Express Trusts PDF

E/T: Concept, Certainty and Creation Concept: an express trust is a form of wealth management. Parties to a Trust: Settlor (transfers property to trustee for beneficiary) → Trustee (has legal interest) → Beneficiaries (Has equitable interest) Types of Trust Fixed: the share of the trust...

E/T: Concept, Certainty and Creation Concept: an express trust is a form of wealth management. Parties to a Trust: Settlor (transfers property to trustee for beneficiary) → Trustee (has legal interest) → Beneficiaries (Has equitable interest) Types of Trust Fixed: the share of the trust property which each beneficiary is to receive is determined by the trust instrument. The trustee determines the existence and share of each beneficiary's interest under the trust. Discretionary: the share, if any, which each beneficiary is to receive is determined by the trustees and not by the trust instrument. Express: Private created for the benefit of individuals. Relevant Powers: (1) power of appointment = empowers trustees to appoint property among a class of potential beneficiaries; (2) administrative = conferred on trustees to facilitate the trust. Bare power of appointment = gives a discretion to appoint trust property among the specified class of beneficiaries but places no obligation on the trustee to exercise this discretion. Types of Powers of Appointment General: appoint property to anyone, including herself Special: appoint property among a class of objects selected by the settlor Hybrid: appoint to anyone except a specified class of persons Barclays Bank v Quistclose: The House of Lords held that the arrangement between Quistclose and RR created a trust in favour of Quistclose when it became impossible to pay the dividend, and that Barclays, having notice of the trust, could not apply the money to reduce RR’s indebtedness to the bank. Re Australian Elizabethan Theatre Trust: In order to qualify, a donation must be ‘unconditional’ and ‘unfettered’ ★ …it would be an error to treat references by Lord Wilberforce in Quistclose to ‘purpose’ as characterising an express trust which did not have to satisfy the requirements for any private (as distinct from public) trust. ‘The striking feature of the Quistclose litigation was that whilst previously it might have been thought that debt and trust were distinct and separate norms, it was thereafter clear that in a given case the transaction under analysis might bear a dual character.’ (Gummow J) ★ Gummow J held that the donations received by AETT were not held on trust for arts bodies. Although donors had expressed a preference for their donations to benefit specific art organisations, the preference did not amount to a declaration of trust Public Policy: Brooke Harrington identifies three strategic features of trusts which facilitate avoidance activities: secrecy, sparseness of regulation, particularly in comparison with the regulation of corporations, and flexibility of design. PPSA (s8) → All trusts, whether or not they also have to satisfy writing requirements, must be sufficiently certain in order to be enforceable. Created by: declaration, transfer of property on trust and direction of the beneficiary to the trustee. Certainty of Intention to Create A Trust  a. Intention may be discerned from language or conduct. b. No formal or technical words, such as ‘trust’ or ‘trustee’ are necessary (Paul v Constance → can be inferred from their actions) c. The creator of the trust need not be aware that the relationship he intends to create is, in law, a trust. Unilateral express trusts can be created in one of three ways: Trusts may be established by will (testamentary trusts) Created during the settlor's lifetime (inter vivos trusts) Alternatively, the settlor can create a trust by transferring property to another to act as trustee on behalf of beneficiaries Trust can also be created bilaterally, by agreement between two parties. In such cases, the mutual intention of the parties is critical (Quistclose trusts) Byrnes v Kendle: What is the meaning of what the parties have said? NOT What did the parties mean to say? (Gummow and Hayne JJ) ★ Established: The intention to create a trust is determined by reference to the settlor’s objective intention: would a reasonable person consider that in all the circumstances the settlor intended to create a trust? Re Williams (Precatory): ‘The testator has not used language sufficiently clear to impose upon his widow an obligation to leave either policy to his daughter…’ (Lindley J) Cobcroft v Bruce: Held to be a gift with equitable condition. Not a trust as the testator clearly intended the wife to have absolute discretion to use the shares during her lifetime + he did not give the nephews an interest in the shares himself. Rather he made it a condition for the wife to give them the shares either during her lifetime or upon her death. (Young AJ) Conditional: donee has a life estate with a general power of appointment Harpur v Levy: The use of the words ‘irrevocably declares’ does not manifest a clear intention to create an immediately operative trust. The presence of these words cannot overcome a clear indication that the trust is not intended to come into effect immediately, as was the case in this trust deed. A contract to create a trust in the future will, if valuable consideration has been provided, be enforceable. It will be specifically enforceable by the intended trustee unless a bar to specific performance, such as lack of clean hands or delay, applies. What Intention Has To Be Proved? An intention to create a trust is an intention to impose on a property owner, an obligation to apply the property for the benefit of identified beneficiaries or for recognised charitable purposes. Sham: Is there an intention to deceive creditors? → Midland Bank v Wyatt Quistclose Trust: If money is lent under a contract which establishes a Quistclose trust, the borrower does not become the beneficial owner of the money. Instead, he receives it as trustee to apply it solely for the purpose specified by the lender. From the lender’s perspective, the advantage of a Quistclose trust is that, in the event of the borrower’s bankruptcy, the borrower’s creditors will not be entitled to any part of the loan. (Made On Condition) Advantageous: because in the event of bankruptcy, the borrowers creditors are not entitled to it) Certainty of Subject Matter Which property is to be the subject matter of the trust? The property must be legally recognised i.e. personal tangible property or intangible, legal or equitable property  The settlor must also have present property rights i.e. cannot be future property ★ Expectancy (the expectation to recover assets under a will of someone who has not died) → does not constitute property and therefore cannot be held on trust (Re Rule’s Settlement) Other trusts fail because the property is too poorly described to be identifiable What is the quantum of the beneficiaries’ interests? ★ In Palmer v Simmonds, the testator left ‘the bulk of my estate’ to be held on trust. The trust failed because the word ‘bulk’ did not clearly indicate how much of the testator’s property was to be held on trust. Hunter v Moss: the English Court of Appeal held that a trust is sufficiently certain if the trust property consists of a percentage or fraction of fungible property. ★ Jagot J ‘In terms of principle, the weight of authority is that there can be a valid trust over a fungible pool of assets provided the assets and relevant proportions for the different beneficiaries are identified with sufficient certainty. The better view is that for the requirement of certainty to be satisfied the trust must be over all of the fungible assets in the pool, the beneficial co-ownership proportions reflecting the respective interests of the beneficiaries.’ White v Shortall: The Court held that a valid trust of the 220,000 share had been created for the plaintiff. ★ Campbell J: ‘In the present case, one can identify the property that is subject to the trust ( the entire shareholding), one can identify the trustee (the defendant), and one can identify the beneficiaries (the plaintiff as to 220,000 shares, the defendant as to the rest). That is all that is needed for a valid trust.’ Certainty of Object What is the level of certainty required? Fixed trust: The Court must be able to apply the ‘list certainty’ test i.e. to be able to draw up a complete list of beneficiaries at the time their interests come into effect. Discretion trust: It is only necessary that the court be able to determine whether anyone ‘is or is not’ a member of the class (criterion certainty test) In both cases the trustee’s obligations will be breached if the property is paid over to someone who is outside of the described class. For discretionary trusts, it also means that the class described cannot be so large that a court, if called upon, would not be able to carry out the appointment. Charitable trusts do not require identification of individual beneficiaries. Instead, they require that the proposed trust be for a valid charitable purpose or object. Re Gulbenkian’s Settlement Trusts: The House of Lords held that the special power was valid since, in spite of the poor drafting, it was possible for the trustees to say of any person under consideration that the person either did or did not come within the terms of the power. Explores the idea of semantic certainty which is required for validity; evidentiary certainty is not, and the court can give directions as to what evidence is required. Taken As Aus Authority: McPhail v Doulton: The House of Lords, Lords Hodson and Guest dissenting, held that the trust power would be valid if the objects satisfied the criterion certainty test.  Lord Willberforce: ‘The conclusion which I would reach, implicit in the previous discussion, is that the wide distinction between the validity test for powers and that for trust powers is unfortunate and wrong….and that the test for the validity of trust powers ought to be similar to that accepted by this house in Re Gulbenkian’s Settlements for powers, namely, that the trust is valid if it can be said with certainty that any given individual is or is not a member of the class’ ★ Despite the unusual NSW decision of West v Weston, it is generally accepted that list certainty is still required for valid fixed trusts Conceptual v Evidential Uncertainty: Lord Upjohn in Re Gulbenkian’s Settlement Trusts distinguished between conceptual and evidential uncertainty. He gave as an example of conceptual uncertainty a trust for ‘my old friends’. A power which is conceptually uncertain is invalid, since insufficient information has been given to allow the trustee or the court to exercise the power. Re Gulbenkian’s Settlement Trusts, such as ‘residence’, ‘employed’ and ‘care and control’ may have been evidently uncertain but they were held not to be conceptually uncertain. Evidential uncertainty will not cause a power to fail. In Re Tuck’s Settlement Trusts, a will which required the beneficiary to be of the Jewish faith and married to an ‘approved wife’, with any disputes being resolved by a chief rabbi, was upheld. However, a settlor or testator cannot oust the jurisdiction of the Court by giving the trustees or any other third party conclusive power to construe the terms of the trust. Status of the Criterion Certainty Test in Australia: Where, however, a trust power is created, the trustee having discretion to select among two groups of beneficiaries, and one group is uncertain, the whole trust fails. ★ Where the class of beneficiaries of a trust power consists of several subclasses all the subclasses must satisfy the criterion certainty test if the trust is to be valid (Tatham v Huxtable (1950) 81 CLR 639) Administrative Unworkability: Even if a trust power satisfies the criterion certainty test, it will be void if it is administratively unworkable. ★ The requirement of administrative unworkability was laid down by Lord Wilberforce in McPhail v Doulton: He identified cases where ‘the definition of beneficiaries is so hopelessly wide as not to form “anything like a class” so that the trust is administratively unworkable’, suggesting ‘all the residents of Greater London’ as an example. A bare power will not be void for administrative unworkability. This is because trustees of a bare power have a discretion to exercise the power but are not required to exercise it by making a distribution of trust money. Their duty is only to consider the exercise of their discretion. It is unclear whether Australian law applies an administrative workability test. It is suggested that administrative unworkability should be confined to invalidating attempts to create hybrid trusts, such as a trust to appoint to anyone except X. Executing a Trust: If A Trust Fails? In McPhail v Doulton, Lord Wilberforce rejected the principle of equal division of trust property in the event of default by the trustees. A settlor’s intention in creating a trust power is not to benefit the beneficiaries equally; the whole point of conferring a discretion on the trustees is to authorise unequal treatment of the beneficiaries, whether on the basis of need, qualifications, or some other criterion specified by the settlor. If the trustees fail to exercise their discretion a court may give effect to the settlor’s intentions in one of the following three ways: 1. by appointing new trustees; 2. by authorising a representative class of beneficiaries to prepare a scheme of distribution; or  3. if the settlor’s basis for distribution is clear, by distributing the trust property itself. The same orders can be made if trustees fail to consider the exercise of a power. But a court will not intervene if the trustees, having properly considered the exercise of their discretion, decide not to appoint trust property to an object of the power. In that eventuality, the party entitled in default of the exercise of discretion will be entitled to the property. E/T: Creating and Performing the Trust Methods of Creating a Trust: 1. Testamentary Trusts (unilateral): created by will, and only come into effect on the death of the testator. 2. Inter Vivos Trusts (unilateral): come into effect during the settlor’s life, created by a declaration of trust of the settlor’s own property, or by transfer of property to a trustee. 3. Agreement: trusts can also be created bilaterally, by agreement between two parties (Quistclose). Trust By Self-Declaration: A settlor can declare herself trustee of her own property (imposing trustee obligations on themselves) → settlor already holds title to the property, all that she has to do is to make a valid declaration of trust. In effect, a declaration of trust simply means that the trust satisfies the requirement of certainty of intention (see Byrnes v Kendle and Re Williams, as the authorities on certainty of intention are therefore also authorities on declaration of trust: Re Armstrong) → declaration can therefore be objectively construed from their word and acts. Richards v Delbridge → Equity will not perfect imperfect gifts by imposing trusts where there is no intention to create a trust ★ Jessel MR held that the words were also inappropriate for the declaration of trust: ‘[F]or a man to make himself a trustee there must be an expression of intention to become a trustee, whereas words of present gift shew an intention to give over property to another, and not retain it in the donor’s own hands for any purpose, fiduciary or otherwise’. Trust By Transfer: A settlor can create an express trust by transferring property to a trustee to hold on trust. Two requirements must be satisfied: 1. Declaration of trust - outline that the recipient was intended to take the property in the capacity of a trustee, not beneficially ★ T Choithram International SA v Pagarani → The words used by the settlor in transferring the property will be construed in the context of the transfer itself. 2. Valid transfer of the intended trust property to the intended trustee - it will be valid if it complies with the common law or statutory formalities required to transfer legal or statutory title. ★ A failure to comply with the requirements will usually result in failure to create the trust (Milroy v Lord) unless the principle articulated in Corin v Patton applies → equity will treat a transfer invalid at common law as valid in equity if the settlor has done everything necessary to complete or perfect the transfer of interest in the property Formalities: Land: s23C(1)(b) requires a declaration of trust over land to be manifested or proved by some writing → unenforceable if not. Personal property: declaration of trust over personalty need not be in writing although the transfer of this type of interest once it is already subsisting must be in writing – s23C(1)(c) Exception: (Last v Rosenfeld) → The defendants attempted to argue that their promise to re-transfer to the plaintiffs the interest they had previously held in the house was unenforceable for lack of writing as required by s23C. The Court held that the oral agreement between the parties was enforceable, applying the principle that equity will not allow a statute to be used as an instrument for fraud. ‘Cloak for fraud’ doctrine → oral trust over land will only be enforceable by an application of the doctrine if the plaintiff has relied to her detriment on the trust’s assumed enforceability. Testamentary Trusts: The testator must have legal capacity to make a will, must have an unimpaired intention to execute a will and must comply with the formalities for execution. In general terms, the formalities require: the will to be in writing; signature of the will by the testator or by some person in the testator’s presence and by the testator’s direction; location of the signature in a special position on the material bearing the writing; making of the signature in the presence of two or more witnesses; the presence of the witnesses together at the same time when the signature is made; and signature by the witnesses. Incompletely Constituted Trusts: 1. By Declaration: would-be settlor continues to hold property → If dead, property returns to her estate. 2. By Transfer: would-be trustee holds property on resulting trust for the settlor, and then re-transfers it back to the settlor. 3. Testamentary: property reverts back to the testator's estate, and disposed of according to his will, or on a partial intestacy. Non-Simultaneous Declaration and Vesting: The declaration of trust and vesting of property in the intended trustee will usually be simultaneous. If the settlor vests title to the property in the intended trustee before declaring the trust, a gift will have been made unless the circumstances surrounding the transfer attract the presumption of resulting trust. Conversely, if the settlor declares a trust of the property before vesting title to the property in the intended trustee, the later vesting of title will complete the previously incomplete trust (Re Bowden). Trusts and Policy: A properly constituted trust may fail because it offends against:(1) the public policy recognised by the general law; or (2) a statutory provision. The following are examples of public policy which has been held to invalidate a trust: a. Trusts prejudicial to the administration of justice: A trust to commit a legal wrong is void for illegality (Thrupp v Collett) b. Trusts prejudicial to the status of marriage: a trust created for the purpose of prejudicing marriage was void as being contrary to public policy (Lloyd v Lloyd) c. Restrictions on alienation: a conditional interest = void, a determinable interest = valid. d. A trust may also be expressly or impliedly prohibited by statute (Sykes v Stratton) Trusts and Bankruptcy: State and Commonwealth legislation provides that dispositions of property, including property transferred to trustees, made with intent to defraud the settlor’s creditors are voidable. s37A CA = voluntary alienation to defraud creditors voidable s121(1) of the Bankruptcy Act = a transfer of property by a person who later becomes a bankrupt is void against the trustee in the transferor’s bankruptcy if: would have become part of the transferor’s estate and its main purpose was to avoid creditors. Marcolongo v Chan: the HC held that s37A ‘should receive a liberal construction in effecting {the} purpose of suppressing fraud.’ Trusts and Discrimination: An express trust can define the class of beneficiaries in terms of gender, religion, sexual orientation or in some other way. ★ Hickin v Carroll (No 2): the Court upheld a testator's conditional gift requiring his Jehovah’s Witness children to attend his funeral and convert to Roman Catholicism, finding it did not breach public policy. Rule of Perpetuities: limit a settlor’s or testator’s power to regulate the disposition of property for a period of time that the law considers excessive. s16(2) Perpetuities Act 1984 (NSW) = provides that where, by a settlement, there is a disposition for a purpose, the perpetuity period applicable to the disposition shall be 80 years from the date when the settlement takes effect. s7 Perpetuities Act 1984 (NSW) requires property to vest within 80 years. Performance: Trustees Duties and Powers (Duty = Must, Power = Can) Sources: 1. Trust Deed = Most Important Source 2. Legislation (Trustee Act 1925 (NSW)) = Might be overridden by trust deed or it might override trust deed – read legislation carefully 3. Case Law 4. Fiduciary Obligations Duties on Assumption of Trusteeship 1. Duty to Adhere to the Terms of the Trust: Strictly adhere to the terms of the trust a. If unsure due to ambiguity of the terms approach the Court (s63 TA). b. The trustee can act contrary to the trust’s terms at the request of all sui juris beneficiaries c. In cases of failure to comply with the terms of the trust, the court has the power to excuse what would otherwise be a breach of trust. 2. Duty to Get in Trust Assets: ensure they have the legal title to that property (must seek to perfect the legal transfer) a. In control of title documents b. Enforce debts where appropriate (not absolute i.e. if acquiring it may cost more that the actual debt) Ongoing Management Duties 1. Investment of Trust Funds 2. Duty to Keep Assets Separate: ‘a hallmark duty of a trustee’ → If asset mixing does occur, the tracing rules are enlivened, but may not entitle B’s to full recovery (Re Lehman Brothers International) ★ Briggs J: ‘In an ideal world the flawless operation of the scheme created by the {regulatory} rules would ensure first, that the clients money could not be used by the firm for its own account and secondly, that upon the firms insolvency, the clients would receive back their money in full (subject only to the proper costs of its distribution), free from the claims of the firm's creditors under the statutory insolvency scheme.’ 3. Duty to Keep and Render Accounts: accounts with all relevant info on property and financial affairs; this is not all information about the trust a. Failure to keep accounts may also be a ground for removal of the trustee. b. One reason for denying beneficiaries access to trust documents is that disclosure might tend to reveal the trustee’s confidential decision-making processes. ★ Schmidt v Rosewood Trust Ltd, beneficiaries have a strong claim to see trust accounts so that they can assess the propriety of the trustee’s conduct. (Uncertain whether this applies in Aus) 4. Duty to Give Information to Beneficiaries: a. Information Concerning Entitlements: If it is a fixed trust i.e. beneficiary entitled to specific amount, they must be told they have rights under the trust If discretionary, it depends on size. Generally, people should  know so trustees can be monitored, but not if impractical or if not appropriate given kind of trust e.g. Segelov v Ernst Young Services. b. Other Information Concerning the Trust: Any right the beneficiaries have to inspect trust documents is not an unqualified right to see all documents, important info, yes but not including: correspondence between co-trustees, and between trustees and beneficiaries, and agendas and minutes of trustee meetings ★ Rouse v IOOF Australia Trustees Ltd, a beneficiary was involved in a legal dispute with trustees. The Court held that a trustee could, in limited circumstances, decline to give information to beneficiaries ‘where the trustee has reasonable grounds for considering that to do so will not be in the interests of the beneficiaries as a whole, and will be prejudicial to the ability of the trustee to discharge its obligations under the trust’. Duties of Performance 1. Duty of Care: Equity requires the trustee to carry out duties according to the standards of an ordinary prudent businessperson, regardless of the personal attributes of the trustee (Speight v Gaunt) a. If a trustee fails to exercise sufficient care, the beneficiary may still be able to complain of a breach of trust in spite of suffering no financial loss. b. Trustee negligence can be grounds for seeking the trustee’s removal and replacement, although this remedy is at the discretion of the court. 2. Duty to Act Impartially: between individual beneficiaries and classes of beneficiaries (Re Mulligan) a. The duty to act impartially further requires that the trustee fairly apportion capital and income coming into the trust, and any expenses and losses made by the trust, between capital and income beneficiaries. ○ s14B( c) Trustee Act 1925 (NSW) = requires trustees to act with the care, diligence, and skill of a prudent person when managing trust affairs 3. Duty to Act Personally: must act personally and cannot delegate their decision-making powers. If there are multiple trustees, they must act unanimously. These duties concern: non-delegation; not acting under dictation; not fettering discretion; acting unanimously; and appointing agents. a. Must not act under dictation, extends to beneficiaries, (subject to exception in deed) → Re Brockbank b. Must not fetter their discretion by binding themselves to make a decision at some time in the future or make it in a predetermined fashion (Re Vesty’s Settlement) c. Sky v Body: ‘they hold a single, joint, inseparable office’ (Street J) ○ Jointly and Severally Liable: will only be excused if permitted by the Court d. Appointment of agents: must be appropriate, suitably qualified to perform the task and must be properly supervised by trustee (Graham v Gibson) 4. Duty to Consider Exercise of Powers: The limit of the court’s power is to ensure that the power, if exercised, is exercised properly (Re Hay’s Settlement Trusts and Turner v Turner) Fiduciary Obligations 1. Duty to Act Gratuitously: no-profit rule (unless profit is authorised - Re Moore) 2. Self-Dealing Rule: cannot acquire trust assets even if at a fair price. The court’s permission is usually granted in cases where the sale will be of obvious benefit to the beneficiaries (Patros v Patros) 3. Fair Dealing Rule: beneficiary can sell their interest to trustee, but court will scrutinise. In particular, the onus is on the trustee to show that: a. he has not taken advantage of his position as trustee;  b. he has made full disclosure to the beneficiary; and c. the transaction is fair, honest and at arm’s length. Duties on the Winding Up Of A Trust: The trust property must vest in those who are entitled to it at the termination (or vesting) date. Once the outstanding claims are settled, distribution of the trust assets can take place. ★ If a potential beneficiary cannot be found, trustees can apply to the court for an order permitting them to distribute the trust fund as if the beneficiary were dead, but without prejudice to the beneficiary's rights should they return or be found to have acquired a vested interest in the trust (Re Evans) Trustees’ Powers: authority or discretion to deal with trust property consistently with terms of trust → can be dispositive = authorise the distribution of income or capital to the beneficiaries. ★ In Finch v Telstra Super Pty Ltd, the High Court held that a trustee’s decision on a Total and Permanent Invalidity (TPI) benefit was a trust duty, not a discretionary decision. The trustee was required to properly investigate the claim, and failure to do so was a breach of duty. Judicial review principles for discretionary decisions did not apply in this case. Exercise of Power and Review: Proper exercise involves exercise which is: in good faith; upon a real and genuine consideration of the discretion given; for the purpose for which the powers were given; and not for an ulterior purpose (Karger v Paul – court is concerned with whether the discretion exercised but is not concerned with how it was exercised). ★ McGarvie J said, ‘the Court examines whether the discretion was exercised but does not examine how it was exercised’. If the trustee’s discretion has been exercised ‘in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred’, courts will not examine or review the decision. These three ‘essential components’ indicate that the trustee has exercised the discretion. What is important here is the trustee’s motive. The trustee’s decision may have the outcome of indirectly benefiting those who are not beneficiaries. This is not objectionable. The trustee is not under an obligation to consider every possible matter so long as all necessary matters are considered (Esso Australia Ltd v Australian Petroleum) Effect of Improper Exercise of Discretion: There is no good reason for allowing a trustee’s decision to be set aside if it turns out to have tax disadvantages when a gift cannot be set aside for this reason. It is suggested that the grounds for reviewing a trustee’s exercise of discretion should be limited to those set out in Karger v Paul. E/T: Investment of Trust Funds; Variation and Termination of the Trust Sources of Trustees’ Investment Powers: Trustees’ investment powers derive from the trust instrument, statute or court order. The legislation now allows trustees to invest in any form of investment, unless prohibited by the terms of the trust instrument. Check the trust deed – this applies first and foremost and will override the legislative powers to the extent of inconsistency e.g. if it says, ‘blue chip shares only’, it does not matter that the Trustee Act says otherwise. Modern Portfolio Theory: theory encourages maximisation of returns through the minimisation of risk. Efficient Market Hypothesis: an efficient market is characterised by skilled buyers and sellers who have all publicly available information concerning an asset. Statutory Model: The provisions of the Act apply unless there is a contrary term in the trust instrument. Equitable rules and principles are preserved insofar as they are not inconsistent with the legislation. Four equitable duties are specifically included:  1. to exercise the powers of the trustee in the best interests of beneficiaries; 2. to invest in investments that are not speculative; 3. to act impartially towards beneficiaries; and 4. to take advice. Trustee’s Power of Investment: (s14 TA) Investing Prudently (s14A - Duties of Trustee in Respect of Power of Investment → Prof/Non-Prof Standard - Prudent Person Idea) The standard of prudence imposed on non-professional trustees appears lower than was the case at common law. Amateur trustees are no longer expected to behave as ‘business persons’ when investing. Professionals are, however, judged as professionals, which will be informed by industry standards. In HBL v Trust Co Ltd, the trustee’s failure to address one of the listed matters (diversification) was indicative of the trustee’s failure to achieve the relevant standard of prudence, given the size of the trust fund. Similarly, in Re CCR, lack of diversification and risks involved with the proposed investments were regarded as indicative of lack of prudence. Review of Investments: Regardless of whether the trustee is a professional or an amateur, the careful trustee is required to regularly review trust investments unless that duty is otherwise altered by the trust instrument. s14A(4) = A trustee must, at least once in each year, review the performance (individually and as a whole) of trust investments. ★ HBL v Trust Co Ltd: a single investment of nearly $4 million was held for a period of approximately 12 months at low interest. The trustee (a professional) gave evidence that investments were reviewed every six months unless circumstances changed dramatically. The Tribunal indicated that this review was insufficient, given the size of the investment and the poor return. In order to avoid liability for breach of trust, a prudent trustee should review existing trust investments each time an investment is made, rather than relying on the annual review. Applying Other Duties of Law and Equity to Investing: (s14B - outlines the equitable duties) Duty to Act in Best Interests of Beneficiaries: financial interest, unless modified by deed In Cowan v Scargill, the court held that trustees of a pension fund have a paramount duty to maximise financial benefits for beneficiaries, overriding personal or political considerations. ★ Megarry V-C ruled that the union-appointed trustees' objections to investing in competing industries, based on their alignment with the coal industry, were unreasonable → “Yet under a trust, if investments of this type would be more beneficial to the beneficiaries than other investments, the trustees must not refrain from making the investments by reason of the views that they hold…” It is possible for the trust instrument to allow investment in ‘ethical’ investments, even if that is to the financial detriment of the trust. This explains the numerous ‘ethical’ investment unit trusts being marketed in Australia. Further, beneficiaries are able to consent to a trustees’ investment policy, if they are all in agreement. Duty to Invest in Non-Speculative Investments (s14B(2)(b) = a duty to invest trust funds in investments that are not speculative or hazardous) Some investments are so hazardous they would not be allowed e.g. cryptocurrency, lottery tickets However, it can be argued that some degree of speculation could be allowed under the new statutory model  A portfolio that contains a range of both safe and risky investments might arguably be balanced and diversified. The portfolio when judged as a whole might then be prudent, according to modern portfolio theory, and on this basis some degree of speculation might be allowed. Arguably, on that basis, a trustee who properly follows modern portfolio theory is not speculating. Duty to Act Impartially Between Beneficiaries: This applies generally but has specific relevance to investment and duty to be impartial between classes of beneficiaries. Some investments might favour income beneficiaries and some favour capital beneficiaries. Re Mulligan (deceased): The New Zealand High Court held that the trustees had breached the duty to act impartially between different classes of beneficiaries when investing. They had completely failed to consider the capital beneficiaries at all. The problem of balancing capital and income has been the subject of a Law Commission Report in England. The Commission recommended that trustees of private trusts be permitted to invest on a ‘total return basis’, rather than have to apportion between capital and income beneficiaries. Duty to Take Advice: A trustee is under a duty to take advice if advice is necessary in the circumstances of the case. In Re CCR, a tribunal applying the investment provisions of the Queensland Trusts Act 1973 regarded the applicant as under a positive duty to take advice. The applicant had no relevant financial or investment expertise, and in the view of the Tribunal needed independent advice in order to act prudently. Matters to be Considered when Investing: (s14C - Circumstance to Consider) As indications are that courts will regard failure to consider the listed matters as evidence of imprudence, trustees are well advised to consider each matter on the list, if only for the purpose of avoiding liability for breach of trust. Exculpatory Provisions: (s90 - Court may take into account investment strategy in action for breach of trust) If the trustee considers all relevant matters specified in the legislation, formulates a sensible investment strategy and follows it, and has at least considered whether or not to obtain independent advice, it would be hard to show the trustee had acted imprudently. s90A - Power of Court to set off gains and losses arising from investment A loss made by a trustee while applying modern portfolio theory prudently would probably not be in breach of trust. Variation of Trust: If a trust instrument does not include a variation clause, or if the clause does not allow the variation of the terms of the trust that the trustees are seeking, an application must be made for judicial approval of the variation. A court of equity does not have an inherent jurisdiction to approve a variation of trusts. A trust can only be varied if all the beneficiaries are adults and agree to terminate the trust and reconstitute it on the terms of a varied trust. s81A = The court may, under s 81(1), ‘confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose’ of effecting, ‘in the management or administration of any property vested in trustees’, ‘any sale, lease, mortgage, surrender, release or disposition, or any purchase, investment, acquisition, expenditure or transaction’ that cannot be effected ‘by reason of the absence of any power for that purpose vested in the trustees by the instrument, if any, creating the trust, or by law’. (HAS TO BE A TRANSACTION) s81 could not authorise variation of trust to give trustee discretion to vary the trust; this was not a transaction: Re Dion's Investments  Extending the vesting date (date that someone finally gets all capital) to minimise capital gains tax was also not a transaction within s81: Cisera v Cisera Holdings s86A-s86C TA = Court order to approve arrangement to vary the trust and/or enlarge the powers of the trustees s86A was considered in Campbell v Campbell: the parties had agreed that it was in the best interests of the beneficiaries for the perpetuity date set in the trust deed to be brought forward from 24 November 2035. The Court considered several matters in making an order under s86A including that: 1. the parties would be able to move past the current 'costly and paralysing legal disputes'; and 2. the Court recognised that making the order under section 86A would be consistent with the objectives behind the creation of the discretionary trust. Termination of Trust: A well-drafted trust instrument will include a vesting date, within the perpetuity period, on which the trust will come to an end and trust property which has not previously been distributed will vest in specified beneficiaries. Saunders v Vautier → enables an adult beneficiary to claim her share of the trust property before the vesting date is reached, as well as before any date stipulated in the trust instrument for receiving the share. If all the beneficiaries, being of full legal capacity, have between them an absolute, vested and indefeasible interest in the capital and income of the trust property, they may terminate the trust and require the trustees to transfer the property to them, or to a third party at their direction. The exercise of the power cannot be excluded or limited by a contrary provision in the trust instrument. The exercise of the power is subject to some legal and practical limitations: 1. The beneficiaries must have legal capacity. 2. The beneficiaries must be unanimous if they want to bring the trust to an end. Whether the property is specifically severalable? The test ‘is governed by practical considerations and, in particular, by considerations of convenience of division and of the risk of prejudice to other beneficiaries’ Beck v Henley: the sister could not show that permitting her brother to claim his voting share would have prejudiced her interests. There was no premium attached to the two shares as a parcel, as opposed to the shares individually. 3. The beneficiaries must, between them, be entitled to the entire beneficial interest in the trust property. CPT Custodian v Commissioner of State Revenue: The Commissioner argued that all the unit holders held the beneficial interest in the land collectively. This would mean that they could terminate the trust interest in the land collectively. The High Court rejected the argument, holding that the unit-holders did not have the right to terminate the trust because the trustee had an unsatisfied right of indemnity from the trust fund for its expenses. Until that right had been satisfied, it could not be said that the beneficiaries were entitled to the entire beneficial interest in the trust permitting them to exercise their rights under Saunders v Vautier. NOT ALL TRUSTS: A trust that is valid only because it satisfies the criterion certainty test laid down in McPhail v Doulton – for example, a trust for ‘such of my employees, and their dependants and relatives as my trustees shall select’ – cannot be terminated by this method. This is because there is no point in time when all the beneficiaries, whose unanimous consent to termination is required, can be identified. E/T: Trustee Rights and Responsibilities Trustee’s Liability: The trustee is legally liable for all expenses incurred in respect of that property, whether those expenses arise in contract, tort or otherwise. It is sometimes possible for a trustee to limit or avoid personal liability under the contract, but very clear language is required. i.e. words indicating that the trustee is not exposing itself to personal liability is a signature ‘as trustee and not otherwise’. Trustee’s Rights Trustee Act, s59(4) → (4) A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trusts or powers. Indemnity: a right to be paid back for an expense or loss you have incurred. At general law, and under statute, the trustee is entitled to reimburse himself for expenses already discharged out of trust property, and is also entitled to discharge the expense directly out of trust property. ★ The right cannot be excluded by the trust deed as it is a necessary incident to the office of trustee: JA Pty Ltd v Jonco Holdings Pty Ltd per Santow J. Expenses that attract indemnification include: all the properly incurred costs of running the trust, such as rates, taxes, agent’s fees and out-of-pocket costs legal expenses incurred on behalf of the trust, and can extend to a trustee’s legal fees incurred in defending an allegation of breach of trust In Re Raybould, trustees running a colliery had to compensate a neighbour when works at the colliery affected the neighbour’s building. The damages for negligence and costs ordered against the trustees were held to be the subject of a right of indemnity. There was nothing untoward in the trustee running the trust business, and the trust had to indemnify the trustee out of the trust estate. Gastisios v Nick Kritharas: ‘A breach of a duty to a third party to exercise reasonable care cannot be determinative of whether there has been a breach of a trustee’s duty to exercise reasonable care in the management of a trust…’ (Spigelman CJ) The trustee’s interest is given priority to the trust property over all other claimants, including the beneficiaries, and creditors → the trustee’s right of indemnity gives rise to a proprietary interest in all of the trust property. ★ In Chief Commissioner of Stamp Duties (NSW) v Buckle, the High Court stated that the trustee cannot be compelled to surrender the trust property to the beneficiary until the right of indemnity is satisfied. This right survives the trustee’s removal from office. A court may authorise the sale of trust assets held by the trustee in order to satisfy a right of indemnity. Calculating the Value of the Trustee’s Right of Indemnity: The expense has to be an expense properly incurred in the administration of the trust. Some expenses are not properly incurred: ★ In Beath v Kousal, two joint trustees could not agree on the appointment of a solicitor to represent the trust in litigation. One of the trustees appointed a solicitor without the other’s agreement. As trustees must act unanimously, she was in breach of trust in making a unilateral appointment and had to bear the costs incurred personally. In Gatsios, the New South Wales Court of Appeal considered whether damages payable for trustee’s breaches of trade practices legislation could be indemnified as ‘properly incurred expenses’. The Court held unanimously that the trustee should be indemnified. ★ Meagher JA indicated that it was not necessary to show that the expense in question was both ‘reasonable’ and ‘proper’. In his view, the only limitation on the expense was that the trustee’s activity should not have been fraudulent. In RWG Management Ltd v Commissioner for Corporate Affairs, Brooking J indicated that the trustee’s right of indemnity was liable to reduction where the trustee had caused a loss to the trust in breach of trust. Can the Trustee’s Right to Indemnity Out of Trust Assets be Excluded by the Trust Instrument? ★ NSW Authority: In Buckle, the HC referred to the ‘rights conferred upon the trustee as a necessary incident of the office of trustee’ Liability of Directors of Trustee Companies s197 of the Corporations Act 2001 (Cth) holds a director of a corporation acting as a trustee liable to discharge the debts of the corporation if the corporation has not and cannot discharge the liability, and the corporation is not entitled to indemnification out of trust assets for reasons including breach of trust and the inclusion of an exclusion clause in the trust instrument. However, s197 does not apply merely because the corporate trustee lacks the funds to discharge its debts → personal liability only attaches to the directors where the directors’ right of indemnity is compromised by breach of trust, actions outside the scope of its powers, or the presence of a clause excluding the right of indemnity. If the corporate trustee has a full right of indemnity, but the trust assets are insufficient to discharge the indemnity, its directors will not incur personal liability for the debts. Third Parties: Parties who have advanced credit to a trust by contracting with a trustee are entitled to be subrogated to the trustee’s right of recoupment out of the trust assets → i.e. stand in the shoes of the trustee and access the property represented by the trustees right of indemnity. Carter Holt Harvey: The Court was unanimous in its obiter support of the Suco Gold approach. If the trustee has discharged a trust liability out of its own pocket and is seeking reimbursement from trust assets, the interest in the trust assets raised by the right of indemnity is the trustee’s own asset and available for general distribution. But if the trust debts have not been discharged by the trustee, and the trustee is seeking exoneration out of trust assets, the trust assets can only be used to discharge trust creditors. The trustee personally has no right to that money and the trustee’s creditors cannot be in a better position than the trustee itself was. Trustee’s Right to Impound Beneficiary’s Interest: Where a beneficiary has participated in a breach of trust by instigating it or requesting it, the court has statutory power to impound all or part of the beneficiary's interest in the trust in order to indemnify the trustee. ★ In Re Somerset, two life tenants requested that the trustees alter trust investments. Some negligence occurred in the reinvestment, causing loss to the trust.The Court of Appeal held that the section had no application where the trustee’s act was not in itself a breach of trust but became one because of the trustee’s negligence. The life tenants had here asked the trustees to act within their powers and they were entitled to expect that the trustees would act with the appropriate level of care. Therefore, the trustee could not impound the life tenant’s interest. Trustee’s Right of Contribution from Co-Trustees: The general rule is that the trustee who discharges the debt can seek contribution and recoupment from the other trustees of their appropriate share.  Trustee can sometimes call for full indemnification from his co-trustees, rather than a simple contribution: Goodwin v Duggan ★ (Improperly delegated her duties to him) → while both trustees were liable to the beneficiary for the breach of trust, the honest (but passive) trustee was entitled to be indemnified fully by the trustee who had benefited from the breach. Loss for breach of trust is here discharged first out of the interest of the trustee/beneficiary. That person cannot seek contribution from co-trustees until the loss exceeds the beneficiary's interest. ★ Chillingworth v Chambers, a joint trustee, was also one of the beneficiaries. The trustees lost trust money through unauthorised investments. Although the trustees were held to be jointly and severally liable for the breach, the loss was paid out of the trustee/beneficiary's share of the estate. The trustee/beneficiary was not entitled to contribution from his co-trustee. The usual principle of contribution did not apply because the trustee/beneficiary (in his role as beneficiary) had been a party to the breach of trust and was liable to indemnify the trustee out of his share of the trust. Trustee’s Right to Recover Overpayment from a Beneficiary: The modern position is that the beneficiary is liable to a common law action of money received and received for money paid by mistake, subject only to a defence of change of position. The trustee can also trace funds into the hands of the beneficiary, as the beneficiary is a volunteer, and may be able to recover the funds, depending on the use the beneficiary has made of them. The right to trace is lost by dissipation of the trust property, and in that eventuality the trustee may have to resort to the common law action. Trustee’s Right to Seek Directions from the Court: (s63 TA = apply to the Court for an opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument → Expenses incurred by following advice will be properly incurred) So long as the trustee follows the advice (and makes full disclosure of all relevant facts to the court when seeking advice), the trustee will not be liable for breach of trust. Macedonian Orthodox Community: High Court said that ‘a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings.’ (Gummow ACJ, Kirby, Hayne and Heydon JJ) The court will not necessarily give the advice sought; the decision to withhold advice will depend on the circumstances of the case. The advice the court gives is private advice to the trustee, designed to give personal protection to the trustee. Nevertheless, the advice binds all parties. Breach of Trust If a trustee does not comply with a duty they have under the trust instrument, statute or the doctrines of equity, they will breach the trust. It does not automatically mean that the trustee must compensate the trust: 1. The breach may be of a minor or merely technical nature or may not call for relief in monetary terms 2. No matter how poorly the trustee has performed his obligations, if he has not been dishonest, he may be protected by a valid exculpation given by the trust instrument. 3. It must always be borne in mind that equity’s remedies are discretionary. Exculpation and Defences: the trust instrument may excuse breaches and limit liability, statutory provisions and general equitable defences such as laches and acquiescence apply also. Exculpation in the Trust Instrument: Most, but not all, liability for breach of trust can be excluded by specific provision in the trust instrument. The trustee bears the burden of establishing that the loss in question is covered by any exemption clause. Armitage v Nurse: The Court of Appeal held that allowing a trust instrument to exclude or restrict a trustee’s liability for breach of trust was not contrary to public policy. A trustee’s liability for negligence could therefore be excluded. It would, however, offend public policy to allow an exemption clause to exclude liability for actual fraud or dishonesty. ‘Actual fraud’ contrasted to ‘equitable fraud’: Actual fraud involves some form of conscious wrongdoing by the trustee in the sense of knowing his actions are contrary to the beneficiary's interests or being recklessly indifferent to those interests. The exemption clause in this case still excluded liability for ‘equitable fraud’, such as an innocent breach of fiduciary obligation. ★ Millett LJ: said that ‘the duty of the trustees to perform the trust honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts’. As none of the allegations against the trustee involved actual fraud, he was entitled to rely on the clause for protection. ★ Millett LJ indicated that a trustee acts dishonestly if he acts in a way he does not honestly believe is in the beneficiary's interests or acts with the intention of benefiting himself or others who are not objects of the trust. Reader v Fried: The burden of proof rested on the trustees to show that they had not acted dishonestly in preferring their own interests. Indolence, imprudence, lack of diligence, negligence and wilfulness did not themselves amount to dishonesty. Third Party?: In the absence of a breach of trust, the third party will not be accountable for ‘knowing receipt’ or ‘knowing assistance’. But the third party will be liable if a breach of trust has been committed even though the trustee is exonerated by the terms of an exemption clause from having to compensate for the breach. Statutory Exculpation Wilful Default (s59(2) = accountable only for his or her own acts, receipts, neglects, or defaults not others unless it is a result of their own wilful neglect or default) The better view is that ‘wilful default’ includes negligence, and that, therefore, a trustee who is careless in appointing or supervising an agent will not obtain the protection of the section. Dalrymple v Melville: A trustee who signed blank share transfers and gave them to his co-trustee, a solicitor, who sold shares and then absconded, was not entitled to s59(2) defence. What he did was wilful neglect and default. He was liable to beneficiaries for loss. General Statutory Defence: Courts have statutory power to relieve trustees from liability where the trustee has been honest, reasonable and ought fairly to be excused the breach of trust, and for failure to obtain the court’s directions prior to the breach. s85(1) TA = Court granted relief wholly or partly from personal liability for the breach → only if the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust. Relying on incorrect legal advice = excused: Marsden v Regan The onus is on the trustee seeking relief to show that she has acted honestly and reasonably (must be both) → prof are less likely to be excused Dalrymple v Melville: Although he had acted honestly, his action of leaving his co-trustee in control of trust property was risky, and he had appreciated the risk. He could not be said to have acted reasonably (signing of a blank transfer).  ★ ‘With his knowledge and experience he ought at least to have taken certain precautions which…would have suggested themselves to a most simple-minded person of any business experience at all’ (Long Innes J) Even if a trustee can establish that the actions in question were both honest and reasonable, an excuse is not automatic. What must be considered…would be unfair to blameless beneficiaries? Nevertheless, if the trustee fails to seek the court’s directions first, the court is not precluded from excusing the subsequent breach merely on that ground. Equitable Defences Consent: Beneficiaries can consent to a breach of trust if the trustee has made full disclosure of the circumstances of breach and legal consequences. They can’t then sue the trustee for breach of trust and any loss flowing from it. The onus of proof lies on the trustee to establish such a defence. Spellson v George (overbearing and wealthy father-in-law): ‘A beneficiary cannot be held to have consented to a breach of trust unless he or she had full knowledge of all the material facts…It is, however, clear that mere knowledge of a pending breach of trust and a failure to protest will not itself amount to an operative consent to or participation in that breach…at least until a time when the beneficiary is called upon to make some election.’ (Handley JA) ★ Young AJA held that the beneficiary's disentitling conduct could occur prior to the breach, simultaneously with it or after the breach. It was not, however, sufficient to show that the beneficiary had knowledge of a pending breach and did not protest about it. A clearer act of concurrence in the breach would be required. Acquiescence and Release: To establish acquiescence, it is necessary to show that the beneficiary had full knowledge of the breach of trust, and that, by her actions or inactions, must be taken to have accepted the breach (Re Kerr). Release is similar to acquiescence but is more likely to be provided in writing. Explicit release of trustee from trust obligation, with full knowledge of beneficiary and no pressure or undue influence. ★ Lord Westbury said that it required the trustee to show that the beneficiary ‘deliberately and advisedly, with full knowledge of all the circumstances, and of his own rights and claims against the trustee... freely and without pressure or undue influence of any description’ released the trustee from the trust obligation. A written release is not required. It can be given orally or even by conduct. When the alleged release is by conduct, there is little to distinguish it from acquiescence in a breach. Release will obviously be easier to establish if it is provided in writing. Monetary Remedies: Whether the beneficiary's complaint is that the trustee made an unauthorised profit or that the trustee’s actions have caused loss to the trust fund. Unauthorised Profits: If such a profit is made, it will be stripped totally from the trustee, subject only to such allowances as the court sees fit. Profit-stripping can be achieved via an account of profits or by an order for a constructive trust where the trustee’s profit has been to acquire property. Prohibited Breaches: If the trustee cannot account to the beneficiaries because the trust fund has been misapplied, the trustee is strictly liable to restore the trust fund in full. Causation is established by reference to the simple ‘but for’ test → What would have been the value of the trust fund ‘but for’ the trustee’s breach? Negligence in Performance: Strict ‘but for’ analysis of causation for loss is inappropriate for negligent breaches of trust. It should be sufficient that the trustee is judged by the standard a reasonable trustee would have achieved. The trust fund will then be restored to the state in which it would have been, had the trustee been acting carefully. This may not necessarily mean it will be restored in full. No-Conflict Rule: If the conflict causes the trustee to misapply trust money, the trustee comes under a strict duty to make restitution. Statutory Provisions: Proportionate liability limits each defendant’s damages to the losses caused by their own actions. The proportionate liability legislation only applies to claims arising from the trustees’ failure to take care, and for engaging in misleading or deceptive conduct. (Civil Liability Act 2002 (NSW), s35) Non-Monetary Remedies: The court often makes the orders necessary to make the trust effective. Injunctions: Injunctions can be obtained against a trustee to prevent a breach of trust occurring in the first place (Fox v Fox) Removal of Trustee: by someone given power in trust instrument (an appointer) or by a court under inherent jurisdiction or via s70 TA. Trustees won’t be removed simply because they have breached trust unless there is a risk to the trust property and the welfare of the beneficiaries. Rescission: Rescission is available to set aside contracts entered into by trustees in breach of the self-dealing rule, at the suit of the beneficiary. Although all equitable remedies are discretionary, in this case the remedy is rarely denied unless a good faith purchaser has obtained an interest in the subject-matter of the contract. Standing to Sue: Trustees have a duty to sue co-trustees or former trustees to get in trust assets or restore a trust fund. Beneficiaries can enforce trust, seek replacement trustee, and sue in relation to a completed trust. ★ Young v Murphy: it was held that new trustees were able to sue the trustees they had replaced, and that it was not necessary for the beneficiaries to be joined as parties Tracing Tracing is not a remedy; it is the process of identifying a new asset as the substitute for the old. Tracing is a way of getting at something of value that has been acquired through misused trust funds e.g. trustee wrongly uses $50,000 of trust funds to buy themselves a car. You cannot trace if… 1. Money that has been dissipated e.g. the trustee misappropriated $10,000 and spent it on parties and holidays. The money has gone and there is nothing to trace into. 2. The money has been received by a good faith purchaser for value e.g. trustee misappropriates $50,000 of trust funds and buys a car. You cannot trace into the $50K that the vendor has honestly received, (but you can trace into the car the trustee now owns). 3. If it is land, and the person is registered under s42 RPA, it does not matter whether they are a good faith purchaser for value or a volunteer. You cannot get the land back from them as both purchasers and volunteers have indefeasible (undefeatable) title in NSW: Bogdanovic v Koteff. ★ In Sze Tu v Lowe and Fistar v Riverwood Legion and Community Club Ltd, the New South Wales Court of Appeal has accepted that if a volunteer has become registered as proprietor of Torrens land without fraud, the volunteer’s indefeasibility of title is a defence to an equitable tracing claim. 4. The recipient has changed their position, relying in good faith on the receipt, e.g. woman inherited $100K under a will that turned out to be forged. The beneficiaries under the will wanted the money back but she had used it to pay off her mortgage, quit her job and started studying. That prevented the beneficiaries making a claim to the property whose mortgage had been paid by the inheritance. ★ In Gertsch v Atsas, the defendant received $100 000 under the will of a murder victim. The will had been forged by the victim’s solicitor. The defendant used the money to discharge a mortgage over her home. She then gave up her job and undertook part-time tertiary study. Equitable proprietary remedies are more flexible and effective than the limited recovery allowed at common law. Resulting and constructive trusts restore specific property to claimants when the criteria for the award of these remedies are satisfied. Complications also arise if a trustee wrongly mixes trust money from multiple trust funds in a single account and spends some of that money. When the trustee is stopped (freezing order) and beneficiary claims start to be made, how do the multiple beneficiaries compete against each other in relation to a remaining balance that won’t cover all of their claims? Beneficiaries whose money was wrongly taken is paid out first? (Rule in Clayton’s case → In the absence of a contrary intention, payments are presumed to be appropriated to debts in the order in which the debts are incurred). Beneficiaries share the remaining money in proportion to the contribution of their own money that was made? (Pari passu method) These rules apply to someone who is honest and a volunteer (although not a volunteer who has acquired land and is registered; they have an indefeasible (undefeatable) title by virtue of s42 RPA). If the trustee pays the beneficiary's money to an honest volunteer who mixes the money with his own in his bank account. ★ Re Diplock: A beneficiary of may trace trust money into mixed funds held by an innocent volunteer but cannot trace into the physical property of the volunteer on which the trust money was spent on alterations “But where the moneys received by the charity had not been mixed with moneys of the charity but had been expended on the alteration or improvements of their own assets, …, the trust money could not be disentangled” (Lord Greene MR)