Disposition of Property in Law and Equity II PDF

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LECTURE 3: ASSIGNMENTS IN EQUITY; THE REQUIREMENT FOR WRITING [DISPOSITION OF PROPERTY IN LAW AND EQUITY PART 2]

Question 5: Is the requirement of writing under s 23 C of Conveyancing Act necessary for the various transactions [i.e. for the different forms of transferring property interests from one person to another]? Creation of trusts  1) Ascertaining the relevant intention to create the trust o The relevant intention can be ascertained from words or circumstances.  2) The property that is to be the subject matter of the trust must be transferred to the trustees so that they are able to hold it on behalf of the beneficiaries. o Identify the property that is going to be held on trust, and then somehow get that into the hands of the trustee  E.g. if the property that is going to be held on trust is land, then the trustee becomes the legal owner of it; so you would assign the property to them (if it was old system then by deed, and if it was Torrens then by registering them as the registered proprietor) – OR – if the property that is going to be held on trust is personal property, then it has to be assigned/transferred to the trustee so that they can hold it.  3) The valid transfer of property to a trustee is referred to as the complete constitution of the trust. o If the property has not been validly transferred to the trustees [which will then also firmly locate the equitable interest in the beneficiaries], the trust is not valid and it cannot be enforced. o Once the trust is properly constituted, the beneficiaries get an equitable interest that they can then deal with separately.  4) The trustees need to know who the beneficiaries are  Trusts can be of real property [land] or of personal property.  Random fact re trusts & why the beneficial interests are moved around by people: one of the major incentives for a person who is moving their beneficial interest of their income streams around [such as rights to royalties, dividends or personal income] is to minimise their tax.  E.g. beneficiary’s under a family trust, under which a trustee [normally one of the parents] will hand you a big cheque every 6 months or a year, and then 5 minutes later they’ll say now you have to give it back again. This is simply a way of spreading income among a number of beneficiaries under that family trust.  And you can see, the tax on a $200k income would be high [about $70k tax]. But if you spread that income among 5 beneficiaries (each of whom have a tax-free threshold of $18k, and then a much lower tax rate), then the $70k tax will be cut at least in half.  Nb: a trust is a relationship whereby property is held by one party for the benefit of another [so a trust is an arrangement under which one

person, called a trustee, holds legal title to property for another person, called a beneficiary] o Hence why many cases are to do with tax in the area of assignments in equity. Stamp duty: many cases this week will be about assessing liability for stamp duty  Long history: Originally levied by the Dutch in 1600s and in the UK since 1694, originally as 'several duties on Vellum, Parchment and Paper for four years, towards carrying on the war against France.’ o And yet, now in 2015, stamp duty is still there and in NSW. It is still there because it was very successful as a means of raising revenue for the Crown so that the Crown can carry out its various obligations. Hence, stamp duty remained and was exported to the colonies, including the US. This led to a riot against the imposition of taxation that led to the famous Boston Tea Party in 1765 on the basis that people should have ‘no taxation without representation’  Stamp duty is also a tax by the NSW govt.  Stamp duty that is imposed on the conveyancers of land is one of the most important sources of State revenue. This is a duty that is imposed ad valorem [i.e. ad valorem = according to the value of the property to be transferred & it is a substantial cost in a conveyancing transaction; so in proportion to the estimated value of the goods or transaction concerned].  E.g. $1mil prop = stamp duty of almost $41k  NSW stamp duty environment changed dramatically with the introduction of the Duties Act 1997 NSW- s 8 o Duty was once payable on instruments or documents o Prior to this Act, stamp duty was payable on documents or instruments. o Duty is now payable on transactions, whatever their form o Now, under that Act, stamp duty is levied on transactions, & this is the case whether the transaction is reduced to writing or not.  So stamp duty is now payable in most of the situations that we look at this week; & you’ll see that in most of the cases [eg Oughtred v Inland Revenue Commissioners], the whole reason for structuring the transactions (i.e. transfer of their equitable interest to another person/s) the way they did was to avoid reducing their agreement to writing because if they reduced it to writing then they would pay stamp duty on it; so they did it do avoid paying stamp duty. So the practice was entering into specifically enforceable arrangements to transfer property but never completing those contracts. The advantages of never actually completing the transaction with a written instrument was seen as worthwhile because of the substantial stamp duty savings that could be made: Hence what Green said about: Leaving the matter “in contract:” Green (47 Modern Law Review at 402): “The documentary disadvantages of “leaving the matter in contract” in this way are regularly seen as being outweighed by the stamp duty saving; and the purchaser always has the safety net of having a right to call for a conveyance if such becomes necessary at a later date.”  But these days because of that Act, it doesn’t matter if it is reduced to writing or not.

o Nb: in previous years in other jurisdictions, stamp duty has also been payable on gifts [& still the case in UK] o S 8 of Duties Act 1997 NSW: Imposition of duty on certain transactions concerning dutiable property – nb: almost everything that you can think of falls within the definition of this section, so now most transfers of property will attract duty of some sort, but it is not all ad valorem [i.e. in proportion to the estimated value of the goods/transaction concerned] o (1) This Chapter charges duty on:  (a) a transfer of dutiable property, and  (b) the following transactions:  (i) an agreement for the sale or transfer of dutiable property,  (ii) a declaration of trust over dutiable property,  …………and so on. The rationale for the requirement of writing  The rationale is because otherwise we would have a lot of transactions which would be hidden not just from the taxing authorities but also from the beneficiaries of trusts. Hence the requirement comes from the Statute of Frauds. Moreover, an equitable interest is invisible so because these things are intangible, it is not possible to see where they are, and if there is no paper trail [such as there is a with a legal interest of a certificate of title to land] and it is not possible to take possession of them then “in general there is only an invisible entitlement to certain rights perceived by courts of equity behind the veil of legal title”~ Brian Green, Grey, Oughtred and Vandervell – A contextual reappraisal, 47 Modern Law Review 385. Thus writing is often the only evidence of the existence of an equitable interest which is often an ‘invisible’ interest/entitlement/right and writing is often the only evidence of an assignment of an equitable interest; and it most importantly [the major reason], it protects both trustees [so they can ascertain who their beneficiaries are] and beneficiaries [so that their beneficial interest cannot be transferred away from them without them knowing about it by seeing/signing some writing].

The Four Possible Way/Methods to Assign/Dispose of Equitable or Legal Interests: i.e. transfer of property from one person to another at law or at equity / nb: key issue this wk is which of the methods need to be in writing.  There are 4 possible ways/methods to assign/dispose an equitable interest: o Romer LJ in Timpson’s Executors v Yerbury [1936] 1 KB 645 MGL 7-005: “the equitable interest in property in the hands of a trustee can be disposed of by the person entitled to it [i.e. the beneficiary] in favour of a third part in any one of four different ways. The person entitled to it [i.e. the assignor: the holder of an equitable interest; commonly a beneficiary under a trust]:  (1) can assign it to the third party directly;[i.e. through assignment]  (2) can direct the trustees to hold the property in trust for the third party….;[i.e. through direction by the beneficiary to a trustee]  (3) can contract for valuable consideration to assign the equitable interest to him/her; [i.e. through an agreement to transfer an interest] or

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(4) can declare himself/herself to be a trustee for him/her of the interest. [this would create a ‘sub-trust’; so through a declaration of trust]  Nb: these 4 types of dispositions are elaborated below in separate bold headings with grey highlighting  There are 3 ways/methods of disposing of equitable interests by the owner of the legal estate: o Timpson’s Executors v Yerbury [1936] 1 KB 645: [MGL 7-010] “If the person entitled to the equitable estate is also the legal owner of the property, the equitable interest can be disposed of in equity, even if it is not disposed of at law, in the first, the third or fourth of those ways: i.e.”  (1) can assign it to the third party directly;[i.e. through assignment]  (2) can direct the trustees to hold the property in trust for the third party….;[i.e. through direction by the beneficiary to a trustee]  (3) can contract for valuable consideration to assign the equitable interest to him/her; or [i.e. through an agreement to transfer an interest]  Nb: these 3 types of dispositions are elaborated below in separate bold headings with grey highlighting  Hence the Types/Methods of Dispositions from Timpson’s Executors v Yerbury [1936] 1 KB 645 [i.e. the 4 methods of transferring/disposing of an equitable interest:  1) through assignments  2) through a direction by beneficiary to trustee to deal with the interest in a particular way  3) by an agreement to transfer an interest  4) declarations of trust  Nb: key issue this wk is which of these methods need to be in writing.  Important section: S 23C Conveyancing Act 1919 NSW [another example of shit legal drafting in this Act]: Instruments required to be in writing: o (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol: [this section -s 23C(1)- says that any disposition of an equitable interest must be in writin]  (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law,  Conveyancing Act 23C(1)(a) refers to the creation and disposition of interests in land o Blanket rule [subject to exceptions]: when dealing with any equitable interest in land, you need to do it in writing [nb legal interest would be dealt with: if old system then s 23B/deed; and Torrens then s 41/registration]  Since the definition of ‘disposition’ in s 7 Conveyancing Act includes a declaration of trust, it seems to create problems in 23C(1)(b) [below] as there is a conflict because 23C(1)(a) states that no interest in land can be created or disposed of except by writing; where-as 23C(1)(b) says a declaration of trust needs only to be manifested or proved by writing [i.e. it seems you can declare the trust orally so without writing, and

then at some later stage you can provide written proof that the oral declaration had taken place earlier]. In order to resolve this conflict, High Court has held in cases such as Department of Social Security v James (1990) 95 ALR 615 that it is likely that where the interest is created by declaration of trust then (b) is to apply.  (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will;  So 23C(1)(b) says a declaration of trust regarding land needs only to be manifested or proved by writing [i.e. you can declare the trust orally/without writing, and then at some later stage you can provide written proof that the oral declaration had taken place earlier: Hagan v Waterhouse (1991) 34 NSWLR 308]. But nb: where the interest is created by declaration of trust then (b) is to apply: Department of Social Security v James (1990) 95 ALR 615.  The written manifestation or proof of the declaration need not necessarily some into existence at the time of the declaration and may consist of a combination of informal documents including letters, telegrams and the like: Hagan v Waterhouse (1991) 34 NSWLR 308 held that the section was satisfied where the trustee had acknowledged the existence of the trust by letter.  (c) a disposition of an equitable interest or trust subsisting [existing] at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing.  (c) has been held to apply to personalty/personal property.  Unlike subsection (a) and (b) which refer to land, subsection (c) says nothing about land. It just says ‘disposition of an equitable interest or trust subsisting [existing] at the time of the disposition’ [i.e. so in order for (c) to apply to your transaction, the interest in personalty must have already existed in equity at the time the transaction was undertaken so it will not apply to a new declaration of trust over personalty]. The most common example of this type of subsisting equitable interest in personalty is the interest of a beneficiary under a presently existing trust [trust of personal property]. o (2) This section does not affect the creation or operation of resulting, implied, or constructive trusts. [this section -s 23C(2)- says you don’t need writing if the disposition takes the form or takes place through way of a resulting, implied or constructive trust]  So this section exempts certain types of trusts from the requirement of writing. These types of trusts are normally automatically created by the operation of law or they are imposed by the courts. Hence, the equitable interest you are dealing comes about as a result of a resulting, implied, or constructive trusts then it does not need to be in writing.

Disposition by way of assignment: Assignment of property  What is an assignment? o Definition: Windeyer J in Norman v Federal Commissioner of Taxation: “Assignment means the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee.”  Form of an assignment [i.e. how to do it]: No particular form of words is necessary for an assignment:“An equitable assignment does not always take that form, It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request [e.g. please transfer my interest]. It may assume the form of mere permission. The language is immaterial if the meaning is plain.” [William Brandt’s Sons & CO v Dunlop Rubber Co Ltd] [so you don’t need to say “I assign my interest to you”]  Is writing necessary? o Land –  Writing is required Conveyancing Act s 23C(1)(a)  Always start with the proposition that all assignments of land or interests in land (i.e. a legal transfer of old system land, a transfer of Torrens title land, or assigning at law or in equity) should be in writing  Exceptions to the requirement for writing:  Part performance – s 23E(d)  Constructive trusts – s 23C(2)  Estoppel o Interests in personalty/personal property  Writing is required where the transfer is a subsisting equitable interest[so if the equitable interest is subsisting at the time of the assignment/disposition –nb: the absolute owner of the property only has 1 undifferentiated legal title/interest and not a subsisting/existing equitable interest, so refer to the point below re: ‘writing is not required’]:  Conveyancing Act s 23 C(1)(c) theoretically applies to both land and personalty [see above heading re: ‘the four possible..’ --- and the subheading of ‘important section: s 23C’] but it only applies to subsisting interests.  Writing is not required where the transfer is not a subsisting equitable interest at the time of the disposition [i.e. it is a declaration of trust of personalty]: thus the creation of that new equitable interest over personalty may be done either orally or by conduct as it need not be in writing/signature  E.g. if the absolute owner of personal property declares a new trust of the property then it does not need to be in writing because s 23 C(1)(c) only applies to subsisting equitable interests  Commissioner of Stamp duties v Livingston and Westdeuche Landesbank Girozentrale v Islington London Borough Council: “where an absolute owner of property grants an equitable interest in that property to another person or effects an equitable assignment of that property, there is no disposition of

a subsisting equitable interest to that person [i.e. if you are the absolute owner of property such as 100k Eden shares, then you do not own the separate equitable and legal title bcoz you just have 1 undifferentiated legal title/interest. So as an absolute owner of property, if you declare a trust over that property in someone’s else’s favour, then you are not assigning an equitable interest that you already had [bcoz you don’t have undifferentiated equitable and legal title as the absolute owner]. What you’re doing is creating a new equitable interest, and not assigning a subsisting equitable interest since you as an absolute owner only had 1 undifferentiated legal title/interest not an equitable interest.]. In both cases there is the creation of an equitable interest, rather than the disposition of a subsisting equitable interest. As a result Conveyancing Act s 23C(1)(c) does not apply to such dispositions” Dispositions by Way of a Direction by a Beneficiary to a Trustee [i.e. a trustee of property in relation to the equitable interest in that property]  What is this direction? It is a means of transferrin an equitable interest by which a beneficiary disposes of their equitable interest but rather than this occurring through direct action of the beneficiary, it occurs through the actions of the trustee [i.e. a means by which a beneficiary disposes of their equitable interest but rather than the beneficiary directly transferring their equitable interest to someone else, the beneficiary directs their trustee to thereafter hold the beneficial interest for the benefit of someone else/third party] o E.g. Hypo: Mrs A [beneficiary under a trust] – Mrs B [the trustee] – Mrs C [the third party/person to whom Mrs A wants to transfer her beneficial interest]: Mrs A could assign her beneficial interest by directing Mrs B to thenceforth hold the beneficial interest/trust in favour of Mrs C.  Two Forms Of Such Directions And Whether Writing Is Required For Each Form: txt 6.15 [in both forms, the 1st beneficiary is effectively disposing of their beneficial interest to another person]  A direction to hold trust property for a third party [see dot-point below]  A direction to transfer trust property in its entirety to a third party [see dot-point below]  1) Beneficiary making a direction to his/her trustee to hold trust property for a third party  Text – 6.16: “The situation envisaged here is where a beneficiary instructs his or her trustee to hold the equitable interest in property the subject of the trust on trust for a third party and no longer for the beneficiary” [i.e. where the beneficiary directs their trustee to hold the property on trust for a third party/different beneficiary]  Grey v Inland Revenue Commissioners [1960] AC 1: This case concerned a purported transfer of a beneficial interest in a parcel of shares from Mr Hunter into a new set of 6 trusts that had been set up for the benefit of his grandchildren and future grandchildren. The transactions went in the 3 steps as follows:...