Tutorial exercises

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Week 2

  1. settlor – look at preamble of trust deed extract and you will see that it is James

  1. trustee – again found in preamble of the trust deed and will see that it is Philal Pty Ltd

Advantages of appointing trustee – family purposes, commercial purposes and socially useful purposes. However, in relation to advantages of appointing a trustee who is a corporation there are two:

  1. the corporate trustee does not die and hence would not need to be replaced so often under clause 8 of the trust deed; and

  2. corporations are usually set up with limited liability and hence that would shelter the trustee themselves or limit their liability personally for any breaches of the trust

Yes it is possible to have a corporate trustee under the Trusts Act, see s.5.

  1. beneficiaries – clause 1(c) of the deed you will see that in this instance they include the son, daughter-in-law and their children and grandchildren and any charitable institution, body or organisation’

  1. fixed or discretionary trust? – difference between a fixed and a discretionary trust is essentially that a fixed trust is one in which an acquisition by the beneficiary of an interest in the trust property does not depend upon the exercise of another person’s discretion. So essentially, who is to receive distributions of the trust property, when they will receive it and in what amount is already determined by provisions of the trust deed and it is not up to the trustee’s discretion to ascertain those things.

Contrast that to a discretionary trust – a discretionary trust is one in which the trustee has a discretion as to when any payment from the trust fund will be made, to whom it will be made and the amount of such payment. Therefore, the trust that we have is a discretionary trust. Recital E indicates that the powers are discretionary and also clauses 2 and 4. Here the trustee may distribute the income and/or capital of the trust as and when they think fit and essentially in such proportions and as between such beneficiaries they think fit. In addition, that the trust deed is a family trust – titled The **** Family Trust.

  1. appointor – the appointor is mentioned in clause 8 of the deed – there it is defined to be the son and after the son’s death, his executors. Essentially, the powers of the appointor is the power to remove or appoint in the place of removed, dead or retired trustees, other trustees. Essentially the appointor can remove or appoint new trustees. Clause 5(a) of the trust deed it looks at how to appoint capital and/or income. What the trustee is given a power to do there is that the trustee may by deed appoint that in the lieu of the trust declared by this trust deed that the trust fund and income shall be held on trust in favour of any such beneficiaries as the trustee thinks fit. Essentially, it enables the trustee to create more trusts out of this one trust.

What does the Trusts Act provide in relation to appointment? – look at s.12(1) of the Act, it says that a person nominated in the trust deed or the surviving or continuing trustee(s) have this power of appointment.

  1. What is the trust property? – para B of the trust deed you will see that the trust fund is defined to include $100 plus any additional property, real or personal acquired by the trust.

Under the Trusts Act the definition of trust property is contained in s.5 and that includes property settled on any trust, property subject to a trust or direction for sale, land which is vested in any person for an estate for the person’s own or any other life or for a term of years not being a lease at rent or for any greater estate as long as it is not a fee simple absolute. The Trusts Act says that trusts property also includes land in respect of which a person has by virtue of a will, a personal licence to reside for the person’s own life or for the life of any other person or for a lesser period.

  1. vesting date – the vesting date in the trust deed is listed as the date of distribution in para 1(b) and in this case it is the 80th anniversary of the execution date of the deed.

What happens on the vesting date is that the trust comes to an end and under clause 2(b) the trust fund, both the capital and income is held for the grandchildren equally of the son and daughter-in-law of if their grandchildren are dead their share is held by their descendants.

  1. the trustee’s powers are quite comprehensive and are set out in clause 6 of the trust deed. The trustee here does have the power to carry on a business. The power to carry on a business here is expressly provided for in clause 6(h) of the deed.

Compare power in trust deed with the powers in the Trusts Act and then determine which of those powers applies to this trust deed? The power to carry on a business is found in s.57 of the Trusts Act and you will see that is limited to the commencement of the trust, the trust property or any part of it is being used by the settlor to carry on business. In those circumstances under the Trusts Act the trustee may continue to carry on that business for two years or as necessary to wind up or sell the business or for such further time as the court approves. This power in s.57 is subject to the terms of the trust instrument. Here the trust deed validly gives a right of power to carry on business. In clause 6(h) the power of the trustee to carry on business is not limited to the businesses already established by the settlor. For example, our instrument says here that the trustee may acquire or carry on a business so it is not limited to businesses already carried on by the settlor. Therefore, the trustee provision here is much wider and will apply instead of s.57.

  1. what powers of investment does the trustee have? – clause 6(a) of the trust deed, here it says expressly that the trustees may invest the trusts monies and do and manage and realise that money as if the trustees were the sole and absolute owners. So they may invest on behalf of the trust as if they were the sole and absolute owners of the investment or property they are investing.

The trust deed also provides that the trustees shall not be accountable for any loss arising out of the making or management of any investment or the failure to realise any investment.

How do the powers of investment in the trust deed compare to the powers contained in the Trusts Act? – in relation to the trustee’s powers of investment they are contained generally in Part III of the Act. However, if you look at s.21 it gives the trustee the power to invest in any form of investment and to at any time to realise, reinvest or vary an investment. Therefore, the trust deed and the Trusts Act in this case both contain very wide investment powers.

  1. is the trustee entitled to payment for its services? - yes, clause 10 of the trust deed says that the trustee is entitled to a commission which is equal to 5% of the trust income. Under clause 9 of the trust deed, the trustee if they are a solicitor, accountant or any other person engaged in any profession or business shall be entitled to charge and to be paid their professional fees for any business or act done by them in connection with the trust.

The Trusts Act – s.101 – says the court may authorise or approve a trustee to charge such remuneration for their services as the court thinks fit. S.101(1) in order to provide for an entitlement as a trustee to be paid for your services you must get approval of the court.

s.79 of the Trusts Act states that the provisions in Part XII of the Act in which s.101 lies will apply regardless of the provisions in the trust deed.. Therefore, in this case regardless of what clause 10 of the trust deed says in relation to the trustee’s entitlement to charge his commission at 5% of the income he will have to get approval of the court under s.101(1) first to be able to do that.
s.101(2) covers a trustees entitlement if they are a professional trustee to charge fees for professional services provided by them to the trust and in no circumstances s.101(2) does not require the trustee to get the court’s approval before they do that. Clause 9 of the trust deed will apply to our trustee and they will not have to obtain court approval to be entitled to charge remuneration for their professional services under that clause.

Week 3

  1. What is a trust? A trust is essentially an equitable obligation binding a person who is the trustee as owner of some specific property, referred to as the trust property, to deal with that property for the benefit of some other person, namely the beneficiary, cestui que trust. Equitable obligation binding a person, the trustee, as owner of property, to deal with that trust property to deal with it for some person or for the advancement of certain purposes.

  1. What are the essential elements of a trust? There are four essential elements of a trust:

  1. you have to have a trustee – in relation to the trustee there may be more than one trustee but trusts may not have more than four trustees – this maximum requirement is set out in s.11 of the Trusts Act but it does not apply to charitable trusts. The trustee holds legal title to the trust property.

The trust must be validly created – the trust will not then fail for want of a trustee if the trustee dies for example. So if you have a trust and it has three trustees and in carrying out the trust business those trustees fly to Mackay say for the weekend. On the return from Mackay the plane crashes and all those trustees die. As long as the trust has been initially validly constituted or created it will not then fail if all its trustees have died and it has none.

  1. Trust property – there can be no trust unless some property is the subject matter of the trust over which the trustee has control. Trust property is widely defined in s.5 of the Trusts Act and includes property that is either legal or equitable, real or personal, tangible or intangible.

  1. The beneficiary – generally the beneficiary holds equitable title to the property. The appropriate principle here is the beneficiary principle that requires that to have a valid trust there must be a beneficiary or beneficiaries whether they be people or objects or purposes. Therefore, trusts for objects or purposes are an exception to the beneficiary principle and the purposes are usually charitable. In addition, a trustee can be a beneficiary but they cannot be the only beneficiary. Because to have a trust you need to have the separation between the legal and equitable or beneficial ownership of the property. If you only have one beneficiary and they are also the trustee you do not have that separation in legal and equitable title.

  1. Equitable obligation which binds the trustee to deal with the trust property for the benefit of the beneficiary or the advancement of the trusts purpose. This obligation is broken into two limbs and imposes firstly a personal liability and secondly a proprietary obligation. In relation to the personal liability we are talking about the personal liability on the trustee. If a trustee is in breach of trust the beneficiary can sue them personally for damages, etc arising from that. In relation to the proprietary obligation the trustee affixes to the trust property which is the subject of the trust. Therefore, this enables a beneficiary to follow the trust property even if in the hands of someone else other than a bona fide purchaser for value who does not have notice of the trust.

  1. How did the trust develop? Trusts developed from the system of uses which formed one of the sources of conflict which arose between the common law and equity. A use was the creation of equity which took the form of to (a) to the use of (b) and the use enabled one person to hold legal title to land for the benefit and use of another. In such a conveyance, the legal title owner, who is called the feoffor transferred property to the (a) feoffee to the use of (b) who is known as cestui que use. The use primarily enabled land owners to hold property in the name of another and it became a popular advice for doing one of two things. Either the avoidance of feudal taxes by bid against the property owners or enabling people who could not legally own land, ie. Monks to have their rights recognised.

As one of the uses of the use was the avoidance of fuedal taxes, the Statute of Uses was passed 1535 in an attempt to eliminate the position which equity had created and it did this by declaring the beneficial owner or the holder of the equitable interest of the property so (b) to be the legal owner or holder of the legal title. To overcome the effect of the Statute of Uses, equity lawyers then developed the use upon use or the double use and this lead to (a) to the use of (b) to the use of (c) with the second beneficial owner (c) not being effected by the Statute of Uses and retaining an equitable interest, not a legal interest, in the property and therefore (c) avoided being classified as the legal owner for tax purposes.

This double use then developed to form the modern day trust. The form of the modern trust reads to (a) unto and to the use of (c) or alternatively to (a) to the use of (a) to the use of (c) and thus rolled the previous two uses contained in the double use together. Here (a) is the set law, then the second (a) or different person (b) referring to the trustee who held the legal title and (c) referring to the beneficiary who held the equitable title to the property.
The trust then went on to form the most exclusive jurisdiction of the court of chancery.

  1. How are trusts used? The uses to which trusts can be put are broken up to 3 headings:

  1. family purposes

  2. commercial purposes

  3. social useful purposes

Under those headings some of the more common uses of the trust are:

  • trusts allow the enjoyment of property to be divided from the burden of managing it

  • successive interests may be laid out by the means of a trust

  • trusts can facilitate participation by large numbers of people with common interest in some venture, i.e. investment unit trusts or units that are sold like shares

  • trusts enable you to protects property from wastrels

  • socially useful purposes may be advanced by the means of a charitable trust

  • trusts allow for estate planning, asset protection especially in the event of bankruptcy and tax minimisation

  1. Compare position of trustee with

  1. bailee – in the situation for bailment, ownership in an article never passes only the possession of it. Therefore the bailor always returns ownership of the property and the bailee acquires only a possessory interest in it. Therefore the bailee does not have any property vested in them with which they must deal with for the benefit of another. In a trust, legal title to the property vests in the trustee with the beneficiary acquiring the beneficial interest in the property. Hence there is that separation between the legal and equitable interests in the property that we talked about earlier. As a result of not having ownership in the property, a bailee generally cannot pass title in the property to another whereas the trustee can pass good title to third parties if they take a bona fide purchases for value. In addition, another difference between the bailee and trustee relationship is that in a bailee or bailor relationship this relationship can only arise in relation to personal property whereas trust property as defined in s.5 of the Trusts Act is unrestricted, it can relate to personal or real property

  1. agent – an agent has no vested interest in their principal’s property, they only have possession of it. However if the actual title to the property is vested in the agent they will hold that property as trustee. Study guide points, usually where an agent collects money for their principal then the relationship between them and the principal is of debtor/creditor only. However, when an agent holds the proceeds of sale of a specific item of property for their principal they will hold those proceeds on trust depending on the circumstances. In relation to the agency/principal relationship and whether or not an agent holds funds as a trustee – need to look at Cohen and Cohen and Walker and Corboy.

Cohen & Cohen – in this case a wife authorised her husband to do various things for her, namely she appointed him her agent to sell some of her furniture and got him to insure her property and when it was lost, claim on her insurance policy. The wife also appointed her husband her agent to collect money she was owed from Germany and to buy goods for his business with it and to import those goods back into the UK. When the goods were resold in the business the object was for the husband to repay the wife out of those proceeds.
In relation to those transactions, firstly the one involving the monies received from the furniture and insurance. The court held that the monies were held on trust for the wife as the intention was that the husband account specifically for those proceeds, ie. He had to keep that money separate from his own funds.
In relation to those other monies collected by the husband from Germany and used to buy goods for the purposes of his business, here the court held that these monies were not held on trust as the intention was that the goods be brought by the husband and that they belonged to him for his business. Therefore in relation to these monies all there was was a debt owing to the wife which the husband was obliged to repay once those goods were resold and there was no trust.
The reason why in this case it was important to determine whether or not the husband held these monies as a debtor to the wife or whether or not they were held on trust for the wife was because that different statute limitation periods applied depending on whether or not the money was held as a debt or as money on trust.
Walker v Corboy – in this case fruit and vegetable growers sold their produce through a farm produce seller licenced under the Farm Produce Act which acted as their agent in selling the goods. The agent seller went into liquidation while holding the proceeds of sale of such produce. The growers therefore claim that the money withheld by the agent seller was in trust for them. In the circumstances of the case they were unsuccessful and it was found that the monies were not held on trust for a number of reasons.
The most important of these reasons are that none of the consignment notes that evidence the delivery by the growers of the produce to the agent for sale used the words trust in relation to the sale proceeds. In addition, there was no specific agreement that separate accounts in relation to the proceeds be kept nor was there any statutory requirement for them under the relevant legislation.
In addition, the court in that case exhibited a reluctance to introduce trust requirements into commercial transactions and said that although a trust is readily imposed on proceeds of sale arising from an isolated transaction the position may not be the same where the property is received in the ordinary course of an ongoing trading relationship. In particular, here the sales by the agent of the produce to retailers were mostly made by credit. Therefore, difficulties would arise if the agents were obliged to pay all monies received from purchases to the credit of the relevant grower into a trust account.
Another important distinction between a trust and agency is that the agent can create contractural relations between their principal and third parties without becoming personally liable on the contract. A trustee, on the other hand, contracts as principal and is personally liable. In addition, a principal may revoke an agent’s authority at will however, a set law of a trust cannot revoke or vary a trust or trustee unless they reserve the right to do so in the trust instrument.
This question essentially requires a discussion on the distinction between trust and debt and particularly quistclose trusts. Quistclose trusts generally protect a lender of money by giving them priority over other creditors of the debtor to whom the money is lent in relation to the sum lent.
In relation to the distinction between trust and debt, a debt is said to give rise to a contractural right of repayment and if a debtor becomes insolvent an unsecured creditors has to stand in line behind secured creditors to participate in the assets of the debtor. However, a trust on the other hand, if it exists, entitles the beneficiary of the trust to a proprietary interest in the assets of the trust. Therefore if a person lending money can also create a trust of the funds lent, if the debtor becomes insolvent the money is effectively secured for the creditor as it does not comprise part of the assets of the bankrupt’s estate and is therefore not available for distribution amongst their general creditors.
Therefore need to consider whether or not these categories of trust and debt are mutually exclusive.
In Barclays Bank v Quistclose Investments Ltd it was held that the categories of trust and debt and not mutually exclusive and that they therefore they both can exist in relation to any one particular transaction. So therefore a person holding someone else’s money may be both a debtor at law and a trustee of it in equity.
In Barclays Bank, a company, Rolls Razor was in serious financial difficulties and had exceeded its overdraft limit with Barclays Bank. Rolls Razor had no liquid resources and needed funds to pay dividends to its shareholders which dividends it had already declared. Quistclose agreed to lend the company enough money to pay the dividend and the agreement was the money was advanced for the purpose of paying the dividend and was to be used only to pay that dividend. In addition it was agreed that the money was to be paid into a separate bank account with the bank. Barclays Bank knew about this agreement as the cheque containing the monies was forwarded to it with a letter which set out the terms of the agreement. However, before the dividend was paid Rolls Razor went into liquidation. The Bank then set off the credit balance in the dividend account against the debit balance or the amount owing in Rolls Razor’s other accounts.
In this case Quistclose disputed the Bank’s entitlement to the funds claiming that there was a mutual intention that the money was held on trust to pay the dividend. This primary trust had failed, therefore a resulting trust arose in favour of Quistclose and because the Bank had notice of the trust it held the money on constructive trust to Quistclose and was not entitled to its right of set-off.
Why did a resulting trust arose in favour of Quistclose. A resulting trust arises where money is advanced for a purpose and that purpose fails. When a purpose fails the property which is held on trusts results or goes back to the person who created the trust.
So in this case when the trust for the primary purpose, the purpose of paying the dividend failed because Rolls Razor went into liquidation and therefore could no longer pay the dividend those monies were held on a resulting trust for Quistclose.
The bank of course argued that the transaction was one of a loan only and that the relationship of debt necessarily excluded any implication of trust because the transaction could only admit one action or another, it could not admit both. So they were arguing that you can’t have a transaction where there is a trust and a debt relationship.
However, in the case Lord Wilberforce had no difficulty recognising the co-existence in the one transaction of legal and equitable rights and remedies. Lord W says that after the fulfillment of the purpose there is a debtor and creditor relationship. However, if the purpose is not fulfilled the relationship depends on the intention of the parties. If there is an agreement that the monies advanced would be repaid if the purpose failed there will be a trust. However, if there is no such agreement there is a debtor/creditor relationship only.
In Quistclose’s case, the court held that there was a mutual intention that the funds should not become part of the general assets of Rolls Razor but be used exclusively to pay the dividend creditors and further that if that dividend could not be paid the money would be returned to Quistclose. This gave rise to a primary trust in favour of the creditors in relation to the payment of the dividends and if that primary trust failed a secondary trust was held to arise in favour of the provider of the funds which was here Quistclose. The court also held that the bank had sufficient notice that the money was trust money and not part of the general assets of Rolls Razor as although the opening of the separate account was not sufficient to constitute notice, here, a cheque was received with a covering letter explaining the agreement and there had been a conversation also with the bank manager.
What determines whether this type of trust arises is the intention of the parties. Where money is advanced by A to B with the mutual intention that it should not become part of the general assets of B but should be used exclusively for a special purpose there will be implied, in the absence of a contrary intention a stipulation that if the purpose fails the money will be repaid and the arrangement will give rise to a relationship of a fiduciary character or trust. – test comes from Australasian Conference Association v Main Line Constructions Pty Ltd (1979) 141 CLR 335 at –353
Therefore the most important element to establish a quistclose trust and the one which is the most difficult to establish is this requirement of a mutual intention that the funds be held upon trust and not form part of the general assets. This is because the intention is not always express. The most significant factor in finding a mutual intention is the obligation to keep the fund in a separate account. This will provide strong evidence of a trust although this is not conclusive. – see Henry v Hammond and Thiess Watkins v Equiticorp
In Thiess Watkins case it was held there that the circumstances upon which the money was advanced and held were such that it could be inferred from the terms of the deposit that the plaintiff intended the money to be kept separate. Therefore in that case, on that basis, a trust was found.
The principle that there is an intention that the funds should not become part of the general assets. Does this intention have to be mutual. It has been held that a quistclose trust can be established on unilateral intention only of one party even though quistclose itself was one of mutual intention. The case which says the intention may be unilateral is Re Kayford (1979) 1 WLR 279.
In Re Kayford a mail order company was in financial difficulties. On the advice of its accountant to protects its customers it set up a trust account into which it deposited customers’ payments pending receipt by them of the goods delivered. On the winding up of the mail order company it was held that the money in the account was held on trust for the customers and did not form part of the general assets of the company even though the trust was created unilaterally by the company. This case has been criticised as not really being an example of a quistclose trust as a quistclose trust in the case itself was a resulting or constructive trust whereas the Re Kayford trust is more like an express trust.
Further, in Re Kayford when the money was received it was received beneficially, wholly in favour of the mail order company and then the trust was created. Arguably this would amount to a voidable preference under bankruptcy law. A way of avoiding this voidable preference would be to impress the funds with the trust on receipt. For example, the invoice saying that the funds are to be held on trust until the delivery of the goods and the customer acknowledging that by signing that receipt. As in quistclose’s case the parties agreed before the advancement of the monies to rolls Razor that the funds were to be held on trust, i.e. in those separate accounts and for that specified purpose and were to be returned if that purpose were not satisfied. Whereas in Re Kayford’s case the mail order company received the money and then decided to hold those monies on trust unilaterally.
Apply law to facts of this problem.
Aaron would be trying to argue that there was a quistclose trust of the $90K in the Melpac bank account of which he was a beneficiary. This is important for him as then Amanda has no beneficial entitlement to the money and therefore it would not be available to the general creditors on her bankruptcy. If no trust is established, however, then Aaron would need to stand in line with the other creditors in relation to the repayment to him of the money lent to Amanda.
Therefore, Aaron would argue that the funds were advanced for a particular purpose, not intended to form part of Amanda’s general assets and that there was a mutual intention that if the purpose failed the money would be returned to the provider of the funds. A primary trust would then arise for the benefit of the creditors as the monies were advanced to pay Amanda’s business creditors and to keep her business going and a secondary trust would arise if that purpose or primary trust failed and the secondary trust would be for the benefit of Aaron as the provider of the funds.
So in these circumstances, if a trust was established, it would be argued that Aaron is the settlor, Amanda is the primary trustee and the bank is a constructive trustee to the extent that it tried to set-off its $15K overdraft against the $90K funds remaining in the account and they would be a constructive trustee as they had notice of the arrangements as in quistclose’s case and in Theiss Watkins.
In relation to the trust arrangement, the beneficiaries would be Amanda’s business creditors and they would be the beneficiary of the primary trust established and Aaron would be the beneficiary of the secondary trust if that first or primary trust fails.
How do we establish a quistclose?

  • apply test that there must be a mutual intention that the monies not form part of Amanda’s general assets which are available for distribution to her creditors and therefore there must be a mutual intention that the monies are held on trust. The facts state that Aaron deposited the $100K into Amanda’s bank account and at the time he made the deposit he notified both Amanda and her bank that the deposit was to be used to pay the business creditors in order to prevent her from being declared bankrupt.

From these facts we can establish that there perhaps was a mutual intention that the monies here were advanced for a specific purpose, namely, to allow Amanda to pay her creditors so that she did not go bankrupt. But can it be stated that there is this mutual intention that the trust fund not form part of Amanda’s general assets. The best evidence to establish this mutual intention is maintenance or the existence of a separate bank account in relation to those funds. Here the monies do not seem to have been put into a separate bank account and appear only to have been put into Amanda’s other bank account and mixed with her own money.

In addition, there does not seem to be any express agreement that the money is not to form part of Amanda’s general assets. However, can that agreement be inferred. May be able to argue by analogy to Cohen and Cohen where the court was prepared to infer such an obligation having established that the proceeds of sale of the furniture and the proceeds of the insurance policy were trust monies. They held there that failure to establish the separate account gave rise to a constructive trust in relation to those monies held by the husband. However, it is arguable on the facts here that you cannot infer this.
However, if you can infer that there was a mutual intention that the money not form part of the general assets then the court will usually infer the obligation to return the money if the purpose is not fulfilled – see Quistclose and also Thiess Watkins. In addition, Amanda may try to argue here that the advancing of money by Aaron was a gift to her and not merely a loan. However, no presumption of advancement exists between a stepfather and a stepdaughter. A presumption of advancement would mean that there was a presumption that the money was intended to be a gift and that presumption may then be rebutted by contrary evidence.
However, as the relationship here between Aaron and Amanda is one of stepfather and stepdaugther there is no presumption of advancement and therefore there is no presumption in this case that the advancing of the money was intended to be a gift to Amanda. However such a presumption does exist between fathers and their children so if the circumstances of the relationship between the parties here was different Amanda may well be able to argue that there was an intention here that these monies were intended to be a gift to her and then the onus would be on Aaron to adduce evidence rebutting that presumption.
Therefore, the major difficulty that arises in Aaron’s case is that there was no separate account and therefore there is no clear evidence of an intention that the money not form part of Amanda’s general assets. On that basis Aaron may run into difficulties in establishing a quistclose trust in relation to the sums lent to Amanda.
There is also an issue here as to whether or not the intention is a mutual one as to whether or not the intention is merely Aaron’s in relation to the intention that the funds not form part of Amanda’s assets and that they are advanced for a specific purpose – in relation to this issue need to refer to Re Kayford’s case.
Assuming that Aaron was successful in establishing that a quistclose trust arrangement had been created here you would then to consider to what extent has the purpose of the primary trust here failed. Remember in the quistclose trust structure here the primary trust has been created for the primary purpose of paying Amanda’s creditors to prevent her from becoming a bankrupt. On reliance on that purpose it is argued that Aaron advanced or deposited $100K into Amanda’s bank a/c.
Amanda has paid our $10K of that amount to pay her debts to stave off her bankruptcy. Therefore when Amanda goes bankrupt here the purpose has only failed to the extent that the creditors were not paid, i.e. only to an amount of $90K which has not been applied to the purpose. Therefore, in relation to that $90K once the primary trust fails the secondary trust will arise as a resulting trust in favour of Aaron and Aaron will therefore be secured to the extent of $90K and will not have to rank in line with the general creditors of Amanda in receiving repayment of that money.
However, in respect to the other $10K which has already been applied by Amanda for the purpose of paying off her creditors, Aaron here is only an ordinary creditor because the purpose has been satisfied. So therefore the relationship between him and Amanda is only one of debtor and creditor and Aaron therefore must stand in line with all the other creditors of Amanda to recover that money as a debt. In Quistclose’s case at p.581 – 582 in relation to this point.
Position of Melpac as the bank. Ordinarily a bank may amalgamate accounts setting off credit balances against debit balances because a relationship between a bank and a customer and is one of creditor/debtor. So in the normal course the bank would set-off the $15K overdraft against the balance in the other account here. However, if a trust is established, the bank cannot exercise this right of set-off as the bank here has notice of the trust because Aaron has told the bank of the circumstances in which the money has been advanced to Amanda. So therefore if the bank with this notice tries to set-off thee money it will be held to be a constructive trustee of those funds and the bank will be liable to account for them.
In summary, if a quistclose trust has been established in favour of Aaron to the extent of $90K Melpac bank will not be able to set-off the overdraft against the $90K.

Week 4
Classify type of trust – express trust – this is trust where the settlor or testator has expressed his or her intention to set up a trust. In order to create an express trust there are four broad requirements:

  1. there must be capacity in the settlor, trustee and beneficiary;

  2. there must be present the three certainties of intention, subject matter and object;

  3. the trustee must have title to the trust property in that the trust is completely constituted and any statutory requirements of writing for the creation of trust are satisfied; and

  4. there must be no other vitiating factor.

Looking at the last two requirements first, i.e. is there here the creation of an express trust in that is the trust completely constituted, so does the trustee have title to the trust property?

The trust that we have here in clauses 1 and 2 is created by a will so it is a trust post mortem. So to be valid the trust must be in writing, signed by the testator and signed by the testator in the presence of two witnesses who are present at the same time. These requirements of writing for trusts created by a will are dictated by s. 9 of the Qld Succession Act.
Here the will is validly created as the statutory requirements set down by s.9 have been observed. We have been told here that the trust instrument has been properly executed and witnessed and therefore the trust has been completely constituted here.

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