#10986 - Statutory Formalities - Trusts

Statutory Formalities

• If the relevant statutory formalities are not complied with, the trust may be void or at least unenforceable

• Prevalence

  • Overlap of (b) and (a): (b) prevails over A DSS v James

    • If both comply (b) also applies to validity

  • (c) prevails over (b) (obiter – DSS v James)

  • Unsure as to the status of (a) and (c) (realistically require writing at same time)

53(1)(a)

• No interest in land (NOT CHATTEL) can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law.

  • Applies to: (no mention of “trust”)

    • All disposition of legal or equitable interests in land Adamson v Hayes

    • All creations of legal interests in land Adamson v Hayes

    • All creations of equitable interests in land, except where that interest is created by a declaration of trust Adamson v Hayes

  • Trusts by transfer, does not apply to declaration of trust as that would render (b) useless DSS v James

  • Must be signed at the time

  • Creation: bringing into existence a new interest

  • Disposition: movement of an existing interest e.g. selling

  • Interest in land: means legal and/or equitable interest in land Adamson v Hayes

• If not complied with, the trust is void

53(1)(b)

• A declaration of trust respecting any land (NOT CHATTEL) or interest therein must be manifested and proved by some writing signed by some person who is able to declare such a trust or by his will

  • Applies to creation of equitable interests in land by declaration of trust

  • Declaration of trust can be oral and later reduced to writing – until it is reduced to writing, it is not enforceable (but it is still valid)

    • Writing must be done by the person who declares the trust, not an agent

  • Can read a combination of documents together to meet requirements

• Who can manifest and prove by some writing?

  • Owner of the property (the settlor)

  • The trustee if it’s a trust by declaration and settlor is incapable of signing it (limited to facts) Shouldn’t be able to use the statute of frauds as an instrument of fraud. When there is a third party involved (not just trustee and beneficiary) probably won’t be allowed Hagan v Waterhouse

• How do you manifest and prove by some writing?

  • Can be informal

  • Can be contained in various documents

  • Essentially terms of the trust must be clear (as long as 3 certainties are clear)

53(1)(c)

• A disposition of an equitable interest or trust subsisting at the time of the disposition must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by his will

• Applies to both real and personal property (PT Ltd v Maradona Pty Ltd)

• What is a subsisting equitable interest?

  • An equitable interests that already exists at time of disposition

    • A beneficial interest

    • A partnership interest

    • An equitable mortgage over land

• Doesn’t apply when A owns property both legally and beneficially and transfer B to B

• Three methods of voluntarily disposing an equitable interest Grey v IRC Must be clear on facts they have done this Howard Smith

  • Declaration of a sub-trust Grey v IRC

    • Where there has been a declaration of a sub-trust, is it a disposition (c), or does it create a trust (b)? Must comply with both requirements BT & V

      • Is the B simply a conduit who is cutting themselves out of the equation (given equitable interests away? Likely to be called a disposition and (c) will apply

        • OR

      • Does the B want to become trustee and hold is equitable interest on trust for someone else (and they will still have obligations) - perhaps not a disposition thus (c) wouldn’t apply

  • Manifestation of an immediate intention to give the interest away

  • A final direction given to the trustee to hold the trust property on trust for a 3^rd party Howard Smith

    • Must be more than a revocable mandate– if you tell your attorney who is also your executor that you want this, you would easily be able to chance your mind

    • Must intend to take effect straight away

    • Must be certain about what is being given away

    • Does NOT include when there is a direction to a trustee to transfer trust property to a 3P so that 3P holds both legal & beneficial estate (this results in the transfer of legal estate and not of subsisting equitable interest, so no writing needed under this section) Vandervell v IRC

• If not complied with, trust is void

Other sections

• Sec 53(2) – This section shall not affect the creation or operation of resulting, implied or constructive trusts E.g. Halloran v Minister Administering National Parks

• Sec 55 – Nothing in the last two preceding sections (53, 54) shall

  • (a) Invalidate any disposition by will…

  • (d) affect the operation of the law relating to part performance

  • Summing that up, lack of compliance with s 53 won’t invalidate resulting, implied or constructive trusts, or a testamentary disposition, or a contract enforceable because it has been partly performed

  • Partially Performed Contract: Let’s say you enter into a contract for the sale of land, but do so orally and not writing, and pay money to vendor for land. If we apply the statute of frauds strictly, the contract would be unenforceable. That would let the vendor walk away with the money you pay him, and the statute of frauds be used as an instrument of fraud. It's not unenforceable because of the effect of section 53

  • Constructive trust: One of the remedies for breach of fiduciary duty is a constructive trust. It would be ridiculous if the statute of frauds came along and said it was not enforceable because it was not in writing. It would undermine equity's remedial skills if a CT had to be in writing.

Examples

• S transfers Torrens land in writing to T, telling T to hold on trust for B. What formalities need to be complied with if B wants to enforce trust?

  • S T must be in writing for (a)

  • If the settlor never put it in writing, the trust would be unenforceable, and the beneficial ownership would go back to settlor

• S transfers Torrens land in writing to T, telling T to hold on trust for B. The next day, S writes to B, telling B what has happened. What formalities...?

  • As long as the letter has enough detail in it and is signed by the settlor, it will be enough to manifest and prove the existence of a trust

• S declares herself trustee of Torrens land she owns for B. What formalities...?

  • (a) does not apply

  • Only have to comply with (b)

• S declares himself trustee of his car for B. What formalities...?

  • (a) and (b) don’t apply as the property is not land

  • (c) also doesn’t apply because

  • Can declare trust over chattel without any written formalities

• B is a beneficiary of a trust over land. He declares himself trustee of his interest for C (sub-beneficiary). What formalities....? Is this a ‘disposition of a subsisting equitable interest’?

  • All three might attract

  • With transfer, must comply with (a)

  • What about C?

    • New equitable interest (a)

    • They at least have an ability to sue in a court of equity (equitable chose of action)

    • But it has been created via a declaration of trust over an interest in land. Isn’t this captured by (b)?

    • Perhaps we can say in this situation, we might rely on just (b)

    • (c) might also apply: declaration of sub trust is a method of disposition (Dixon in Howard Smith)

      • But is it necessarily a disposition? Does the beneficiary have anything? Do they have any obligations? Beneficiary must still be holding something. Probably beneficial interest in original trust.

      • Is it actually a disposition?

        • Let’s assume that the settlor is my father and passes property to my mother to hold on my behalf.

        • Might decide don’t need the money, and declare sub trust on behalf of children. How should I do that? Perhaps the money is paid to me every year, and I take the money and invest it and pay it to the children.

        • Hard to say then that I’ve disposed of my interest in the trust.

      • Alternative is to regard myself as a conduit, out of the picture. Hard to say I haven’t disposed. If I really have, have to comply with (a) and (c)

        • Overlap between (a) and (c)

        • But isn’t crucial as they have the same requirements

• J lends H $10,000 for 5 years, on security of an equitable mortgage over H’s land. What formalities....?

  • 53(1) (a) applies because

  • Creation: creating something that wasn't there before

  • To dispose: it has to already be there

  • Not a declaration of trust so (b) doesn't apply

• Later, J wants to give the benefit of the equitable mortgage to L, and tells her she now holds the equitable mortgage. What formalities....?

  • This now is a disposition of a subsisting equitable interest therefore must comply with (c), has to be done in writing, wasn't so it is void

  • (b) Doesn’t apply as it is a declaration not by way of trust

  • But subsection (a) does apply because this is a disposition

  • Shares: (a) (b) doesn’t apply. (c) Doesn’t apply because we are creating not disposing. But when J decides to give the benefit of the equitable interest to L, we are disposing of a subsisting equitable interest thus would be caught by (c) (not (a) as we don't have an interest in land)

• Will your answer be different if equitable mortgage is over shares, not land?

• Note: none of examples on this page involve trusts- REMEMBER s 53 is not limited to trusts.

• Issues with split in title

  • Before the split happens, we don't say the settlor has a legal and equitable interest before they declare a trust.

Overlap between subsections (b) and (c)

• Confusion is created because there is no clarification of the word “disposition”.

• For the purposes of (b), according...