Topic 4 slides - Equitable Estates and Interests(1).pdf -...

Unformatted text preview: Equity & Trusts 70517 Equity & Trusts Topic 4 Equitable Estates and Interests Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Topic 1 Topic 2 Topic 3 Topic 4 Topic 5 Topic 6 Topic 7 Topic 8 Topic 9 Topic 10 Topic 11 Topic 12 Topic 13 Topic 14 - History and Nature of Equity Unconscionable Dealing and Undue Influence Equitable Estoppel Equitable Estates and Interests Equitable Assignment of Legal Property Equitable Assignment of Equitable Property Fiduciary Obligations Accessorial Liability for Breach of Fiduciary Duty or Trusts Tracing / Account of Profits Equitable Compensation Constructive Trusts Resulting Trusts Express Trusts Duties, Powers, Rights and Liabilities of Trustees; Rights of Beneficiaries Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 A What is “property”? What are proprietary rights? B Introduction: equitable rights and interests in property C Equity acts in personam D Basic concepts E Legal & equitable ‘ownership’ F Nature/features of equitable interests in property G Hierarchy of equitable interests: equitable proprietary H rights; mere equities; personal equities Priorities Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 A What is “property” at law? Concepts and definitions include: • Power permissibly exercised over a thing: Yanner v Eaton (1999) 201 CLR 351 • Objects, things, land • Real property/ personal property Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 A What are proprietary rights? In Heydon, Leeming and Turner's, Equity Doctrines and Remedies (5th ed, 2015,) the authors suggest that there are at least four characteristics that are relevant in identifying interests in any particular property as being “proprietary”: 1. the power to recover the specific property; 2. the power to transfer the property to another; 3. the persistence of remedies in respect of the interest against third parties who assume the burden of such remedies; 4. the extent to which the interest may be displaced in favour of competing dealings by the grantor or others with interests in the subject matter (i.e., priorities). Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 A What are proprietary rights? National Provincial Bank v Ainsworth [1965] (Lord Wilberforce) “Before a right or interest can be admitted into the category of property or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 A What are proprietary rights? Burns Philp Trustee Co Ltd v Viney [1981] (Kearney J) “The administration of equity has always paid regard to the infinite variety of interests and has refrained from formulating or adhering to fixed universal and exhaustive criteria with which to deal with such varying situations. The approach traditionally adopted by equity has been to retain flexibility so as to accommodate the multitudinous instances in which fundamental equitable rules fail to be applied”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 B Equitable rights and interests in property Equitable proprietary rights are rights and interests in property which is legally owned by another which are recognised only in Equity. • different types of equitable rights and their characteristics vary in terms of transmissibility, priority, permanence, the remedies available to enforce them, and other matters. • no fixed formula by which equitable interests in property can be understood or classified. • Some can be regarded as forms of ‘property’ for different purposes, eg in insolvency and for taxation purposes. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 B • Equitable rights and interests in property Equity awards personal remedies – specific performance & injunctions – against person of defendant. • Over time equity awarded personal relief not only against owners of property but against third party recipients. • Eventually this resulted in certain interests – eg beneficiaries under trust - being recognised as property rights. • But availability of remedy does not necessarily mean protected interest is property (eg confidential information is not property). • Circularity involved in reasoning that availability of remedy means interest protected is property right: Colbeam Palmer (1968). Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 C • • • • • Equitable maxim: Equity acts in personam Traditionally, equitable interests were non-proprietary & personal (like contractual rights), as equity binds the conscience. ‘In personam’ means “against the person”. But only true historically – equity has long recognised equitable interests as proprietary – eg. interest of beneficiary under fixed interest trust. Still has some currency in private international law – for example, equity will only act in personam in relation to foreign property (property located overseas). Since equity acts upon conscience of person, sufficient that defendant is w/in jurisdiction, even though property is not. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 D • Basic concepts Chose in action – right of personal property which can only be enforced by action as distinct from taking physical position. • Legal choses – enforceable by court of common law – debt; bills of exchange; share in company, • Equitable chose – enforceable in court of equity – legacy in completely or incompletely administered estate; share in a trust fund; mortgagor’s equity of redemption; equitable mortgage or charge; partner’s interest in partnership assets. • Stamp duty – tax payable on transfer of property (eg land or business assets). Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 D Basic equitable concepts • Charge – security interest over property created by parties (consensual) to secure payment of a debt. • • • Lien – security interest over property imposed by operation of law (non-consensual). • • Eg. Testator devises B/acre to A & charges B/acre with payment of money to B. Charge creates equitable proprietary interest in B/acre in favour of B. Eg. Lien of vendor over property for unpaid purchase money (vendor’s lien). Equity of redemption – right (recognised by equity) of mortgagor to redeem property once debt secured by mortgage repaid. • Recognised as a form of equitable property that can be bought, sold or mortgaged. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 E Legal & equitable ‘ownership’ DKLR Holdings (No 2) Pty Ltd v C/r of Stamp Duties (NSW) (1982) • 29 Macquarie (No 14) Pty Ltd owned land. • Board meeting – land to be conveyed to DKLR to be held on trust for 29 Macquarie. • DKLR to hold only legal interest & 29 Macquarie not part with beneficial interest. • Was ad valorum stamp duty payable on instrument creating trust? Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 DKLR Holdings Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 (Aickin J) • “If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable”. • “If he first holds the legal estate upon trust for some other person and thereafter that other person transfers to him the entire equitable interest, then again the first-named person does not hold two separate interests, one the legal and the other the equitable estate; he holds a single entire interest – he is the absolute owner of an estate in fee simple in the land”. • Brennan J – “Equitable interest isn’t carved out of a legal estate but may be impressed upon it”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 DKLR Holdings Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 • Aickin J - “It is a fundamental principle of both the common law and of equity that the holder of an estate in fee simple cannot be a trustee of that fee simple for himself for what he holds is a single estate, being the largest estate in land known to the law”. • Brennan J – “29 Macquarie could not except or reserve an equitable estate from the property transferred by it to D.K.L.R., nor could D.K.L.R. become a t/ee of an interest excepted or reserved from the transfer. A transferee does not become a t/ee by failing to acquire an interest in the property transferred; a t/ee holds on trust only such interest as he acquires”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Legal & equitable ‘ownership’ Examples • S (settlor) transfers property to T to be held on trust for S. • S does not keep equitable (beneficial) interest, but transfers ‘ownership’ to T and new equitable estate created in S. • T holds B/acre on trust for A. A transfers beneficial interest to B. T subsequently transfers legal estate to B. • What does B have? Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Nature of equitable interests in property Scope commensurate with relief equity will grant to enforce it. • Scope of equitable interest commensurate with relief equity will grant – eg specific performance or injunction. • But in some cases equitable protection takes form of property right. Commissioner of Stamp Duties (Qld) v Livingston [1965] 1 AC 694, 712. ‘Equity … calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required to give effect to its doctrines.’ Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Livingston v. Commissioner of Stamp Duties (Qld) (1960); Commissioner of Stamp Duties (Qld) v. Livingston [1965] • At her death, Mrs Coulson entitled to one third interest in residuary estate of deceased husband. • Husband’s estate was not fully administered. • Estate included real & personal property in Qld & NSW, but executors seat of administration in NSW. • Succession duty assessed on basis Mrs C died owning beneficial interest in property in Qld. • Was Mrs C’s estate liable for succession duty? Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Livingston v. Commissioner of Stamp Duties (Qld) HCA • Kitto J • “Mrs C’s rights … may be described in two ways, each of them correct. They may be described by saying that she was entitled to have the administration of the estate completed, & one-third of the residue, when ultimately ascertained, paid or transferred to her. They may also be described by saying that she was entitled at her death to have every individual asset which at that time was comprised in the estate dealt with in a due course of administration.” Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Livingston v. Commissioner of Stamp Duties (Qld) HCA • Kitto J • “… the rights of residuary beneficiaries while administration is incomplete stop short of entitling them to any of the assets in specie, or any of the income in specie, or to any property or any part or share of property into which either the assets or their income may be converted”. • “The interest of a residuary beneficiary in an asset of an unadministered estate, consisting as it does of rights with respect to the whole estate, possess most substantial connexion with the place of the appropriate forum for enforcing the due administration of the estate…” Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Commissioner of Stamp Duties (Qld) v. Livingston [PC] • During course of administration the entire ownership of assets in estate was vested in personal representative (executor) so that beneficiary had at that stage no “proprietary” interest in any particular asset in the estate. • The right of the beneficiary was to compel the personal representative to administer estate correctly & obtain assistance of court of equity to that effect. • Right of beneficiary was chose in action which was transmissible under will of beneficiary as personal property. • Viscount Radcliffe emphasised that terminology of legal system had not produced sufficient variety of words to present various meanings conveyed by words such as “interest” and “property”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Commissioner of Stamp Duties (Qld) v. Livingston [Viscount Radcliffe] • “What equity did not do was to recognise or create for the residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration”. • “The assets as a whole were in the hands of the executor, his property; & until administration was complete no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Commissioner of Stamp Duties (Qld) v. Livingston Where is the beneficial interest? • “This dilemma is founded on a fallacy, for it assumes mistakenly that for all purposes and at every moment of time the law requires the separate existence of two different kinds of estate or interest in property, the legal and the equitable. There is no need to make this assumption.” • “When the whole right of property is in a person, as it is in an executor, there is no need to distinguish between the legal and equitable interest in that property, any more than there is for the property of a full beneficial owner”. • “Equity in fact calls into existence and protects equitable rights & interests in property only where their recognition has been found to be required in order to give effect to its doctrines”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Livingston’s case leaves position of inter vivos dispositions of interest in unadministered estates unsettled. Horton v Jones (1935) • Jones gave oral promise to make a will in favour of Horton in return for Horton promising to look after Jones; but Jones did not make a will in her favour. • Jones had interest in unadministered estates of 4 children who predeceased him (they had mortgage interests in land).. • Horton looked after Jones until he passed away. • Horton brought action against executors of Jones’ estate to enforce promise. • Defs claimed promise unenforceable as it was a contract for sale of interest in land that was not in writing, as required by Statute of Frauds. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Horton v Jones (1935) (Rich & Dixon JJ) • Jones had right to have estates of deceased children administered in due course & receive net assets, but no right in any specific asset. • But it is not a consequence that he had no right of property in land. • He had more than a mere equity. He had an equitable interest & it related to assets which included interests in land. • As contract to sell interest in land – unenforceable. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Official Receiver v Schultz (1990) • Mrs Schultz had interest under Periera’s will (estate not fully administered). • Schultz declared bankrupt. • Official Receiver in Bankruptcy claimed interest in deceased’s estate formed part of S’s bankrupt estate. • Was interest of S ‘property’ for the purpose of the Bankruptcy Act? Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Official Receiver v Schultz (1990) – HCA • Prior to administration, there is no specific property capable of constituting a trust in favour of beneficiary – Livingston. • Though not the legal or equitable owner of the assets which were the subject of the devise and bequest in her favour, she had, by virtue of the chose in action created by that devise and bequest, an expectation that the assets would pass to her upon completion of the administration, subject to their being realized to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets. • That interest was derived from and dependent upon the chose in action. • The interest is of such a kind that, when a beneficiary transmits a chose in action (or part thereof), or that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission naturally encompasses not only the chose in action but also the expected fruits of that chose in action Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Features of Equitable Interests in property • Created less formally (“equity looks to intent rather than form”). • Bind the holder of the legal interest and volunteers but not a purchaser of legal estate for good faith without notice. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Creation of Equitable rights & interests in property 1. By agreement ie intentionally 2. By express trust (3 certainties) 3. Contract for sale of property Specifically enforceable contract for sale of property gives p/r equitable proprietary interest (constructive trust) prior to transfer of legal estate. 4. By implication of law – eg resulting trust; vendor’s lien. 5. By operation of law (court order): eg remedial constructive trust; equitable lien imposed by a court over the defendant’s property, so that if the defendant does not comply with the court order the property can be sold to satisfy it. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Equitable rights and interests in property – some examples • The right of a beneficiary under a fixed trust; • The right of a partner in the assets of a partnership; • Equitable lease and equitable fee simple; • Equitable charge and other security interests; • Equitable lien; • Equitable easement or restrictive covenant over land. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Hierarchy of equitable interests 1. Equitable proprietary rights and interests 2. Mere Equity 3. Personal Equity Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Hierarchy of equitable interests 1. Equitable proprietary rights and interests Eg. interest of beneficiary under fixed interest trust 2. Mere Equity Where property transferred under contract or gift, voidable in equity, party entitled to set aside transaction has ‘mere equity’. 3. Personal Equity Right of access to a court of equity of a pl seeking equitable remedies Not assignable; not enforceable against asset in hands of 3rd party Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Priorities (general rules) 1. Between two competing equities If merits are equal, first in time prevails Qui prior est tempore potior est iure 2. Between competing legal & equitable interests “Where the equities are equal the law prevails” Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Priorities – competing equitable interests Latec Investments (1965) (Kitto J) “In all cases where a claim to enforce an equitable interest in property is opposed on the ground that after the interest is said to have arisen a third party innocently acquired an equitable interest in the same property, the problem … is to determine where the better equity lies. If the merits are equal, priority in time of creation is considered to give the better equity”. Topic 4 – Equitable Estates and Interests Equity & Trusts 70517 Priorities – competing legal & equitable interests • Prior legal & later equitable interest • Legal interest generally prevails (unless exception eg estoppel) • Prior equity & later legal estate • An equity will not prevail against a bona fide purchaser of the legal estate for value & without notice of the prior equity. • The ‘bona fide purchaser’ defence destroys the prior equitable interest. • Notice can be actual, constructive or imputed. Topic 4 – Equitable Interests Equity & Trusts 70517 Mere Equities: ‘a right ancillary to the recognition of an equitable proprietary interest’: Latec Investments (1965) 113 CLR 2...
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