Trust Topic 1- Certainty of Intention PDF

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Certainty of Intention- Topic 1 long notes...

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TRUSTS As [X] is purporting to create a [type] trust, the trust must satisfy [requirements]. To create a valid express trust, there must be certainty of intention, subject matter and object (Knight), in addition to compliance with statutory formalities and constitution of the trust property. A fully constituted trust cannot be revoked (Mallott) (unless there is a power of revocation). •

If the trust fails for some reason, the property will go back to the settlor (trustee would hold on resulting trust for S if trust by transfer) or be disposed of by the rest of the will

TOPIC 1: CERTAINTY OF INTENTION The issue here is whether [X] intended to create a trust or some other legal relationship. In Countess of Bective, the following possibilities were identified: moral (not legal) obligation (ie precatory words); legal or equitable condition; equitable charge and trust.

Step 1: What type of Trust is it? 1 . Inter vivos: during life time; • •

"I transfer to A all of my property. A is to hold the trust fund for B -> TRANSFER "I declare my property on trust for B" -> DECLARATION

2 . Testamentary: by will

Step 2: Has the settlor exhibited an intention to create a trust? Determined objectively (Kendle).

BE AWARE: ➔ E.G. “I give my trustee $300K to pay my children in the hope that they will use the money for education expenses of my grandchildren” ● This would be a fixed interest trust BECAUSE the precatory words do NOT apply to the intention to create a trust, they apply to how the children must use the money. “In the hope” is moral obligation only. No legal obligation for children to use money for grandkids education but an obligation on T to pay children $300k ● C.F. I give to my trustee $300k in fullest confidence that she will pay it to my children, in hope that they will use the money for education expenses of my grandchildren”

[S] must have by words or conduct shown that she intended to create a trust by imposing an obligation on [a person(s)/entity] that the property be held for the benefit of [another] (Brynes) (Harpur). The onus to prove this intention lies on the person asserting a trust exists (usually beneficiary). ➔ [REMEMBER]: THERE IS THREE POSSIBLE SITUATIONS ● Formal Words (Proper Document) → ONLY LOOKS AT THE WORDS ● Informal Words (E.g. Will on the Shell of an Egg) → LOOKS AT THE WORDS AND CIRCUMSTANCES ● Oral Statements and Conduct (E.g. A Conversation) → LOOKS AT THE CIRCUMSTANCES

Test: Would a reasonable person consider that in all circumstances the settlor immediately intended to create a trust? • Ask: "what is the meaning of what the parties have said?" and not "what did the parties mean to say" (Gummow and Hayne JJ) • Exception: Vitiating factors

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If this is present, court will consider subjective intention

Settlor must have indicated, by words (oral or writing) or conduct, that he intended to create a trust. o N.B: Subjective intention still relevant where there are grounds to challenge the transaction- vitiating factors or sham (Heydon and Crennan JJ in Byrnes).

IF CONTRACTS INVOLVED SITUATION: If contracts are at play in a trust relationship, must have regard to the contractual terms in construing the relationship (Korda). • • • •

Korda: Timber plantation scheme – were the proceeds of sale of timber and land held on trust for the investors? French J: there are no express words declaring a trust in or out of the contract. Must look to the underlying circumstances. Gageler J: trusts and fiduciary obligations must apply consistently with the terms of the contract (per Hospital Products). Here, under the contract, the felling company could use the proceeds of sale “as it saw fit”. Could mix with own funds or retain. Had to ultimately make payment to investors, but this is the antithesis of a trust.

Step 2.2.1- if there is a trust deed and unambiguous (ONLY LOOK AT WORDS) Here [S] has used explicit words of [WORDS] in [DOCUMENT]. The court will examine the objective intention manifested by these words, not the subjective intention (Joliffe, overturned by Brynes). [X] will argue that the words are merely precatory and do not amount to an intention to create a trust: Countess of Bective. Byrnes v Kendle: Only objective intention is relevant, overruling Joliffe. Husband purchased wife and declared a trust in favour of his wife. Executed a deed which said “trust” and used trust language. H argued he hadn’t actually subjectively intended to create a trust. High Court: ➔ If you have explicit written words, only look at the words (judged according to how the parties would have understood them). ➔ If there are unclear or ambiguous words, or oral creation, must look to the surrounding circumstances of the case. ➔ On the facts, clearly objectively intended to create a trust. ➔ Exception: if the trust is a sham trust, then can look at subjective intention (Byrnes)

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Onus: the onus of proving that the settlor had intended to create the trust lies on the person purporting the trust exists (Harpur v Levy) o Brynes: The opening language of the deed described it as a trust twice. o Exception: Sham trust •

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Sham trust is a very high threshold and is defined to be a case where the settlor never intended to give rise to the 'ordinary incidents of a trust' (Condon per Leeming JA)

• Thus even where there is an improper motive, the trust will not be a sham (Condon per Leemign JA) Note that as this is a trust deed in unambiguous terms, then the Parol Evidence Rule states that no recourse is allowed for extrinsic evidence (Kendle)

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There is no need for precise use of the terms ‘trust’ and trustee (Re Armstrong). o Instead, there merely needs to be a general intention to hold the property for the benefit for [Y] (Re Armstrong).

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IMPORTANT NOTE: Remember that even if you conclude there is an express trust; question if it could have been an intention to create some other kind of relationship (see below).

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TEST: DISTINGUISHING BETWEEN OBLIGATORY OR PRECATORY WORDS o Have regard to the words used by the settlor and consider whether they convey a sense of obligation, also compare the strength of terms used in different clauses. o See below for analysis.

Step 2.2.2- Informal words/ Oral Statements and Conduct (Look at words and circumstances for informal words and circumstances for oral statements).

Eg: No trust deed, just words/written on scrap of paper/oral. Use facts of Re Armstrong; Paul v Constance: the question is whether in all the circumstances the words and conduct of the alleged settlor evinces an express intention to create a trust? (Paul v Constance). Timing: intention must be present at creation of the trust but later conduct consistent wit the original intention will provide further evidence in favour of the intention (Paul).

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A- LANGUAGE -> OBLIGATORY V PRECATORY WORDS

IMPORTANT: Have regard to the words used by the settlor and consider whether they convey a sense of obligation, also compare the strength of terms used in different clauses.

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Pointing Towards Obligation

Pointing Towards No Obligation

Strong language are indication of intention, but facts of the case must be taken into account.

This is not conclusive, but the stronger the words used, more likely it is that some form of obligation is intended.

‘provided that’, ‘on condition that’, or ‘on trust’

‘in the fullest confidence’ per Re Williams is considered to be precatory. As it is not an imperative, a trust was not created, but instead a mere moral obligation. - Re Williams: Estate left to deceased wife absolutely ‘in the fullest confidence’ that she would leave two items to their daughter Lucy on death. - Lindley LJ- precatory words. - Only words of wish/hope/prayer, not imposing an obligation on the wide to do any particular thing. Further the whole document quite clearly suggests that wife was meant to get capital, not just life interest.

Hayes: To my daughter “on the understanding” that she write into her will, that at her death, these shares are to be sold [and proceeds] divided between 3 charities.

“Trusting that” she will divide equally between the children…at her absolute discretion (Deane v Cole) • Dean v Cole: To my wife ‘trusting her that she will divide in fair just and equal shares” • Held: merely precatory words o Look to the terms of the will as a whole and compare to the previous clauses giving full ownership ‘at absolute disposal’. Therefore, if she has full ownership, this is inconsistent with any enforceable obligation to divide the property. o Secondly, ‘all that she may be in use and enjoyment of’ suggests she can use it up throughout her lifetime.

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An obligation imposed on the daughter She HAD to leave the specific property to the charities

“it is my express wish” per Re Alston “feeling confident’ that she will act justly to our children in dividing the same when no longer required by her (Mussourie Bank v Raynor) B- IS THE RELATIONSHIP RELEVANT?

Cases

Wording

Outcome

Gill v Gill

To my son on condition that he let his unmarried sisters stay in the farmhouse for their lives.

This was a gift on equitable condition. •

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He could deny the condition but doing so would give rise to an action for compensation. Would be disproportionate for this to be a legal conditionlose the whole farm just because he didn’t provide sister a bedroom.

Cobcroft v Bruce

To my wife ‘to deal with as she in her absolute discretion thinks fit’ but otherwise on condition that she ultimately gives those shares or the remainders thereof to my nephews.

When she died, the remainder of the shares was approximately 6-7m. However, she left them under her will to charities. Young J: Applying Bective and looking at the terms of the will as a whole, this was most likely to be an equitable condition. She either had to give the shares away in her life time or in her will.

Chang v Tijong

Father gave son money to purchase a home and later instructed him to use the money for father’s mistress and, if any left over, for the father’s illegitimate son.

Here property held on trust- words not merely precatory. • Had sufficient obligation: “Use the money for her, if there is any left over, use it for Roy” • Unlike in Countess of Bective, could not expect the son to carry out his father’s wishes and give money to his father’s mistress and his half-brother. Therefore, court imposed a trust.

Re Gardiner

G left property to son Ivor “subject to my said son paying the sum of 1000 pounds within two years from my death unto my son, Albert”

Intended to be a legal condition, not a trust. • Reasoning: the trust property was the land. Cannot be said that Ivor was holding the property on trust for Albert- no suggestion G wanted to impose trustee obligations on Ivor.

C- INEXPLICIT/A MBIGIOUS WORDS INEXPLICIT/AMBIGIOUS

Here [S] has arguably used informal/ambiguous words of [words] in [document], thus we must examine the intention manifested with reference to the circumstances of the case: Brynes v Kendle. [B] will argue that the words, considered in light of [INTENTION TO BENEFIT B] demonstrated [S’s] intention for [B] to benefit from [property] and thus certainty of intention is present: Re Armstrong. Note-> Extrinsic evidence is admissible when: • There is no written declaration of trust (Inter vivos trust can be oral) or • The language used in the written declaration is ambiguous.

First Step: Identify the cir circumstances cumstances and infer the words from that.

The use of surrounding circumstances is still an objective test. • •

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Do the words show to a reasonable person a sufficient intention to create or declare a trust? Interpret words based on balance of the deed: o Harpur: “Trusting to her that she will divide in equal shares between my children all part of my estae as she may be in the use and enjoyment of” -> earlier clauses gave her ‘absolute disposal’, implying full ownershop of the prop. o It is antithetical to think there is a trust for the children if she cant do what she likes with it. o But NOTE THIS WAS STILL FOUND TO BE A CONDITIONAL LANG Can look to other documents (Chang; Re Armstrong): o Can construe several ambigious documents to determine intention (informal, different language) like Chang and if there is a clear, unequivocal and emphatic direction regarding what the property should be used for, the trust is still created! Can adduce evidence of conversations (Paul v Constance) Parties Relationship: o Close r/ship between testator and trustee suggests intention to gift (Re Williams; Husband and Wife) o Chang: Father could not trust son to carry out wish of providing for mistress, so much likely a trust. • Testators are unlikely to want to put onerous obligations on people they cannot expect to look after B. Imposing an enforceable obligation might have been a bit far in Chang (wife, kids-mistress, bastard) but not in Cobcroft (wife-husband’s nephews) o IF mother and child, it is natural to assume that a mother would want to provide for her children in this way. Sophistication of Testator o Note look at the Settlor’s experience in trusts- would they have understood the importance of using the word “trust”? • IF the settlor is unsophisticated (eg an art dealer) = cannot expect legal terminology (Paul). • If the document is drafted by someone with skill (like a solicitor) = more likely to be a turst (Dean) cause obligation.

Second Step: Determine the outcome D- ORAL STATEMENTS AND ACTIONS

Here [s] has not used any written words and [b] is alleging a trust was created orally. Accordingly we must examine all the circumstances of the case to determine if the intention manifested: Brynes v Kendle. (Refer to the circumstances discussiin under C; First Step). Eg: “ The money is as much yours as mine: -> sufficed to amount to an express declaration of trust in all surrounding circumstances •

(Paul v Constances: where parties were in a de facto relo with a joint bank account which they withdrew from a joint benefit). • C paid winnings into a bank account that he could not open jointly with his de facto, P. P was made a signatory. • C said orally several times: “the money is as much as yours as mine” • Money was only withdrawn to purchase shared furniture. • Held: The words as much as mine as yours considered in light: o The manner of use of funds for shared matters only; o The failed attempts to create a shared bank account (evidenced by bank manager); and o C’s lack of sophistication/knowledge of technicality to create trust. • This meant an intention to confer a benefit upon P and create trust could be inferred.

Step 2.2.3- Conclude If there appears to be an obligation and an intention to create a trust- if there isn’t, jump to other relationships-> then you may come back and argue an alternative that if a trust was found, would there be immediate intention.

Step 3: If there is an intention to create a trust, is the intention to create the trust immediately or in the future (Harpur v Levy) An intention must be for the trust to take effect immediately unless consideration is given (Harpur) • Cannot be ‘trust to take effect from x date’ (Neave and Redlich JJA in Harpur v Levy). • Intention to create a trust in the future does not operate as a present intention to create a trust (Harpur v Levy). • Doesn’t matter if it uses strong language like ‘irrevocably declare’ (Neave J in Harpur v Levy). SCRIPT: IF immediate intention In Harpur v Levy, the Vic CoA (by majority) held that a deed which provided that property would be held on trust as from the ‘commencement date’ did not create a valid trust as the S retained both legal and equitable interest until that date, thus there was no express present intention to create a trust. This can be distinguished from Harpur as it seems that, on these facts, there is an immediate intention create a trust as [WHY]. ➔!An argument cannot be made that the strong language on the facts of [WHAT] implied immediate intention as Neave J in Harpur held that this did not matter. A line of reasoning per Maxwell P’s dissent could be made in that strong language indicates a strong intention and that a commencement date is merely a matter of machinery or implementation, but this argument would likely fail.

SCRIPT: IF Future intention If intention to create trust in the future, state: Will fail unless consideration was given: In Harpur v Levy ,the CoA (by majority) held that a deed which provided that property would be held on trust as from the ‘commencement date’ did not create a valid trust as it did not express a present intention to create a trust. [These facts] are arguably analogous to harper in that there is no immediate intention, as [example]. All subsequent actions of S are consistent with this interpretation. è [Additionally, consideration was not given] and thus the trust cannot be created to come into effect at a later date as equity will not hold [whom] conscious bound. è [However consideration was given on the facts], with [whom] giving [what was given] to [whom] and thus the trust can be created to come into effect at a later date as equity will hold them conscience bound. è Note, an argument cannot be made that the strong language on the facts of [what] implied immediate intention as Neave J in Harpur held that this did not matter. A line of reasoning per Maxwell P’s dissent could be made in that strong language indicates a strong intention and that a commencement date is merely a matter of machinery or implementation, but this argument would likely fail. SCRIPT: IF INTENTION TO CREATE A TRUST IMMEDIATE WITH A POSTPONEMENT OF ENJOYMENT BY THE BENEFICIARIES, STATE [WILL SUCCEED]. In Harpur v Levy, the Vic CoA (by majority) held that a deed which provided that property would be held on trust as from the ‘commencement date’ did not create a valid trust as it did not express a present intention to create a trust. This can be distinguished from Harpur as it seems that, on these facts, there is an immediate intention create a trust but with the property to vest in the future, as [WHY]. All subsequent actions of S are consistent with this interpretation. è [Despite the fact that consideration was not given], the trust can be created to come into effect at a later date as equity holds [WHOM] conscience bound. è [Additionally, consideration was given on the facts], with [WHOM] giving [WHAT WAS GIVEN] to [WHOM] and thus the trust can be created to come into effect at a later date as equity will hold them conscience bound. è Note, an argument cannot be made that the strong language on the facts of [WHAT] implied immediate intention as Neave J in Harpur held that this did not matter. A line of reasoning per Maxwell P’s dissent could be made in that strong language indicates a strong intention and that a commencement date is merely a matter of machinery or implementation, but this argument would likely fail.

Step 4: Mid conclusion: HAS THERE BEEN A SUFFICIENT INTENTION? IF there is sufficient intention thus far, state: In the circumstances of the case and on the true construction of what was said and written, a sufficient intention to create a trust has been manifested (Tito v Waddell) IF There is no sufficient intention thus far, state: In the circumstances of the case and on the true construction of what was said and written, a sufficient intention to create a trust has not been manifested (Tito v Waddell)

Step 5: IF there is an intention to immediately create a trust, is the trust a sham trust; i.e the intention of the settlor differe...