Equity and Trusts

This document discusses the concept of equity and trusts, specifically focusing on the establishment of fiduciary duty, breach of fiduciary duties, unconscionable conduct, defense for Henry, estoppel from seeking Sarah's income, and equitable remedies for Sarah.

Running Head: EQUITY AND TRUSTS
Equity and Trusts
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Equity and Trusts
Equity and Trusts
Sarah and Henry
Fiduciary Obligations
Establishment of fiduciary duty
To start with, it is essential to establish whether a fiduciary obligation exists between Sarah
and her father- Henry. In a fiduciary relationship, confidence, loyalty as well as mutual trust
must be exhibited1. This means that when one is having a fiduciary duty, he or she acts on
the best interests of the other. In this case, Henry should have a fiduciary obligation over
Sarah. This, however, must be established. It is paramount that a fiduciary relationship must
prove the existence of a duty of care towards the individual whom the duty is owed to. This
formed the basis in the case of Beach petroleum V Kennedy.2 As such, the individual with the
fiduciary obligation should not act in any other way that may prejudice the relationship
between him and the benefactor. Loyalty must not be divided into a fiduciary relationship
because the division will break the trust hence and an indication that one does not adhere
to his or her fiduciary obligations3
While establishing a fiduciary relationship, the beneficiary is owed fiduciary obligations by
the fiduciary, (Re Speight (1883) 22 Ch D 727). In situations where the fiduciary abuses the
position he has so that he can obtain advantages at the expense of an existing beneficiary,
1 Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1986] QSC 226 [1988] 2 Qd.R.1.
2 Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 33 ACSR 1.
3 Ibid

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Equity and Trusts
the beneficiary can seek justice or relief from a Court of Equity so that he or she can prevent
the fiduciary from taking advantage. For the fiduciary to escape liability he must prove that
he has informed consent from the beneficiary.
1. Whether a trustee and beneficiary relationship exists between Henry and Sarah.
Henry is Sarah’s father. In addition, Sarah has been receiving money from Henry from the
family’s trust as well as providing financial advice for her. After her mother’s demise, Henry
suggested that Sarah should move to Brisbane so that she could be close to him. These facts
directly show that Henry and Sarah have a mutual understanding that is also made up of
trust and loyalty and confidence. More to this, Henry suggests that Sarah will contribute
20% of her income into the family’s trust account. It is thus evident that Henry is the trustee
while Sarah is the beneficiary. From this, Henry has a fiduciary obligation to Sarah and her
children.
2. Whether there is a breach of fiduciary duties by Henry
Fiduciaries have two duties which they must observe. One, he or she must not obtain profit
as a fiduciary4. The contributions towards the trust by Sarah must be determined to
establish whether the monies are for personal gains or not. Henry understands very well
that Sarah has many obligations especially because she is studying and providing for her
children. This should guide Henry in determining whether he should charge her or not. On
the other hand, Henry promised to buy a house in Brisbane for Sarah as well as providing all
financial needs that suit her lifestyle. There should also be an establishment of a “no-conflict
4 Chan v Zacharia (1984) 154 CLR 178.

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or no profit duty” on Henry’s part. It is known that fiduciaries must act in good faith, not
make profits from the trust and not put himself in a position that may bring conflicts5.
3. Whether there is unconscionable conduct
Unconscionable conduct arises from the undertaking of mistakes and frauds,
unconscionable dealings as well as estoppel. As such, there is a need for equitable
jurisdiction in situations where one party has a disadvantage over the other. In this case, the
stronger party must have knowledge of the disability hence taking advantage of it.
According to Nocton v Lord Ashburton, equitable fraud occurs when there is the undue
influence of duress, power fraud, mistake, and innocent misrepresentation.6
It is evident that Henry is aware of Sarah’s problems such as difficulty in financing herself as
well as her legal problems with her partner. This gives him an advantage where he suggests
buying a house for her and giving her any financial need. By signing a contract, she will start
paying 20% of her income towards the family’s trust, (Re Whitehouse [1982] Qd R 196). This
is an undue influence on Sarah who is seemingly financially and emotionally week at this
time. Henry’s actions lead into unconscionable dealings because he sets conditions over
Sarah who is at a disadvantage hence creating an unconscionable advantage7.
Unconscionable conduct thus exists because Henry uses undue influence. The father-child
relationship is sufficient to coerce Sarah into moving next to his father. In addition, the
emotions of losing her mother and partner is a stepping stone to the undue influence. These
factors give Henry undue influence over Sarah.
4. Whether there is a defense for Henry
5 Maguire and Tansey v Makaronis [1997] HCA 23; 188 CLR 449; 71.
6 Nocton v Lord Ashburton [1914] AC 932
7 CBA v Amadio (1983) 151 CLR 447 at 462 (Mason J):

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In case Sarah presents a case against Henry, Henry can state that he has consent from her.
This is to be determined whether Sarah signed the “guarantee” document or not. In
addition, Henry has an overall duty to ensure that the trust is maintained thus the need to
have contributions from Sarah if she is to benefit later (Hartigan Nominees Pty Ltd v Rydge
(1992) 29 NSWLR 405). The fiduciary usually has the burden of proof on informed consents
and this is where Henry may capitalize on8.
5. Whether Henry can be estopped from seeking Sarah’s 20% salary income.
Estoppel is essential for stopping injustices that may occur in the near future. This is
especially when the actions may cause harm to the other party. In this case, Henry can be
estopped from taking 20% of Sarah’s earnings because she was promised a house as well as
financial help. This can only be contributed when Sarah is financially stable. According to
Custodial Pty Ltd v Franklins Self-serve Stores Pty Ltd, equitable estoppel can be practiced so
that there is a mutual understanding between the trustee and the beneficiary9. This will
allow Sarah and Henry to enter into an agreement that will benefit both of them in the long
run.
6. Equitable remedies for Sarah
In case Henry will enrich himself by asking Sarah to pay the 20% of her monthly income,
Account of profits can be pursued by Sarah. This will help Sarah establish whether her
father needs the money for profitable gain as opposed to using it for the family trust only. 10
Constructive trusts can be pursued by Sarah so that the intentions of all parties in the trust
are known. This promotes just holding of interests hence creating a solution to the existing
8 Blackmagic Design v Overliese per Banco J
9 Austodel Pty Ltd v Franklins Selfserve Stores Pty Ltd (1989) 16 NSWLR 582 at 612 (Priestley JA):
10 Dart Industries Inc v Decor Corp Pty Ltd (1993) 179 CLR 101

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problem of whether the money is for profit gains or not. Sarah can also seek a Declaratory
Relief by a Court of Law. This will establish all the rights that the two parties have hence
provided a solution to the problem being faced by Sarah.
The agreement between Henry and Sarah can also be rectified. This is to allow basic
understanding and creation of a “guarantee” document that is agreeable by both of them.
This will have a real agreement between them.11
References
Custodial Pty Ltd v Franklins Self-serve Stores Pty Ltd (1989) 16 NSWLR 582 at 612 (Priestley
Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 33 ACSR 1.
Blackmagic Design v Overliese per Banco J
Boscawen v Bajwa [1996] 1 WLR 328 at 334:
CBA v Amadio (1983) 151 CLR 447
11 Boscawen v Bajwa [1996] 1 WLR 328 at 334:

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Chan v Zacharia (1984) 154 CLR 178.
Dart Industries Inc v Decor Corp Pty Ltd (1993) 179 CLR 101
Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1986] QSC 226 [1988] 2 Qd.R.1.
Maguire and Tansey v Makaronis [1997] HCA 23; 188 CLR 449; 71.
Nocton v Lord Ashburton [1914] AC 932