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The Creation of Trusts
                                   Read Equity & Trusts Ch 13

The Requirements of Certainty

Certainty of intention to create a trust

Commissioner of Stamp Duties (Qld) v Joliffe (1920) 28 CLR 178
Kauter v Hilton (1953) 90 CLR 86

Walker v Corboy (1990) 19 NSWLR 382

Quistclose trusts

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
Lyell v Kennedy (1889) 14 App Cas 437 at 457

A man who receives the money of another on his behalf, and
places it specifically to an account with a banker ear-marked
and separate from his own moneys, though under his control, is
in my opinion a trustee of the fund standing to the credit of
that account. For the constitution of such a trust no express
words are necessary; anything which may satisfy a Court of
Equity that the money was received in a fiduciary character is
enough. It is not requisite that any acknowledgement of such a
trust should be made to the cestui que trust or his agent; to
whomsoever made it is evidence against the trustee.

Australasian Conference Ass’n Ltd v Mainline (1979) 141 CLR
In Re Fada (Australia) Ltd [1927] SASR 590
Re Multi Guarantee Ltd [1987] BCLC 257
Carreras Rothmans Ltd v Freeman Mathews [1985] 1 All ER 155
Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681

V R Dye & Co v Peninsula Hotels Pty Ltd (in liq) (1998) 28
ACSR 167

Re Kayford Ltd [1975] 1 WLR 279

Avoidance of preferences

 (1) A transfer of property by a person who is insolvent (the debtor
) in favour of a creditor is void against the trustee in the debtor's
bankruptcy if the transfer:

(a) had the effect of giving the creditor a preference, priority or
over other creditors; and

(b) was made in the period that relates to the debtor, as indicated
in the following table.

(in    a bankruptcy following presentation of a creditor’s petition,
the Period beginning 6 months before the presentation of the petition
and ending immediately before the date of the bankruptcy of the

Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 196 ALR 482.

The appellant, Youyang Pty Ltd ("Youyang"), was trustee of a family
discretionary      trust.      Youyang   decided         to    invest    $500,000   in    EC
Consolidated      Capital    Ltd     ("ECCCL").         One   critical    aspect    of   the
investment was that ECCCL undertook to purchase a bearer deposit
certificate with a prime bank with part of the funds invested. Under
the bearer deposit certificate the prime bank undertook to pay the
bearer    $500,000      10   years    after       its    issue    thus    protecting     the
investment. The respondent, Minter Ellison Morris Fletcher ("MEMF")
was the solicitor for ECCCL.

In September 1993 Youyang completed the subscription agreement and
paid   $500,000    to   MEMF    which    released a           certain    sum to ECCCL    to
purchase a bearer deposit certificate from Dresdner International
Financial Markets (Aust) Ltd ("Dresdner"). The certificate obtained

by    ECCCL    was       defective   and    MEMF        was    aware    of   this.    In   1997     a
provisional liquidator was appointed for ECCCL and that company was
subsequently wound up. Because of the defective certificate, Youyang
recouped none of its investment of $500,000.

What Dresdner gave MEMF in return for payment to it of A$256,800 from
Youyang's money was not a bearer deposit certificate but a letter
effectively acknowledging indebtedness to ECCCL. That letter gave no
security to Youyang in the event of the insolvency of ECCCL.

MEMF    held    the      $500,000    paid    by    Youyang        on    trust   because     it    had
received       it   on    terms   that     obliged       it to     disburse      the moneys        in
accordance with the subscription agreement and not otherwise. MEMF
did not act as solicitors for Youyang and thus owed no contractual or
other common law duties to the appellant.

Youyang commenced proceedings in the Supreme Court of New South Wales
against MEMF. MEMF argued in its defence that, even if there had been
a    breach    of    trust,     Youyang     had        suffered    no    recoverable       loss   in
respect of that breach. At first instance Brownie AJ gave judgment
for    Youyang      in    the sum    of     $414,009, being             an   amount that        would
generate $500,000 on the maturity date in September 2003. The Court
of Appeal, by majority, Handley JA and Young CJ in Eq, found for
MEMF, holding that acceptance of the defective certificate was a
breach of trust but, nonetheless, one which did not cause any loss of
Youyang's funds. Hodgson JA was prepared to find for Youyang but in a
lesser sum, $221,558, being the balance of the money disbursed at
settlement by MEMF to ECCCL.

In a joint judgment the High Court, Gleeson CJ, McHugh, Gummow, Kirby
and Hayne JJ reversed the Court of Appeal's decision and found for
Youyang, in the sum of $500,000. In the process their Honours handed
down     a    powerful        endorsement     of       the    orthodox       principle     on     the
liability of a trustee who commits a breach of trust to restore the

The High Court began its statement of reasons by saying, at para 32:

“Perhaps the most important duty of a trustee is to obey the terms of
the    trust.       On   24   September     1993       there    were     several     breaches     by
Minters of the trust obligations it had undertaken to Youyang. First,

Minters released the trust moneys as to $256,800 for the purchase
from   DAL      of    what    was    not       the    requisite        certificate            of   deposit.
Secondly, the balance of $221,558.56 remaining after an appropriation
by Minters of $21,641.44 was paid out of Minters' trust account to
ECCCL in breach of the obligation of Minters not do to so unless the
payment to DAL had procured the requisite certificate of deposit. The
payment to Minters appears to have been in discharge of indebtedness
to the firm by ECCCL. It stands in no better light than the larger
sum    which     ECCCL       received.      The       result     is       that    the    whole      of   the
$500,000       was    dealt       with    by    Minters      in    breach         of    its    duties     as

Their Honours noted, at para 38, that this was not case in which the
trustee had done something that fell within the powers and duties
authorised by the trust but had failed to act with the requisite
degree     of       care    and     prudence.         In   such       a    case        the    measure     of
restitution or compensation has been said to be similar to that in
cases of common law damages (citing the English Court of Appeal
decision in Bristol and West Building Society v Mothew [1998] Ch 1 at
17),   although        the    High       Court       did   not    endorse        that        statement    of
principle, saying, at para 39:

Given the nature of the present case, those questions do not arise on
this appeal. However, there must be a real question whether the
unique foundation and goals of equity, which has the institution of
the trust at its heart, warrant any assimilation even in this limited
way with the measure of compensatory damages in tort and contract. It
may be thought strange to decide that the precept that trustees are
to be kept by courts of equity up to their duty has an application
limited to the observance by trustees of some only of their duties to
beneficiaries in dealing with trust funds.

This    was     a    case    of    breach       of    trust,      in      which    the       question     of
liability was not fixed at the time of the breach but lay to be
determined at the time of the trial using, as McLachlin J put it in
the Supreme Court of Canada in Canson Enterprises Ltd v Boughton & Co
[1991] 3 SCR 534 at 555, "using the full benefit of hindsight".

The High Court distinguished the House of Lords decision in Target
Holdings Ltd v Redferns [1996] AC 421, in which solicitors had paid
away their client's money without obtaining an executed mortgage in

proper form in return, on the ground that the executed mortgage had
subsequently been obtained and the client's subsequent loss was not
connected to the breach of trust committed by the solicitors. As the
Court noted, at para 47, the breach of trust by the solicitors in
Target Holdings left the client in exactly the same position as if
there had been no breach: " if the instructions had been obeyed, the
transaction still would have gone ahead and the client suffered a
loss represented by the difference between the amount advanced on
security and the amount realised from the security. That loss would
have been caused by the fraud of third parties."

In Youyang's case the security transaction was never completed.

There were subsequent dealings which provide some explanation for the
Court of Appeal's decision. In September 1994 ECCCL withdrew the
money deposited with Dresdner and deposited it with another bank,
having obtained the consent of the beneficiaries, including Youyang,
in the process. However, Youyang gave that consent without knowledge
of the defective nature of the original placement of money with
Dresdner and without knowledge that its position was to be no better
protected under the arrangements made in September 1994. Handley JA
and   Young   CJ   in   Eq   took   the   view   that   Youyang   had   effectively
released its rights in respect of any breaches committed in 1993 by
agreeing to the Deed Poll which effected a change in the arrangements
in September 1994.

Precatory trusts

Certainty of subject matter

Mussoorie Bank v Raynor (1882) 7 App Cas 321

Certainty of object

McPhail v Doulton [1971] AC 424
Morice v The Bishop of Durham (1804) 9 Ves 399; 32 ER 656

Trusts for Unincorporated Associations

The beneficiary principle

Leahy v A-G (NSW) [1959] AC 457; (1959) 101 CLR 611
Bacon v Pianta (1966) 114 CLR 634

The constitutional principle

Neville Estates Ltd v Madden [1962] Ch 832
Re Goodson [1971] VR 801

Cameron v Hogan (1934) 51 CLR 358
Wise v Perpetual Trustee Co Ltd [1903] AC 139 at 149

The fiduciary principle

Re Lipinski’s Will Trusts [1976] Ch 235
Re Denley’s Trust Deed [1969] 1 Ch 373
Harrison v Hearn [1972] 1 NSWLR 428

Purpose Trusts

The Constitution of a Voluntary Trust

Secret trusts

Trusts Arising from Agreement or Common Intention

Pettitt v Pettitt [1970] AC 777
Gissing v Gissing [1971] AC 886
Allen v Snyder [1977] 2 NSWLR 685

Lloyds Bank Plc v Rosset [1991] 1 AC 107 at 129

The common intention constructive trust

                                  Read Equity & Trusts para 17.19
to 17.23

Hohol v Hohol [1981] VR 221
Hurt v Freeman [2002] NSWSC 264
Sec Dept Social Security v Agnew [2000] FCA 59
Higgins v Wingfield [1987] VR 689
NB   Austin v Keele (1987) 61 ALJR 605 at 609