Equity and Trust Law: Claims Against Parties, Breach of Duty, and Remedies Available

This article discusses claims against parties under Equity and Trust Law, breach of duty, and remedies available to the beneficiary. It includes a letter of advice and a supporting memorandum.

Equity and Trust

TABLE OF CONTENTS
Part A: Letter of Advice..................................................................................................................3
Instructions..................................................................................................................................3
Rights of the beneficiary..............................................................................................................4
Entitlement by the Charles...........................................................................................................4
Recommendation.........................................................................................................................5
What Happens Next.....................................................................................................................5
Part B: Supporting Memorandum....................................................................................................6
Introduction......................................................................................................................................6
Charles v William – earning secret profit – Breach of Duty.......................................................6
Charles V Diana- fraudulent representation – Breach of duty....................................................6
Remedies available to the beneficiary.............................................................................................7
Conclusion.....................................................................................................................................10

PART A: LETTER OF ADVICE
CROWN AND JEWELS OF 123
15 January 2019
PlayTime Pty Ltd
150 London Road
Brisbane, Qld, 4000
Dear Mr Charles Windsor
Re: Legal advice regarding claims against any parties under Equity and Trust Law
By overviewing the given circumstances following claims can be raised against directors under
Equity and Trust Law due to cited justifications:
Instructions
Client raised the issue regarding the claim and probable liability according to the equity and trust
law. William at the time of purchasing the land at Yeronga made the fraudulent representation
about the value of the property to the Charles and also earned the secret commission. Further,
Charles already gave the direction to Diana that house must be rented for the residential use only.
However, she rented the house to the person who uses it for the commercial purpose also.
Furthermore, at the time of selling the property, she did not promote and advertise the property
and sold directly to Spencers Pty Ltd, in which she is the sole director and the sole shareholder of
the company. In particular, it is expected that constructive trust can be applied and the
beneficiary would be entitled to the compensation.
Kensington Drive
BRISBANE QLD 4000
Tel: [phone]
Email:[e-mail]

As a trustee, the individual has a duty to act in due diligence by working in the benefit of the
trust. By applying the cited provisions, it has been evaluated that William owes the duty towards
the company as he is appointed as the chief executive officer of the company and engaged in the
management of the company. However William did not follow his obligation, and the company
has paid more prices for buying the land as compared to the actual value of the property.
In the given study Charles has appointed Diana as a managing agent for the property. The
activities which are carried out by the Diana are in the nature of the fiduciary, therefore there
exist the fiduciary relationship between the Diana and Charles. It is the duty of the Diana to
follow all the rules and regulations prescribed by the Charles at the time of performing the duty.
Rights of the beneficiary
By analyzing the relevant aspect of the given study, it has been evaluated that the primary
objective of the trustee is to manage the asset of the trust for the benefit of the beneficiary. All
the activities must be conducted as per the norms of the trust deed1. Diana owes the duty towards
the Charles. Therefore she should not make the personal profit while discharging the duty. In the
given study, it has been analyzed that Diana breaches the directions given by the Charles, as she
rented out the property for commercial purpose and got the signature on the lease deed by the
Charles without informing about the actual situation. Along with this, the property which was
sold by the Diana on behalf of the Charles is only for $ 500000 to the Spencers Pty Ltd,
however, after some time, the company sold this property for $ 750000. On the basis of this, it
has been observed that since Spencers Pty Ltd, is the company in which interest of the Diana is
directly connected. Therefore she sold at very less price as compared with the actual price of the
property to Spencers Pty Ltd and obtained the profit personally. All the above factors suggested
that Diana breached the duty imposed by Charles.
Entitlement by the Charles
By considering the relevant aspect of the present problem, it has been concluded that a company
may claim from the court about the constructive trust2. By applying the legal judgment of the
case Grimaldi, which is related in the breach of the fiduciary and statutory duty, a constructive
trust should be imposed by the court for making the secret profit3. In the present study, William
1 Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491, 502
2 Hyhonle Holdings Pty Ltd v Leroy [2004] NSWC 72, 40.
3 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6

earned the secret commission in breach of fiduciary obligation. A breach of duty leads to the
personal liability of the Willaims.
Recommendation
We recommend the Charles for initiating the court proceeding against the William and Diana, as
they clearly breach the statutory duty, therefore it is highly expected that Court may order for the
constructive trust as well as impose the penalty and such other charges. All these proceeding
leads to compensation of the losses incurred to the Charles.
What Happens Next
If you would like our advice, then you can contact our office and confirm your instructions or
send a Xerox copy of the written contract, if any.
We will then organize a meeting with you and discuss in detail. If you have any query, then you
can contact Camilla Bowles on the address and email id given above.
Yours faithfully,
Supervising partner
Crown Jewels of 123

PART B: SUPPORTING MEMORANDUM
TO: PLAY TIME PTY LTD
FROM: CAMILLA BOWLES
SUBJECT: EQUITY AND TRUST LAW
INTRODUCTION
The given study is related to the equity and trust law of Australia.
Charles v William – earning a secret profit – Breach of Duty
The issue in the present problem is that the person named as Charles is the only director and
shareholder of the Playtime Pty Ltd, which is engaged in the child care services. Charles
employed the chief executive officer of the company named as William. Further, William earned
the secret commission at the time of purchasing the land by the company through the fraudulent
representation to the Charles.
Charles V Diana- fraudulent representation – Breach of duty
In the given case situation, two-level investment properties were purchased by Charles and Diana
was hired as a managing agent. Meghan stated Diana to provide her with the property, and her
intention was to use the first floor as office and second floor to reside. Further, this was offer
presented to Charles; he agreed and provided Megan one year lease. Later, Megan stated that she
would vacate the property at the end of the contract, but after that, no replacement tenant was
secured. Diana recommended Charles to sell the property and Diana was given the task as she
was a real estate agent and she listed the same for sale. Spencers Pty Ltd purchased the property
at $500,000 at the end of February.
However, it was later discovered that, the lower level of the building was used by Megan of as
her office at leasing term irrespective of the fact same was strictly disallowed by the authorised
person. In addition, property advertising was not done by Diana prior to its sale, and sole director
and sole shareholder of Spencers Pty Ltd was Diana. Later on, Paddington property was sold

by Spencers Pty Ltd at the end of March 2018 for $750,000. Thus, it can be said that Diana acts
in contradiction with the guidance given by Charles.
REMEDIES AVAILABLE TO THE BENEFICIARY
The origin of the law of trust is based on fairness, transparency and morality4. It deals with the
situation where the one person places trust to another person for taking care of the affairs5. The
fiduciary relationship generally involves the level of trust and confidence between the two or
more than two parties, which is known as the trustee and beneficiary. Fiduciary refers to the
person who undertakes the work on behalf of the other person in such a manner which leads to
the relationship of the confidence and trust6. Therefore in the equity as well as in the law,
fiduciary duty is regarded as the highest standard of care. This is because of the reason that a
fiduciary is anticipated to be tremendously loyal to the person to whom they owe the duty. Along
with this, they must not acquire their personal interest at the time of performing the duty or make
the profit from their duty without the consent of the beneficiary because they are obligated
towards the trustee and owe a duty of trust, loyalty and good faith. The trustee is under the
obligation to work in the best interest of the beneficiary and not for their own personal benefit.
A court may impose a constructive trust as an equitable remedy in case of the party wrongfully
deprived its right by obtaining the legal right on the property which leads to the unjust
enrichment. By applying the provisions of the case Grissing v Grissing7, the court may create
constructive trust. A constructive trust is also imposed by the operation of the law; however,
there is no general principle that can ascertain the circumstances in which the constructive trust
will be recognized8. Constructive trust refers as the doctrine which enables an expected outcome
to be achieved on a standard of fairness, morality and proper justice
4 Re Scott [1948] SAStRp 11, [1948] SASR 193, Supreme Court (SA).
5 McDonald, Iain, and Anne Street. Equity & Trusts Concentrate: Law Revision and Study Guide. (Oxford
University Press, 2018).
6 Virgo, Graham. The Principles of Equity & Trusts (Oxford University press, 2018).
7 (1971) A.C. 886
8 Hickey, Samuel J. "Developments in the jurisprudence surrounding the defeasibility of a trustee’s duties: (2017)
23, no. 5 Australian Securities and Investments Commission v Drake [2016] (No 2) FCA 1552." Trusts & Trustees:
571-576.

In case of the immoral activity, the court may impose a constructive trust. Further, if the
fiduciary gain any profit in breach of the duty, can be claimed to be held on constructive trust for
the principal to whom he/she is obligated9.
Furthermore, for implementation of the constructive trust, it is very significant to recognize the
fact constructive trust is the equitable remedy approaching trust that arises because of the
operation of the law as a reply to certain events that are generally considered as a wrong10. As a
result, the essential viewpoint of a fiduciary relationship is the strict rule that the fiduciary cannot
retain any unauthorized profit arising because of the conflict in the personal interest and duty
towards their beneficiaries. In the case of R v Byrnes and Hopwood, the court held that officers
of the company are still considered as the breach of duty even if they thought that it would be
beneficial for the company, but for not a good purpose.
Along with the remedy through constructive trust, there are some other remedies also available,
which are described below –
 Equitable remedy provides the other reasons for recovery from the fraudulent employee.
Especially it also offers the criteria for recovery from the third party.
 Under the money had and received a remedy, the duty to account is implemented on the
defendant by the common law as a personal duty on receipt of the money of the plaintiff.
The unjust enrichment is the basis of the action. Therefore the employer of Australia may
make a claim against the fraudulent employee. In this case, the employee has to return the
money which he/she has misappropriated11.
In the legal case of Grimaldi, it was held that the court imposed the constructive trust in respect
of the secret commission which was acquired by the defendant by breach of fiduciary duty. The
court further stated that in Australia, remedial constructive trust imposed, which is not
considered in England. Along with this, the court in Bell group also applies the same concept12.
9 Demetriades, George. "The creation of express, resulting and constructive trust in banking transactions." (2018) 25,
no. 2 Journal of Financial Crime: 277-286.
10 Khan, Azfer A. "Certain uncertainty: thoughts against the remedial constructive trust." (2017) 23, no. 8 Trusts &
Trustees: 859-865.
11 Watterson, Stephen. "Modelling Subrogation as an Equitable Remedy." (2016) L. 2 Can. J. Comp. & Contemp:
609.
12 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6

Grimaldi case related with the breaches of fiduciary duty and statutory duty by the director of the
company by which they received the fund of the company or the property from the third party.
Constructive trust remedy is the discretionary remedy, and in evaluating the suitability of the
constructive trust, the probable impact of the remedy on identified third parties is a relevant
consideration.
Duties of trustee
A trustee is a person or an entity that is officially chosen by the authority to manage the assets of
the trust for the advantage of beneficiaries moreover according to the terms of faith and beliefs13.
A trustee is obliged to fiduciary duties to the beneficiaries. Such responsibilities are given by the
statute and generally placed in the trust deed. In the case of Vines v ASIC, Chief financial officer
of the company found guilty because of the negligence and failed to exercise the duties of care
and diligence.
Duty to the terms
It is essential for the trustee to have knowledge regarding the conditions of the trust that are
approved by the trust deed. All the activities performed outside the scope of the trust deed is
considered as void. In the case of Cloutte v Storey14, on the fund of the trust, the power of the
appointment allegedly implemented, court held that the appointment was the fraud in power.
Duty of loyalty
For the beneficiaries, trustees have a fiduciary liability. A trustee is obliged to direct the trust
exclusively in the interest of the trust beneficiaries. He must not place his personal interest in
disagreement with beneficiaries15. Trustees must be particular that they must not take profit for
his own by taking advantage of its position as trustee. The trustee has a right to take a fee which
is predefined by the authority for its trusteeship.
Duty to manage the trust efficiently
13 Hickey, Samuel J. "Developments in the jurisprudence surrounding the defeasibility of a trustee’s duties: (2017)
23, no. 5 Australian Securities and Investments Commission v Drake [2016] (No 2) FCA 1552." Trusts & Trustees:
571-576.
14 [1911] 1 Ch 18
15 Goode, Marjorie. "Trustee duties should not be taken lightly: news & opinion." (2017) MoneyMarketing: 6-6.

For managing a trust competently, it is essential for a trustee to have complete knowledge
regarding the terms of the trust, the situations of the beneficiaries, the reason of the trust and the
trust’s liabilities and assets. There should be effective management systems for making sure that
that the suitable decisions are taken within proper time and all the terms of trust and interests of
the beneficiaries must be considered16. Moreover, it includes effectual communication with
connected parties and appropriate maintenance of records. In the case of Australian securities
and investment commission v Cassimatis, the court held that the director of the company found
as guilty because he failed to exercise the reasonable care at the time of performing the duty.
A trustee furthermore has a responsibility to spend carefully on behalf of the trust and be
supposed to expand the speculation of trust assets in the interest of beneficiaries.
CONCLUSION
On the basis of the above analysis, it has been concluded that William will be personally liable
for the breach of duty towards the company. The court may also order for the application of the
constructive trust, which leads to the justification to the Charles.
16 Demetriades, George. "The creation of express, resulting and constructive trust in banking transactions."
(2018) 25, no. 2 Journal of Financial Crime: 277-286.