Australian Contract Law: Validity of Contract and Duties of a Trustee

The article discusses the validity of a contract under Australian Contract Law and the duties of a trustee. It also explains the types of trusts and their benefits. The first solution deals with the establishment of a valid contract between Sally and Harry. The second solution suggests the most suitable kind of trust for Tanya and the legal duties she must comply with.

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Contents
Solution 1....................................................................................................................................................2
Issue........................................................................................................................................................2
Law..........................................................................................................................................................2
Application of Law..................................................................................................................................2
Conclusion...............................................................................................................................................4
Solution 2....................................................................................................................................................4
Reference List.............................................................................................................................................6

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Solution 1
Issue
i. Who made the offer?
ii. Whether there is a valid contract amid Sally and Harry?
iii. Would it make any difference if Harry worried about possible delays in the postal
service, sent his reply by email instead?
Law
The Australian Contract law governs the rules for the establishment of a valid contract in law. A
contract is made when an agreement is supported with consideration and intention of the capable
parties. (Clark J, 2010)
An offer is the intention or wish of the offeror which he intends to be complying with by the
offeree. When this intention is communicated by the offeror orally or in written form then an
offer is said to be made and is held in Carlill v. Carbolic Smoke Ball Co (1891). An offer can be
made to one specific person or to the world at large.
Now, when the offer is approved by the offeree then there is valid acceptance in law and is held
in Felthouse v Bindley (1862). An acceptance once made must reach the offeror in order to make
it complete. However, when the acceptance is made by posting the letter of acceptance, then, as
per Adams v Lindsell (1818) the acceptance is competing when the letter is posted. Thus, there is
an immediate acceptance in case of postal acceptance. (Ibrahim et. Al, 2009)
Now, when an acceptance is made but the offeree incorporate new terms to the acceptance then it
is not a valid acceptance in law and is called counter offer. The counter offer cancels the offer
and the acceptance so made is considered to be a new offer and is held in Butler Machine Tool
Co Ltd v Ex-Cell-O Corp (n.d),. This new offer when approved by original offeror resulting in
the formation of contract.
The law is now applied to the facts of the case.
Application of Law
Issue i

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Sally (a top fashion diamond jewellery designer) and Harry (rich diamond buyer) both met at a
diamond exhibition that took place in London. They developed a friendly relationship and agreed
to remain in touch. Harry has a house in London and Paris and both Harry and Sally started
writing each other.
In May, a letter is written by Harry to Sally specifying that he really liked the design of the ring
with a blue diamond and wish he had the same. It is submitted that through this letter Harry has
communicated his desire to have the ring and thus made an offer that of the same to Sally.
Thus, an initial offer was made by Harry to Sally specifying his intention to buy the ring.
Issue 2
It is submitted that Harry has made an offer to buy the ring. Now, it is necessary that Sally must
communicate her acceptance without bringing any changes to the offer in order to make a
contract amid the two.
Now, against the letter of Harry, an email is written by Sally specifying that she is delighted that
Harry liked the ring and that she would love to supply the same. She further submitted that if
Harry is interested in the ring then he must make his acceptance within three days.
It is submitted that Sally accepted the offer of Harry but included a new term that he must
confirm the same within three days. Thus, a counter offer is made making her statement as new
offer.
Harry the very next day reply through letter that he accepts the offer of Sally and will pay her
$100,000. It is submitted that a valid acceptance is made by Harry and it makes no difference
whether the letter is reached to sally or not because as per Adams v Lindsell the acceptance is
deem to be completed when the letter is posted.
Thus, there is a valid contract between the parties.
Issue iii
If the acceptance is made by Harry not by a letter but by an email then as per Empirall Hldings v
Machon (1988), it is necessary that the email must be read by Sally in order to consider the

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acceptance as complete. Thus, there cannot be immediate acceptance and the acceptance is
complete only when the same comes in the knowledge of Sally.
Conclusion
An offer was initially made by Harry. Also, by sending the letter of acceptance there is a valid
contract that was established amid Sally and Harry.
Solution 2
Tanya has six children and is very rich. In order to save tax, Tanya has formulated a company.
Also, in order to save the personal income tax she draws salary from the company so formulated
by her. She is also interested in saving some money for her children so that the same can be used
by them when they reach at the age of 21. She wants to be the trustee of a trust but is not aware
of her duties.
Thus, it is now first important to understand the most suitable kind of trust that can be formulated
by her. The most common kinds of trust that are generally found are: (TaxEffective, 2018)
i. Discretionary Family Trust – these trusts are formed in order to protect, manage and
pass the family assets from one generation to another. The assets comprises of shares,
property, business, etc. the capital gains and the income can be distributed by the
trustee to any of the members they deem fit. By doing this the tax obligations of the
persons can be reduced as the tax obligations are marginal. If any family member is
facing financial crunch then income can also be distributed to them.
ii. Testamentary Trust – it is the instructions of the will that determines the existence of
testamentary trusts. The testamentary trusts come in the existence only after the
person who has formulated the will dies. Instead of going directly to the beneficiaries,
the assets that are intended to be passes after the death of the testator, the same is
acquired by the trusts that hold the assets in the name and benefit of the beneficiary.
iii. Special disability trusts – At times there are disabled and vulnerable family members.
In order to protect their interests a trust can be established which give benefits to such
vulnerable persons.
iv. Family Lineage trusts – the assets and money of the family remains in the family
when a family lineage trusts is established. In order to protect the children from future
divorces or bankruptcy, this kind of trusts can be established.

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Thus, these are some of the trusts that can be looked into before analyzing the best kind of trusts
to be selected.
From the various kinds of trusts that are discussed above, it is submitted that the discretionary
family trust is the best choice for Tansy to establish as she can make tax saving and can also
draw salary there by reducing her tax band.
However, it is now important to understand the legal duties that she is expected to comply with.
The major duties that must be catered by Tanya are:
i. One of the most common duties that must be exercised by every trustee of any trust is
that there must be presence of fiduciary character. The trustee must act with all good
faith and honesty so that the very purpose for which the trusts is established can be
attained;
ii. The trustee must make sure that the property of the trust must be vested as per the
terms of the trust.
iii. Normally a trustee must not charge any kind of fee for exercising the responsibilities
as a trustee. But, if there is any need that reasonable charges must be granted to the
trustee then the same must be allocated to the trustee.
iv. The trustee must make sure that there must not be merger of the personal assets of the
trustee with the assets of the trusts.
v. A trustee must not make any kind of commercial activity with that of the trusts;
vi. The duties that are enshrined to a trustee must not be delegated to any other person;
vii. The trustee must act solely and impartially in the interest of the beneficiary.
viii. That the trustee must make sure that the beneficiary for whom the trust has been
established is getting his due rewards.

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Reference List
Books/Articles/Journals
Ibrahim et. Al. (2009) Postal acceptance Rule in the Digital World
Case Laws
Adams v Lindsell (1818) 1 B
Butler Machine Tool Co Ltd v Ex-Cell-O Corp (n.d);
Carlill v. Carbolic Smoke Ball Co (1891).
Empirall Hldings v Machon (1988),
Felthouse v Bindley (1862);
Online Material
Clarke. J. (2010) Australian Contract law <
<http://www.australiancontractlaw.com/law/formation.html>
Tax effective (2018) Type of trust < https://www.taxeffective.com.au/what-we-do/trusts-asset-
protection/types-trusts>