trusts contrary to the general law (eg creation of perpetual
trusts); and
- other statutory controls.