Equity and Trusts, Exercises of Remedies

Download Equity and Trusts and more Exercises Remedies in PDF only on Docsity! 1 LAWS2385 Equity and Trusts Table of Contents Intro ......................................................................................................................................................................... 5 Role of discretion ............................................................................................................................................ 5 Equitable remedies ............................................................................................................................................. 5 Equitable Proprietary interests ............................................................................................................................... 7 Equitable interests and equities .......................................................................................................................... 8 Fiduciary Relationships .......................................................................................................................................... 11 Recognised fiduciary relationships - status based ........................................................................................ 12 Scope of the fiduciary relationship ................................................................................................................ 16 Fiduciary Obligations ......................................................................................................................................... 17 Obligation not to obtain any unauthorised profit from the relationship ...................................................... 18 Obligation not to be in a position of conflict ..................................................................................................... 19 Two principles or one? .................................................................................................................................. 21 Remedies for breach of fiduciary obligation ................................................................................................. 22 Informed Consent ............................................................................................................................................. 22 Informed consent as a defence to an action for breach of fiduciary obligation ............................................ 23 Contracting out of fiduciary obligations ............................................................................................................ 23 Assignment ............................................................................................................................................................ 24 Property Terminology ................................................................................................................................... 25 Assignment of legal property ............................................................................................................................ 25 Statutory Assignment .................................................................................................................................... 25 Gifts ............................................................................................................................................................... 26 Equitable Assignment of legal property not assignable at law ......................................................................... 28 Assignment of equitable property .................................................................................................................... 31 Statutory formalities for the assignment of equitable property ................................................................... 32 Agreement to assign equitable interest ........................................................................................................ 34 FUN SUMMARY ................................................................................................................................................. 36 Express Trusts ........................................................................................................................................................ 38 Concept of the express trust ............................................................................................................................. 39 Towards a definition of the trust ................................................................................................................... 39 The existence of trust obligations ................................................................................................................. 39 Quarantining assets from creditors of the 'trustee' ...................................................................................... 39 Trusts in a statutory context ......................................................................................................................... 40 Distinguishing trusts from similar concepts .................................................................................................. 40 2 Certainty Requirements .................................................................................................................................... 43 Certainty of intention to create a trust ......................................................................................................... 44 Certainty of Subject Matter ........................................................................................................................... 46 Certainty of object ......................................................................................................................................... 47 Creating an Express Trust .................................................................................................................................. 47 Declaration of trust ....................................................................................................................................... 47 Creating a trust by transfer to the intended trustee ..................................................................................... 48 Trustee Duties ................................................................................................................................................... 49 Sources of the trustee’s duties and powers ................................................................................................... 50 Duties on assumption of trusteeship ............................................................................................................. 50 Ongoing management duties ....................................................................................................................... 50 Duties of performance .................................................................................................................................. 56 Trustee Powers .................................................................................................................................................. 60 Exercise of power and review in superannuation trusts ............................................................................... 63 Effect of improper exercise of discretion ....................................................................................................... 64 Trustee’s rights .................................................................................................................................................. 64 Trustee’s right of indemnity .......................................................................................................................... 65 Scope of the trustee's right of indemnification ............................................................................................. 66 Indemnification by the beneficiaries ............................................................................................................. 66 CASES ............................................................................................................................................................ 68 Breach of trust: Defences and Remedies .......................................................................................................... 69 Defences ........................................................................................................................................................ 69 Remedies ....................................................................................................................................................... 71 Tracing .................................................................................................................................................................... 72 Fiduciary requirement ................................................................................................................................... 74 Mixing money in a bank account: Competition between fiduciary and beneficiary ..................................... 74 Mixing money in a bank account: Competition between beneficiaries ......................................................... 76 Mixing by recipients of property from the fiduciary ...................................................................................... 76 Tracing into profits ........................................................................................................................................ 77 Priorities ................................................................................................................................................................. 79 Priority interests ................................................................................................................................................ 79 Doctrine of Notice ............................................................................................................................................. 81 Constructive notice ....................................................................................................................................... 81 Equities and equitable interests ........................................................................................................................ 82 Third party participation in a breach of fiduciary obligation ................................................................................ 83 Knowing Receipt ................................................................................................................................................ 84 Breach of fiduciary duty or Breach of Trust ................................................................................................... 84 Receipt of property by a third party .............................................................................................................. 84 Knowledge .................................................................................................................................................... 85 Remedy ......................................................................................................................................................... 86 Knowing Assistance ........................................................................................................................................... 86 A Dishonest and fraudulent breach of trust .................................................................................................. 86 5 Intro Role of discretion • Extent of equity o Has the plaintiff made out her cause of action and what is the extent of the equity? o Personal/proprietary interest/loss/gain? • Which remedy à DISCRETIONARY o What remedy is minimum to meet the equity raised? § Consider both parties § No plaintiff has an absolute right o Third parties/hardship etc. o McKensie v McDonald o Giumelli • Measure/extent o E.g. how much • Equity - sort of right à subject to discretion - not absolute Compensation for loss Gain Recovery of specific property Compulsion Other Equitable compensation/equitable damages Account of profits Constructive trust/resulting trust/lien/charge Injunctions/specific performance Equitable damages? - when specific performance is not possible Administrative remedies to assist performance - e.g. judicial advice/appointment or removal or trustees Equitable remedies • Consider the positions of both parties • At common law the plaintiff is limited to damages • Equity focusses on the remedy that restore the plaintiff's position Personal remedies: • Equitable compensation • Account of profits • Injunction 6 Proprietary remedies • Constructive trust o Order that the defendant hold the property on trust for the plaintiff o Plaintiff will be entitled to the property in equity or to a proportionate interest in that property o If the property increases in value the plaintiff will be entitled to value • But if it depreciates --> plaintiff will carry the loss • Equitable lien (charge) o Security interest over property - plaintiff does not obtain a share of the property • Instead the lien acts to secure a debt o If the defendant does not discharge the debt to the plaintiff, the property will be sold and the plaintiff paid out of the proceeds • Advantages of proprietary remedies o Make a claim to property - crucial if the defendant is bankrupt or insolvent o Enforceable against 3rd parties who have received the property from the defendant § No right to recover from 3rd parties when there is a bona fide purchaser for value without notice o Entitle the plaintiff to claim title of special property of special value for which money cannot provide compensation • i.e. property held on trust rather than monetary compensation • Disadvantages o Cannot be awarded if the defendant no longer has the property in dispute (assumes existence of property for entitlement) Objectives of equitable relief • Coercion - equitable remedies such as o Specific performance - Compels the defendant to perform obligations according to contractual duties o Injunction- compel the defendant to act or restrain from acting by the court • Compensation • Disgorgement o Where a defendant has profited from the breach of confidence or fiduciary obligation • Restitution o Misappropriated trust money Court order make restitution to the trust fund – RESTORATION (or property) • Nullification o Invalidate or make void a contract • Rectification has the effect of reforming a legal document so that it gives effect to the agreement of the parties • Partial rescission - also may reform the contract - to ensure that the contract conforms to the agreement of the parties • Declarations and injunctions may have the effect of validating the plaintiff's rights 7 o Declaration = court's statement of the respective rights of the parties Equitable Proprietary interests Personal vs proprietary rights • In personam - enforceable against persons • In rem - right enforceable against many people regarding a thing Debt • Example of personal obligations and rights • Obligation to repay - right to repayment (personal) • Lender/customer <--> borrower/bank o Lender - right to repayment o Borrower - must repay Proprietary rights to our personal rights Security interests • Unsecured interest - personal right • Lender's right to look to specific property for satisfaction of the borrower's obligation to repay - proprietary right • Security interest o A right to property that secures performance of an obligation, usually to pay money o Personal right to be repaid o Personal right to performance is secured against a specific thing • Mortgage = form of security interest Personal vs proprietary remedies • Personal remedy - court order directing the defendant to personally do something o i.e. to pay money to the plaintiff • Equitable proprietary remedy o Court order directing the defendant to do something in relation to property § i.e. order that defendant holds on constructive trust Insolvency/bankruptcy • Example of when the proprietary/personal distinction matters • Insolvent company, bankrupt person • Upon insolvency or bankruptcy, property owned by insolvent company/bankrupt person distributed to creditor Equitable ownership